SouthCrest Financial Group, Inc. (SCSG) 10-Q 2006 Q2 Quarterly report

U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2006

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

For the transition period from to

Commission File Number: 000-51287

SOUTHCREST FINANCIAL GROUP, INC.

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

Georgia	58-2256460
(State or other jurisdiction of  incorporation or organization)	(IRS Employer  Identification No.)

600 North Glynn Street

Fayetteville, GA 30214

(Address of principal executive offices)

(770)-461-2781

(Issuer’s telephone number)

____________________________________________________

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

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

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

Large Accelerated Filer   oAccelerated Filer  oNon-Accelerated Filer   x

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

State the number of shares outstanding of each of the issuer’s classes of common equity, as of August 14, 2006: 3,581,193.

SouthCrest Financial Group, Inc.

And Subsidiaries

INDEX

			Page
Part I.	FINANCIAL INFORMATION
	Item 1.	Condensed Consolidated Financial Statements
		Condensed Consolidated Balance Sheets - June 30, 2006 and December 31, 2005	1
		Condensed Consolidated Statements of Income - Three and Six Months Ended June 30, 2006 and 2005	2
		Condensed Consolidated Statements of Comprehensive Income - Three and Six Months Ended June 30, 2006 and 2005	3
		Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 2006 and 2005	4
		Notes to Condensed Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	17
	Item 4.	Controls and Procedures	17
Part II.	OTHER INFORMATION		17
	Item 1.	Legal Proceedings	17
	Item 1A.	Risk factors.	17
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	17
	Item 3.	Defaults Upon Senior Securities	17
	Item 4.	Submission of Matters to a Vote of Security Holders	18
	Item 5.	Other Information	18
	Item 6.	Exhibits	18
		Signatures	19

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SouthCrest Financial Group, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

June 30, 2006 and December 31, 2005

(Unaudited)

(In thousands, except share and per share data)

Assets	June 30, 2006			December 31, 2005*
Cash and due from banks	$	16,575		$	15,930
Interest-bearing deposits at other financial institutions		3,544			4,039
Federal funds sold		1,102			4,297
Securities available for sale		47,296			45,190
Securities held to maturity (fair value $71,188 and $76,894)		74,169			78,321
Restricted equity securities, at cost		2,136			2,270
Loans held for sale		533			305
Loans, net of unearned income		287,003			276,475
Less allowance for loan losses		3,759			3,477
Loans, net		283,244			272,998
Premises and equipment, net		13,031			11,255
Goodwill		2,665			2,665
Intangible assets, net		3,838			4,248
Other assets		13,086			9,330
Total assets	$	461,219		$	450,848
Liabilities, Redeemable Common Stock, and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing	$	62,450		$	60,157
Interest-bearing		326,726			317,743
Total deposits		389,176			377,900
Federal Home Loan Bank advances		10,220			15,275
Federal funds purchased		1,595			-
Other liabilities		3,970			3,233
Total liabilities		404,961			396,408
Commitments and contingencies
Redeemable common stock held by ESOP		1,005			984
Stockholders' equity
Common stock, par value $1; 10,000,000 shares authorized, 3,581,193 and 3,581,193 issued, respectively		3,581			3,581
Additional paid-in capital		40,894			40,846
Retained earnings		11,443			9,528
Accumulated other comprehensive loss		(665	)		(499	)
Total stockholders' equity		55,253			53,456
Total liabilities, redeemable common stock, and stockholders' equity	$	461,219		$	450,848

See Notes to Condensed Consolidated Financial Statements.

* Derived from audited consolidated financial statements.

1

SouthCrest Financial Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Income

For The Three and Six Months Ended June 30, 2006 and 2005

(Unaudited)

(In thousands, except share and per share data)

		Three Months				Six Months
		2006		2005		2006		2005
Interest income:
Loans		$	5,524	$	4,243	$	10,715	$	8,178
Securities - taxable			1,224		1,344		2,449		2,616
Securities - nontaxable			111		120		226		245
Federal funds sold			86		52		187		132
Interest-bearing deposits at other banks			50		38		88		71
Total interest income			6,995		5,797		13,665		11,242
Interest expense:
Deposits			2,230		1,471		4,139		2,765
Other borrowings			141		11		321		16
Total interest expense			2,371		1,482		4,460		2,781
Net interest income			4,624		4,315		9,205		8,461
Provision for loan losses			133		152		241		273
Net interest income after provision for loan losses			4,491		4,163		8,964		8,188
	��
Other income:
Service charges on deposit accounts			887		861		1,709		1,609
Other service charges and fees			289		250		549		476
Impairment charge on investments			-		-		-		(600	)
Net gain on sale of loans			37		39		71		78
Other operating income			98		79		150		186
Total other income			1,311		1,229		2,479		1,749
Other expenses:
Salaries and employee benefits			2,011		1,796		3,953		3,491
Equipment and occupancy expenses			380		381		753		748
Amortization of intangibles			202		206		410		551
Other operating expenses			1,092		1,030		2,114		2,024
Total other expenses			3,685		3,413		7,230		6,814
Income before income taxes			2,117		1,979		4,213		3,123
Income tax expense			691		621		1,381		946
Net income		$	1,426	$	1,358	$	2,832	$	2,177
Basic and diluted earnings per share		$	0.40	$	0.38	$	0.79	$	0.61
Dividends per share		$	0.125	$	0.120	$	0.250	$	0.240
Basic and diluted average shares outstanding			3,581,193		3,571,556		3,581,193		3,571,556

See Notes to Condensed Consolidated Financial Statements.

