ex13_1.htm

Exhibit 13.1

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2007

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

December 31, 2007

Table of Contents

		Page Reference
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		1

FINANCIAL STATEMENTS

Consolidated Balance Sheets		2

Consolidated Statements of Income		3

Consolidated Statements of Comprehensive Income		4

Consolidated Statements of Changes in Stockholders' Equity		5

Consolidated Statements of Cash Flows		6 - 7

Notes to Consolidated Financial Statements		8-38

	Nichols, Cauley & Associates, LLC A Professional Services Firm of: Certified Public Accountants Certified Internal Auditors Certified Financial Planners® Certified Valuation Analysts ________________	REPLY TO: 2970 Clairmont RD NE Atlanta, Georgia 30329-4440 800-823-1224 FAX 404-214-1302 atlanta@nicholscauley.com
	Atlanta · Clarkesville · Dublin · Lake Oconee · Warner Robins www.nicholscauley.com

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors

Freedom Bancshares, Inc.

Commerce, Georgia

We have audited the accompanying consolidated balance sheets of Freedom Bancshares, Inc. and its wholly owned subsidiary, Freedom Bank of Georgia, as of December 31, 2007 and 2006, and the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Freedom Bancshares, Inc. and Subsidiary as of December 31, 2007 and 2006, and the results of their operations and their cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

Atlanta, Georgia

March 18, 2008

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2007 AND 2006

	2007			2006
ASSETS

Cash and due from banks	$	3,016,248		$	2,621,725
Interest-bearing deposits in other banks		137,392			63,542
Federal funds sold		1,113,000			948,690
Cash and cash equivalents		4,266,640			3,633,957
Securities available for sale (at fair value)		16,322,944			20,853,654
Loans, less allowance for loan losses of $1,616,837 and $1,194,953, respectively		116,670,671			101,596,794
Federal Home Loan Bank stock		1,071,100			885,100
Accrued interest receivable		1,418,985			1,536,302
Premises and equipment, net		5,830,047			3,402,792
Other assets		1,581,696			722,076

Total assets	$	147,162,083		$	132,630,675

LIABILITIES AND STOCKHOLDERS' EQUITY

Deposits:
Non-interest-bearing demand	$	6,542,891		$	6,880,325
Interest-bearing		108,011,123			97,321,207
Total deposits		114,554,014			104,201,532

Accrued interest payable		638,728			430,451
Federal Home Loan Bank advances		18,500,000			16,000,000
Other liabilities		10,329			179,453
Total liabilities		133,703,071			120,811,436

Stockholders' equity:
Common stock, par value $1, 10,000,000 shares 674,552 shares issued and outstanding authorized, 1,316,005 and 1,238,789 shares issued and outstanding, respectively		1,316,005			1,238,789
Additional paid-in capital		12,807,750			11,685,135
Accumulated deficit		(620,327	)		(915,245	)
Accumulated other comprehensive loss		(44,416	)		(189,440	)
Total stockholders' equity		13,459,012			11,819,239

Total liabilities and stockholders' equity	$	147,162,083		$	132,630,675

See accompanying report of independent registered public accounting firm

and notes to consolidated financial statements.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2007 AND 2006

	2007		2006
Interest and dividend income:
Loans, including fees	$	10,429,014	$	7,707,796
Securities available for sale		985,086		868,261
Federal funds sold		68,747		157,546
Other		75,438		39,183
Total interest and dividend income		11,558,285		8,772,786

Interest expense:
Deposits		5,772,035		3,710,354
Federal funds purchased		11,859		2,919
Federal Home Loan Bank advances		697,251		467,709
Other		34,475		17,712
Total interest expense		6,515,620		4,198,694

Net interest income		5,042,665		4,574,092

Provision for loan losses		596,000		403,500

Net interest income after provision for loan losses		4,446,665		4,170,592

Noninterest income:
Service charges on deposit accounts		185,324		115,833
Gain on sales of securities available for sale		3,108		223
Other service charges, commissions and fees		182,918		64,547
Total noninterest income		371,350		180,603

Noninterest expense:
Salaries and employee benefits		2,438,523		2,101,492
Occupancy		623,820		471,072
Other operating		1,288,411		1,163,636
Total noninterest expense		4,350,754		3,736,200

Income before income taxes		467,261		614,995

Income tax expense		172,343		374,618

Net income	$	294,918	$	240,377

Net income per share of common stock
Basic	$	0.23	$	0.19
Diluted	$	0.21	$	0.19

See accompanying report of independent registered public accounting firm

and notes to consolidated financial statements.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

YEARS ENDED DECEMBER 31, 2007 AND 2006

	2007			2006

Net income	$	294,918		$	240,377

Other comprehensive income:


Securities available for sale:
Unrealized holding gains arising during period, net of tax of $89,893 and $31,075, respectively		131,744			46,613


Reclassification adjustment for gains realized in net income,net of tax of $1,173 and $89, respectively		(1,935	)		(134	)
		129,809			46,479
Interest rate floor:
Unrealized holding gain (loss) arising during period, net of of tax (benefit) of $10,638 and $(15,604), respectively		15,215			(23,405	)

Other comprehensive income		145,024			23,074

Comprehensive income	$	439,942		$	263,451

See accompanying report of independent registered public accounting firm

and notes to consolidated financial statements.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 2007 AND 2006

								Accumulated
	Common		Additional					Other			Total
	Stock		Paid-in		Accumulated			Comprehensive			Stockholders'
	Par Value		Capital		Deficit			Loss			Equity

Balance, December 31, 2005	$	1,238,789	$	11,281,743	$	(1,155,622	)	$	(212,514	)	$	11,152,396
Net income		—		—		240,377			—			240,377
Stock-based compensation		—		403,392		—			—			403,392
Other comprehensive income		—		—		—			23,074			23,074

Balance, December 31, 2006		1,238,789		11,685,135		(915,245	)		(189,440	)		11,819,239
Net income		—		—		294,918			—			294,918
Proceeds from issuance of 77,216 shares		77,216		1,048,231		—			—			1,125,447
Stock-based compensation		—		74,384		—			—			74,384
Other comprehensive income		—		—		—			145,024			145,024

