| ** **

**UNITY HOLDINGS, INC.**

**AND SUBSIDIARY**

** **

**CONSOLIDATED FINANCIAL  REPORT**

** **

**DECEMBER 31, 2005** |
|---------------------------------------------------------------------------------------------------------------------------------------------|

----

April 14, 2006

Dear Valued Shareholder:

I am pleased to report to you the results of theyear ended December 31, 2005.  The past year was one of great growth andexpansion for Unity Holdings, Inc.  Profits continue to remain strong and inline with our historical record of successful performance.

Unity National Bank (the "Bank"), our whollyowned subsidiary, continued its track record of exceptional performance.  Ourtrack record indicates that our highly competitive markets favor apeople-oriented style of banking.  The following graph presents our five-yearhistory of growth.

(The graph depicts the following information)

|              | **2001** | **2002** | **2003** | **2004** | **2005** |
|--------------|----------|----------|----------|----------|----------|
| Total Assets | 111,672  | 130,937  | 159,849  | 199,461  | 233,334  |
|              |          |          |          |          |          |

For 2005, our asset growth was fueled by $28.2million increase in loans and a $21.9 million increase in deposits.  Our mix ofloan and deposit products has been well received in our markets.  We haveassembled a staff that delivers these products with a personal touch.  Ourknowledge base at the Bank allows us to support these products well, tailoringthe products to the customer's wishes.  

Our strategy of high growth keeps our loanvolumes ahead of deposit volumes, but our funding mix continues to shift tonon-maturity deposits that carry lower costs.  Our aggressive yet high qualitygrowth allows us to fully leverage our capital base, which is representedbelow.

(The graph depicts the following information)

|                      | **2001** | **2002** | **2003** | **2004** | **2005** |
|----------------------|----------|----------|----------|----------|----------|
| Stockholders' Equity | 8,313    | 11,944   | 13,213   | 14,883   | 16,592   |
|                      |          |          |          |          |          |

Net income of $1.96 million for 2005 was anincrease of 21.9% over the $1.61 million posted in 2004.  Our growth andleverage strategies continue to post returns for the shareholder.  Whilestockholders' equity has grown significantly each year, our return on equityhas seen substantial growth as well, almost doubling in five years. 

(The graph depicts the following information)

|                              | **2001** | **2002** | **2003** | **2004** | **2005** |
|------------------------------|----------|----------|----------|----------|----------|
| Return on Average Equity (%) | 6.39     | 8.63     | 10.89    | 11.32    | 12.47    |
|                              |          |          |          |          |          |

Continued gains in profits means furtherincreases in the stock's book value.  The Board of Directors is committed tothe consistent increase in your stock's value.  Because of this dedication, theCompany has recently completed its first stock buy-back program, where originalinvestors had the opportunity to realize a **260%** return on theirinvestment.

(The graph depicts the following information)

----

|                      | **2001** | **2002** | **2003** | **2004** | **2005** |
|----------------------|----------|----------|----------|----------|----------|
| Book Value Per Share | 10.74    | 10.77    | 12.38    | 14.05    | 15.52    |

I invite you to review the Selected FinancialData page of this report for more details on our performance over the last fiveyears.  Your active participation in the ongoing history of Unity Holdings,Inc. is always encouraged.  We urge you to bank with us and meet our friendly,experienced staff.  The Board, staff, and I stand ready to serve yourshareholder and banking needs.  Please make plans to attend the Annual Meetingof ShareholderS on May 17, 2006.

Sincerely,

MICHAEL L. MCPHERSONMichael L. McPherson,President & CEO

----

| **LOCATIONS**                                                     |
|-------------------------------------------------------------------|
| MAIN OFFICE  950 Joe Frank Harris Parkway  Cartersville, GA 30121 | ADAIRSVILLE  7450 Adairsville Highway, NW  Adairsville, GA 30103 | ROME  42 Three Rivers Drive  Rome, GA 30161 |
| HENDERSON DRIVE  601 Henderson Drive  Cartersville, GA 30120      | CALHOUN  150 W.C. Bryant Parkway  Calhoun, GA 30701  (Opening Summer 2006) | CALHOUN - TEMPORARY LOCATION  317 Richardson Road  Calhoun, GA 30701 |
|                                                                   | OPERATIONS CENTER  34 Center Road  Cartersville, GA 30121 |  |
|                                                                   |  |  |