2

SouthCrest Financial Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

For The Three and Six Months Ended June 30, 2006 and 2005

(Unaudited)

(In thousands)

	Three Months					Six Months
	2006			2005		2006			2005
Net income	$	1,426		$	1,358	$	2,832		$	2,177
Other comprehensive income:
Unrealized holding gains (losses) on securities available for sale arising during the period, net of taxes of $(112), $133, $(100), and $267		(187	)		222		(166	)		375
Comprehensive income	$	1,239		$	1,580	$	2,666		$	2,552

See Notes to Condensed Consolidated Financial Statements.

3

SouthCrest Financial Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

For The Six Months Ended June 30, 2006 and 2005

(Unaudited)

(In thousands)

	2006			2005
OPERATING ACTIVITIES
Net income	$	2,832		$	2,177
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		384			382
Amortization of intangibles		410			551
Other amortization		120			186
Provision for loan losses		241			273
Impairment loss on investment securities		-			600
Stock compensation expense		48			-
Deferred income taxes		(273	)		(401	)
Income on bank-owned life insurance		(92	)		(76	)
Net gain on sale of loans		(71	)		(78	)
(Increase) decrease in interest receivable		(117	)		149
Increase (decrease) in income taxes payable		50			183
Increase in interest payable		338			130
Originations of mortgage loans held for sale		(7,159	)		(5,942	)
Proceeds from sales of mortgage loans held for sale		7,002			6,307
Other assets and liabilities, net		472			(439	)
Net cash provided by operating activities		4,185			4,002
INVESTING ACTIVITIES
Purchases of securities held to maturity		-			(8,667	)
Proceeds from maturities of securities held to maturity		4,096			8,411
Purchases of securities available for sale		(4,000	)		(12,001	)
Proceeds from maturities of securities available for sale		1,502			4,053
Proceeds from redemption of restricted equity securities		134			-
Purchases of restricted equity securities		-			(668	)
Net decrease in interest-bearing deposits in banks		495			692
Net decrease in federal funds sold		3,195			9,930
Net increase in loans		(10,593	)		(17,830	)
Purchase of premises and equipment		(2,160	)		(1,623	)
Proceeds from sale of other real estate owned		472			113
Purchase of life insurance contracts		(3,601	)		-
Net cash used in investing activities		(10,460	)		(17,590	)
FINANCING ACTIVITIES
Net increase in deposits		11,276			12,619
Principal repayments on Federal Home Loan Bank advances		(5,055	)		(55	)
Net increase in federal funds purchased		1,595			2,060
Proceeds from other borrowings		-			1,500
Dividends paid		(896	)		(857	)
Net cash provided by financing activities		6,920			15,267
Net increase in cash and due from banks		645			1,679
Cash and due from banks at beginning of year		15,930			9,814
Cash and due from banks at end of period	$	16,575		$	11,493

See Notes to Condensed Consolidated Financial Statements.

4

SouthCrest Financial Group, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (continued)

For The Six Months Ended June 30, 2006 and 2005

(Unaudited)

(In thousands)

	2006			2005
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest	$	4,122		$	2,651
Income taxes		1,604			1,165
NONCASH TRANSACTIONS
Principal balances of loans transferred to other real estate owned	$	166		$	184
Increase in redeemable common stock held by ESOP		21			35
Unrealized gain (loss) on securities available for sale, net		(166	)		375

See Notes to Condensed Consolidated Financial Statements.

5

SOUTHCREST FINANCIAL GROUP, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(Unaudited)

NOTE 1 — NATURE OF BUSINESS AND BASIS OF PRESENTATION

SouthCrest Financial Group, Inc. (“SouthCrest or the “Company”) is a bank holding company whose principal activity is the ownership and management of its wholly owned subsidiary banks, Bank of Upson (“Upson”) and The First National Bank of Polk County (“FNB Polk”). Both banks are commercial banks that provide a full range of banking services within their primary market areas. Upson is headquartered in Thomaston, Upson County, Georgia with six branches located in Thomaston, Fayetteville, Manchester, Warm Springs and Luthersville, Georgia, serving its primary market area of Upson, Fayette, Meriwether and the surrounding counties. FNB Polk is located in Cedartown, Polk County, Georgia with two branches in Cedartown, Georgia and one branch in Rockmart, Georgia. FNB Polk primarily serves the market area of Polk County.

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three-month and six month periods ended June 30, 2006 are not necessarily indicative of the results that may be expected for the year ended December31, 2006. For further information, refer to the financial statements and notes included in the Company's consolidated financial statements and notes thereto for the year ended December31, 2005 included in the Company’s annual report on Form 10-KSB (Registration No. 000-51287).

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Bank of Upson and The First National Bank of Polk County. All significant inter-company accounts and transactions have been eliminated in consolidation. Certain reclassifications to prior year balance sheets and income statements have been made to conform to current classifications. These reclassifications have no impact on net income or stockholders’ equity reported for the previous year.

NOTE 2 - EARNINGS PER COMMON SHARE

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number of shares outstanding during the period. 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 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 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.

In December, 2005, the Company granted 183,500 options under the SouthCrest Financial Group, Inc. 2005 Stock Incentive Plan. For the three and six month periods ended June 30, 2006, these options were nondilutive. There were no potential common shares outstanding at or during the period ended June 30, 2005. The weighted average number of shares outstanding for the three and six month periods ended June 30, 2006 and 2005 were 3,581,193 and 3,571,556, respectively.