Balance, December 31, 2007	$	1,316,005	$	12,807,750	$	(620,327	)	$	(44,416	)	$	13,459,012

See accompanying report of independent registered public accounting firm

and notes to consolidated financial statements.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2007 AND 2006

	2007			2006
Cash flow from operating activities:
Net income	$	294,918		$	240,377
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		339,852			305,600
Provision for loan losses		596,000			403,500
Stock-based compensation		74,384			403,392
Deferred income taxes		(122,831	)		271,032
Gain on sales of securities available for sale		(3,108	)		(223	)
Loss on disposal of premises and equipment		639			4,817
Gain on sale of foreclosed assets		(11,273	)		—
Decrease (increase) in accrued interest receivable		117,317			(819,092	)
Decrease (increase) in other assets		71,285			(126,151	)
Increase in accrued interest payable		208,277			254,547
(Decrease) increase in other liabilities		(169,124	)		112,030
Net cash flow provided by operating activities		1,396,336			1,049,829

Cash flow from investing activities:
Increase in loans, net		(16,628,570	)		(42,052,965	)
Purchase of Federal Home Loan Bank stock		(186,000	)		(559,400	)
Purchases of securities available for sale		(2,377,092	)		(8,503,547	)
Proceeds from sales of securities available for sale		1,628,076			1,003,310
Proceeds from maturities and paydowns of securities available for sale		5,506,176			2,843,801
Proceeds from sale of premises and equipment		450			—
Purchases of premises and equipment		(2,773,009	)		(844,634	)
Purchases for improvement of foreclosed assets		(99,584	)
Proceeds from sale of foreclosed assets		187,971			—
Net cash flow used by investing activities		(14,741,582	)		(48,113,435	)

Cash flow from financing activities:
Proceeds from issuance of stock		1,125,447			—
Increase in deposits, net		10,352,482			37,675,239
Decrease in federal funds purchased		—			(185,000	)
Proceeds from FHLB advances		18,200,000			13,500,000
Payments of FHLB advances		(15,700,000	)		(2,000,000	)
Net cash flow provided by financing activities		13,977,929			48,990,239

Net increase in cash and cash equivalents		632,683			1,926,633
Cash and cash equivalents at beginning of year		3,633,957			1,707,324
Cash and cash equivalents at end of year	$	4,266,640		$	3,633,957

See accompanying report of independent registered public accounting firm

and notes to consolidated financial statements.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2007 AND 2006

	2007		2006

Supplemental schedule of noncash investing activities -

Transfer of loans to foreclosed assets	$	958,693	$	-

Decrease in accumulated other comprehensive loss	$	145,024	$	23,074

Supplemental disclosures of cash flow information-Cash paid during the year for:

Interest	$	6,307,343	$	3,944,147

Income taxes	$	276,586	$	111,000

See accompanying report of independent registered public accounting firm

and notes to consolidated financial statements.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of Freedom Bancshares, Inc. (Company) and subsidiary conform to generally accepted accounting principles of the United States of America and with general practices within the banking industry. The following is a description of the more significant of those policies that the Company follows in preparing and presenting its consolidated financial statements.

Reporting Entity and Nature of Operations

The Company was formed and commenced operations in 2003. The Company operates as a bank holding company with one State of Georgia chartered bank subsidiary. At December 31, 2007 the Company owned one hundred (100) percent of the outstanding stock of its subsidiary, Freedom Bank of Georgia.

Freedom Bank of Georgia (Bank) is a State bank chartered under the laws of Georgia and commenced operations in 2004. The Bank’s main office is located in Commerce, Georgia with branches located in Jefferson, Homer, and Winder, Georgia. The main emphasis of the Bank is on commercial and retail banking and it offers such customary banking services as consumer and commercial checking accounts, savings accounts, certificates of deposit, commercial and consumer loans, money transfers and a variety of other banking services. The Bank’s primary source of revenue is providing loans to customers within its geographical area.

Principles of Consolidation and Statements Presentation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Use of Estimates in the Preparation of Financial Statements (Continued)

Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for losses on loans, the valuation of foreclosed assets, and deferred tax assets. In connection with the determination of the allowances for losses on loans and foreclosed assets, management obtains independent appraisals for significant properties.

Management believes the allowances for losses on loans are adequate. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowances for losses on loans. Such agencies may require the Company to recognize additions to the allowances based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the allowances for losses on loans may change materially in the near term.

Investment Securities

Debt securities that management has the positive intent and the Company has the ability to hold to maturity are classified as securities held to maturity and are recorded at amortized cost. Securities not classified as securities held to maturity, including equity securities with readily, determinable fair values, are classified as securities available for sale and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. There were no held to maturity or trading securities during 2007 and 2006.

Purchase premiums and discounts are recognized in interest income using methods approximating the interest method over the terms of the securities. A decline in the market value of any available for sale or held to maturity security below cost that is deemed other than temporary results in a charge to earnings and the establishment of a new cost basis for the security. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near–term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Realized gains and losses for securities classified as available for sale and held to maturity are included in earnings and are derived using the specific identification method for determining the amortized cost of securities sold.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loans Receivable

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off are reported at their outstanding principal adjusted for any charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans and unamortized premiums or discounts on purchased loans.

Interest on commercial, real estate loans and installment loans is credited to income on a daily basis based upon the principal amount outstanding.

Loan origination fees and certain direct origination costs, less the costs associated with closing the loan, are capitalized and recognized as an adjustment of the yield of the related loan.

The accrual of interest on impaired loans is discontinued when, in management’s opinion, the borrower may be unable to meet payments as they become due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received. Loans are returned to accrual status when all the principal and interest amounts contractually due are reasonably assured of repayment within a reasonable time frame.

