The following discussion of financial condition as of September 30, 2008 compared to December 31, 2007, and the results of operations for the three months and nine months ended September 30, 2008 compared to the three months and nine months ended September 30, 2007 should be read in conjunction with the condensed financial statements and accompanying footnotes appearing in this report.

Advisory Note Regarding Forward-Looking Statements

The statements contained in this report on Form 10-Q that are not historical facts are forward-looking statements subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. We caution readers of this report that such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Although we believe that our expectations of future performance is based on reasonable assumptions within the bounds of our knowledge of our business and operations, there can be no assurance that actual results will not differ materially from our expectations.

Factors which could cause actual results to differ from expectations include, among other things:

† the challenges, costs and complications associated with the continued development of our branches;

† the potential that loan charge-offs may exceed the allowance for loan losses or that such allowance will be increased as a result of factors beyond our control;

† our dependence on senior management;

† competition from existing financial institutions operating in our market areas as well as the entry into such areas of new competitors with greater resources, broader branch networks and more comprehensive services;

† adverse conditions in the stock market, the public debt market, and other capital markets (including changes in interest rate conditions);

† the effect of any mergers, acquisitions or other transactions to which we or our subsidiary may from time to time be a party, including, without limitation, our ability to successfully integrate any businesses that we

acquire;

†          changes in deposit rates, the net interest margin, and funding
sources;

†          inflation, interest rate, market, and monetary fluctuations;

†          risks inherent in making loans including repayment risks and value of
collateral;

†          the strength of the United States economy in general and the strength

†          fluctuations in consumer spending and saving habits;

†          the demand for our products and services;

†          technological changes;

†          the challenges and uncertainties in the implementation of our
expansion and development strategies;

†          the ability to increase market share;

†          the adequacy of expense projections and estimates of impairment loss;

†          the impact of changes in accounting policies by the Securities and
Exchange Commission;

†          unanticipated regulatory or judicial proceedings;

†          the potential negative effects of future legislation affecting

† the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System;

† the timely development and acceptance of products and services, including products and services offered through alternative delivery channels such as the Internet;

† the impact on our business, as well as on the risks set forth above, of various domestic or international military or terrorist activities or conflicts;

† other factors described in this report and in other reports we have filed with the Securities and Exchange Commission; and

† Our success at managing the risks involved in the foregoing.

Forward-looking statements speak only as of the date on which they are made. We undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made to reflect the occurrence of unanticipated events.

Executive Summary and Recent Developments

The Company's total assets at September 30, 2008, were approximately $986,517,000, which represented an increase of approximately $134,038,000 or 16% from December 31, 2007. Net earnings decreased 74% for the nine months ended September 30, 2008 to $1,551,000 or $0.35 per diluted share compared to $6,002,000 or $1.35 per diluted share for the nine months ended September 30, 2007.

On January 10, 2008, the Company declared a first quarter dividend of $0.03 per share to all shareholders of record as of February 1, 2008. On April 11, 2008, the Company announced a second quarter dividend of $0.03 per share to all shareholders of record as of May 1, 2008. On July 18, 2080, the Company announced a third quarter dividend of $0.03 per share to all shareholders of record as of August 1, 2008. On October 24, 2008, however, the Company announced that it was suspending the fourth quarter dividend. While the dividends were small in comparison to overall earnings, the Company wants to retain appropriate amounts of capital to facilitate the growth of the Bank. Any future determination relating to the Company declaring dividends will be made at the discretion of our Board of Directors and will depend on any statutory and regulatory limitations. In addition, if the Company participates in the TARP Capital Purchase Program as it is currently structured, it will be unable to pay cash dividends on its common stock without prior governmental permission for a period of three years from the date of its participation, unless the issued securities are no longer held by the U.S. Treasury Department.

During the first quarter of 2008, the Company added a wealth management division in anticipation of increasing non-interest income. The Company has hired a seasoned financial advisor to provide financial services including retirement planning, estate planning and asset allocation strategies.

On October 1, 2008, the Company determined that at September 30, 2008 the value of its investment in the preferred stock of the Federal Home Loan Mortgage Corporation ("Freddie Mac") and the Federal National Mortgage Association ("Fannie Mae") was impaired. On September 7, 2008, the United States Department of Treasury and the Federal Housing Finance Agency (the "FHFA") announced, among other things, that Freddie Mac and Fannie Mae were being placed under conservatorship, that control of their management was being given to their regulator, the FHFA, and that Fannie Mae and Freddie Mac were prohibited from paying dividends on their common and preferred stock. Following this announcement, the estimated fair market value of the Company's investment in Freddie Mac and Fannie Mae preferred stock has declined significantly and it remains unclear when and if the value of this investment will improve. The Company has 5,365 shares of Freddie Mac series F preferred stock and 40,000 shares of Fannie Mae series R preferred stock. As of the market close on September 30, 2008, the total market value of these securities declined to $84,725, resulting in an unrealized loss, on a pre-tax basis, to the Company on these securities of $1,165,284. As a result of these events, the Company recorded a non-cash other than temporary impairment on these securities for the quarter ended September 30, 2008 in the amount of $722,477, net of tax benefit. Management utilized tax planning strategies that anticipated future capital gains and enabled the Company to record the deferred tax benefit associated with the impairment.

