For further information about the Corporation, see selected statistical information on pages 13 - 33 of this report on Form 10-K.

Overview

The Corporation is a full-service community bank holding company headquartered in Moultrie, Georgia. The community of Moultrie has been served by the Bank since 1928. We provide comprehensive financial services to consumer, business and governmental customers, which, in addition to conventional banking products, include a full range of mortgage banking, trust, investment and insurance services. Our primary market area incorporates Colquitt County, where we are headquartered, and Baker, Lowndes, Thomas, and Worth Counties, each contiguous with Colquitt County, and the surrounding counties of southwest Georgia. We have four full service banking facilities, a loan production office, and six automated teller machines.

Our strategy is to:

* maintain the diversity of our revenue, including both interest and noninterest income through a broad base of business,
* strengthen our sales and marketing efforts while developing our employees to provide the best possible service to our customers,
* expand our market share where opportunity exists, and
* grow outside of our current geographic market either through de-novo branching or acquisitions into areas proximate to our current market area.

We believe that investing in sales and marketing in this challenging market will provide us with a competitive advantage. To that end, we have continued with our plans to expand geographically with a loan production office in Valdosta, Georgia. We have leadership in place and have identified a permanent site for a de novo branch.

The Corporation's profitability, like most financial institutions, is dependent to a large extent upon net interest income, which is the difference between the interest received on earning assets, such as loans, securities and federal funds sold, and the interest paid on interest-bearing liabilities, principally deposits and borrowings. Net interest income is highly sensitive to fluctuations in interest rates. For example, after holding the overnight borrowing rate for banks at 5.25% for eight months of 2007, the Federal Reserve Bank decreased short-term interest rates by 5% to 0.25% from September 2007 to the end of 2008.

Our profitability is impacted as well by operating expenses such as salaries and employee benefits, occupancy and income taxes. Our lending activities are significantly influenced by regional and local factors such as changes in population, competition among lenders, interest rate conditions and prevailing market rates on competing uses of funds and investments, customer preferences and levels of personal income and savings in the Corporation's primary market area.

To address interest rate fluctuations, we manage our balance sheet in an effort to diminish the impact should interest rates suddenly change. In addition, broadening our revenue sources helps to reduce the risk and exposure of our financial results to the impact of changes in interest rates, which is outside of our control. Sources of noninterest income include our insurance agency and Empire, the Corporation's commercial mortgage banking subsidiary, as well as fees on customer accounts, and trust and retail brokerage services. In 2008, noninterest income was 15.4% of net interest income.

We continually focus on asset quality and realized improvement in 2008 with non-performing assets declining from the previous year. At the end of 2008, the majority in non-performing assets was one large loan placed on interest nonaccrual in late 2007. This loan was partially charged-off during the fourth quarter of 2008.

Since mid-2007, and particularly during the second half of 2008, the financial markets and economic conditions generally were materially and adversely affected by significant declines in the values of nearly all asset classes and by a serious lack of liquidity. This was initially triggered by declines in home prices and the values of subprime mortgages, but spread to all commercial and residential mortgages as property prices declined rapidly and to nearly all asset classes. The effect of the market and economic downturn also spread to other areas of the credit markets and in the availability of liquidity. The magnitude of these declines led to a crisis of confidence in the financial sector as a result of concerns about the capital base and viability of certain financial institutions. During this period, interbank lending and commercial paper borrowing fell sharply, precipitating a credit freeze for both institutional and individual borrowers. Unemployment has also increased significantly.

Critical Accounting Policies

In the course of the Corporation's normal business activity, management must select and apply many accounting policies and methodologies that lead to the financial results presented in the consolidated financial statements of the Corporation. Management considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy because of the uncertainty and subjectivity inherent in estimating the levels of allowance needed to cover probable credit losses within the loan portfolio and the material effect that these estimates have on the Corporation's results of operations. We believe that the allowance for loan losses as of December 31, 2008 is adequate, however, under adversely different conditions or assumptions, future additions to the allowance may be necessary. There have been no significant changes in the methods or assumptions used in our accounting policies that would have resulted in material estimates and assumptions changes. Note 1 to the Consolidated Financial Statements provides a description of our significant accounting policies and contributes to the understanding of how our financial performance is reported.