The allowance for loan losses is increased by charges to income and decreased by charge-offs (net of recoveries). Loans are charged against the allowance for loan losses when management believes the collection of the principal is unlikely. The Company’s allowance for loan and lease losses is the amount considered adequate to absorb probable losses within the portfolio based on management’s evaluation of the size and current risk characteristics of the loan portfolio. Such evaluation considers prior loss experience, the risk rating distribution of the portfolios, the impact of current internal and external influences on credit loss and the levels of nonperforming loans. Specific allowances for loan and lease losses are established for large impaired loans and leases on an individual basis. The specific allowance established for these loans and leases is based on a thorough analysis of the most probable source of repayment, including the present value of the loan’s expected future cash flows, the loan’s estimated market value, or the estimated fair value of the underlying collateral. General allowances are established for loans that are classified as either special mention, substandard, or doubtful. These loans are assigned a risk rating, and the allocated allowance for loan losses is determined based upon the loss percentage factors that correspond to each risk rating. Loss percentage factors are based on the probable loss including qualitative factors. The qualitative factors consider credit concentrations, recent levels and trends in delinquencies and nonaccrual, and growth in the loan portfolio. The occurrence of certain events could result in changes to the loss factors. Accordingly, these loss factors are reviewed periodically and modified as necessary.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loans Receivable (Continued)

General allowances are established for loans and leases that can be grouped into pools based on similar characteristics. In this process, general allowance factors are based on an analysis of historical charge-off experience and expected losses given default derived from the Company’s internal risk rating process. These factors are developed and applied to the portfolio in terms of line of business and loan type. Adjustments are also made to the allowance for the pools after an assessment of internal and external influences on credit quality that have not yet been reflected in the historical loss or risk rating data. Unallocated allowances relate to inherent losses that are not otherwise evaluated in the first two elements. The qualitative factors associated with unallocated allowances are subjective and require a high degree of management judgment. These factors include the inherent imprecisions in mathematical models and credit quality statistics, recent economic uncertainty, losses incurred from recent events, and lagging or incomplete data.

Foreclosed Assets

Assets acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at the lower of cost or fair value at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair value less cost to sell. Revenue and expenses from operations and changes in the valuation allowance are included in net expenses from foreclosed assets. The carrying amount of foreclosed assets at December 31, 2007 and 2006 was $881,579 and $-0-, respectively and is included in other assets.

Federal Home Loan Bank Stock

Federal Home Loan Bank (FHLB) stock represents an equity interest in the FHLB. It does not have a readily determinable fair value because its ownership is restricted and it lacks a market.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation, computed principally on the straight-line method over the estimated useful lives of the assets.

Maintenance and repairs that do not extend the useful life of the premises and equipment are charged to expense. The useful lives of premises and equipment are as follows:

Asset Type	Useful Life

Building	40 years
Furniture, equipment and software	1-20 years

Income Taxes

Deferred income tax assets and liabilities are determined using the liability (or balance sheet) method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws.

A valuation allowance for deferred tax assets is required when it is more likely than not that some portion or all of the deferred tax asset will not be realized. In assessing the realization of the deferred tax assets, management considers the scheduled reversals of deferred tax liabilities, projected future taxable income (in the near-term based on current projections), and tax planning strategies. At December 31, 2007 and 2006, management believes the deferred tax assets are realizable and, therefore, no valuation allowance is necessary.

The operating results of the Company and its subsidiary are included in consolidated income tax returns.

Stock-Based Compensation

At December 31, 2007, the Company maintained one stock-based employee/director compensation plan and several individual agreements providing stock-based compensation, which are more fully described in Note 11 to the consolidated financial statements. Prior to January 1, 2006, the Company accounted for those plans under the recognition and measurement provisions of APB Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations, as permitted by Financial Accounting Standards Board (SFAS) 123, Accounting for Stock-Based Compensation.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Stock-Based Compensation (continued)

Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS 123(R), Share-Based Payment, using the modified-prospective-transition method. Under that transition method, compensation cost recognized in 2006 includes: (a) compensation cost for all share-based payments granted prior to, but not yet vested as of December 31, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation cost for all share-based payments granted subsequent to December 31, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). Results for prior periods have not been restated.

Net Income Per Share

Basic net income per share represents income applicable to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted net income per share reflects additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance. Potential common shares that may be issued by the Company related solely to outstanding stock options and warrants, and are determined using the treasury stock method.

Net income per common share has been computed based on the following:

	Years Ended December 31,
	2007		2006

Net income applicable to common stock	$	294,918	$	240,377
Average number of common shares outstanding		1,284,974		1,238,789
Effect of dilutive options and warrants		90,682		40,009
Average number of common shares outstanding used to calculate diluted net income per common share		1,375,656		1,278,798

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Derivative Instruments and Hedging Activities

In accordance with SFAS 133, Accounting for Derivative Instruments and Hedging Activities, the Company recognizes the fair value of derivatives as assets or liabilities in the financial statements. The accounting for the changes in the fair value of a derivative depends on the intended use of the derivative instrument at inception. The change in fair value of instruments used as fair value hedges is accounted for in earnings of the period simultaneous with accounting for the fair value change of the item being hedged. The change in fair value of the effective portion of cash flow hedges is accounted for in comprehensive income rather than income. Changes in fair value of derivative instruments that are not intended as a hedge are accounted for in earnings of the period of the change.

Comprehensive Income

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

Cash Equivalents and Cash Flows

For purposes of presentation in the statements of cash flows, cash and cash equivalents are defined as those amounts included in the balance sheet captions “cash and due from banks”, “interest-bearing deposits in other banks” and “federal funds sold.” Cash flows from demand deposits, savings deposits, federal funds purchased, renewals and extensions of loan and time deposits are reported net.

The Bank is required to maintain reserve balances in cash or on deposit to meet Federal regulatory reserve requirements.

Financial Instruments

In the ordinary course of business the Company has entered into off balance sheet financial instruments consisting of commitments to extend credit, commercial letters of credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair Values of Financial Instruments

SFAS 107, Disclosures About Fair Value of Financial Instruments, requires the disclosure of the estimated fair value of financial instruments. The fair value of a financial instrument is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Quoted market prices, if available, are utilized as estimates of the fair values of financial instruments. Since no quoted market prices exist for a significant part of the Company’s consolidated financial instruments, the fair values of such instruments have been derived based on management’s assumptions, the estimated amount and timing of future cash flows and estimated discount rates. The estimation methods for individual classifications of financial instruments are described more fully below. Different assumptions could significantly affect these estimates. Accordingly, net realizable values could be materially different from the estimates presented below. In addition, the estimates are only indicative of the value of individual financial instruments and should not be considered an indication of the fair value of the combined Company.