NOTE 3 - STOCK BASED COMPENSATION

Effective January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based Payment,” (“SFAS No. 123R”) which was issued by the Financial Accounting Standards Board (“FASB”) in December 2004. SFAS No. 123R revises SFAS No. 123 “Accounting for Stock Based Compensation,” and supersedes APB No. 25, “Accounting for Stock Issued to Employees,” (APB No. 25) and its related interpretations. SFAS No. 123R 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. 123R 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. 123R 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. 123R using the modified prospective application as permitted under SFAS No. 123R. 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.

6

Prior to the adoption of SFAS No. 123R, 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.

At June 30, 2006, the Company maintained one share-based compensation plan, the SouthCrest Financial Group, Inc. 2005 Stock Incentive Plan (the “Plan”), approved at the Company’s annual shareholders’ meeting held May 12, 2005. The only grant of options under this Plan was made in December, 2005. The compensation cost that has been charged against income for the Plan during the three and six month periods ending June 30, 2006 was $23,770 and $47,540, respectively. The Company recorded no deferred tax benefit in 2006 because all of the compensation cost was related to incentive (tax qualifying) stock options.

The Plan provides for up to 549,000 shares of common stock to be awarded in the form of stock options. Options are granted at the fair market value of the Company’s common stock on the date of grant. All options under the Plan expire ten years from the date of grant. At December 31, 2005 183,500 options had been granted. Of these options, 104,000 were not tax qualifying and were fully vested on the date of grant, while 79,500 options were tax qualifying and vest over 60 months. At June 30, 2006, 365,500 options were available for grant.

The fair market value of each option award is estimated on the date of grant using the Black-Scholes option pricing model. The Company did not grant options during the three and six month periods ended June 30, 2006.

A summary of option activity under the Plan as of June 30, 2006, and changes during the six month period ended June 30, 2006 is presented below:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at December 31, 2005		183,500	$	23.45		9.75		-
Options granted		-		-		-		-
Options exercised		-		-		-		-
Options forfeited		-		-		-		-
Outstanding at June 30, 2006		183,500	$	23.45		9.75	$	-
Exercisable at June 30, 2006		104,000	$	23.45		9.75	$	-

For the quarter ended June 30, 2006, no options were exercised or became vested.

As of June 30, 2006, there was $427,870 of total unrecognized compensation cost related to non-vested share-based compensation arrangements. That cost is expected to be recognized over a weighted-average period of 4.50 years.

The adoption of SFAS 123R and its fair value compensation cost recognition provisions are different from the nonrecognition provisions under SFAS 123 and the intrinsic value method for compensation cost allowed under APB 25. The effect (increase/(decrease)) of the adoption of SFAS 123R for the three and six month periods ending June 30, 2006 is as follows:

	Three Months			Six Months
Income before income tax expense	$	(23,770	)	$	(47,540	)
Net Income	$	(23,770	)	$	(47,540	)
Cash flow from operating activities	$	-0-		$	-0-
Cash flow from financing activities	$	-0-		$	-0-
Basic earnings per share	$	(0.01	)	$	(0.01	)
Diluted earnings per share	$	(0.01	)	$	(0.01	)

There were no stock options outstanding as of June 30, 2005.

7

NOTE 4 — LOANS RECEIVABLE

The composition of loans at June 30, 2006 and December 31, 2005 is summarized as follows:

(dollars in thousands)	June 30, 2006			December 31, 2005
Commercial, financial, and agricultural	$	18,730		$	19,841
Real estate - construction		55,071			52,122
Real estate - mortgage		176,601			169,555
Consumer		30,819			31,567
Other		5,926			3,554
		287,147			276,639
Unearned income		(144	)		(164	)
Allowance for loan losses		(3,759	)		(3,477	)
Loans, net	$	283,244		$	272,998

NOTE 5 — NEW ACCOUNTING PRONOUNCEMENTS

In November 2005, the FASB issued Staff Position (FSP) FAS 115-1 and FAS 124-1, the Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, which amends SFAS No.115, Accounting for Certain Investments in Debt and Equity Securities, and No.124, Accounting for Certain Investments Held by Not-for-Profit Organizations, and APB Opinion No.18, The Equity Method of Accounting for Investments in Common Stock. This FSP addresses the determination as to when an investment is considered impaired, whether the impairment is other than temporary, and the measurement of an impairment loss. FSP FAS 115-1 and FAS 124-1 also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this FSP is effective for reporting periods beginning after December15, 2005. The adoption of FSP FAS 115-1 and FAS 124-1 did not have a material impact on the Company’s financial condition or results of operations.

In May 2005, the FASB issued SFAS No.154, Accounting Changes and Error Corrections. This statement replaces APB Opinion No.20, Accounting Changes and SFAS No.3, Reporting Accounting Changes in Interim Financial Statements. SFAS No.154 changes the requirements for the accounting for and reporting of a voluntary change in accounting principle. SFAS No.154 requires retrospective application to prior periods for changes in accounting principles or error corrections, unless it is impractical to determine the period-specific effects or when a pronouncement includes specific transition provisions. This Statement is effective for accounting changes and corrections of errors made in fiscal years beginning after December15, 2005. The adoption of SFAS No.154 (revised 2004) did not have a material impact on its financial condition or results of operations of the Company.