Results of Operations

Performance Summary

Net loss for 2008 was $1.3 million, a decrease of approximately $3.0 million when compared with net income of $1.7 million in 2007. The decrease in annual net income was largely attributable to a $4.105 million non-cash loss on the impairment of equity securities and a $1.002 million loss at our mortgage banking subsidiary recognized during the third quarter of 2008. The non-cash loss on the impairment of equity securities was due to the devaluation of Fannie Mae and Freddie Mac preferred stock that we held in our security portfolio. These securities lost value as a result of the U.S. Government's actions to place these government sponsored enterprises in conservatorship, and mark-to-market accounting rules require such a non-cash impairment loss to be reported through income. The loss related to the mortgage banking subsidiary was realized as a result of covering other shortfalls of participant banks from a sale of foreclosed commercial property. Also, negatively impacting net income was a provision for loan losses of $825 thousand taken during the fourth quarter of 2008. This provision resulted from a $785 thousand partial charge-off related to a large commercial real estate loan. These decreases in net income were partially offset by an increase in net interest income of $688 thousand mainly attributed to lower interest expense on deposits. On a per share basis, we had a net loss in 2008 of $0.50 per diluted share compared with net income of $0.66 per diluted share for 2007.

Net income for 2007 was $1.7 million, a decrease of approximately $1.3 million, or 43%, when compared with $3.0 million in 2006. Our net income was down primarily as a result of a $1.6 million loss sustained during the fourth quarter by the Corporation's commercial mortgage banking subsidiary realized from its covering of the shortfall of participant banks related to a sale of foreclosed commercial property. Also, other decreases in annual net income were attributable to a decrease in interest income related to a lower earning asset base and a 30% decline in revenue from mortgage banking services. This decline was partially offset by a $248 thousand gain on the sale of the Corporation's retail credit card portfolio in September 2007. The sale of the credit card portfolio was a move to reduce the risk profile of the Bank. On a per share basis, net income for 2007 was down to $0.66 per diluted share compared with $.96 per diluted share for 2006.

We measure our performance on selected key ratios, which are provided for the last three years in the following table:

                                              2008      2007     2006
Return on average total assets               (.46)%     .60%     1.00%
Return on average shareholders' equity      (5.04)%    6.17%     8.01%
Average shareholders' equity to
 average total assets                         9.21%    9.68%    12.45%
Net interest margin (tax equivalent)          4.04%    3.62%     3.66%

Net Interest Income

Net interest income after the provision for loan losses for 2008 decreased $138 thousand, or 1.6%, when compared with 2007. The benefit of reduced costs of funds was more than offset by the $825 thousand provision for loan loss which was necessary due to the charge-offs experienced in the fourth quarter of 2008. Excluding the provision for loan loss, net interest income would have increased by $687 thousand. Another factor contributing to the decline in net interest income was the decrease in interest and fees on loans of $753 thousand. Interest and fees on loans were impacted by a 5% drop in the prime rate since September 2007, which reduced interest earned on variable and adjustable rate loans. In addition, the Bank holds one large loan that was placed on interest nonaccrual status in late 2007. The decrease in interest on securities was mainly due to the $26.4 million drop in the average volume of investments.

These decreases in interest income were offset by $1.5 million in lower interest expense on interest-bearing liabilities. The bulk of this decrease was in interest on deposits due to a declining interest rate environment. The average rate paid on average time deposits of $96 million decreased 67 basis points compared with 2007.

Net interest income after the provision for loan losses for 2007 decreased $737 thousand, or 7.6%, compared with 2006. Major factors contributing to the decline in net interest income compared with 2006 were (1) a decline of $854 thousand in interest income on a lower volume of investment securities. This lower average volume was mainly due to the selling of $14 million of investment securities in the last half of 2006 to fund the stock tender offer and investment securities maturing in 2007 from which proceeds were not reinvested in new investment securities, and (2) a $593 thousand increase in interest expense primarily related to higher rates on deposits and debt. An increase of 61 basis points was paid on $94 million of average time deposits and 57 basis points increase were paid on $32 million of average debt.

Partly offsetting the lower interest income on investment securities and higher interest expense was increased interest income from loans in 2007 compared with 2006. The majority of the increase in loan interest income for the year resulted from a combination of volume and yield components. Average loan volumes increased $8.1 million, or 6.9%, and the yield increased 27 basis points to 8.29%, resulting in an increase in interest income of $914 thousand.

Net Interest Margin

Net interest margin, which is the net return on earning assets, is a key performance ratio for evaluating net interest income. It is computed by dividing net interest income by average total earning assets.

Net interest margin improved to 4.04% for 2008, a 42 basis point increase from 2007. Net interest margin was 3.62% for 2007, a 4 basis point decrease from 3.66% in 2006. This improvement in margin was impacted by the lower interest rate environment on interest-bearing deposits along with the volume growth in loans and increase in yields on purchased securities.

