Exhibit 13.2

SouthCrest Financial Group, Inc. and Subsidiaries

Consolidated Balance Sheets

December 31, 2007 and 2006

(Dollars in thousands, except per share data)

Assets	2007			2006
Cash and due from banks	$	16,060		$	16,926
Interest-bearing deposits in other banks		10,637			4,881
Federal funds sold		9,316			12,504
Securities available for sale		79,208			61,519
Securities held to maturity (fair value $58,632 and $66,036)		58,885			67,268
Restricted equity securities, at cost		2,008			2,029
Loans held for sale		229			446
Loans, net of unearned income		373,825			335,006
Less allowance for loan losses		4,952			4,480
Loans, net		368,873			330,526
Bank-owned life insurance		16,302			12,521
Premises and equipment, net		18,093			15,324
Goodwill		14,255			9,057
Intangible assets, net		4,792			4,868
Other assets		7,351			6,148
Total assets	$	606,009		$	544,017
Liabilities, Redeemable Common Stock, and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing	$	80,685		$	80,581
Interest-bearing		433,246			382,041
Total deposits		513,931			462,622
Short-term borrowed funds		3,055			110
Long-term borrowed funds		6,555			5,835
Other liabilities		9,656			6,907
Total liabilities		533,197			475,474
Commitments and contingencies
Redeemable common stock held by ESOP		1,091			988
Stockholders' equity
Common stock, par value $1; 10,000,000 shares authorized, 3,931,528 and 3,952,328 issued		3,932			3,952
Additional paid in capital		49,707			50,034
Retained earnings		17,881			13,740
Unearned compensation - ESOP		(349	)		-
Accumulated other comprehensive income (loss)		550			(171	)
Total stockholders' equity		71,721			67,555
Total liabilities, redeemable common stock, and stockholders' equity	$	606,009		$	544,017

See Notes to Consolidated Financial Statements.

F-1

SouthCrest Financial Group, Inc. and Subsidiaries

Consolidated Statements of Income

December 31, 2007, 2006, and 2005

(Dollars in thousands, except per share data)

	2007		2006		2005
Interest income:
Loans	$	29,455	$	23,314	$	17,943
Securities - taxable		5,695		4,859		5,041
Securities - nontaxable		830		551		557
Federal funds sold		497		509		195
Interest-bearing deposits in other banks		382		191		157
Total interest income		36,859		29,424		23,893
Interest expense:
Deposits		13,681		9,608		6,209
Borrowed funds		626		625		215
Total interest expense		14,307		10,233		6,424
Net interest income		22,552		19,191		17,469
Provision for loan losses		639		839		751
Net interest income after provision for loan losses		21,913		18,352		16,718
Other income:
Service charges on deposit accounts		3,846		3,304		3,264
Other service charges and fees		1,336		1,104		930
Net gain on sale of securities available for sale		-		-		320
Impairment charge on investments		-		-		(600	)
Loss on disposal of assets		-		-		(184	)
Net gain on sale of loans		416		159		148
Income on bank-owned life insurance		594		340		146
Other operating income		605		457		454
Total other income		6,797		5,364		4,478
Other expenses:
Salaries and employee benefits		10,543		8,073		7,297
Equipment and occupancy expenses		2,120		1,643		1,559
Amortization of intangibles		926		807		963
Other operating expenses		6,045		4,644		4,377
Total other expenses		19,634		15,167		14,196
Income before income taxes		9,076		8,549		7,000
Income tax expense		2,776		2,775		2,156
Net income	$	6,300	$	5,774	$	4,844
Basic and diluted earnings per share	$	1.60	$	1.58	$	1.36

See Notes to Consolidated Financial Statements.

F-2

SouthCrest Financial Group, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

Years Ended December 31, 2007, 2006, and 2005

(Dollars in thousands)

	2007		2006		2005
Net income	$	6,300	$	5,774	$	4,844
Other comprehensive (loss):
Unrealized holding gain (loss) on securities available for sale arising during period, net of taxes of $436, $144, and $179		721		328		(263	)
Reclassification adjustment for gains included in net income, net of tax of $-0-, $-0-, and $146		-		-		174
Comprehensive income	$	7,021	$	6,102	$	4,755

See Notes to Consolidated Financial Statements.

F-3

SouthCrest Financial Group, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Equity

December 31, 2007, 2006 and 2005

(Dollars in thousands, except per share data)

													Accumulated
							Additional						Other Com-			Unearned			Total
	Common Stock						Paid In			Retained			prehensive			Compensation			Stockholders'
	Shares			Par Value			Capital			Earnings			Income (Loss)			(ESOP)			Equity
Balance, December 31, 2004		3,571,556		$	3,572		$	40,647		$	6,931		$	(410	)	$	-		$	50,740
Net income		-			-			-			4,844			-			-			4,844
Cash dividends declared, $.48 per share		-			-			-			(1,713	)		-			-			(1,713	)
Purchase and retirement of stock		(8,141	)		(8	)		(184	)		-			-			-			(192	)
Shares issued		17,778			17			383			-			-			-			400
Adjustment for shares owned by ESOP		-			-			-			(534	)		-			-			(534	)
Unrealized loss on securities available for sale		-			-			-			-			(89	)		-			(89	)
Balance, December 31, 2005		3,581,193		$	3,581		$	40,846		$	9,528		$	(499	)	$	-		$	53,456
Net income		-			-			-			5,774			-			-			5,774
Adjustment resulting from adoption of Staff Acccounting Bulletin
Number 108		-			-			-			233			-			-			233
Cash dividends declared, $.50 per share		-			-			-			(1,791	)		-			-			(1,791	)
Shares issued in business combination		371,135			371			9,093			-			-			-			9,464
Stock compensation		-			-			95			-			-			-			95
Adjustment for shares owned by ESOP		-			-			-			(4	)		-			-			(4	)
Unrealized gain on securities available for sale		-			-			-			-			328			-			328
Balance, December 31, 2006		3,952,328		$	3,952		$	50,034		$	13,740		$	(171	)	$	-		$	67,555
Net income		-			-			-			6,300			-			-			6,300
Cash dividends declared, $.52 per share		-			-			-			(2,056	)		-			-			(2,056	)
Stock compensation		-			-			106			-			-			-			106
Purchase and retirement of stock		(20,800	)		(20	)		(433	)		-			-			-			(453	)
Adjustment for shares owned by ESOP		-			-			-			(103	)		-			-			(103	)
Change in unearned compensation -
ESOP		-			-			-			-			-			(349	)		(349	)
Unrealized gain on securities available for sale		-			-			-			-			721			-			721
Balance, December 31, 2007		3,931,528		$	3,932		$	49,707		$	17,881		$	550		$	(349	)	$	71,721

See Notes to Consolidated Financial Statements.

F-4

SouthCrest Financial Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For The Years Ended December 31, 2007, 2006, and 2005

(Dollars in thousands)

	2007			2006			2005
OPERATING ACTIVITIES
Net income	$	6,300		$	5,774		$	4,844
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		1,097			824			772
Amortization of intangibles		926			807			963
Other amortization		234			113			253
Provision for loan losses		639			839			751
Stock compensation expense		106			95			-
Impairment loss on investment securities		-			-			600
Gain on sale of securities available for sale		-			-			(320	)
Deferred income taxes		(320	)		(312	)		(582	)
Income on bank-owned life insurance		(594	)		(340	)		(146	)
Increase in interest receivable		(113	)		(421	)		(454	)
Increase (decrease) in income taxes payable		(28	)		(198	)		385
Increase (decrease) in interest payable		(360	)		1,069			369
Net gain on sale of loans		(416	)		(159	)		(148	)
Originations of mortgage loans held for sale		(12,046	)		(15,323	)		(13,092	)
Proceeds from sales of mortgage loans held for sale		12,679			15,341			13,610
Increase in mortgage servicing assets		(266	)		-			-
Loss on disposal of equipment		25			-			184
(Increase) in other assets		167			(1,266	)		(444	)
Increase (decrease) in other liabilities		(135	)		387			(393	)
Net cash provided by operating activities		7,895			7,230			7,152
INVESTING ACTIVITIES
Purchases of securities held to maturity		-			-			(8,667	)
Proceeds from maturities of securities held to maturity		8,319			10,947			18,061
Purchases of securities available for sale		(23,701	)		(11,243	)		(14,007	)
Proceeds from maturities of securities available for sale		28,310			8,725			7,530
Proceeds from sales of securities available for sale		3,002			-			1,794
Net increase (decrease) in restricted equity securities		278			362			(1,650	)
Net (increase) decrease in interest-bearing deposits in other banks		(5,575	)		254			1,207
Net decrease in federal funds sold		11,288			(5,003	)		5,633
Net increase in loans		(13,481	)		(24,529	)		(47,045	)
Purchase of premises and equipment		(2,982	)		(3,393	)		(3,325	)
Proceeds from sale of other real estate owned		584			630			400
Purchase of bank-owned life insurance		-			(5,495	)		-
Net cash acquired in (used in) business combination		(14,247	)		940			-
Net cash (used in) investing activities		(8,205	)		(27,805	)		(40,069	)