NOTE 6 -- IMPAIRMENT OF SECURITIES

In the quarter ended March 31, 2005, the Company recorded an impairment charge of $600,000 on $2.5 million of Federal Home Loan Mortgage Corporation (“Freddie Mac”) and Federal National Mortgage Association (“Fannie Mae”) perpetual preferred stock. The reclassification of an unrealized mark-to-market loss on these securities to an other-than-temporary impairment charge was based upon a detailed impairment analysis of these securities. Losses on the securities were previously recognized in the equity section of the balance sheet.

8

SOUTHCREST FINANCIAL GROUP, INC. AND SUBSIDIARIES

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is management’s discussion and analysis of certain significant factors which have affected the financial position and operating results of SouthCrest Financial Group, Inc. and its bank subsidiaries, Bank of Upson and the First National Bank of Polk County during the period included in the accompanying consolidated financial statements. The purpose of this discussion is to focus on information about our financial condition and results of operations that are not otherwise apparent from our consolidated financial statements. Reference should be made to those statements and the selected financial data presented elsewhere in this report for an understanding of the following discussion and analysis.

Forward Looking Statements

Some of the statements in this Report, including, without limitation, matters discussed under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” of SouthCrest Financial Group, Inc. are “forward-looking statements” within the meaning of the federal securities laws. Forward-looking statements include statements about the competitiveness of the banking industry, potential regulatory obligations, our entrance and expansion into other markets, integration of recently acquired banks, pending or proposed acquisitions, our other business strategies, our expectations with respect to our allowance for loan losses and impaired loans, anticipated capital expenditures for our operations center, and other statements that are not historical facts. When we use words like “anticipate”, “believe”, “intend”, “expect”, “estimate”, “could”, “should”, “will”, and similar expressions, you should consider them as identifying forward-looking statements, although we may use other phrasing. These forward-looking statements involve risks and uncertainties and are based on our beliefs and assumptions, and on the information available to us at the time that these disclosures were prepared. Factors that may cause actual results to differ materially from those expressed or implied by such forward-looking statements include, among others, the following possibilities: (1) competitive pressures among depository and other financial institutions may increase significantly; (2) changes in the interest rate environment may reduce margins; (3) general economic conditions may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduction in demand for credit; (4) legislative or regulatory changes, including changes in accounting standards may adversely affect the businesses in which we are engaged; (5) costs or difficulties related to the integration of our businesses, may be greater than expected; (6) deposit attrition, customer loss or revenue loss following acquisitions may be greater than expected; (7) competitors may have greater financial resources and develop products that enable such competitors to compete more successfully than us; and (8) adverse changes may occur in the equity markets.

Many of such factors are beyond our ability to control or predict, and readers are cautioned not to put undue reliance on such forward-looking statements. We disclaim any obligation to update or revise any forward-looking statements contained in this Report, whether as a result of new information, future events or otherwise.

Critical Accounting Estimates

We have adopted various accounting policies that govern the application of accounting principles generally accepted in the United States in the preparation of our financial statements. Our significant accounting policies are described in the notes to the consolidated financial statements for the year ended December 31, 2005 included in our Form 10-KSB (Registration No. 000-51287). Certain accounting policies involve significant judgments and assumptions by us that have a material impact on the carrying value of certain assets and liabilities. We consider these accounting judgments and assumptions to be our critical accounting estimates. The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Because of the nature of the judgments and assumptions we make, actual results could differ from these judgments and estimates which could have a material impact on our carrying values of assets and liabilities and our results of operations.

We believe the allowance for loan losses is a critical accounting estimate that requires the most significant judgments and assumptions used in preparation of our consolidated financial statements. Because the allowance for loan losses is replenished through a provision for loan losses that is charged against earnings, our subjective determinations regarding the allowance affect our earnings directly. Refer to the portion of this discussion that addresses our allowance for loan losses for a description of our processes and methodology for determining our allowance for loan losses.

The consolidated financial statements include certain accounting and disclosures that require management to make estimates about fair values. Estimates of fair value are used in the accounting for securities available for sale, loans held for sale, intangible assets, and acquisition purchase accounting adjustments. Estimates of fair values are used in disclosures regarding securities held to maturity, stock compensation, commitments, and the fair values of financial instruments. Fair values are estimated using relevant market information and other assumptions such as interest rates, credit risk, prepayments and other factors. The fair values of financial instruments are subject to change as influenced by market conditions.

9

Financial Condition

During the six months ended June 30, 2006, our total assets increased $10.4 million to total assets of $461.2 million at June 30, 2006. During this period, total loans increased $10.5 million, or 3.8%, while loans held for sale increased $228,000. The increase in loans was due to the Company’s continued focus on loan growth. Securities available for sale increased $2.1 million while securities held to maturity decreased $4.2 million. Federal funds sold declined $3.2 million. Other assets increased $3.8 million as a result of a purchase of life insurance policies totaling $3.6 million in the first quarter. These policies were purchased in connection with new deferred compensation arrangements.

Deposits increased $11.3 million or 3.0% while Federal Home Loan Bank advances decreased $5.1 million. At June 30, 2006 we had purchased $1.6 million in federal funds. During the current year, the Company has used cash flows from the increases in deposits along with maturities of securities in the held to maturity portfolio to fund the increases in our loan portfolio and to reduce our advances at the Federal Home Loan Bank. The Company monitors the growth in its loan portfolio and changes in its deposit levels, and seeks to maintain a proper mix of types, maturities, and interest rates. We believe that our cash flows and liquidity levels are adequate to support the Company’s loan growth.