Noninterest Income

Noninterest income is an important contributor to net earnings.  The
following table summarizes the changes in noninterest income during the past
three years:
                                     2008             2007             2006
                                          (Dollars in Thousands)
                                Amount % Change  Amount % Change  Amount % Change
Service charges on deposit
 accounts                      $ 1,608   (7.4)%  $1,736    1.2%   $1,716   10.5%
Income from trust services         269   (5.9)      286   (3.1)      295   (3.3)
Income from retail brokerage
 services                          341   (1.5)      346   16.9       296   11.7
Income from insurance services   1,102   (4.2)    1,150   (1.5)    1,167    4.9
Income from mortgage banking
 services                        2,021  (28.2)    2,814  (29.3)    3,978   (9.9)
Gain (loss) on the sale or
 abandonment of assets              13     NM       (97)    NM        15   87.5
Gain (loss) on the sale of
 credit card portfolio               0 (100.0)      248  100.0         0    0.0
Gain (loss) on the sale of
 securities                          0    0.0         0  100.0      (564)(100.0)
Gain (loss) on the impairment
 of equity securities           (4,105)(100.0)        0    0.0         0    0.0
Other income                       226   (2.6)      232   12.1       207    1.5

Total noninterest income       $ 1,475 ( 78.0)%  $6,715   (5.6)%  $7,110   (9.6)%

For 2008, total noninterest income was $1.475 million compared with $6.715 million for 2007. The majority of the decline was a result of the $4.105 million non-cash loss on the impairment of Fannie Mae and Freddie Mac preferred stock recognized in the third quarter of 2008. The securities lost value as a result of the U.S. Government's actions to place these government sponsored enterprises in conservatorship. In addition, mortgage banking services income decreased $793 thousand, or 28.2%, in 2008, as the credit crisis has made the mortgage funding environment challenging and has restricted loan opportunities. Revenue from service charges on deposit accounts decreased $128 thousand, and income from insurance services and trust services decreased $48 thousand and $17 thousand, respectively, when compared with the same period last year.

For the year 2007, total noninterest income was $6.715 million compared with $7.110 million for 2006. The majority of the decline occurred in mortgage banking services revenue, which decreased $1.164 million, or 29.3%, from the same period last year. Also, there was a net loss of $97 thousand in sales of foreclosed property primarily related to the sale of one large commercial property. Other year over year decreases in revenue included trust services and insurance services. The declines in revenue were partially offset by a $248 thousand gain on the sale of the retail credit card portfolio in 2007. In addition, retail brokerage services income had growth of $50 thousand, or 16.9%, and income from service charges on deposit accounts grew $20 thousand, or 1.2%, when compared with the prior year. Additionally, noninterest income in 2006 was negatively impacted by a nonrecurring $564 thousand loss on the sale of securities to fund the Corporation's stock tender offer in that year.

Noninterest Expense

Noninterest expense includes all expenses of the Corporation other than
interest expense, provision for loan losses and income tax expense. The
following table summarizes the changes in the noninterest expenses for the
past three years:
                                    2008            2007             2006
                                            (Dollars in Thousands)
                                         %               %               %
                                Amount Change   Amount Change   Amount Change
Salaries and employee benefits $ 7,152   2.0 % $ 7,011 ( 3.6)% $ 7,276  (0.7)%
Occupancy expense                  863   2.7       840   0.6       835   3.1
Equipment expense                  694   7.1       648   2.7       631  (3.8)
Data processing expense            643 ( 6.3)      686 ( 1.2)      694  (4.3)
Amortization of intangible
 assets                            227 (51.4)      467 (49.1)      917  86.8
Losses related to mortgage
 banking services                  979 (38.3)    1,587 100.0         0   0.0
Other operating expenses         2,631  11.3     2,364 (10.2)    2,632  10.8
Total noninterest expense      $13,189 ( 3.0)% $13,603   4.8 % $12,985   4.9 %

Total noninterest expense decreased $414 thousand to $13.2 million in 2008 compared with the same period last year. The major cause of the decrease in noninterest expense was a reduction in losses related to mortgage banking services of $608 thousand in 2008. The decline of amortization of intangible assets of $240 thousand reflects the full amortization of the mortgage banking intangibles in 2008. These decreases are partially offset by increases in salaries and employee benefits and other operating expenses. The increase in salaries and employee benefits was primarily due to the settlement of a compensation agreement and the staffing of our new loan production office in Valdosta, Georgia. Other operating expenses were up due to higher legal fees as it relates to mortgage banking services as well as operating expenses relating to the Valdosta loan production office.