F-5

SouthCrest Financial Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Continued)

Years Ended December 31, 2007, 2006 and 2005

 (Dollars in thousands)

	2007			2006			2005
FINANCING ACTIVITIES
Net increase in deposits	$	1,637		$	32,692		$	25,648
Proceeds from short-term borrowed funds		-			-			15,000
Principal repayments on short-term borrowed funds		(110	)		(15,110	)		(110	)
Proceeds from long-term borrowed funds		5,775			11,280			1,500
Principal repayments on long-term borrowed funds		(5,000	)		(5,500	)		(1,500	)
Purchase and retirement of stock		(453	)		-			(192	)
Increase in unearned compensation - ESOP		(349	)		-			-
Proceeds from sale of stock		-			-			400
Dividends paid		(2,056	)		(1,791	)		(1,713	)
Net cash provided by (used in) financing activities		(556	)		21,571			39,033
Net increase (decrease) in cash and due from banks		(866	)		996			6,116
Cash and due from banks at beginning of year		16,926			15,930			9,814
Cash and due from banks at end of period	$	16,060		$	16,926		$	15,930
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest	$	14,207		$	9,164		$	6,055
Income taxes		2,982			3,156			2,576
NONCASH TRANSACTIONS
Principal balances of loans transferred to other real estate owned	$	704		$	506		$	533
Increase in redeemable common stock held by ESOP		103			4			534
Unrealized gain (loss) on securities available for sale, net		1,157			472			(122	)
BUSINESS COMBINATION
Cash and due from banks	$	3,103		$	8,497		$	-
Federal funds sold		8,100			3,204			-
Interest-bearing deposits in other banks		181			1,096			-
Securities available for sale		24,046			13,451			-
Restricted equity securities		257			121			-
Loans, net		26,344			33,229			-
Bank-owned life insurance		3,187			2,117			-
Premises and equipment		909			1,500			-
Goodwill		5,198			6,392			-
Core deposit intangible		715			1,052			-
Other assets		1,254			808			-
Total assets	$	73,294		$	71,467
Deposits	$	49,672		$	52,030		$	-
Short-term borrowed funds		3,000			-			-
Other liabilities		3,272			2,416			-
Total liabilities assumed		55,944			54,446
Purchase price	$	17,350		$	17,021		$	-

F-6

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

SouthCrest Financial Group, Inc. (the “Company”) is a bank holding company whose principal activity is the ownership and management of its wholly-owned subsidiary banks (the “Banks”), Bank of Upson (“Upson”), First National Bank of Polk County (“FNB Polk”), Peachtree Bank (“Peachtree”), and Bank of Chickamauga (“Chickamauga”). Upson is a commercial bank located in Thomaston, Upson County, Georgia with seven branches located in Thomaston, Manchester, Warm Springs, Luthersville, Fayetteville, and Tyrone, Georgia. Upson provides a full range of banking services in its primary market area of Upson, Meriwether, Fayette and the surrounding counties. FNB Polk is a commercial bank located in Cedartown, Polk County, Georgia with two branches in Cedartown and one in Rockmart, Georgia. FNB Polk provides a full range of banking services in its primary market area of Polk and the surrounding counties.  Peachtree is a commercial bank located in Maplesville, Chilton County, Alabama and operates one branch in Maplesville and one in Clanton, Alabama.  Chickamauga is a commercial bank located in Chickamauga, Walker County, Georgia where it operates two branches.  The Company considers its banking services to represent a single reporting segment.

Basis of Presentation and Accounting Estimates

The consolidated financial statements include the accounts of the Company and its subsidiaries. Significant intercompany transactions and balances have been eliminated in consolidation.

In preparing the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses, the valuation of foreclosed real estate and contingent assets and liabilities. The determination of the adequacy of the allowance for loan losses is based on estimates that are susceptible to significant changes in the economic environment and market conditions. In connection with the determination of the estimated losses on loans and the valuation of foreclosed real estate, management obtains independent appraisals for significant collateral.

Cash, Due from Banks and Cash Flows

For purposes of reporting cash flows, cash and due from banks include cash on hand, cash items in process of collection and amounts due from banks. Cash flows from loans, interest-bearing deposits in other financial institutions, federal funds sold, and deposits are reported net.

The Company’s subsidiaries are required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank, based on a percentage of deposits. The total of those reserve balances was approximately $2,857,000 and $5,613,000 at December 31, 2007 and 2006.

Securities

Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and recorded at amortized cost. Securities not classified as held to maturity, including equity securities with readily determinable fair values, are classified as available for sale and recorded at fair value with unrealized gains and losses excluded from earnings and reported in accumulated other comprehensive income, net of the related deferred tax effect. Equity securities, including restricted equity securities, without a readily determinable fair value are recorded at cost.

F-7

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Securities (Continued)

The amortization of premiums and accretion of discounts are recognized in interest income using methods approximating the interest method over the life of the securities. Realized gains and losses, determined on the basis of the cost of specific securities sold, are included in earnings on the settlement date. Declines in the fair value of held to maturity and available for sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

Loans

Loans are reported at their outstanding principal balances less unearned income, net deferred fees, and the allowance for loan losses. Loans held for sale are reported at the lower of cost or fair value, computed using outstanding commitments to sell loans.  Interest income is accrued on the outstanding principal balance. Loan fees collected and certain costs incurred related to loan originations are deferred and amortized as an adjustment to interest income over the life of the related loans using a method that approximates a constant yield.  Deferred fees and costs are recorded as an adjustment to loans outstanding.

The accrual of interest on loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due, unless the loan is well-secured. All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income, unless management believes that the accrued interest is recoverable through the liquidation of collateral. Interest income on nonaccrual loans is recognized on the cash-basis or cost-recovery method, until the loans are returned to accrual status. Loans are returned to accrual status when all the principal and interest amounts are brought current and future payments are reasonably assured.

A loan is considered impaired when it is probable, based on current information and events, that 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.

Upson services mortgage loans that it originates and sells to the Federal Home Loan Mortgage Corporation (“Freddie Mac”). Upson’s servicing obligations include receiving payments, maintaining escrow accounts and paying hazard insurance, mortgage insurance, and taxes from such accounts, collecting past due fees, resolving payment problems and disputes, generating coupon payment books, and reporting loan balances to the Freddie Mac each month. Upson normally receives servicing fees of one quarter of one percent (.0025) of the outstanding loan balance of the loan servicing portfolio from the Freddie Mac. Upson accounts for loan servicing revenues by booking such revenues as they are received. The Company amortizes mortgage servicing rights over the estimated life of the loans.

Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan losses charged to expense. Loan losses are charged against the allowance when management believes the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance.

F-8

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Allowance for Loan Losses (Continued)

The allowance is an amount that management believes will be adequate to absorb estimated losses relating to specifically identified loans, as well as probable credit losses inherent in the balance of the loan portfolio, based on an evaluation of the collectability of existing loans and prior loss experience. This evaluation also takes into consideration such factors as changes in the nature and volume of the loan portfolio, overall portfolio quality, review of specific problem loans, concentrations and current economic conditions that may affect the borrower’s ability to pay. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses, and may require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations.

The allowance consists of specific, general and unallocated components. The specific component relates to loans that are classified as either doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers non-classified loans and is based on historical loss experience adjusted for qualitative factors. An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.

Premises and Equipment

Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed principally by the straight-line method over the estimated useful lives of the assets. The range of estimated useful lives is as follows:

Building and improvements	20–40 Years
Leasehold improvements	5–10 Years
Furniture and equipment	5–10 Years
Computer and software	3–5 Years

Other Real Estate Owned

Other real estate owned represents properties acquired through or in lieu of loan foreclosure and is initially recorded at fair value less estimated costs to sell. Any write-down to fair value at the time of transfer to other real estate owned is charged to the allowance for loan losses. Costs of improvements are capitalized, whereas costs relating to holding other real estate owned and subsequent adjustments to the value are expensed. The carrying amount of other real estate owned at December 31, 2007 and 2006 was $256,000 and $206,000.

Intangible Assets

Intangible assets consist of goodwill, core deposit premiums, and mortgage servicing rights.  Goodwill and core deposit premiums are acquired in connection with business combinations.  The core deposit premium is initially recognized based on a valuation performed as of the consummation date. The core deposit premium is amortized over the average remaining life of the acquired customer deposits, normally 8 to 12 years, using an accelerated or straight-line method, depending on the results of the initial valuation of the specific intangibles.  Mortgage servicing rights are recognized as loans are sold into the secondary market with servicing rights retained and are amortized over the estimated life of underlying loans.  All intangible assets, including goodwill, are tested annually for potential impairment.  No impairment loss was required in 2007, 2006, or 2005.