Our total stockholders’ equity has increased by $1,797,000 since December 31, 2005, primarily due to net income for the year to date, net of dividends paid to shareholders. This increase was offset by a $166,000 reduction in the unrealized losses on securities available for sale, net of deferred taxes.

Loan Portfolio. The following table presents various categories of loans contained in First National Bank of Polk County and Bank of Upson's loan portfolios as of June 30, 2006 and December 31, 2005:

(dollars in thousands)	June 30, 2006			December 31, 2005
Commercial, financial, and agricultural	$	18,730		$	19,841
Real estate - construction		55,071			52,122
Real estate - mortgage		176,601			169,555
Consumer		30,819			31,567
Other		5,926			3,554
		287,147			276,639
Unearned income		(144	)		(164	)
Allowance for loan losses		(3,759	)		(3,477	)
Loans, net	$	283,244		$	272,998

Nonaccrual, Past Due and Restructured Loans. The following table presents various categories of nonaccrual, past due and restructured loans in the Banks’ loan portfolios as of June 30, 2006 and December 31, 2005:

(Dollars in thousands)	June 30, 2006		December 31, 2005
Nonaccrual loans	$	1,032	$	232
Loans past due 90 days or
more and still accruing	$	469	$	549
Loans restructured under
troubled debt	$	21	$	153

Nonaccrual loans increased $329,000 during the quarter ended June 30, increasing from $703,000 to $1,032,000. The increase primarily relates to $386,000 in loans to one borrower secured by various rental properties for which the Company has allocated $193,000 in reserves. Additionally, the Company has approximately $586,000 in loans secured by single family dwellings for which the Company believes there is limited risk of loss. In total, the Company has recorded a valuation allowance of $290,000 related to nonaccrual loans at June 30, 2006.

Information regarding impaired loans as of June 30, 2006 and December 31, 2005 are as follows:

10

(Dollars in thousands)	June 30, 2006		December 31, 2005
Impaired loans without a valuation allowance	$	-	$	-
Impaired loans with valuation allowances of $290 and $35, respectively	$	1,032	$	232
Average investment in impaired loans for the period	$	656	$	323

Summary of Loan Loss Experience.An analysis of SouthCrest’s loan loss experience is included in the following table for the periods ended June 30, 2006 and 2005 (dollars in thousands):

Analysis of Allowance for Loan Losses

For The Three and Six Months Ended June 30,

(Dollars in thousands)

	Three Months						Six Months
	2006			2005			2006			2005
Balance at beginning of period	$	3,625		$	3,208		$	3,477		$	3,161
Chargeoffs
Commercial loans		-			-			-			-
Real estate - construction		-			-			-			-
Real estate - mortgage		1			11			1			11
Consumer		77			189			143			287
Other		23			4			59			84
Total Chargeoffs		101			204			203			382
Recoveries
Commercial loans		-			2			-			2
Real estate - construction		5			-			5			-
Real estate - mortgage		-			(2	)		4			-
Consumer		76			94			172			146
Other		21			3			63			53
Total recoveries		102			97			244			201
Net (chargeoffs) recoveries		1			(107	)		41			(181	)
Additions charged to operations		133			152			241			273
Balance at end of period	$	3,759		$	3,253		$	3,759		$	3,253
Annualized ratio of net chargeoffs during the period to average loans outstanding during the period		0.00	%		0.18	%		(0.03	%)		0.16	%

11

Allowance for Loan Losses. The allowance for loan losses as of June 30, 2006 was $3,759,000 compared to $3,477,000 at December31, 2005 and $3,253,000 at June 30, 2005. As a percentage of gross loans, the allowance for loan losses was 1.31% at June 30, 2006 compared to 1.26% as of December31, 2005 and 1.31% at June 30, 2005. The provision for loan losses during the six-month period ended June 30, 2006 of $241,000 was the result of management's assessment of risks inherent in the loan portfolio. Management’s estimate of the allowance for loan losses utilizes a loan grading system to assign a risk grade to each loan based on factors such as the quality of collateral securing a loan, the financial condition of the borrower and the payment history of each loan. Based on net charge-off history experienced for each category within the loan portfolio, as well as general economic factors affecting the lending market, management assigns an estimated allowance range for each risk grade within each of the loan categories. Management then estimates the required allowance, which may also include a portion that is not allocated to a specific category of the loan portfolio, but which management deems is necessary based on the overall risk inherent in the loan portfolio. The estimation of the allowance may change due to fluctuations in the factors noted above as well as changes in the trends of net charge-offs, past due loans, and general economic conditions of the markets served by the Company’s subsidiary banks.

Management considers the allowance for loan losses to be adequate; however, there can be no assurance that charge-offs in future periods will not exceed the allowance for loan losses or that additional provisions of the allowance will not be required.

Results of Operations For The Three and Six Months Ended June 30, 2006 and 2005

Net income for the three-month period ended June 30, 2006 amounted to $1,426,000, or $0.40 basic and diluted earnings per share, compared to net income of $1,358,000 or $0.38 basic and diluted earnings per share for the same three-month period in 2005, an increase of $68,000, or 5.0%. For the six month periods, net income was $2,832,000, or $0.79 basic and diluted earnings per share, compared to net income of $2,177,000 or $0.61 basic and diluted earnings per share for the same six-month period in 2005, an increase of $655,000.