Total noninterest expense increased $618 thousand, or 4.8%, in 2007 compared with 2006. The majority of this increase was related to the $1.587 million loss sustained during the fourth quarter by the Corporation's commercial mortgage banking subsidiary realized as a result of covering the shortfall of participant banks related to the sale of foreclosed commercial property.

This increase was partially offset by decreases in salary and employee benefits, amortization of intangible assets, and other operating expenses. Salaries and employee benefits decreased as a result of a lower amount required to fund the pension plan in 2007 of $520 thousand, compared with $1.184 million in 2006. Also, 2006 was the last year of contributions to the deferred compensation plan, resulting in a $200 thousand expense reduction in 2007. Another factor in the decrease in salaries and employee benefits was the decrease in officer performance compensation primarily related to the mortgage banking subsidiary's lower profitability in 2007 compared with 2006. In 2007, the officer performance compensation was $367 thousand compared with $676 thousand in 2006. Amortization of intangible assets decreased $450 thousand to $467 thousand in 2007. This reduction resulted from returning to a normal level after accelerating the amortization of our mortgage servicing assets due to the large payoffs of serviced loans in 2006. Other operating expenses declined $268 thousand compared with 2006 due to professional services related to the tender offer and to pension consulting expenses in 2006.

The efficiency ratio (noninterest expense divided by total noninterest income plus net interest income), a measure of productivity, increased to 113.15% for 2008, from 84.3% for 2007 and 75.5% for 2006. The higher efficiency ratio was primarily due to the loss related to mortgage banking services and lower revenue as a result of the non-cash impairment loss on equity securities. Excluding these items, the adjusted efficiency ratios would have been 77.3% for 2008 compared with 74.5% for 2007.

Federal Income Tax Expense

The Corporation had a benefit of $1.659 million for federal income taxes in 2008 compared with an expense of $307 thousand and $734 thousand for the years ending December 31, 2007, and 2006, respectively. These amounts resulted in an effective tax rate of (56.4)%, 15.2% and 19.5%, for 2008, 2007, and 2006, respectively. See Note 10 of the Corporation's Notes to Consolidated Financial Statements for further details of tax expense.

Uses and Sources of Funds

The Corporation, primarily through the Bank, acts as a financial intermediary. As such, our financial condition should be considered in terms of how we manage our sources and uses of funds. Our primary sources of funds are deposits and borrowings. We invest our funds in assets, and our earning assets are what provide us income.

During 2008, total average assets decreased $12.3 million, or 4.3%, to $275.4 million. The Corporation's earning assets, which include loans, investment securities, deposits at the Federal Home Loan Bank, and federal funds sold averaged $252.2 million in 2008, a 3.1% decrease over $260.2 million in 2007. This decrease was primarily the result of decreased average volume in investment securities due to improved average loan volume, federal funds sold, and deposits at the Federal Home Loan Bank. The earning asset mix shifted towards higher average loans. For 2008, average earning assets were comprised of 52% loans, 42% investment securities, and 6% federal funds sold and balances held at the Federal Home Loan Bank. The ratio of average earning assets to average total assets increased slightly to 91.6% for 2008 compared with 90.4% for 2007.

Loans

Loans are one of the Corporation's largest earning assets and uses of funds.
Because of the importance of loans, most of the other assets and liabilities
are managed to accommodate the needs of the loan portfolio.  During 2008,
average loans represented 52% of average earning assets and 49% of average
total assets.

The composition of the Corporation's loan portfolio at December 31, 2008,
2007, and 2006 was as follows:
                             2008             2007             2006
                                     (Dollars in Thousands)
                                  %                %                %
    Category            Amount  Change   Amount  Change   Amount  Change
Commercial, financial,
 and agricultural      $ 26,375  20.7 % $ 21,851   4.4 % $ 20,938  69.3 %
Real estate:
  Construction           18,357  58.7 %   11,564 (12.6)%   13,238  24.1 %
  Commercial             43,054  13.2 %   38,038 (16.4)%   45,506  34.4 %
  Residential            45,192  41.5 %   31,936   0.0 %   31,942  (5.4)%
  Agricultural            8,640  19.0 %    7,258  30.2 %    5,576  (4.7)%
Installment               7,481 (10.9)%    8,397   0.7 %    8,336   2.9 %
   Total loans         $149,099  25.3 % $119,044  (5.2)% $125,536  20.0 %