On September 30, 2008, the Bank issued an aggregate of $950,000 in fixed rate subordinated debentures, which will mature on September 30, 2018, to several bank directors. Interest on the Notes is fixed at 12% per annum, subject to an adjustment by the Bank on or before December 31, 2008 that may increase the annual rate, but such increase will not exceed 12.5%. The interest will be payable semiannually in arrears on June 30 and December 31 of each year. The Bank may redeem all or some of the Notes at any time beginning on September 30, 2013 at a price equal to 100% of the principal amount of such Notes redeemed plus accrued, but unpaid, interest to the redemption date. Payment of the principal on the Notes may be accelerated by holders of the Notes only in the case of the Bank's insolvency or liquidation. There is no right of acceleration in the case of default in payment of principal or interest on the Notes.

The proceeds will be used to help the Bank remain well capitalized under the federal prompt corrective action guidelines. The subordinated debentures qualify as Tier II capital under risk-based capital guidelines.

On October 3, 2008, Congress passed the Emergency Economic Stabilization Act of 2008 ("EESA"), which creates the Troubled Asset Relief Program ("TARP") and provides the U.S. Secretary of the Treasury with broad authority to implement certain actions to help restore stability and liquidity to U.S. markets. The Capital Purchase Program (the "CPP") was announced by the U.S. Treasury on October 14, 2008 as part of TARP. Pursuant to the CPP, the U.S. Treasury will purchase up to $250 billion of senior preferred shares on standardized terms from qualifying financial institutions. The purpose of the CPP is to encourage U.S. financial institutions to build capital to increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy. The CPP is voluntary and requires a participating institution to comply with a number of restrictions and provisions, including standards for executive compensation and corporate governance and limitations on share repurchases and the declaration and payment of dividends on common shares. The CPP allows qualifying financial institutions to issue senior preferred shares to the U.S. Treasury in aggregate amounts between 1 percent and 3 percent of the institution's risk weighted assets ("Senior Preferred Shares"). The Senior Preferred Shares will qualify as Tier 1 capital and rank senior to our common stock. The Senior Preferred Shares will pay a cumulative dividend rate of 5 percent per annum for the first five years and will reset to a rate of 9 percent per annum after year five. The Senior Preferred Shares will be non-voting, other than class voting rights on matters that could adversely affect the shares. The Senior Preferred Shares will be callable at par after three years. Prior to the end of three years, the Senior Preferred Shares may be redeemed with the proceeds from a qualifying equity offering of any Tier 1 perpetual preferred or common stock. U.S. Treasury may also transfer the Senior Preferred Shares to a third party at any time. In conjunction with the purchase of Senior Preferred Shares, Treasury will receive warrants to purchase common stock with an aggregate market price equal to 15 percent of the Senior Preferred Shares. The exercise price on the warrants will be the market price of the participating institution's common stock at the time of issuance, calculated on a 20-trading day trailing average.
Companies participating in the CPP must adopt the U.S. Treasury's standards for executive compensation and corporate governance. The Company is currently evaluating its participation in the CPP.

Financial Condition



The composition of assets and liabilities for the Company is as follows:



                                     September 30,      December 31,
                                         2008               2007           $ Change       % Change
Assets:
Cash and due from banks             $    15,281,314    $    8,059,524    $  7,221,790         89.61 %
Federal funds sold                        1,649,000        11,350,000      (9,701,000 )      -85.47 %
Securities available for sale           101,369,092        74,387,100      26,981,992         36.27 %
Loans, net of unearned income           794,377,447       697,145,715      97,231,732         13.95 %
Cash surrender value of life
insurance                                12,330,493         4,442,044       7,888,449        177.59 %
Goodwill and other intangible
assets                                   22,535,246        22,806,983        (271,737 )       -1.19 %
Total assets                            986,517,310       852,479,064     134,038,246         15.72 %
Liabilities:
Deposits                                846,451,191       705,231,923     141,219,268         20.02 %
Federal funds purchased                     191,000                 -         191,000        100.00 %
Federal Home Loan Bank advances          30,500,000        40,500,000     (10,000,000 )      -24.69 %
Subordinated debentures                     950,000                 -         950,000        100.00 %
Accrued expenses and other
liabilities                               1,809,825         1,908,156         (98,331 )       -5.15 %
Total liabilities                       896,441,917       763,396,552     133,045,365         17.43 %