Net Interest Income. Net interest income represents the difference between interest received on interest earning assets and interest paid on interest bearing liabilities.

Net interest income for the three months ended June 30, 2006 increased $309,000 or 7.2% over the same period in 2005. The primary reason for the increase in net interest income is the growth in the average balance of the loan portfolio of $45.2 million during the quarter ended June 30, 2006 compared to the same period in 2005. This growth, along with an increase in the average yield on loans from 7.18% in 2005 to 7.84% in 2006, resulted in a $1.3 million increase in interest income earned on loans in 2006 over 2005. Increases in the prime interest rate, resulting from Federal Reserve increases in the discount rate, contributed to the increase in the loan yield for the 2006 period compared to 2005. The portion of total earning assets comprised by loans increased from 61.1% for the 2005 period to 67.8% for 2006. This change in the mix of our earning assets contributed to the 73 basis point increase in the average yield on earning assets as loans earn a higher rate of interest than investment securities and other earning assets.

The average cost of funds increased 90 basis points to 2.84% for the three months ended June 30, 2006 compared to the same 2005 period. The Company has funded the growth in its loan portfolio with borrowed funds, primarily Federal Home Loan Bank advances, and with certificates of deposit. These sources of funds typically carry higher rates of interest than other sources of funds such as checking and money market accounts. In addition, interest rates on these funds have increased over last year as a result of increases in the Federal Reserve discount rate, and in case of certificates of deposits, competition from other banks for such funds.

These changes resulted in the net yield on earning assets declining 2 basis points from 4.47% for the quarter ended June 30, 2005 to 4.45% for the same period in 2006. The net interest spread decreased from 4.06% in 2005 to 3.89% in 2006.

The following presents, for the three month periods ended June 30, 2006 and 2005, the main components of interest earning assets and interest bearing liabilities and related interest income and expense and effective yields and cost of funds.

12

Average Consolidated Balance Sheets and Net Interest Income Analysis

For the Three Months Ended June 30,

(Dollars in thousands)

	Average Balances (1)						Yields / Rates						Income / Expense				Increase			Change Due to
	2006			2005			2006			2005			2006		2005		(Decrease)			Rate			Volume
Assets
Loans, including fee income	$	282,696		$	237,533			7.84	%		7.18	%	$	5,524	$	4,243	$	1,281		$	418		$	863
Taxable securities		111,707			127,032			4.39	%		4.26	%		1,224		1,344		(120	)		239			(359	)
Nontaxable securities		11,634			12,413			3.83	%		3.89	%		111		120		(9	)		(2	)		(7	)
Federal funds sold		7,253			6,907			4.76	%		3.03	%		86		52		34			31			3
Interest bearing deposits in banks		3,805			4,781			5.27	%		3.20	%		50		38		12			56			(44	)
Total earning assets		417,095			388,666			6.73	%		6.00	%		6,995		5,797		1,198			742			456
Cash and due from banks		11,243			10,218
Allowance for loan losses		(3,686	)		(3,195	)
Other assets		29,720			26,446
Total	$	454,372		$	422,135
Liabilities and Equity
Interest bearing demand (2)	$	112,058		$	116,727			1.62	%		0.94	%	$	452	$	273	$	179		$	253		$	(74	)
Savings		35,092			37,684			0.58	%		0.48	%		51		45		6			23			(17	)
Certificates of deposit		176,705			152,194			3.92	%		3.05	%		1,727		1,153		574			367			207
Total interest bearing deposits		323,855			306,605			2.76	%		1.93	%		2,230		1,471		759			643			116
Borrowed funds		11,137			884			5.08	%		5.00	%		141		11		130			-			130
Total interest bearing liabilities		334,992			307,489			2.84	%		1.94	%		2,371		1,482		889			643			246
Noninterest bearing demand deposits		62,038			58,698
Other liabilities		1,605			3,662
Redeemable common stock held by ESOP		1,018			481
Shareholders' equity		54,719			51,805
Total	$	454,372		$	422,135
Net interest income													$	4,624	$	4,315	$	309		$	99		$	210
Net interest yield on earning assets								4.45	%		4.47	%
Net interest spread								3.89	%		4.06	%

(1) Daily averages. Loans include nonaccrual loans.

(2) Includes money market accounts

For the six months ended June 30, 2006, net interest income increased $744,000 or 8.8% over the same period in 2005. The primary reason for the increase in net interest income is the growth in the average balance of the loan portfolio of $46.2 million for during the six months ended June 30, 2006 compared to the same period in 2005. The average yield on loans increased from 7.07% in 2005 to 7.73% in 2006. As a result of the loan growth and the increase in yields, interest income on loans increased $2.5 million in 2006 over 2005. The average yield on earning assets increased 75 basis points to 6.65%, as the portion of total earning assets comprised by loans increased from 60.7% for the 2005 period to 67.4% for 2006.

The average cost of funds increased 86 basis points to 2.70%. This increase is primarily the result of rate increases along with the Company’s increased utilization of Federal Home Loan Bank advances and certificates of deposits to fund its loan growth.

13

For the six months ended June 30, 2006, the net yield on earning assets increased 4 basis points, increasing from 4.44% for the period ended June 30, 2005 to 4.48% for the same period in 2006. The net interest spread decreased from 4.06% in 2005 to 3.95% in 2006.