F-9

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes

Deferred income tax assets and liabilities are determined using the balance sheet method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.  A valuation allowance may be recorded to reduce net deferred tax assets if it is more likely than not that some portion or all of the deferred tax asset will not be realized.  Such valuation allowances were not required as of December 31, 2007 or 2006.

Stock-Based Compensation

At the Company’s annual shareholders’ meeting held May 12, 2005, shareholders approved the adoption of the SouthCrest Financial Group, Inc. 2005 Stock Incentive Plan (the “Stock Incentive Plan”), which provides for up to 549,000 shares of the Company’s stock to be awarded in the form of stock options.

The Company adopted SFAS No. 123(R), Accounting for Stock-Based Compensation, on January 1, 2006 which requires that the estimated fair value of such equity instruments be recognized as expense as services are performed.

Prior to the adoption of SFAS No. 123(R), the Company recorded stock option expense under the intrinsic method; accordingly, no compensation expense was recognized if the exercise price of the stock option was equivalent to the market price of the Company’s common stock on the date of grant.  If under SFAS 123(R), the Company determined compensation costs based on the fair value at the grant date for its stock options, net income and earnings per share for the year ended December 31, 2005 would have been reduced to the following pro forma amounts:

	2005
Net income as reported	$	4,844
Additional expense had the Company adopted SFAS 123		(622	)
Related tax benefit		235
Pro forma net income	$	4,457
Basic and diluted earnings per share
- As reported	$	1.36
- Pro forma	$	1.25

Responsive to its plan of implementation of SFAS No. 123(R) and consistent with the Company's long-term compensation strategies, the Board of Directors of the Company approved the granting of 183,500 stock options in the fourth quarter of 2005, of which 104,000 were vested in 2005. The decision to vest these options in 2005 was partially made to reduce non-cash compensation expenses that would have been otherwise recorded in future periods following the application of SFAS No. 123(R). Such non-cash compensation expense would have aggregated approximately $622,000 over a period of future years. The vesting of such options is reflected in the 2005 pro forma net income disclosure and related pro forma earnings per share data.  A tax benefit is assumed because the stock options that vested in 2005 are not tax qualifying.

Profit-Sharing Plan

Profit-sharing plan costs are based on a percentage of individual employee’s salary, not to exceed the amount that can be deducted for Federal income tax purposes.

Earnings Per Share

Basic earnings per share are computed by dividing net income by the weighted-average number of shares of common stock outstanding. Diluted earnings per share would be computed by dividing net income by the sum of the weighted-average number of shares of common stock outstanding and dilutive potential common shares, such as

F-10

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Earnings Per Share  (continued)

outstanding stock options. Dilutive potential common shares are calculated in accordance with the treasury stock method, which assumes that proceeds from the exercise of all warrants and options are used to repurchase common stock at market value.  The amount of shares remaining after the proceeds are exhausted represents the potentially dilutive effect of the securities.  If the price at which the option may be exercised is greater than the average market price of the stock, then the option is assumed to be nondilutive and therefore is not included in the computation of diluted earnings per share.  In 2005, the Company issued 183,500 options under the SouthCrest Financial Group, Inc. 2005 Stock Incentive Plan (the “Stock Incentive Plan”), and in 2006 issued an additional 7,900 options.  The options granted were nondilutive for 2005, 2006, and 2007.  The Stock Incentive Plan is explained more fully in Note 10.  The weighted average number of shares outstanding for the years ended December 31, 2007, 2006, and 2005  was 3,946,689,  3,643,218, and 3,572,720, respectively.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.  The Company’s only component of comprehensive income is unrealized gains and losses on available for sale securities.

Recent Accounting Standards

In December 2004, the FASB issued SFAS No. 123(R), Accounting for Stock-Based Compensation (SFAS No. 123(R)).  SFAS No. 123(R) establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services.  This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions.  SFAS No. 123(R) requires that the fair value of such equity instruments be recognized as an expense in the historical financial statements as services are performed.  Prior to SFAS No. 123(R), only certain pro forma disclosures of fair value were required.  The provisions of this Statement are effective for fiscal years beginning after December 15, 2005. Accordingly, the Company adopted effective January 1, 2006 resulting in additional compensation expense of $106,000 and $95,000 for the years ended December 31, 2007 and 2006.

In March 2005, the SEC released Staff Accounting Bulletin (SAB) No. 107, Share-Based Payment, SAB No. 107 expresses views of the SEC staff regarding the application of SFAS No. 123(R). Among other things, SAB No. 107 provides interpretive guidance related to the interaction between SFAS No. 123(R) and certain SEC rules and regulations, as well as provides the staff’s view regarding the valuation of share-based payment arrangements for public companies.  The Company adopted SAB No. 107 effective January 1, 2006.

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

In July 2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109. This interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. The interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  FIN 48 clarifies the accounting for uncertainty in income taxes recognized in

F-11

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Standards (Continued)

financial statements and requires the impact of a tax position to be recognized in the financial statements if that position is more likely than not of being sustained by the taxing authority.  The years 2004 through 2006 are still subject to audit for the Company’s Federal, Georgia, and Alabama income tax returns.  The Company adopted FIN 48 effective January 1, 2007, and its adoption did not have a material effect on the Company’s consolidated financial position or results of operation.  It is the Company’s policy to recognize interest and penalties associated with uncertain tax positions as components of income taxes.  There were no material interest or penalties accrued during the year ended December 31, 2007.  No material tax uncertainties exist as of December 31, 2007.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements.  SFAS No. 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. SFAS No. 157 does not require any new fair value measurements, but clarifies and standardizes some divergent practices that have emerged since prior guidance was issued. SFAS No. 157 creates a three-level hierarchy under which individual fair value estimates are to be ranked based on the relative reliability of the inputs used in the valuation. This hierarchy is the basis for the disclosure requirements, with fair value estimates based on the least reliable inputs requiring more extensive disclosures about the valuation method used and the gains and losses associated with those estimates. The Company adopted SFAS No. 157 on January 1, 2008, with no material impact on the Company’s financial condition, results of operations, or liquidity.

In September 2006, the FASB ratified EITF Issue 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements. EITF Issue 06-4 addresses accounting for split-dollar life insurance arrangements after the employer purchases a life insurance policy on the covered employee. This Issue states that an obligation arises as a result of a substantive agreement with an employee to provide future postretirement benefits. Under Issue EITF 06-4, the obligation is not settled upon entering into an insurance arrangement. Since the obligation is not settled, a liability should be recognized in accordance with applicable authoritative guidance. Issue EITF 06-4 is effective for fiscal years beginning after December 15, 2007. In adopting EITF Issue 06-4, the Company will record a liability of $493,000 as of January 1, 2008 with a corresponding offset against retained earnings, and will record compensation expense in 2008 of approximately $100,000 relating to these obligations.

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

In September 2006, the SEC issued SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements. SAB 108 was issued to clarify the appropriate treatment of misstatements in audited financial statements.  There are two methods for quantifying the effects of financial statement misstatements.  The “rollover” method focuses primarily on the impact of the misstatement on the income statement and, in some cases, considers the impact of reversing prior year misstatements.  However, if the cause of the misstatement does not reverse in the following year, the rollover method would result in the accumulation of misstatements on the balance sheet.  The “iron curtain” method focuses on the impact of the misstatements on the balance sheet.

SAB 108 establishes an approach that requires quantification of effects of the financial statement misstatements on the company’s financial statements and related disclosures.  This dual approach requires consideration of the impact of financial statement misstatements using both the iron curtain and the rollover methods.  SAB 108 permits companies to either restate prior period financial statements to reflect the dual approach method or to record the cumulative effect of initially applying the dual approach by adjusting the carrying value of assets and liabilities as of January 1, 2006 with an offsetting adjustment to the opening balance of retained earnings.