The following methods and assumptions were used by the Company in estimating fair values of financial instruments as disclosed herein:

Cash and short-term instruments. The carrying amounts of cash and short-term instruments approximate their fair value.

Securities available-for-sale. Fair values for securities, excluding restricted equity securities, are based on quoted market prices. The carrying values of restricted equity securities approximate fair values.

Loans receivable. For variable-rate loans and those loans repricing within six months or less, fair values are based on carrying values. Fixed rate commercial loans, other installment loans, and certain real estate mortgage loans were valued using discounted cash flows. The discount rates used to determine the present value of these loans were based on interest rates currently being charged by the Company on comparable loans as to credit risk and term.

Deposit liabilities. The fair values disclosed for demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). The carrying amounts of variable-rate, fixed-term money-market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Federal funds purchased. The carrying amount of federal funds purchased approximate their fair values.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair Values of Financial Instruments (continued)

Federal Home Loan Bank advances. Fair values of fixed rate convertible FHLB borrowings are based on FHLB’s Market Rate Shock Report. The carrying amount on variable rate borrowings approximates their fair value.

Accrued interest. The carrying amounts of accrued interest approximate their fair values.

Off-balance-sheet instruments. Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counter parties’ credit standings.

Refer to note 14 for additional information regarding the fair values of financial instruments, including presentation of the carrying amount and estimated fair values of the Company’s financial instruments.

Advertising

The Company expenses advertising costs as incurred. For the years ended, December 31, 2007 and 2006, advertising expense was $50,798 and $40,291, respectively.

Reclassifications

Certain amounts as reported in 2006 have been reclassified in 2007 for consistency in presentation.

Recent Accounting Standards

In September 2006, the Financial Accounting Standards Board (FASB) issued SFAS 157, Fair Value Measurements. SFAS 157 provides guidance for using fair value to measure assets and liabilities. It defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles and expands disclosures about fair value measurement. Under SFAS 157, fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the market in which the reporting entity transacts. It clarifies the principle that fair value should be based on the assumptions market participants would use when pricing the asset or liability. In support of this principle, SFAS 157 establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under SFAS 157, fair value measurements would be separately disclosed by level within the fair value hierarchy. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact the adoption of SFAS 157 could have on its financial condition, results of operations and cash flows.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Standards (continued)

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS 159 permits entities to make an irrevocable election, at specified election dates, to measure eligible financial instruments and certain other items at fair value. SFAS 159 also establishes presentation and disclosure requirements designed to facilitate comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. The provisions of SFAS 159 are effective as of the beginning of the first fiscal year that begins after November 15, 2007. The Company has not elected to early adopt and is currently evaluating the impact the adoption of SFAS 159 could have on its financial condition, results of operations and cash flows.

In March 2007, the FASB ratified the consensus the Emerging Issues Task Force (“EITF”) reached regarding EITF Issue No. 06-10, “Accounting for Collateral Assignment Split-Dollar Life Insurance Arrangements” (“Issue 06-10”), which provides accounting guidance for postretirement benefits related to collateral assignment split-dollar life insurance arrangements, whereby the employee owns and controls the insurance policies. The consensus concludes that an employer should recognize a liability for the postretirement benefit in accordance with SFAS 106 or APB 12, as well as recognize an asset based on the substance of the arrangement with the employee. Issue 06-10 is effective for fiscal years beginning after December 15, 2007 with early application permitted. The Company is currently evaluating the impact the adoption of Issue 06-10 could have on its financial condition, results of operations and cash flows.

In December 2007, the FASB issued SFAS No. 141(R), Business Combinations, which replaces SFAS 141. SFAS 141(R) establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS 141(R) also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company believes the adoption of SFAS 141(R) will not have a material impact on its financial statements.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Standards (continued)

In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51. SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. In addition to the amendments to ARB 51, SFAS 160 amends SFAS No. 128, Earnings per Share; so that earnings-per-share data will continue to be calculated the same way those data were calculated before SFAS 160 was issued. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company believes the adoption of SFAS 160 will not have a material impact on its financial statements.

NOTE 2.

SECURITIES AVAILABLE FOR SALE

The amortized cost, gross unrealized gains and losses, and estimated fair values of securities available for sale are summarized as follows:

	December 31, 2007
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

Securities Available for Sale
U.S. Government agencies	$	5,299,233	$	40,313	$	(3,729	)	$	5,335,817
Mortgage-backed securities		11,081,907		25,879		(120,659	)		10,987,127

	$	16,381,140	$	66,192	$	(124,388	)	$	16,322,944

	December 31, 2006
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value

Securities Available for Sale
U.S. Government agencies	$	9,161,085	$	15,870	$	(59,270	)	$	9,117,685
Mortgage-backed securities		11,969,294		21,321		(254,646	)		11,735,969

	$	21,130,379	$	37,191	$	(313,916	)	$	20,853,654

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2.

SECURITIES AVAILABLE FOR SALE (continued)

The amortized costs and estimated fair values of securities available for sale at December 31, 2007, by contractual maturity are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available for Sale
	Amortized Cost		Fair Value

Due in one year	$	250,000	$	250,500
Due after one through five years		1,094,820		1,093,917
Due after five through ten years		3,456,678		3,487,700
Due after ten years		497,735		503,700
Mortgage-backed securities		11,081,907		10,987,127
	$	16,381,140	$	16,322,944

The Company had gross realized gains of $6,631 and gross losses of $4,375 on sales of securities available for sale for the year ended December 31, 2007. Additionally, the Company had a gross realized gain of $852 on a call of an available for sale security during the year ended December 31, 2007. The Company had gross realized gains of $223 and gross losses of $0 on sales of securities available for sale for the year ended December 31, 2006. Included in stockholders’ equity at December 31, 2007 and 2006 is $36,227 and $166,035 of unrealized losses on securities available for sale, net of tax.

Investment securities with an amortized cost of $9,473,090 and $3,819,654 at December 31, 2007 and 2006, respectively, were pledged as collateral on public deposits and for other purposes as required by law. The fair values of the pledged securities were $9,390,807 and $3,777,819 at December 31, 2007 and 2006, respectively.

Taxable interest income on securities was $985,086 and $868,261 for the years ended December 31, 2007 and 2006, respectively.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 2.