The following presents, for the six month periods ended June 30, 2006 and 2005, the main components of interest earning assets and interest bearing liabilities and related interest income and expense and effective yields and cost of funds.

Average Consolidated Balance Sheets and Net Interest Income Analysis

For the Six Month Periods Ended June 30,

(Dollars in thousands)

	Average Balances (1)						Yields / Rates						Income / Expense				Increase			Change Due to
	2006			2005			2006			2005			2006		2005		(Decrease)			Rate			Volume
Assets
Loans, including fee income	$	279,406		$	233,226			7.73	%		7.07	%	$	10,715	$	8,178	$	2,537		$	813		$	1,724
Taxable securities		112,726			123,212			4.38	%		4.28	%		2,449		2,616		(167	)		157			(324	)
Nontaxable securities		11,648			12,651			3.91	%		3.91	%		226		245		(19	)		-			(19	)
Federal funds sold		7,090			10,028			5.32	%		2.65	%		187		132		55			163			(108	)
Interest bearing deposits in banks		3,621			4,901			4.90	%		2.92	%		88		71		17			66			(49	)
Total earning assets		414,491			384,018			6.65	%		5.90	%		13,665		11,242		2,423			1,199			1,224
Cash and due from banks		11,920			10,853
Allowance for loan losses		(3,621	)		(3,189	)
Other assets		28,613			26,226
Total	$	451,403		$	417,908
Liabilities and Equity
Interest bearing demand (2)	$	112,606		$	115,790			1.51	%		0.90	%	$	845	$	518	$	327		$	370		$	(43	)
Savings		35,467			36,903			0.59	%		0.49	%		103		89		14			24			(10	)
Certificates of deposit		171,597			150,841			3.75	%		2.89	%		3,191		2,158		1,033			706			327
Total interest bearing deposits		319,670			303,534			2.61	%		1.84	%		4,139		2,765		1,374			1,100			274
Borrowed funds		13,175			629			4.91	%		5.13	%		321		16		305			(2	)		307
Total interest bearing liabilities		332,845			304,163			2.70	%		1.84	%		4,460		2,781		1,679			1,098			581
Noninterest bearing demand deposits		61,338			57,994
Other liabilities		1,878			3,885
Redeemable common stock held by ESOP		999			478
Shareholders' equity		54,343			51,388
Total	$	451,403		$	417,908
Net interest income													$	9,205	$	8,461	$	744		$	101		$	643
Net interest yield on earning assets								4.48	%		4.44	%
Net interest spread								3.95	%		4.06	%

(1) Daily averages. Loans includes nonaccrual loans.

(2) Includes money market accounts

14

Other Income. Total other income for the three-month period ended June 30, 2006 amounted to $1,311,000, compared to $1,229,000 for the same period in 2005, an increase of $82,000. For the six month period ended June 30, 2006, total other income was $2,479,000 compared to $1,749,000 in 2005, an increase of $730,000. This increase is principally due to an impairment charge recorded in the first quarter of 2005 in the amount 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. Excluding the impairment charge, other income for the six months would have increased $130,000 over the same period last year.

The gain on sale of loans for the three month period was $37,000 in 2006 compared to $39,000 a year ago, and $71,000 for the six month period in 2006 compared to $78,000 for the same period a year ago. Upson originated and sold mortgage loans totaling $4.1 million during the second quarter of 2006 without recourse compared with $3.2 million for the second quarter of 2005, and $6.9 million during the six month period ended June 30, 2006 compared with $6.2 million for the same period in 2005. Service charges on deposit accounts were $887,000 for the three-month period in 2006 compared to $861,000 for the same period in 2005, an increase of $26,000, or 3.0%, but for the year to date period have increased $100,000 or 6.2% to $1,709,000. The primary component of this increase was a $89,000 increase in overdraft and NSF fee income. Other service charges and fees increased $39,000 to $289,000 for the quarter and $73,000 to $549,000 for the six-month period primarily due to increases in debit card fees.

Other Expenses. Other expenses for the three-month period ended June 30, 2006 amounted to $3,685,000 compared to $3,413,000 for the same period in 2005, an increase of $272,000 or 8.0%. For the six months ended June 30, 2006, other expenses grew $416,000, or 6.1%, to $7,230,000.

The largest component of other expenses is salaries and employee benefits, which increased $215,000, or 12.0% for the quarter and $462,000 or 13.2% for the six month period. For the quarter, higher compensation costs were primarily attributable to a $129,000 increase in incentive compensation, $35,000 in higher benefit costs, and $24,000 in costs related to the expensing of stock options (described below). For the six month period, the primary components of the increase were $191,000 in increased incentive compensation, $75,000 in higher benefit costs, and $48,000 in costs related to the expensing of stock options.

Effective January 1, 2006, the Company adopted SFAS No. 123R “Share-Based Payment.” SFAS No. 123R 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). The Company adopted SFAS No. 123R using the modified prospective application as permitted under SFAS No. 123R. 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. Prior to the adoption of SFAS No. 123R, 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 compensation cost that was charged against income for our stock option plans for the three and six months ended June 30, 2006 was $23,770 and $47,540, respectively. No options were outstanding at or for the three- and six-month periods ended June 30, 2005. The total compensation cost related to nonvested awards not yet recognized at June 30, 2006 is $427,870 which will be recognized over the weighted average period of approximately 4.50 years. See “Note 3 - Stock Compensation Plans” in the notes to condensed consolidated financial statements for further information.