F-12

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Standards (Continued)

Prior to the adoption of SAB 108, the Company quantified the impact of misstatements using the rollover method and management determined the impact of those misstatements was not material to the consolidated financial statements.  The prior misstatements resulted from not capitalizing loan servicing rights on mortgage loans sold when future servicing rights were retained.  The Company adopted SAB 108 effective January 1, 2006 and elected to record the cumulative effect of the change, which resulted in the recognition of mortgage servicing rights of $375,000, a $142,000 adjustment to deferred income tax liabilities, and a $233,000 adjustment to retained earnings.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Liabilities.  SFAS No. 159 allows an entity to elect to measure certain financial assets and liabilities at fair value with changes in fair value recognized in the income statement each period.  The statement also requires additional disclosures to identify the effects of an entity’s fair value election on its earnings.  The Company adopted SFAS No. 159 on January 1, 2008, with no material impact on the financial condition, results of operations, or liquidity.   The Company does not anticipate electing fair value to any assets or liabilities.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations. SFAS No. 141(R) will significantly change how entities apply the acquisition method to business combinations. The most significant changes affecting how the Company will account for business combinations under this Statement include: the acquisition date will be date the acquirer obtains control; all (and only) identifiable assets acquired, liabilities assumed, and noncontrolling interests in the acquiree will be stated at fair value on the acquisition date; assets or liabilities arising from noncontractual contingencies will be measured at their acquisition date fair value only if it is more likely than not that they meet the definition of an asset or liability on the acquisition date; adjustments subsequently made to the provisional amounts recorded on the acquisition date will be made retroactively during a measurement period not to exceed one year; acquisition-related restructuring costs that do not meet the criteria in SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, will be expensed as incurred; transaction costs will be expensed as incurred; reversals of deferred income tax valuation allowances and income tax contingencies will be recognized in earnings subsequent to the measurement period; and the allowance for loan losses of an acquiree will not be permitted to be recognized by the acquirer. Additionally, SFAS No. 141(R) will require new and modified disclosures surrounding subsequent changes to acquisition-related contingencies, contingent consideration, noncontrolling interests, acquisition-related transaction costs, fair values and cash flows not expected to be collected for acquired loans, and an enhanced goodwill rollforward.

The Company will be required to prospectively apply SFAS No. 141(R) to all business combinations completed on or after January 1, 2009. Early adoption is not permitted. For business combinations in which the acquisition date was before the effective date, the provisions of SFAS No. 141(R) will apply to the subsequent accounting for deferred income tax valuation allowances and income tax contingencies and will require any changes in those amounts to be recorded in earnings. At December 31, 2007, the Company had no acquired deferred income tax valuation allowances and income tax contingencies.  Management is currently evaluating the effects that SFAS 141(R) will have on the financial condition, results of operations, liquidity, and the disclosures that will be presented in the consolidated financial statements.

Reclassification of Certain Items

Certain reclassifications to the prior year’s consolidated balance sheets and statements of income have been made to conform to current classification.  These reclassifications have no impact on net income, stockholders’ equity, or cash flows from operations, investing activities, or financing activities as previously reported.

NOTE 2. BUSINESS COMBINATIONS

On July 1, 2007 the Company completed its acquisition of Bank of Chickamauga pursuant to the definitive agreement entered into on February 23, 2007.  Bank of Chickamauga is a community bank located in the City of Chickamauga, Walker County, Georgia where it maintains two offices.  The City of Chickamauga is located in the

F-13

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. BUSINESS COMBINATIONS (Continued)

Chattanooga, Tennessee metropolitan area, and completing this merger allows the Company to enter a new market.  Under terms of the definitive agreement, the shareholders of Chickamauga were to receive $18 million cash, less certain costs related to the merger and the termination of the Chickamauga defined benefit plan, in exchange for 100% of the voting stock of Bank of Chickamauga.  At the completion of the acquisition, Chickamauga shareholders received $17.2 million in cash with an additional $687,000 being placed in a reserve account to fund the costs related to terminating the Chickamauga defined benefit plan that are in excess of the $568,500 that was recorded on the books of Chickamauga as accrued pension expense but not yet transferred into the pension plan.  The reserve account is recorded as a liability in the financial statements.  Any funds remaining after the termination of the defined benefit plan will be distributed to the Chickamauga shareholders, which will increase the purchase amount recorded at acquisition.  The timing of the plan termination is dependent on approval by the Internal Revenue Service.  Management anticipates that the termination of the plan could occur in the second or third quarter of 2008.

The merger was accounted for under the purchase method of accounting. Accordingly, results of operations for Bank of Chickamauga are included in the results of operations of SouthCrest prospectively from the date of merger, and the purchase price of $17.35 million, which includes merger costs of $150,000 but does not include the $687,000 reserve established for the defined benefit plan termination, was allocated to the fair values of Chickamauga’s assets and liabilities.  As a result, the Company recorded a core deposit intangible of $715,000 and goodwill of $5,198,000.  The core deposit intangible is being amortized on an accelerated basis over the estimated life of the deposits.  Because of the uncertainty of the final disposition of the defined benefit plan and the resulting distribution from the reserve account, the purchase price and the resulting allocation have not been finalized.

Statement of Position 03-03, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (“SOP 03-03”) addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investor's initial investment in loans or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality.  It includes loans acquired in purchase business combinations.  The SOP does not apply to loans originated by the entity.  At July 1, 2007 the Company identified $559,000 in loans to which the application of the provisions of SOP 03-03 was required.  The carrying amount of these loans was reduced to $376,000 at July 1, 2007, representing a nonaccretable adjustment of $183,000.  Because the Company could not reasonably estimate cash flows expected to be collected from these loans, interest income is only recognized when cash payments are received on such loans.  The purchase accounting adjustments reflect a reduction in loans for $183,000 related to Chickamauga’s impaired loans, thus reducing the carrying value of these loans to $376,000 as of July 1, 2007.  At December 31, 2007, the carrying value of these loans had been reduced to $366,000 due to cash payments received from the borrowers.  Interest income recognized on such loans is not material for the six month period ended December 31, 2007.

To fund the payments to the Chickamauga shareholders, the Company’s subsidiary banks paid $15 million in special dividends to the parent.  Additionally, the Company received an increase in its line of credit from $5.5 million to $8.0 million on the same terms and conditions as previously existed on the loan.  The interest rate for the line of credit is Prime minus 0.50%.  The Company drew $4 million on this line in connection with the merger.

On October 31, 2006, the Company completed its merger with Maplesville Bancorp. (“Maplesville”), a Maplesville, Alabama based bank holding company and the parent company of Peachtree Bank (“Peachtree”).  In connection with this merger, shareholders of Maplesville received approximately 371,135 shares of SouthCrest stock and $7,557,000 in cash.  The merger was accounted for using the purchase method of accounting.  Accordingly, results of operations for Peachtree Bank are included in the results of operations of SouthCrest prospectively from the date of merger, and the purchase price of $17.3 million, which includes merger costs of $254,000, was allocated to the fair values of Maplesville’s assets and liabilities.  As a result, the Company recorded a core deposit intangible of $1,052,000 and goodwill of $6,392,000.  The core deposit intangible is being amortized on an accelerated basis over the estimated life of the deposits.

Results of operations for Maplesville and Chickamauga are included in the Company’s results of operations prospectively from the dates of their respective merger.  The following schedule presents pro forma information for revenues and net income as if the combinations with Maplesville and Chickamauga had occurred on January 1, 2006.

F-14

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2. BUSINESS COMBINATIONS (Continued)

Revenues and net income of both acquired entities for periods prior to the dates of acquisition are added to actual results of SouthCrest for each of the periods indicated in the table.  Revenues include interest income plus other income less proforma merger adjustments affecting revenues. Net income includes the net income less the proforma effect of merger adjustments, including the amortization of intangibles:

(Dollars in thousands except per share amounts)	2007		2006
Revenues	$	45,476	$	40,612
Net Income	$	6,229	$	6,158
Earnings per share	$	1.58	$	1.56

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition including subsequent adjustments to the allocation of purchase price:

Assets Acquired and Liabilities Assumed

(Dollars in thousands)

	Chickamauga		Maplesville
Cash and due from banks	$	3,103	$	8,497
Federal funds sold		8,100		3,204
Interest bearing deposits in other banks		181		1,096
Securities available for sale		24,046		13,451
Restricted equity securities		257		121
Loans, net		26,344		33,229
Bank-owned life insurance		3,187		2,117
Premises and equipment		909		1,500
Goodwill		5,198		6,392
Intangible assets		715		1,052
Other assets		1,254		808
Total assets acquired	$	73,294	$	71,467
Deposits	$	49,672	$	52,030
Short-term borrowed funds		3,000		-
Other liabilities		3,272		2,416
Total liabilities assumed		55,944		54,446
Purchase price	$	17,350	$	17,021

NOTE 3. SECURITIES

The amortized cost and fair value of securities are summarized as follows:

F-15

NOTE 3. SECURITIES (Continued)

(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Securities Available for Sale
December 31, 2007:
U.S. Government and agency securities	$	30,254	$	305	$	(4	)	$	30,555
State and municipal securities		17,958		276		(8	)		18,226
Mortgage-backed securities		28,350		371		(120	)		28,601
Equity securities		1,763		90		(27	)		1,826
	$	78,325	$	1,042	$	(159	)	$	79,208
December 31, 2006:
U.S. Government and agency securities	$	34,762	$	34	$	(263	)	$	34,533
State and municipal securities		11,079		7		(28	)		11,058
Mortgage-backed securities		14,589		4		(395	)		14,198
Equity securities		1,363		367		-			1,730
	$	61,793	$	412	$	(686	)	$	61,519
Securities Held to Maturity
December 31, 2007:
U.S. Government and agency securities	$	20,289	$	45	$	(143	)	$	20,191
State and municipal securities		6,773		142		(18	)		6,897
Mortgage-backed securities		30,823		56		(388	)		30,491
Corporate bonds		1,000		53		-			1,053
		58,885		296		(549	)		58,632
December 31, 2006:
U.S. Government and agency securities	$	22,216	$	34	$	(538	)	$	21,712
State and municipal securities		7,387		175		(5	)		7,557
Mortgage-backed securities		36,665		25		(923	)		35,767
Corporate bonds		1,000		-		-			1,000
		67,268		234		(1,466	)		66,036