SECURITIES AVAILABLE FOR SALE (Continued)

Information pertaining to securities with gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows:

	Less Than Twelve Months					Over Twelve Months
	Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value
December 31, 2007:

U.S. Government agency	$	—		$	—	$	(3,729	)	$	1,491,678
Mortgage-backed securities		(2,920	)		866,096		(117,739	)		7,088,536
	$	(2,920	)	$	866,096	$	(121,468	)	$	8,580,214

December 31, 2006:

U.S. Government agency	$	(12,413	)	$	1,708,210	$	(46,857	)	$	4,854,315
Mortgage-backed securities		(5,971	)		445,663		(248,675	)		9,387,039
	$	(18,384	)	$	2,153,873	$	(295,532	)	$	14,241,354

Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

At December 31, 2007, the 32 debt securities with unrealized losses have depreciated 1.3% from the Company’s amortized cost basis. These securities are primarily guaranteed by either U.S. Government corporations or U.S. Government agencies. These unrealized losses relate principally to current interest rates for similar types of securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available for sale, no declines are deemed to be other-than-temporary.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3.

LOANS AND ALLOWANCE FOR LOAN LOSSES

Major classifications of loans are summarized as follows:

	December 31,
	2007			2006

Real estate:
Residential 1-4 family and multi-family	$	13,801,557		$	12,208,591
Construction and land development		59,073,928			48,732,724
Nonfarm nonresidential properties		27,980,433			30,603,499
Commercial, financial and agricultural		13,365,468			7,434,480
Consumer installment loans		4,074,360			3,830,541
Other		10,903			10,753
		118,306,649			102,820,588
Deferred loan fees		(19,141	)		(28,841	)
Allowance for loan losses		(1,616,837	)		(1,194,953	)
Loans, net	$	116,670,671		$	101,596,794

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

	December 31,
	2007		2006

Impaired loans without a valuation allowance	$	351,793	$	807,063
Impaired loans with a valuation allowance		8,829,298		--
Total impaired loans	$	9,181,091	$	807,063
Valuation allowance related to impaired loans	$	1,243,515	$	--
Average investment in impaired loans	$	1,289,369	$	22,422
Interest income recognized on impaired loans	$	102,728	$	--
Nonaccrual loans	$	7,104,786	$	807,063
Loans past due ninety days or more and still accruing interest	$	--	$	--

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3.

LOANS AND ALLOWANCE FOR LOAN LOSSES (Continued)

In the normal course of business, the Company sells and purchases loan participations to and from other financial institutions and related parties. Loan participations are typically sold to comply with the legal lending limits per borrower as imposed by regulatory authorities. The participations are sold without recourse and the Company imposes no transfer or ownership restrictions on the purchaser. At December 31, 2007 and 2006, the Company had loan participations sold of $190,997 and $546,000, respectively. The Company had loan participations purchased of $2,612,781 and $2,455,000 at December 31, 2007 and 2006, respectively.

The Company grants loans and extensions of credit to individuals and a variety of businesses operating primarily in Jackson and Banks Counties, Georgia and surrounding counties. A substantial portion of the portfolio is collateralized by improved and unimproved real estate and is dependent upon the real estate market.

Changes in the allowance for loan losses follows:

	Years Ended December 31,
	2007			2006

Balance, beginning of year	$	1,194,953		$	830,678
Provision for loan losses		596,000			403,500
Loans charged off		(181,578	)		(48,749	)
Recoveries		7,462			9,524
Balance, end of year	$	1,616,837		$	1,194,953

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4.

PREMISES AND EQUIPMENT

The major classes of premises and equipment and the total accumulated depreciation are as follows:

	December 31,
	2007			2006

Land	$	1,451,207		$	451,207
Building		3,712,166			2,500,261
Furniture, equipment and software		1,575,010			1,018,988
		6,738,383			3,970,456
Accumulated depreciation		(908,336	)		(567,664	)
Premises and equipment, net	$	5,830,047		$	3,402,792

Depreciation expense for the years ended December 31, 2007 and 2006 was $344,665 and $287,889, respectively.

The Company operates its full service branch facilities in Jefferson and Homer, Georgia under noncancelable operating lease agreements entered into in 2005. The total future minimum rental commitment at December 31, 2007 under these leases are due as follows:

2008	$	33,300
2009		30,000
	$	63,300

The total rental expense included in the statements of income for the years ended December 31, 2007 and 2006 was $43,320 and $52,160, respectively.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5.

DEPOSITS

Deposit account balances are summarized as follows:

	December 31,
	2007		2006

Non-interest bearing demand deposits	$	6,542,891	$	6,880,325
NOW deposits		12,283,232		2,961,585
Money market deposits		996,028		5,305,950
Savings deposits		918,097		886,158
Time, $100,000 and over		45,771,439		42,800,087
Other time		48,042,327		45,367,427
Total deposits	$	114,554,014	$	104,201,532

Maturities of time deposits at December 31, 2007, are summarized as follows:

2008	$	77,387,916
2009		8,643,173
2010		5,871,868
2011		1,712,809
2012		198,000
	$	93,813,766

Overdraft deposit accounts reclassified to loans at December 31, 2007 and 2006 totaled $10,903 and $10,753, respectively.

NOTE 6.

FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS

Advances from the Federal Home Loan Bank (FHLB) are summarized as follows:

					December 31,
Interest Rate			Fixed/Variable Rate	Maturity Date	2007		2006

	5.50	%	Variable	September 22, 2007	$	--	$	3,500,000
	4.41	%	Variable	July 3, 2008		5,000,000		5,000,000
	4.40	%	Variable	August 4, 2008		5,000,000		5,000,000
	3.82	%	Variable	January 30, 2007		--		2,500,000
	4.40	%	Variable	September 24, 2008		1,500,000		--
	4.74	%	Fixed	September 25, 2008		5,000,000		--
	4.32	%	Fixed	December 1, 2008		2,000,000		--
					$	18,500,000	$	16,000,000

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6.

FEDERAL HOME LOAN BANK ADVANCES AND OTHER BORROWINGS (Continued)

The FHLB has a lien on the Company’s FHLB stock, the Company’s deposits with the FHLB and a blanket floating lien on the Company’s loan portfolio as collateral for these advances. The Company had additional FHLB advances available of $12,000,000 and $10,900,000 at December 31, 2007 and 2006, respectively.