Loan to Deposit Ratio                         93.85 %           98.85 %

One significant change in the composition of assets was the increase in loans of $97.2 million due to continued growth of the Company. We were able to generate loan growth by increasing loan growth in all regions with the

majority of the increase in the middle Georgia region. Another significant change in the composition of assets was the $7.9 million increase in the cash surrender value of life insurance. The majority of the increase is due to the Company's purchase of $7.5 million additional life insurance policies on several senior bank officers. The most significant change in the composition of liabilities was the increase in deposits, especially time deposits, to fund loan growth. Time deposits, including wholesale and core deposits, are our principal source of funds for loans and investing in securities.

Because of our strong loan demand, we have chosen to obtain a portion of our deposits from outside our market. Our wholesale time deposits represented 47.0% of our deposits as of September 30, 2008 when compared to 40.2% of our deposits as of December 31, 2007. The Company's Fund Management Policy allows for the ratio of wholesale deposits to total deposits to be 60.0%. The Company has been successful in replacing maturing brokered deposits and does not expect to experience significant disintermediation as the brokered deposits mature.

On September 30, 2008, the Bank issued an aggregate of $950,000 in fixed rate subordinated debentures, which will mature on September 30, to several bank directors. Interest on the Notes is fixed at 12% per annum, subject to an adjustment by the Bank on or before December 31, 2008 that may increase the annual rate, but such increase will not exceed 12.5%. The interest will be payable semiannually in arrears on June 30 and December 31 of each year. The proceeds will be used to help the Bank remain well capitalized under the federal prompt corrective action guidelines. The subordinated debentures qualify as Tier II capital under risk-based capital guidelines.

Investment Securities

Securities in our portfolio totaled $101.4 million at September 30, 2008, compared to $74.4 million at December 31, 2007. The most significant growth in the securities portfolio has resulted from the purchase of $44.8 million in mortgage backed securities that have been offset by $12.4 million in U.S. Government Sponsored Enterprises securities being called and/or matured. The majority of the mortgage backed securities purchased consist of U.S. Government National Mortgage Association ("Ginnie Mae") securities. At September 30, 2008, the securities portfolio had unrealized net gains of approximately $119 thousand.

The following table shows the carrying value of the investment securities at September 30, 2008 and December 31, 2007.

                                          September 30,     December 31,
                                              2008              2007
                                              (Amounts in Thousands)
Securities available for sale:
U. S. Government Sponsored Enterprises   $        18,112   $       27,493
U. S. Treasury Securities                            253              254
State, County and Municipal                       20,826           21,346
Mortgage-backed Securities                        61,838           23,844
Other Investments                                    340            1,450
Total                                    $       101,369   $       74,387

Loans

Our loan demand continues to be strong. Total loans increased $97.5 million or 14% from December 31, 2007 to September 30, 2008. The increase in loans in 2008 is attributable to our branching efforts along with the lending efforts of our senior management lending team. The following table presents a summary of the loan portfolio by category.

                                                     September 30,     December 31,
                                                         2008              2007
                                                         (Dollars in Thousands)
Commercial                                          $        72,296   $       69,079
Real estate - commercial                                    310,460          259,070
Real estate - construction                                  313,783          292,152
Real estate - mortgage                                       89,103           67,898
Obligations of political subdivisions in the U.S.               345              290
Consumer                                                      8,981            8,934
Total Loans                                                 794,968          697,423
Less:
Unearned loan fees                                             (591 )           (277 )
Allowance for loan losses                                   (10,312 )         (8,879 )
Loans, net                                          $       784,065   $      688,267

Asset Quality

Management considers asset quality to be of primary importance. Management has a credit administration and loan review process, which monitor, control and measure our credit risk, standardized credit analyses and our comprehensive credit policy. As a result, management believes they have a good understanding of the asset quality, an established warning and early detection system regarding the loans and a comprehensive analysis of the allowance for loan losses.

The following table presents a summary of changes in the allowance for loan losses for the three and nine-month periods ended September 30, 2008 and 2007.