Total loans significantly increased $30 million while average total loans increased $7.4 million in 2008 compared with 2007 due to an increase in loan demand mainly in construction and residential real estate loans. We grew total loans by 25% due to stronger loan demand in our local market. Of the $30.1 million of increase, $13 million were in the Valdosta, Georgia market where we opened a loan production office. The ratio of total loans to total deposits at year end increased to 69.5% in 2008 compared with 54.9% in 2007. The loan portfolio mix at year end 2008 consisted of 12.3% loans secured by construction real estate, 28.9% loans secured by commercial real estate, 30.3% of loans secured by residential real estate, and 5.8% of loans secured by agricultural real estate. The loan portfolio also included other commercial, financial, and agricultural purposes of 17.7% and installment loans to individuals for consumer purposes of 5%.

Allowance and Provision for Possible Loan Losses

The allowance for loan losses represents our estimate of the amount required for probable loan losses in the Corporation's loan portfolio. Loans, or portions thereof, which are considered to be uncollectible are charged against this allowance and any subsequent recoveries are credited to the allowance. There can be no assurance that the Corporation will not sustain losses in future periods which could be substantial in relation to the size of the allowance for loan losses at December 31, 2008.

We have a loan review program in place which provides for the regular examination and evaluation of the risk elements within the loan portfolio. The adequacy of the allowance for loan losses is regularly evaluated based on the review of all significant loans with particular emphasis on nonaccruing, past due, and other potentially impaired loans that have been identified as possible problems.

The allowance for loan losses was $2.376 million, or 1.6% of total loans outstanding, as of December 31, 2008. This level represented a $23 thousand decrease from the corresponding 2007 year-end amount which was 2% of total loans outstanding.

There was a provision for loan losses of $825 thousand in 2008 and no provision for loan losses in 2007. The provision was related to a partial charge-off of a large commercial real estate loan in the fourth quarter of 2008. Our assessment of the adequacy of the allowance to absorb possible losses in the loan portfolio resulted in not having to provide for losses in 2007. See Note 3 of the Corporation's Notes to Consolidated Financial Statements for details of the changes in the allowance for loan losses.

Investment Securities

The Corporation's investment securities consist largely of U.S. Government sponsored pass-thru mortgage-backed securities and U.S. Government Agency bonds. The investment portfolio serves several important functions for the Corporation. Investments in securities are used as a source of income to complement loan demand and to satisfy pledging requirements in the most profitable way possible. The investment portfolio is a source of liquidity when loan demand exceeds funding availability, and is a vehicle for adjusting balance sheet sensitivity to cushion against adverse rate movements. Our investment policy attempts to provide adequate liquidity by maintaining a portfolio with significant cash flow for reinvestment.

The following table summarizes the contractual maturity of investment securities as of December 31, 2008:

Amounts Maturing In:               Securities            Securities
 (Dollars in Thousands)         Available for Sale    Held to Maturity
One year or less                    $    204              $  5,000
After one through five years           8,559                 1,301
After five through ten years          13,713                 5,222
After ten years                       60,623                   585
Equity securities                        113                     0
Total investment securities         $ 83,212              $ 12,108

The total investment portfolio decreased to $96.9 million from $121.1 million at year-end 2008 compared with year-end 2007, a decrease of $24.2 million, or 20%. The majority of this decrease was due to the maturing of $7 million of U.S. Government Agency securities and the calling, by the issuer, of approximately $88 million of U.S. Government Agency securities during 2008. With some of the proceeds, we purchased $82.3 million of securities of which the majority were in U.S. Government sponsored mortgage-backed securities. Other purchases were of U.S. Government Agency bonds, corporate notes, and preferred stock issues. The average total investment portfolio decreased $26.4 million to $105.4 million in 2008 compared with $131.8 million for 2007.

We will continue to actively manage the size, components, and maturity structure of the investment securities portfolio. Future investment strategies will continue to be based on profit objectives, economic conditions, interest rate risk objectives, and balance sheet liquidity demands.

Nonperforming Assets

Nonperforming assets are defined as nonaccrual loans, loans that are 90 days past due and still accruing, renegotiated loans, potential problem loans and property acquired by foreclosure. The level of nonperforming assets decreased $370 thousand at year-end 2008 compared with year-end 2007. This decrease primarily resulted from the partial charge-off of $785 thousand on the one large loan placed in nonaccrual loans in late 2007. Nonperforming assets were approximately $2.942 million, or 1.10% of total assets as of December 31, 2008, compared with $3.312 million, or 1.22% of total assets at year-end 2007.

Deposits and Other Interest-Bearing Liabilities

. . .