At December 31, 2007 the Company had Federal funds lines available with correspondent banks of $9,000,000. These unsecured lines have various terms, rates, and maturities. The Company had borrowings of $0 and $0 on these lines at December 31, 2007 and 2006, respectively.

NOTE 7.

INCOME TAXES

The total provision (benefit) for income taxes in the statements of income is as follows:

	Years Ended December 31,
	2007			2006

Currently payable:
Federal	$	286,166		$	103,586
State		9,008			-
		295,174			103,586
Deferred income taxes		(122,831	)		271,032
Total income taxes	$	172,343		$	374,618

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7.

INCOME TAXES (Continued)

The deferred tax provisions are applicable to the following items:

	Years Ended December 31,
	2007			2006

Difference between book allowance for loan losses and tax allowance for loan losses	$	(179,903	)	$	(126,436	)
Difference between book startup cost and the amount deductible for tax		65,682			65,682
Net operating loss carryforward		-			323,232
Difference between tax depreciation and book depreciation		924			10,212
Change in other items		(9,534	)		(1,658	)
	$	(122,831	)	$	271,032

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

	Years Ended December 31,
	2007			2006

Tax provision at federal statutory rate	$	158,869		$	209,098
Differences resulting from:
Stock-based compensation		25,291			137,153
Nontaxable municipal loan interest		(10,087	)		(3,143	)
State income tax (benefits)		(5,221	)		25,078
Other items, net		3,491			6,432
Provision for income taxes	$	172,343		$	374,618

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7.

INCOME TAXES (Continued)

The following summarizes the sources and expected tax consequences of future taxable deductions (income), which comprise the net deferred taxes.

	December 31,
	2007			2006

Deferred income tax assets:
Allowance for loan losses in excess of tax allowance for loan losses	$	529,846		$	349,943
Organizational and pre-opening costs		76,629			142,311
Other		20,418			10,884
Net unrealized loss on investment securities		21,969			110,689
Net unrealized loss on interest rate floor		4,966			15,604

Total gross deferred income tax assets		653,828			629,431

Deferred income tax liabilities -
Difference between book basis of premises and equipment and tax basis		(80,231	)		(79,307	)

Total gross deferred income tax liabilities		(80,231	)		(79,307	)

Deferred income tax assets (included in other assets)	$	573,597		$	550,124

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8.

RELATED PARTY TRANSACTIONS

The Company conducts transactions with directors and executive officers, including companies in which they have beneficial interest, in the normal course of business. It is the policy of the Company that loan transactions with directors and executive officers be made on substantially the same terms as those prevailing at the time for comparable loans to other persons. As of December 31, 2007 and 2006, the Company had related party loans of $4,070,613 and $3,975,496, respectively. Changes in related party loans for the year ended December 31, 2007 are as follows:

Balance, beginning of year	$	3,975,496
Advances		430,773
Repayments		(335,656	)
Balance, end of year	$	4,070,613

The aggregate amount of deposits of directors and executive officers and their affiliates amounted to approximately $1,430,594 and $986,813 at December 31, 2007 and 2006, respectively.

NOTE 9.

COMMITMENTS AND CONTINGENCIES

The Company has entered into a three-year employment agreement with its President and Chief Executive Officer. The employment agreement provides for a base salary, an incentive bonus based upon the Company’s profitability, stock options and other benefits commensurate with employment. The Company will be obligated to pay the base salary for the greater of 6 months or the remaining term of the employment agreement should the employer terminate employment without cause. At the end of the initial three-year term, the employment agreement will be extended for an additional 12 months unless either of the parties to the employment agreement gives notice of their intent not to extend the employment agreement.

In the normal course of business, the Company makes various commitments and incurs certain contingent liabilities that are not reflected in the accompanying financial statements. These commitments and contingent liabilities include various guarantees, commitments to extend credit, and standby letters of credit. The Company does not anticipate any material losses as a result of these commitments and contingent liabilities.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9.

COMMITMENTS AND CONTINGENCIES (Continued)

In the normal course of business, the Company enters into various contracts for data processing services, Telephone Banking, ATM/debit card processing and related network monitoring and support. These contracts generally expire after a term of sixty months and are cancelable by either party with a written notice subject to certain penalties.

The Company's nature of business is such that it ordinarily results in a certain amount of litigation. In the opinion of management for the Company, there is no litigation in which the outcome will have a material effect on the consolidated financial statements.

NOTE 10.

RISK FACTORS

The Company's operations are affected by various risk factors, including interest-rate risk, credit risk, liquidity risk and risk from geographic concentration of lending activities. Management attempts to manage interest rate risk through various asset/liability management techniques designed to match maturities of assets and liabilities. Loan policies and administration are designed to provide assurance that loans will only be granted to credit-worthy borrowers, although credit losses are expected to occur because of subjective factors and factors beyond the control of the Company. Liquidity management is in place to maintain ample and diverse funding capacity, liquid assets and other sources of cash to accommodate fluctuations in asset and liability levels due to changes in business operations or unanticipated events. In addition, the Bank is mandated by the Community Reinvestment Act and other regulations to conduct most of its lending activities within the geographic area where it is located. As a result, the Bank and its borrowers may be especially vulnerable to the consequences of changes in the local economy.

NOTE 11.

STOCK OPTIONS AND WARRANTS

As of December 31, 2007 the Company had warrants outstanding that allow the original organizers of the Company to purchase up to 184,140 shares of common stock at $10 per share. The warrants vest at a rate of 33.33% per year beginning on the first anniversary of the issue date and may be exercised any time prior to November 19, 2013. The number of warrants vested at December 31, 2007 and 2006 was 184,140 and 184,140, respectively. The Company recognized stock-based compensation expense under SFAS 123(R) of $0 and $243,446 in 2007 and 2006, respectively, for warrants granted prior to, but not yet vested, as of December 31, 2005.

As of December 31, 2007 the Company had options outstanding to three non-employees that allow the individuals to purchase up to 13,000 shares of common stock at $10 per share. The options were granted on February 17, 2004 and were fully vested on the grant date. These options may be exercised at any time prior to February 17, 2014.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11.