The amortized cost and fair value of securities held to maturity and securities available for sale as of December 31, 2007 by contractual maturity are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

F-16

NOTE 3. SECURITIES (Continued)

	Securities Available For Sale				Securities Held To Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due within one year	$	16,240	$	16,283	$	55	$	55
Due from one to five years		19,715		20,045		3,644		3,697
Due from five to ten years		8,380		8,494		8,459		8,596
Due after ten years		3,877		3,959		15,904		15,793
Mortgage-backed securities		28,350		28,601		30,823		30,491
Equity securities		1,763		1,826		-		-
	$	78,325	$	79,208	$	58,885	$	58,632

Securities with a carrying value of $72,884,000 and $85,567,000 at December 31, 2007 and 2006, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

The following table shows the gross unrealized losses and fair value of securities, aggregated by category and length of time that securities have been in a continuous unrealized loss position at December 31, 2007.

	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of securities	Value		Losses			Value		Losses			Value		Losses
U.S. Government and agency securities	$	1,987	$	(2	)	$	12,835	$	(145	)	$	14,822	$	(147	)
State and municipal securities		703		(8	)		627		(18	)		1,330		(26	)
Mortgage-backed securities		4,645		(27	)		30,234		(481	)		34,879		(508	)
Equity securities		613		(27	)		-		-			613		(27	)
Total	$	7,948	$	(64	)	$	43,696	$	(644	)	$	51,644	$	(708	)

The following table shows the gross unrealized losses and fair value of securities, aggregated by category and length of time that securities have been in a continuous unrealized loss position at December 31, 2006.

	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Description of securities	Value		Losses			Value		Losses			Value		Losses
U.S. Government and agency securities	$	3,979	$	(10	)	$	40,469	$	(791	)	$	44,448	$	(801	)
State and municipal securities		2,325		(2	)		4,110		(31	)		6,435		(33	)
Mortgage-backed securities		3,725		(10	)		43,652		(1,308	)		47,377		(1,318	)
Total	$	10,029	$	(22	)	$	88,231	$	(2,130	)	$	98,260	$	(2,152	)

These unrealized losses are considered temporary because of acceptable investment grades on each security,  the likelihood of the market value increasing to the initial cost basis of the security, and the intent and ability of the Company to hold these securities until recovery of the market values.  During the first quarter of 2005, the Company recorded an impairment charge of $600,000 on $2.5 million of Federal Home Loan Mortgage Corporation (“Freddie Mac”) and Federal National Mortgage Association (“Fannie Mae”) perpetual preferred stock. The reclassification of an unrealized mark-to-market loss on these securities to an other-than-temporary charge was based upon a detailed impairment analysis of these securities.  Previous losses on the securities were recognized in the equity section of the balance sheet.  The Company’s conclusion considered the duration and severity of the unrealized loss, the financial condition and near-term prospects of the issuers, and the likelihood of the market value of these instruments increasing to our initial cost basis within a reasonable period of time.  During the third quarter of 2005, the Company initiated a plan to sell a portion of these securities in which the securities would be sold slowly in small blocks.   Certain portions of this investment were sold during 2005, resulting in gains of $71,000 which is included in net gains on sale of securities available for sale.

F-17

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. SECURITIES (Continued)

In addition to the gain mentioned above, gain on sale of securities available for sale during 2005 also included a $249,000 gain realized on the sale of a common stock investment. The Company’s cost basis in that investment was $200,000.

NOTE 4. LOANS

The composition of loans is summarized as follows:

	Years Ended December 31,
(Dollars in thousands)	2007			2006
Commercial, financial, and agricultural	$	22,595		$	23,996
Real estate – construction		66,069			59,745
Real estate – mortgage		241,316			211,676
Consumer		38,834			33,690
Other		5,162			6,058
		373,976			335,165
Unearned income		(151	)		(159	)
Allowance for loan losses		(4,952	)		(4,480	)
Loans, net	$	368,873		$	330,526

Loans serviced for others totaled $83,856,000 and $79,680,000 at December 31, 2007 and 2006, respectively.

Changes in the allowance for loan losses are as follows:

	Years Ended December 31,
(Dollars in thousands)	2007			2006			2005
Balance, beginning of year	$	4,480		$	3,477		$	3,161
Provision for loan losses		639			839			751
Loans charged off		(1,142	)		(903	)		(893	)
Recoveries of loans previously charged off		611			436			458
Allowance acquired in business combination		364			631			-
Balance, end of year	$	4,952		$	4,480		$	3,477

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

	As of and for the Years Ended
	December 31,
(Dollars in thousands)	2007		2006		2005
Impaired loans without a valuation allowance	$	-	$	-	$	-
Impaired loans with a valuation allowance		1,633		479		232
Total impaired loans	$	1,633	$	479	$	232
Valuation allowance related to impaired loans	$	245	$	72	$	35
Average investment in impaired loans	$	507	$	659	$	323

Interest income recognized on impaired loans for the years ended December 31, 2007, 2006, and 2005 was immaterial.

There were $1,633,000, and $479,000 loans on nonaccrual status at December 31, 2007 and 2006. Loans of $247,000 and $1,015,000 were past due ninety days or more and still accruing interest at December 31, 2007 and 2006, respectively.

F-18

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4. LOANS (Continued)

In the ordinary course of business, the Company has granted loans to certain related parties, including executive officers, directors and their affiliates. The interest rates on these loans were substantially the same as rates prevailing at the time of the transaction and repayment terms are customary for the type of loan. Changes in related party loans for the year ended December 31, 2007 are as follows:

(Dollars in thousands)
Balance, beginning of year	5,239
Advances	156
Repayments	(4,546	)
Increase due to business combination	259
Balance, end of year	1,108

NOTE 5. PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

	December 31,
(Dollars In Thousands)	2007			2006
Land	$	3,125		$	2,241
Buildings		12,720			10,342
Leasehold improvements		532			19
Construction in progress		393			1,284
Equipment		5,845			4,884
		22,615			18,770
Accumulated Depreciation		(4,522	)		(3,446	)
	$	18,093		$	15,324

Construction in progress amounts at December 31, 2007 relate to the construction of the Company’s operations center in Thomaston, Georgia, and at December 31, 2006 to additions and renovations to Upson’s main office in Thomaston. The project was to be completed in two phases, with the first phase completed in the third quarter of 2006 and the second phase completed in the second quarter of 2007.  The final cost of the project was  approximately $4,869,000.  In 2007 the Company began operating a branch office in a leased facility in Tyrone, Georgia which is subject to a ten year lease.  Leasehold improvements for the office amounted to $513,000.

Leases:

In 2004 the Company leased a branch office location in Fayetteville, Georgia. The lease is for a term of five years.  In 2007, the Company leased a second branch office in Tyrone, Georgia for a term of ten years with certain renewal options.

Rental expense under all operating leases amounted to $114,000, $91,000, and $66,000 for the years ended December 31, 2007, 2006 and 2005, respectively. Commitments for lease obligations are as follows:

(Dollars In Thousands)
2008	$	141
2009		119
2010		75
2011		77
2012		79
Thereafter		388
	$	879

F-19

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6. INTANGIBLE ASSETS

Following is a summary of information related to intangible assets:

	As of December 31, 2007					As of December 31, 2006
	Gross					Gross
	Carrying		Accumulated			Carrying		Accumulated
(Dollars In Thousands)	Amount		Amortization			Amount		Amortization
Goodwill	$	14,255		-		$	9,057		-
Core deposit intangible	$	9,441	$	(5,159	)	$	8,726	$	(4,233	)
Mortgage servicing rights		863		(353	)		597		(222	)
Total other intangible assets	$	10,304	$	(5,512	)	$	9,323	$	(4,455	)

Annually, intangible assets are reviewed for impairment.  During 2007, no charges for impairment were required.