For the six month period ended June 30, 2006, amortization of intangibles declined $138,000, or 25.1% due to reductions in the amount of scheduled amortization of the core deposit intangible asset recorded in connection with the merger with First Polk Bankshares, Inc. Other operating expenses increased $62,000 for the quarter of which $25,000 relates to higher data processing costs. For the year to date, other operating expenses increased $90,000 of which $33,000 relates to higher data processing charges and $19,000 relates to costs associated with disposal of foreclosed property.

Income Taxes. The Company recorded income taxes totaling $691,000 and $621,000 for the three-month periods ending June 30, 2006 and 2005, respectively. Effective tax rates for the periods were 32.6% and 31.4%, respectively. For the six-month periods, taxes totaled $1,381,000 and $946,000 for 2006 and 2005, respectively, with effective tax rates of 32.8% and 30.3%. Tax-exempt interest income and income on bank-owned life insurance are the primary reasons that the Company’s effective tax rates are less than the statutory tax rate of 34%. While the Company’s pretax income has increased in 2006, the amounts of tax-exempt income mentioned above have declined, resulting in higher effective tax rates in 2006 than in 2005. Additionally, in 2005 the Company was able to utilize approximately $37,000 in certain state income tax credits.

Liquidity and Capital Resources

Liquidity is our ability to meet deposit withdrawals immediately while also providing for the credit needs of our customers. We monitor our liquidity resources on an ongoing basis. State and Federal regulatory authorities also monitor our liquidity on a periodic basis. As of June 30, 2006, we believe our liquidity, as determined under guidelines established by regulatory authorities and internal policies, was satisfactory.

15

If needed, we have the ability on a short-term basis to borrow and purchase Federal funds from other financial institutions. At June 30, 2006, we had available to us additional federal funds lines of credit totaling $19.4 million in place with three banks and $43.3 million of available funds on our line of credit with the Federal Home Loan Bank of Atlanta.

At June 30, 2006, our capital ratios were adequate based on regulatory minimum capital requirements. The minimum capital requirements and the actual capital ratios on a consolidated and bank-only basis are as follows:

	Minimum Required			Minimum Required to be Well Capitalized			Consolidated			Upson			Polk
Risk-based capital ratios
Total risk based capital		8.00	%		10.00	%		17.72	%		14.91	%		21.94	%
Tier 1		4.00	%		6.00	%		16.50	%		13.75	%		20.69	%
Tier 1 leverage ratio		4.00	%		5.00	%		11.41	%		10.07	%		12.56	%

These ratios may decline as asset growth continues, but are expected to continue to exceed minimum regulatory requirements.

In the second quarter of 2005, Bank of Upson began a project to rebuild its main office in Thomaston, Georgia. This project will replace substantially all of its current facility, increasing its size from 16,000 to 26,000 square feet. Management expects that the first phase of construction will be completed in the second quarter at a cost of approximately $3.3 million, with the final phase to be completed in the fourth quarter of 2006. Total cost of the project is expected to be between $5.25 million and $5.75 million. Through June 30, 2006, approximately $3.9 million had been disbursed for the project.

Other than the items described above, we are not aware of any trends, demands, commitments, events or uncertainties that will result, or are reasonably likely to result, in our liquidity increasing or decreasing in any material way.

Off-Balance Sheet Arrangements

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized in the balance sheets.

Our exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet instruments. A summary of our commitments as of June 30, 2006 and December 31, 2005 are as follows (dollars in thousands):

(dollars in thousands)	June 30, 2006		December 31, 2005
Commitments to extend credit	$	35,229	$	36,529
Credit card commitments		9,186		8,329
Commercial letters of credit		723		272
	$	45,138	$	45,130

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

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

16

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Pursuant to Instruction 1 to Item 305(c) of Regulation S-K, no response to this item is required until after December 31, 2006.

ITEM 4. Controls and Procedures

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

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

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

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

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1. Business" under the heading "Risk Factors" in our Annual Report on Form 10-KSB for the year ended December 31, 2005, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-KSB are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company made no repurchases of its common stock during the quarter ended June 30, 2006.

Item 3. Defaults upon Senior Securities

None.

17

Item 4. Submission of Matters to a Vote of Security Holders

The Company held its annual meeting on May 11, 2006. The following directors were elected for three year terms to expire in 2009:

Name	Votes For	Votes Withheld	Broker Nonvotes
Zack D. Cravey, Jr.	2,691,538	4,400	-
Larry T. Kuglar	2,686,758	9,180	-
Michael D. McRae	2,691,538	4,400	-

Item 5. Other Information

None.

Item 6. Exhibits

Exhibits

Exhibit No. 31.1 Chief Executive Officer Certification Pursuant to Rule 13a-14(a)/15d-14(a)

Exhibit No. 31.2 Chief Financial Officer Certification Pursuant to Rule 13a-14(a)/15d-14(a)

Exhibit No. 32.1 Chief Executive Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit No. 32.2 Chief Financial Officer Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

18

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

SOUTHCREST FINANCIAL GROUP, INC.

(Registrant)

DATE: August 14, 2006	BY:	/s/ Larry T. Kuglar
		Larry T. Kuglar.
		President and Chief Executive Officer
DATE: August 14, 2006	BY:	/s/ Douglas J. Hertha
		Douglas J. Hertha
		Senior Vice President, Chief Financial Officer

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