                Analysis of Changes in Allowance for Loan Losses



                                         Three Months Ended September 30,         Nine Months Ended September 30,
                                            2008                 2007                 2008                2007
                                                                  (Amounts in Thousands)
Balance beginning of period           $           9,734    $           9,163    $          8,879    $          7,258
Loans charged-off                                  (349 )                (75 )              (934 )              (621 )
Recoveries                                           20                   39                 112                 258
Net charge-offs                                    (329 )                (36 )              (822 )              (363 )
Provision for loan losses                           907                   48               2,255                 640
Allowance from purchase
acquisition                                           -                    -                   -               1,640
Balance end of period                 $          10,312    $           9,175    $         10,312    $          9,175

Total Loans:
At period end                         $         794,377    $         662,605    $        794,377    $        662,605
Average                                         804,406              654,236             755,685             631,404

As a percentage of average loans
(annualized):
Net charge-offs                                    0.16 %               0.02 %              0.15 %              0.08 %
Provision for loan losses                          0.45 %               0.03 %              0.40 %              0.14 %
Allowance as a percentage of
period end loans                                   1.30 %               1.38 %              1.30 %              1.38 %
Allowance as a percentage of
non-performing loans                             118.27 %             261.57 %            118.27 %            261.57 %

Management believes that the allowance for loan losses at September 30, 2008 is adequate to absorb losses inherent in the loan portfolio. This assessment involves uncertainty and judgment; therefore, the adequacy of the allowance for loan losses cannot be determined with precision and may be subject to change in future periods. In addition, bank regulatory authorities, as part of their periodic examination of the Bank, may require adjustments to the provision for loan losses in future periods if, in their opinion, the results of their review warrant such additions.

Nonperforming assets consist of non-accrual loans, accruing loans 90 days past due, repossessed assets and other real estate owned. The following summarizes non-performing assets:

                                   September 30.     December 31,
                                       2008              2007
Accruing loans 90 days past due   $             -   $      504,783
Non-accrual loans                       8,718,913        4,276,950
Repossessed assets                         23,783                -
Other real estate                       3,862,925          758,787
Total non-performing assets       $    12,605,621   $    5,540,520

Nonperforming assets increased $7.1 million or 128% from December 31, 2007 to September 30, 2008. In July 2008, management placed one loan with a balance of approximately $5.5 million on non-accrual that is secured by a condominium complex and other commercial real estate property appraised at approximately $7.3 million. Management is continuously monitoring the non-accrual loans to minimize any losses.

At September 30, 2008, the Company's other real estate consisted of the following:

1-4 Family residential properties             3   $ 2,898,768
Construction & land development properties    8       964,157
Total                                        11   $ 3,862,925

All properties are being actively marketed for sale and management is continuously monitoring these properties in order to minimize any losses.

The Company's policy is to place loans on non-accrual status when it appears that the collection of interest in accordance with the terms of the loan is doubtful. Any loan which becomes 90 days past due as to principal or interest is automatically placed on non-accrual. Exceptions are allowed for 90-day past due loans when such loans are well secured and in process of collection. Other Real Estate is defined as real estate acquired as salvage on uncollectible loans. At the time of foreclosure, an appraisal is obtained on the real estate. The amount charged to Other Real Estate will be the lower of appraised value or recorded investment in the loan satisfied. The recorded investment is the unpaid balance of the loan, increased by accrued and uncollected interest, unamortized premium, finance charges, and loan acquisition costs, if any, and decreased by previous direct write down and unamortized discount. Any excess of the recorded investment in the loan satisfied over the appraised value of the property must be charged to allowance for loan losses.

Goodwill

The Company reviews its goodwill for impairment annually, or more frequently if circumstances indicate that goodwill has been impaired. During the last four quarters, the Company's stock price has traded below its per-share book value and it has also fallen below tangible book value for a short period of time. Management believes that the low stock price is more indicative of uncertainty about the economic environment rather than the value of the Company's underlying business. Although the Company has not performed a complete goodwill impairment assessment, management does not believe that goodwill is impaired. The current economic environment has resulted in lower earnings due mainly to the effect of the Federal Reserve's action in lowering short-term rates starting in the

second quarter of 2007. Management believes that the value of the Company's business remains intact and that earnings should return to past levels when the economic environment recovers. The Company will complete a full goodwill impairment assessment during the fourth quarter of 2008.

Deposits

Total deposits at September 30, 2008 were $846.5 million, an increase of $141.2 million, or 20%, from December 31, 2007. Total interest bearing demand and savings accounts of $152.9 million increased $34.0 million, or 29%, resulting mainly from our branching efforts and our emphasis on increasing core deposits.

Total time deposits as of September 30, 2008 were $646.7 million, an increase of $106.3 million, or 20%, from December 31, 2007. Total retail time deposits at September 30, 2008 decreased approximately $10.0 million, or 2% of total time deposits, from December 31, 2007 due to competitive rates drawing customers to other financial institutions. The weighted average rates paid for retail time deposits for the three and nine months ended September 30, 2008 were 4.07% and 4.55%, respectively, compared to 5.27% and 5.15% for the three and nine months ended September 30, 2007, respectively. Total wholesale deposits at September 30, 2008 increased approximately $116.4 million, or 22% of total time deposits, from December 31, 2007, resulting mainly from our need to fund our loan growth during the second quarter of 2008. The weighted average rates paid . . .