Amortization expense for the core deposit intangibles was $926,000, $807,000 and $963,000 for the years ended December 31, 2007, 2006 and 2005, respectively.  Amortization expense for the mortgage servicing rights was $131,000 for the year ended December 31, 2007.  The estimated amortization expense of all intangible assets in future years is as follows:

(Dollars In Thousands)
2008	$	1,074
2009		1,038
2010		785
2011		465
2012		432
Thereafter		998
	$	4,792

NOTE 7. DEPOSITS

Deposits are as follows:

	December 31,
(Dollars In Thousands)	2007		2006
Noninterest bearing deposits	$	80,685	$	80,581
Interest checking		83,742		72,386
Money market		55,687		56,461
Savings		41,997		35,542
Certificates of deposit		251,820		217,652
		513,931		462,622

The aggregate amount of time deposits in denominations of $100,000 or more at December 31, 2007 and 2006 was $84,616,000 and $63,708,000, respectively. The scheduled maturities of time deposits at December 31, 2007 are as follows:

(Dollars In Thousands)
2008	$	201,061
2009		20,231
2010		16,475
2011		6,966
2012		6,873
Thereafter		214
	$	251,820

F-20

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7. DEPOSITS (Continued)

Overdraft demand deposits reclassified to loans totaled $272,000 and $252,000 at December 31, 2007 and 2006, respectively.

NOTE 8. BORROWED FUNDS

Other borrowed funds consist of the following:

	December 31,
(Dollars In Thousands)	2006		2005
Short-term borrowed funds
Federal Home Loan Bank advance with a maturity of March 26, 2008.  Interest is payable monthly at a rate of 5.51%.	$	3,000	$	-
Current portion of Federal Home Loan Bank advance with a maturity of March 5, 2008.  Interest is payable monthly at a rate of 6.25%.  Principal is due in semi-annual installments of $55,000.		55		110
Total short-term borrowed funds		3,055		110
Long-term borrowed funds
Federal Home Loan Bank advance due January 30, 2009.  Interest is payable monthly at 5.05%.		-		5,000
Federal Home Loan Bank advance with a maturity of March 5, 2008.
Interest is payable monthly at a rate of 6.25%.  Principal is due in semi-annual installments of $55,000.		-		55
Line of credit maturing October 1, 2018 secured by common stock of subsidiary banks.  Principal balance outstanding at October 16, 2008 shall be due in ten annual payments beginning October 1, 2009.
Interest is payable quarterly at Prime minus 0.50%.		6,555		780
Total long-term borrowed funds		6,555		5,835
Total borrowed funds	$	9,610	$	5,945

Contractual maturities of other borrowings as of December 31, 2007 are as follows:

(Dollars In Thousands)
2008	$	3,055
2009		656
2010		656
2011		656
2012		656
Thereafter		3,931
	$	9,610

Advances are collateralized by a blanket floating lien on qualifying first mortgages, pledges of certain securities and the Company’s Federal Home Loan Bank stock.

The terms of the line of credit require the maintenance of certain minimum capital levels and regulatory capital ratios, allowance for loan losses, and profitability ratios.  The Company believes it is in compliance with such terms at December 31, 2007.

NOTE 9. EMPLOYEE BENEFIT PLANS

The Company maintains two defined contribution retirement plans (the “Plans”) for its officers and employees:  the SouthCrest Financial Group, Inc. 401(k) and Profit-Sharing Plan (the “401(k) Plan”) and the SouthCrest Financial Group, Inc. Employee Stock Ownership Plan (the “ESOP”).  Annually, the Company makes a determination of the

F-21

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9. EMPLOYEE BENEFIT PLANS (Continued)

total funds it will contribute to the Plans.  Once determined, funds are first contributed to the 401(k) plan with the remainder contributed to the ESOP.  For the years ended December 31, 2007, 2006, and 2005 the total funds contributed approximated 8% of compensation less amounts paid as incentives and bonuses.

401(k) and Profit Sharing Plan

The 401(k) Plan is available to all eligible employees, subject to certain minimum age and service requirements. For the years ended December 31, 2007 and 2006, the Company contributed 6% of an employee’s compensation to the Plan without regard to an employee’s level of participation.  For the year ended December 31, 2005, the Company made a matching contribution of 75% of the first 8% of an employee’s contribution, for a maximum contribution of 6%.  The contributions expensed were $445,000, $391,000 and $257,000 for the years ended December 31, 2007, 2006 and 2005, respectively.  These expenses are included in salaries and employee benefits expense in the accompanying statements of income.

Employee Stock Ownership Plan

The ESOP is available to all eligible employees, subject to certain age and service requirements.  For the years ended December 31, 2007, 2006 and 2005, the Company contributed $182,000, $143,000 and $220,000, respectively, to the ESOP. These expenses are included in salaries and employee benefits expense in the accompanying statements of income.

In accordance with the ESOP, the Company is expected to honor the rights of certain participants to diversify their account balances or to liquidate their ownership of the common stock in the event of termination. The purchase price of the common stock would be based on the fair market value of the Company’s common stock as of the annual valuation date, which precedes the date the put option is exercised. No participant has exercised their right to diversify their account balances since the inception of the ESOP, and no significant cash outlay is expected during 2006. However, since the redemption of common stock is outside the control of the Company, the Company’s maximum cash obligation based on the approximate market prices of common stock as of the reporting date has been presented outside stockholders’ equity. The amount presented as redeemable common stock held by the ESOP in the consolidated balance sheet represents the Company’s maximum cash obligation and has been reflected as a reduction of retained earnings.

At December 31, 2007 and 2006, the ESOP held 67,054 and 42,773 shares of the Company stock. Shares held by the ESOP considered outstanding for purposes of calculating the Company’s earnings per share were 51,174 and 42,773 shares as of December 31, 2007 and 2006, respectively.  In November 2007, the ESOP purchased 15,880 shares funded by a $349,000 direct loan from the Company.  At December 31, 2007 the balance of the loan was $349,000 and is reported on the balance sheet as “Unearned Compensation – ESOP” and is a reduction of  stockholders’ equity.  This loan carries an interest rate of Prime minus 0.50% and is to be repaid over a term of fifteen years.  At December 31, 2007 the shares secured by the loan had not been allocated to participant accounts and therefore are not considered outstanding for purposes of computing earnings per share.

Deferred Compensation Plan

The Company has a deferred compensation plan for death and retirement benefits for certain key officers. The estimated amounts to be paid under the compensation plan have been funded through the purchase of life insurance policies on the officers. The balance of the policy cash surrender values included in other assets at December 31, 2007 and 2006 is $16,302,000 and $12,521,000, respectively. Income recognized on the policies amounted to $594,000, $340,000 and $146,000 for the years ended December 31, 2007, 2006 and 2005, respectively. The balance of deferred compensation included in other liabilities at December 31, 2007 and 2006 is $4,139,000 and $2,765,000, respectively. Expense recognized for deferred compensation amounted to $470,000, $251,000 and $325,000 for the years ended December 31, 2007, 2006 and 2005, respectively.  In connection with its October 31, 2006 merger with Maplesville, the Company acquired bank-owned life insurance contracts with a fair value of $2,117,000 and assumed $1,483,000 in deferred compensation liabilities.  In connection with its July 1, 2007 merger with Chickamauga, the Company acquired bank-owned life insurance contracts with a fair value of $3,187,000 and assumed $927,000 in deferred compensation liabilities.

F-22

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9. EMPLOYEE BENEFIT PLANS (Continued)

Defined Benefit Plan

In its July 1, 2007 acquisition of Bank of Chickamauga, the Company assumed the Bank of Chickamauga Defined Benefit Plan (the “Chickamauga Plan”).  In accordance with the Merger Agreement, the Chickamauga Plan  was terminated effective November 1, 2007, and the Company is awaiting Internal Revenue Service approval of the plan termination.  When the Chickamauga Plan is terminated, participants will have the option of receiving a lump sum cash distribution or a private annuity that provides substantially the same benefit as they would have received under the Chickamauga Plan.   At December 31, 2007, the Accumulated Benefit Obligation of the Chickamauga Plan was $2,510,000 and the plan assets were $1,879,000, leaving a plan shortfall of $631,000.  The Accumulated Benefit Obligation was calculated in accordance with IRS regulations governing plan terminations which will be in effect in 2008 when the Chickamauga Plan is terminated.  These regulations will require the use of multiple discount rates correlating to various durations of the estimated plan participant liabilities, resulting in an average discount rate of 4.85%.  At December 31, 2007 the Company had recorded on its books accrued pension expense totaling $568,500 to be used to fund any shortfall in plan assets at the time of the plan termination.  Any legal, actuarial, administrative or benefit costs to terminate the plan in excess of this amount will be funded from the $687,000 which was escrowed at the date of merger.

NOTE 10. STOCK COMPENSATION PLAN

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

The Company adopted SFAS No. 123(R) using the modified prospective application as permitted under SFAS No. 123(R).  Accordingly, prior period amounts have not been restated. Under this application, the Company is required to record compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption.  For the years ended December 31, 2007 and 2006, the Company recorded compensation expense related to stock options of $106,000 and $95,000, respectively.