STOCK OPTIONS AND WARRANTS (Continued)

The Company recognized stock-based compensation expense under SFAS 123(R) of $2,628 and $19,991 in 2007 and 2006, respectively, for warrants granted prior to, but not yet vested, as of December 31, 2005.

During 2003, the Company adopted a Stock Incentive Plan (Stock Plan). The Stock Plan offers stock options to key employees to encourage continued employment by facilitating their purchase of an equity interest in the Company. These options are granted at the discretion of the Board of Directors at an exercise price determined by the Board at the grant date. The options have a term of ten years from the date of grant and vest ratably over a period of three to five years. A total of 160,000 shares have been reserved under the Stock Plan, of which 38,200 were available for grant. The Company recognized stock-based compensation expense under Statement 123(R) of $74,384 and $159,946 for options in 2007 and 2006, respectively.

Stock-based compensation expense was included as expenses of the Company during 2006. In 2007, the Company accounted for stock based compensation expense as an investment in common stock of subsidiary. The Bank recognized expense of $74,384 in 2007.

A summary of activity in the Company’s Stock Plan is presented below:

	2007					2006
	Shares		Weighted- average Exercise Price			Shares	Weighted- average Exercise Price
Outstanding at beginning of year		122,600	$	10.51		96,700	$	10.14
Granted		1,200		14.75		26,400		11.68
Exercised		--				-		-
Forfeited		(2,000)		11.73		(500)		11.50
Outstanding at end of year		121,800		10.53		122,600	$	10.51
Options exercisable at end of year		92,793		10.24		59,167		10.13

Weighted average fair value of options granted during the year	$	7.50			$	4.49

Range of exercise price		$10.00-$14.75				$10.00-$13.00

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model with the assumptions listed in the table below. Expected volatility for the year ended December 31, 2007 has been determined by a combination of a calculated value based on expected volatility of similar entities, and on the historical volatility of the Company’s stock. The expected term of options granted is based on the short-cut method and represents the period of time that the options granted are expected to be outstanding. Expected dividends are based on dividend trends and the market price of the Company’s stock price at grant. Historical data is used to estimate option exercises

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11.

STOCK OPTIONS AND WARRANTS (Continued)

and employee terminations within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

	2007		2006
Risk-free interest rate		4.69%		4.60%-5.09%
Expected life (years)		10.00%		6.93
Expected volatility		29.04%		24%-30%
Weighted-average expected volatility		29.0%		24.7%
Expected dividends		None		None
Expected forfeiture rate		0%		0%

At December 31, 2007, there was $91,416 of unrecognized compensation cost related to stock-based payments, which is expected to be recognized over a weighted-average period of 1.4 years.

At December 31, 2007, the aggregate intrinsic value of options and warrants outstanding was $1,389,000 and the aggregate intrinsic value of options and warrants exercisable was $1,293,000. At December 31, 2007, the weighted average contractual life in years of options and warrants outstanding was 6.98 years.

NOTE 12.

EMPLOYEE BENEFIT PLAN

The Company has a defined contribution plan, intended to comply with the requirements of Section 401(k) of the Internal Revenue Code, covering substantially all employees subject to certain age and service requirements. The Company contribution charged to expense amounted to $68,335 and $30,100 for the years ended December 31, 2007 and 2006, respectively.

NOTE 13.

INTEREST RATE DERIVATIVES

The Company maintains an overall interest rate risk-management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings that are caused by interest rate volatility. The goal is to manage interest rate sensitivity by modifying the repricing characteristics of certain assets and liabilities so that certain movements in interest rates do not, on a material basis, adversely affect the net interest margin. The Company views this strategy as prudent management of interest rate sensitivity, such that earnings are not exposed to undue risk presented by changes in interest rates. As a matter of policy, the Company does not use speculative derivative instruments for interest rate risk management.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 13.

INTEREST RATE DERIVATIVES (Continued)

By using derivative instruments, the Company is potentially exposed to credit and market risk. If the counter-party fails to perform, credit risk is equal to the extent of the fair value gain in a derivative. When the fair value of a derivative contract is positive, this generally indicates that the counterparty owes the Company, and, therefore, creates a repayment risk for the Company. When the fair value of a derivative contract is negative, the Company owes the counterparty and, therefore, has no repayment risk. The Company minimizes the credit (or repayment) risk in derivative instruments by entering into transactions with high-quality counterparties that are reviewed periodically.

The Company’s derivative activities are monitored by its asset/liability management committee as part of that committee’s oversight of the Company’s asset/liability management and treasury functions. The Company’s asset/liability management committee is responsible for implementing various hedging strategies that are developed through its analysis of data from financial simulation models and other internal and industry sources. The resulting hedging strategies are then incorporated into the overall interest-rate risk management.

All of the Company’s derivative financial instruments are classified as highly effective cash flow hedges. For the year ended December 31, 2007, there were no material amounts recognized which represented the ineffective portion of cash flow hedges. All components of each derivative’s gain or loss are included in the assessment of hedge effectiveness, unless otherwise noted.

A component of the Company’s interest rate risk management strategy is the implementation of an interest rate floor with a $10 million notional amount and a 7.25% strike. This instrument is being used as a hedge for the Company’s prime-based loan portfolio.

Information pertaining to the interest rate floor is as follows:

	December 31,
	2007			2006

Notional amount	$	10,000,000		$	10,000,000
Weighted average maturity in years	0.4 years			1.4 years

Fair value of the floor option value in other assets	$	2,659		$	11,280

Unrealized loss of the floor option included in stockholders’ equity, net of tax	$	(8,189	)	$	(23,405	)

The Company recognized a net expense for the year ended December 31, 2007 as a result of the interest rate floor in the amount of $34,475 which is included as a reduction of loan interest income.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company is a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. The contract amounts of those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

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

	December 31,
	2007		2006

Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	17,126,864	$	20,584,000
Standby letters of credit	$	778,092	$	306,542

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained if deemed necessary by the Company upon extension of credit is based on management's credit evaluation of the counterparty.

Standby letters of credit written are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan commitments to customers.

The Company has cash deposits with a financial institution in excess of the insured limitation of the Federal Deposit Insurance Corporation. If the financial institution were not to honor its contractual liability, the Company could incur losses. Management is of the opinion that there is no material risk because of the financial strength of the institution.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14.

FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

The carrying amount and estimated fair values of the Company’s financial instruments (in thousands) are as follows:

	December 31,
	2007				2006
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(Dollars in Thousands)
Financial assets:

Cash and due from banks, interest- bearing deposits with banks, and federal funds sold	$	4,267	$	4,267	$	3,634	$	3,634
Securities available for sale		16,323		16,323		20,854		20,854
Loans receivable		116,671		116,969		101,597		102,543
Federal Home Loan Bank stock		1,071		1,071		885		885
Accrued interest receivable		1,419		1,419		1,536		1,536
Interest rate floor		3		3		11		11

Financial liabilities:
Deposit liabilities		114,554		115,328		104,202		104,124
FHLB advances		18,500		18,556		16,000		15,998
Accrued interest payable		639		639		430		430

Unrecognized financial instruments;
Commitments to extend credit		17,127		17,127		20,584		20,584
Standby letters of credit		778		778		307		307

The estimated fair values of the Company’s off-balance sheet assets (liabilities) are considered to be minimal.

NOTE 15.

REGULATORY MATTERS

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

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15.

REGULATORY MATTERS (Continued)

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2007, that the Bank meets all capital adequacy requirements to which it is subject.

As of December 31, 2007, the most recent notification from the Federal Deposit Insurance Corporation, dated February 5, 2007, categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed the institution’s category.

The Bank’s actual capital amounts (in thousands) and ratios are also presented in the following table.

							To Be Well
				For Capital			Capitalized Under
				Adequacy			Prompt Corrective
	Actual			Purposes			Action Provisions
	Amount		Ratio	Amount		Ratio	Amount		Ratio
	(Dollars in Thousands)

December 31, 2007:
Total Capital to Risk Weighted Assets	$	13,814	10.88%	$	10,158	8%	$	12,697	10%
Tier I Capital to Risk Weighted Assets	$	12,226	9.63%	$	5,079	4%	$	7,618	6%
Tier I Capital to Average Assets	$	12,226	8.24%	$	5,938	4%	$	7,422	5%

December 31, 2006:
Total Capital to Risk Weighted Assets	$	12,791	11.7%	$	8,733	8%	$	10,916	10%
Tier I Capital to Risk Weighted Assets	$	11,596	10.6%	$	4,366	4%	$	6,550	6%
Tier I Capital to Average Assets	$	11,596	9.0%	$	5,142	4%	$	6,427	5%

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16.

LIMITATION ON DIVIDENDS

The sole source of funds available to pay shareholder dividends is from the Bank’s earnings. Bank regulatory authorities impose restrictions on the amount of dividends that may be declared by the Bank. Further restrictions could result from a review by regulatory authorities of the Bank’s capital adequacy. Cash dividends may be paid only after the Bank is cumulatively profitable. For the years ended December 31, 2007 and 2006, no dividends were declared or paid.

NOTE 17.

OTHER NONINTEREST EXPENSE

Components of other operating expense in the consolidated statements of income are as follows:

	Years Ended December 31,
	2007		2006

Outside processing and software	$	510,800	$	355,009
Professional and consulting		175,183		157,991
Operating supplies		98,096		95,197
FDIC Assessments		71,738		7,301
Loan related expenses		60,727		30,627
Advertising		50,798		40,291
Other taxes		42,847		13,398
Postage and delivery		28,248		21,802
Insurance		18,983		19,797
Telephone		51,557		48,516
Director stock-based compensation		—		243,446
Other		179,434		130,261
	$	1,288,411	$	1,163,636

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18.

CONDENSED FINANCIAL INFORMATION ON FREEDOM BANCSHARES, INC. (PARENT COMPANY ONLY)

The following information presents the condensed balance sheets of Freedom Bancshares, Inc. as of December 31, 2007 and 2006 and statements of income and cash flows for the years ended December 31, 2007 and 2006.

CONDENSED BALANCE SHEETS

	December 31,
	2007		2006
Assets
Cash in subsidiary Bank *	$	1,229,050	$	317,963
Investment in common stock of subsidiary stated on the basis of the Company's equity in subsidiary's capital accounts *		12,181,587		11,406,608
Other assets		48,375		94,668

Total assets	$	13,459,012	$	11,819,239

Stockholders' equity	$	13,459,012	$	11,819,239

* Eliminated in consolidation.

CONDENSED STATEMENTS OF INCOME

	December 31,
	2007			2006
Expenses
Stock-based compensation	$	-		$	403,392
Other operating		17,108			3,000
Total expense		17,108			406,392

Loss before taxes and equity in undistributed income of subsidiary		(17,108	)		(406,392	)

Income tax benefit		(6,455	)		(1,132	)

Loss before equity in undistributed income of subsidiary		(10,653	)		(405,260	)

Equity in undistributed income of subsidiary*		305,571			645,637

Net income	$	294,918		$	240,377

* Eliminated in consolidation.

FREEDOM BANCSHARES, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19.

CONDENSED FINANCIAL INFORMATION ON FREEDOM BANCSHARES, INC. (PARENT COMPANY ONLY) (Continued)

CONDENSED STATEMENTS OF CASH FLOWS

	December 31,
	2007			2006

OPERATING ACTIVITIES
Net income	$	294,918		$	240,377
Adjustments to reconcile net income to net cash used by operating activities:
Stock-based compensation		-			403,392
Decrease (increase) in other assets		46,293			(1,132	)
Earnings from subsidiary		(305,571	)		(645,637	)
Net cash flow provided (used) by operating activities		35,640			(3,000	)

INVESTING ACTIVITIES
Investment in subsidiary		(250,000	)		-
Net cash flow used by investing activities		(250,000	)		-

FINANCING ACTIVITIES
Proceeds from issuance of stock		1,125,447			-
Net cash flow provided by financing activities		1,125,447			-

Net increase (decrease) in cash and cash equivalents		911,087			(3,000	)

Cash and cash equivalents at beginning of year		317,963			320,963

Cash and cash equivalents at end of year	$	1,229,050		$	317,963
SUPPLEMENTAL DISCLOSURES
Supplemental schedule of noncash investing activities:

Decrease in accumulated other comprehensive loss	$	145,024		$	23,074