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

The Company maintains the SouthCrest Financial Group, Inc. 2005 Stock Incentive Plan (the “Stock Incentive Plan”), which provides for up to 549,000 shares of the Company’s stock to be awarded in the form of stock options.  Both incentive stock options and non-qualified options may be granted under the Plan.  The exercise price of each option equals the market price of the Company’s stock on the date of grant.  The incentive stock options generally vest at the rate of 20% per year over five years, and expire after ten years from the date of grant.  The Company immediately vested a grant of 104,000 stock options in 2005.  At December 31, 2007, 392,100 shares remained available for future grant.  Compensation cost that has been charged against income was approximately $106,000 and $95,000 for the years ended December 31, 2007 and 2006, respectively.  Because all options that are subject to expensing under SFAS No. 123(R) are tax qualifying, it is not expected that recognized compensation expense relating to these stock options will result in future tax benefits.

F-23

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10. STOCK COMPENSATION PLAN (Continued)

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model.  The Company granted 7,900 and 183,500 stock options during the years ended December 31, 2006 and 2005, respectively, with a fair value of $6.48 and $5.98, respectively, for each option.  No options were granted for the year ended December 31, 2007.  The following table presents the assumptions for the Black-Scholes model used in determining the fair value of options granted to employees in the December, 2006 and 2005:

	2006			2005
Dividend yield		2.16	%		2.13	%
Risk-free interest rate		4.58	%		4.40	%
Expected life	6.5 years			6.5 years
Volatility		26.34	%		23.31	%

A summary of activity in the Stock Incentive Plan is presented below:

	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2005		-
Granted		183,500	$	23.45
Exercised		-
Forfeited		-
Outstanding at December 31, 2005		183,500	$	23.45
Granted		7,900		23.10
Exercised		-
Forfeited		-
Outstanding at December 31, 2006		191,400	$	23.44
Granted		-
Exercised		-
Forfeited		-
Outstanding at December 31, 2007		191,400	$	23.44	8 years	$	-
Options exercisable at December 31, 2007		135,800	$	23.45	8 years	$	-

Since the inception of the Stock Incentive Plan, no options have been exercised.  Because the end of period stock price was less than or equal to the exercise prices of options outstanding, the options outstanding and exercisable at December 31, 2007 had no intrinsic value.  As of December 31, 2007, there was $325,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements, which is expected to be recognized over a weighted average life of 3.1 years.

F-24

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10. STOCK COMPENSATION PLAN (Continued)

Options outstanding at December 31, 2007 were as follows:

		Outstanding					Exercisable
Exercise Price		Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term
$	23.10		7,900	$	23.10	9 years		-	$	23.10	9 years
$	23.45		183,500	$	23.45	8 years		135,800	$	23.45	8 years
Total			191,400					135,800

NOTE 11. INCOME TAXES

The components of income tax expense are as follows:

	Years Ended December 31,
(Dollars in thousands)	2007			2006			2005
Current
Federal	$	2,803		$	2,764		$	2,485
State		293			323			253
Total current		3,096			3,087			2,738
Deferred
Federal		(276	)		(281	)		(491	)
State		(44	)		(31	)		(91	)
Total deferred		(320	)		(312	)		(582	)
	$	2,776		$	2,775		$	2,156

The Company’s income tax expense differs from the amounts computed by applying the Federal income tax statutory rates to income before income taxes. A reconciliation of the differences is as follows:

	Years Ended December 31,
(Dollars in thousands)	2007			2006			2005
Tax provision at statutory rate	$	3,086		$	2,907		$	2,380
State income taxes, net of Federal benefit		164			193			107
Tax-exempt income		(504	)		(358	)		(254	)
Stock option expense		36			33			-
Other		(6	)		-			(77	)
Income tax expense	$	2,776		$	2,775		$	2,156

F-25

NOTE 11. INCOME TAXES (Continued)

The components of deferred income taxes are as follows:

	Years Ended December 31,
(Dollars in thousands)	2006		2005
Deferred tax assets:
Loan loss reserves	$	1,686	$	1,520
Deferred compensation		1,434		696
Securities available for sale		-		103
Security impairment		136		136
Intangibles		674		674
		3,930		3,129
Deferred tax liabilities
Intangibles		535		846
Securities available for sale		334		-
Mortgage servicing rights		192		142
Depreciation		479		448
		1,540		1,436
Net deferred tax assets	$	2,390	$	1,693

The years 2004 through 2006 are still subject to audit for the Company’s Federal, Georgia, and Alabama income tax returns.  No material tax uncertainties exist as of December 31, 2007.

NOTE 12. COMMITMENTS AND CONTINGENCIES LOAN COMMITMENTS

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. They involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized in the balance sheets. The majority of all commitments to extend credit and standby letters of credit are variable rate instruments.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments as it does for on-balance sheet instruments. A summary of the Company’s commitments is as follows:

(Dollars in thousands)	2007		2006
Commitments to extend credit	$	33,929	$	40,623
Credit card commitments		9,323		9,125
Commercial letters of credit		1,282		741
	$	44,534	$	50,489

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the party. Collateral held varies, but may include accounts receivable, crops, livestock, inventory, property and equipment, residential real estate and income-producing commercial properties.

Credit card commitments are unsecured.

F-26

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12. COMMITMENTS AND CONTINGENCIES LOAN COMMITMENTS (Continued)

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Collateral held varies and is required in instances which the Company deems necessary.

Contingencies

In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the Company’s financial statements.

NOTE 13. CONCENTRATIONS OF CREDIT

The Company originates primarily commercial, residential, and consumer loans to customers in its respective markets. The ability of the majority of the Company’s customers to honor their contractual loan obligations is dependent on the economy in the Company’s primary market area.

Eighty two percent of the Company’s loan portfolio is concentrated in loans secured by real estate of which a substantial portion is secured by real estate in the Company’s primary market area. Accordingly, the ultimate collectibility of the loan portfolio is susceptible to changes in market conditions in the Company’s primary market area. The other significant concentrations of credit by type of loan are set forth in Note 4.

The Company, as a matter of policy, does not extend credit to any single borrower or group of related borrowers in excess of regulatory limits, or approximately $6,274,000 for Upson, $3,144,000 for FNB Polk, $2,612,000 for Peachtree, and $1,308,000 for Chickamauga.

NOTE 14. REGULATORY MATTERS

The Company’s bank subsidiaries are subject to certain restrictions on the amount of dividends that may be declared without prior regulatory approval. At December 31, 2007, approximately $1,991,000 of retained earnings was available for dividend declaration without regulatory approval.

The Company and the Banks are subject to various regulatory capital requirements administered by the federal banking agencies. 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 consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Banks must meet specific capital guidelines that involve quantitative measures of the Company’s and Banks’ assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Banks to maintain minimum amounts and ratios of Total and Tier I capital to risk-weighted assets, as defined, and of Tier I capital to average assets, as defined. Management believes, as of December 31, 2007 and 2006, the Company and the Banks met all capital adequacy requirements to which they are subject.

As of December 31, 2007, the most recent notification from the Federal Deposit Insurance Corporation categorized the Banks as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Banks must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed the Banks’ category. Prompt corrective action provisions are not applicable to bank holding companies.

F-27

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14. REGULATORY MATTERS (Continued)

The Company and the Banks’ actual capital amounts and ratios are presented in the following table.

(Dollars in thousands)	Actual					For Capital Adequacy Purposes					To Be Well  Capitalized Under Prompt  Corrective Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2007
Total Capital to Risk Weighted Assets
Consolidated	$	59,423		14.51	%	$	32,770		8.00	%	$	N/A		N/A
Bank of Upson		31,746		14.53	%		17,480		8.00	%		21,850		10.00	%
FNB Polk County		20,891		18.84	%		8,871		8.00	%		11,089		10.00	%
Peachtree Bank		6,083		13.72	%		3,547		8.00	%		4,434		10.00	%
Bank of Chickamauga		5,911		16.68	%		2,834		8.00	%		3,543		10.00	%
Tier 1 Capital to Risk Weighted Assets
Consolidated	$	54,604		13.33	%	$	16,385		4.00	%	$	N/A		N/A
Bank of Upson		29,304		13.41	%		8,740		4.00	%		13,110		6.00	%
FNB Polk County		19,504		17.59	%		4,436		4.00	%		6,653		6.00	%
Peachtree Bank		5,536		12.49	%		1,774		4.00	%		2,660		6.00	%
Bank of Chickamauga		5,468		8.75	%		1,417		4.00	%		2,126		6.00	%
Tier 1 Capital to Average Assets
Consolidated	$	54,604		9.14	%	$	23,883		4.00	%	$	N/A		N/A
Bank of Upson		29,304		9.94	%		11,796		4.00	%		14,745		5.00	%
FNB Polk County		19,504		11.65	%		6,694		4.00	%		8,368		5.00	%
Peachtree Bank		5,536		8.75	%		2,531		4.00	%		3,164		5.00	%
Bank of Chickamauga		5,468		7.61	%		2,873		4.00	%		3,591		5.00	%
As of December 31, 2006
Total Capital to Risk Weighted Assets
Consolidated	$	60,069		15.97	%	$	30,089		8.00	%	$	N/A		N/A
Bank of Upson		32,120		14.68	%		17,505		8.00	%		21,881		10.00	%
FNB Polk County		21,975		20.19	%		8,705		8.00	%		10,882		10.00	%
Peachtree Bank		6,167		12.83	%		3,844		8.00	%		4,805		10.00	%
Tier 1 Capital to Risk Weighted Assets
Consolidated	$	55,555		14.77	%	$	15,044		4.00	%	$	N/A		N/A
Bank of Upson		29,560		13.51	%		8,752		4.00	%		13,129		6.00	%
FNB Polk County		20,614		18.94	%		4,353		4.00	%		6,529		6.00	%
Peachtree Bank		5,574		11.60	%		1,922		4.00	%		2,883		6.00	%
Tier 1 Capital to Average Assets
Consolidated	$	55,555		10.81	%	$	20,555		4.00	%	$	N/A		N/A
Bank of Upson		29,560		9.85	%		12,004		4.00	%		15,005		5.00	%
FNB Polk County		20,614		12.04	%		6,849		4.00	%		8,561		5.00	%
Peachtree Bank		5,574		9.04	%		2,465		4.00	%		3,082		5.00	%

As a result of the business combinations with Maplesville Bancorp in 2006 and First Polk Bankshares in 2004, the Company recorded additions to its capital representing the fair value of the shares issued to Maplesville and First Polk shareholders. For regulatory capital purposes, the Company, as well as Peachtree Bank and FNB Polk County, must deduct from its regulatory capital the net book value of any intangible assets recorded in connection with the merger. The effect of the purchase accounting adjustments on the regulatory capital calculations is included above.

NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair value is based on discounted cash flows or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.

F-28

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

SFAS No. 107, Disclosure about Fair Values of Financial Instruments, excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The following methods and assumptions were used by the Company, in estimating the fair value of its financial instruments:

Cash, Due From Banks, Interest-Bearing Deposits at Other Banks and Federal Funds Sold:  The carrying amount of cash, due from banks, interest-bearing deposits at other banks and federal funds sold approximates fair value.

Securities: Fair value of securities is based on available quoted market prices. The carrying amount of equity securities with no readily determinable fair value, including restricted equity securities, approximates fair value.

Loans: The carrying amount of variable-rate loans that reprice frequently and have no significant change in credit risk approximates fair value. The fair value of fixed-rate loans is estimated based on discounted contractual cash flows, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. The fair value of impaired loans is estimated based on discounted contractual cash flows or underlying collateral values, where applicable.

Deposits: The carrying amount of demand deposits, savings deposits, and variable-rate certificates of deposit approximates fair value. The fair value of fixed-rate certificates of deposit is estimated based on discounted contractual cash flows using interest rates currently being offered for certificates of similar remaining maturities.

Short-Term and Long-Term Borrowed Funds: The carrying amount of variable-rate notes payable and short-term Federal Home Loan Bank advances approximates fair value. The fair value of fixed rate Federal Home Loan Bank advances are estimated based on discounted contractual cash flows using the current incremental borrowing rates for similar type borrowing arrangements.

Accrued Interest: The carrying amount of accrued interest approximates fair value.

Bank-Owned Life Insurance: The cash surrender value of bank-owned life insurance approximates its fair value.

Off-Balance Sheet Instruments: The carrying amount of commitments to extend credit and standby letters of credit approximates fair value. The carrying amount of the off-balance sheet financial instruments is based on fees charged to enter into such agreements.

F-29

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

The estimated fair values and related carrying amounts of the Company’s financial instruments were as follows:

	2007				2006
	Carrying		Fair		Carrying		Fair
(Dollars in thousands)	Amount		Value		Amount		Value
Financial assets
Cash, due from banks, interest bearing deposits in other banks, and federal funds sold	$	36,013	$	36,013	$	34,311	$	34,311
Securities		138,093		137,840		128,787		127,556
Restricted equity securities		2,008		2,008		2,029		2,029
Loans and loans held for sale, net		369,102		378,367		330,972		334,960
Accrued interest receivable		3,901		3,901		3,445		3,445
Bank-owned life insurance		16,302		16,302		12,521		12,521
Financial liabilities
Deposits		513,931		517,638		462,622		463,143
Short-term borrowings		3,055		3,059		110		110
Long-term borrowings		6,555		6,555		5,835		5,832
Accrued interest payable		2,975		2,975		2,875		2,875

NOTE 16. SUPPLEMENTAL FINANCIAL DATA

Components of other operating expenses in excess of 1% of revenue are as follows:

	Years Ended December 31,
	2007		2006		2005
Data processing fees	$	1,454,000	$	1,222,000	$	1,087,000
Professional fees		620,000		439,000		477,000
Postage and supplies		692,000		527,000		513,000
Director fees		409,000		370,000		343,000

F-30

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17. PARENT COMPANY FINANCIAL INFORMATION

The following information presents the condensed balance sheets of SouthCrest Financial Group, Inc. as of December 31, 2007 and 2006 and the condensed statements of income and cash flows for each of the three years ended December 31, 2007:

CONDENSED BALANCE SHEETS

(Dollars in thousands)	2007		2006
Assets
Cash	$	1,001	$	119
Investment in subsidiaries		78,072		68,642
Securities available for sale		313		380
Other assets		152		297
Total assets	$	79,538	$	69,438
Liablities, redeemable common stock and stockholders' equity
Note payable	$	6,555	$	780
Other liabilities		171		115
Redeemable common stock and stockholders' equity
Redeemable common stock held by ESOP		1,091		988
Stockholders' equity		71,721		67,555
Total liabilties, redeemable common stock and stockholders' equity	$	79,538	$	69,438

CONDENSED STATEMENTS OF INCOME

(Dollars in thousands)	2007			2006			2005
Dividend income from subsidiaries	$	17,942		$	9,120		$	1,950
Gain on securities available for sale		-			-			249
Total income		17,942			9,120			2,199
Interest expense		191			4			-
Other expense		902			750			484
Total expenses		1,093			754			484
Income before income taxes and equity in undisributed income of subsidiaries		16,849			8,366			1,715
Income tax benefits		(382	)		(250	)		(83	)
Income before equity in undistributed income of subsidiaries		17,231			8,616			1,798
Equity in undistributed income (excess of distributions over income) of subsidiaries		(10,931	)		(2,842	)		3,046
Net income	$	6,300		$	5,774		$	4,844

F-31

SOUTHCREST FINANCIAL GROUP, INC.

AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17. PARENT COMPANY FINANCIAL INFORMATION (Continued)

CONDENSED STATEMENTS OF CASH FLOWS

(Dollars in thousands)	2007			2006			2005
OPERATING ACTIVITIES
Net income	$	6,300		$	5,774		$	4,844
Adjustments to reconcile net income to net cash provided by operating activities
(Undistributed income) excess distributions over income of subsidiaries		10,931			2,842			(3,046	)
Gain on sale of securities available for sale		-			-			(249	)
Stock option expense		106			95
Change in other assets		145			(167	)		(89	)
Change in other liabilities		83			115			(33	)
Net cash provided by operating activities		17,565			8,659			1,427
INVESTING ACTIVITIES
Proceeds from sale of securities available for sale		-			-			449
Investment in subsidiaries		(2,250	)		-			-
Cash paid in business combination		(17,350	)		(7,987	)		-
Net cash provided by (used in) investing activities		(19,600	)		(7,987	)		449
FINANCING ACTIVITIES
Proceeds from long-term borrowed funds		5,775			6,280			1,500
Repayment of long-term borrowed funds		-			(5,500	)		(1,500	)
Common stock issued to ESOP		-			-			400
Increase in unearned compensation - ESOP		(349	)		-			-
Purchase and retirement of stock		(453	)		-			(192	)
Dividends paid		(2,056	)		(1,791	)		(1,713	)
Net cash provided by (used in) financing activities		2,917			(1,011	)		(1,505	)
Net increase (decrease) in cash		882			(339	)		371
Cash at beginning of year		119			458			87
Cash at end of year	$	1,001		$	119		$	458
Noncash transactions:
Common stock issued in business combination	$	-		$	9,464		$	-
Unrealized gain on securities available for sale		(67	)		66			-

F-32

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

BOARD OF DIRECTORS AND STOCKHOLDERS

SOUTHCREST FINANCIAL GROUP, INC.

We have audited the accompanying consolidated balance sheets of SouthCrest Financial Group, Inc. and subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2007. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  We were not engaged to perform an audit of the Company’s internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SouthCrest Financial Group, Inc. and subsidiaries as of December 31, 2007 and 2006, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2007 in conformity with accounting principles generally accepted in the United States of America.

/s/ Dixon Hughes PLLC

Atlanta, Georgia

March 31, 2008

F-33