| **DIRECTORS**             |
|---------------------------|
| JERRY W. BRADEN  Chairman | KENNETH R. BISHOP | DONALD D. GEORGE | JOHN S. LEWIS |
| SAM R. McCLESKEY          | MICHAEL L. MCPHERSON | STEPHEN A. TAYLOR | B. DON TEMPLES |
|                           |  |  |  |

| **EXECUTIVE OFFICERS**                                           |
|------------------------------------------------------------------|
|                                                                  | MICHAEL L. MCPHERSON  President and Chief Executive Officer |  |
| W. STEWART GRIGGS  Executive Vice President  Senior Loan Officer |  | ELI D. MULLIS  Senior Vice President  Chief Financial Officer |
|                                                                  |  |  |

----

| **OFFICERS**                                                  |
|---------------------------------------------------------------|
| KIMBERLY ABERNATHY  Vice President  Human Resources           | MICHELLE BAILEY  Vice President  Loan Operations | MARTHA DARBY  Vice President  Loan Officer, Calhoun | JOHN GRAHAM  Vice President  Rome Senior Officer |
| RICK KOLLHOFF  Vice President  Henderson Drive Senior Officer | CONNIE MITCHELL-WHITE  Vice President  Retail Division Officer | MICHAEL SMITH  Vice President  Adairsville Senior Officer | STANLEY TAYLOR  Vice President  Calhoun Senior Officer |
|                                                               | DONA WISNOM  Vice President  Loan Officer, Cartersville |  |
|                                                               |  |  |  |
| BRANDON ADAMS  Financial Reporting and Compliance Officer     | TERESA BROWN  Retail Banking Officer  Cartersville | JOE LYNCH  Collections Officer | CHRISTIE McLAUGHLIN  Deposit Operations Officer |
| BRYAN SHEALY  Loan Officer, Adairsville                       | JEFF STARKE  Technology Officer | HAZEL D. TEMPLES  BSA Officer | JOE TWYMAN  Loan Officer, Rome |
|                                                               |  |  |  |

----

**UNITY HOLDINGS, INC.**

**AND SUBSIDIARY**

** **

**CONSOLIDATED FINANCIAL REPORT**

**DECEMBER 31, 2005**

**tableof contents**

| ** **                                                   | ** **                                                                                 | **Page**

** ** |
|--------------------------------------------------------------|--------------------------------------------------------------------------------------------|----------------------|
| **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  stockholders' equity**                                       | **5**                |
| ** **                                                   | **Consolidated statements of cash flows**                                                  | **6**                |
| ** **                                                   | **Notes to consolidated financial  statements**                                            | **7-28**             |
| ** **                                                   | **Selected Financial Data**                                                                | **29**               |
| ** **                                                   | **Management's Discussion and Analysis of  Financial Condition and Results of Operations** | **30-44**            |

** **

----

** **

MAULDIN& JENKINS

Certified Public Accountants, LLC

| ** **

**       REPORT OF  INDEPENDENT REGISTERED**

** PUBLIC ACCOUNTING  FIRM** |
|---------------------------------------------------------------------------------------------------------------------------|

**To the Board of Directors**

**Unity Holdings, Inc.**

**Cartersville****, Georgia**

We have audited theaccompanying consolidated balance sheets of **Unity Holdings, Inc. andsubsidiary** as of December 31, 2005 and 2004, and the related consolidatedstatements of income, comprehensive income, stockholders' equity and cash flowsfor the years then ended.  These financial statements are the responsibility ofthe Company's management.  Our responsibility is to express an opinion on thesefinancial statements based on our audits.

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States.)  Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement.  An audit 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 significantestimates made by management, as well as evaluating the overall financial statementpresentation.  We believe that our audits provide a reasonable basis for ouropinion.

In our opinion, theconsolidated financial statements referred to above present fairly, in all materialrespects, the financial position of Unity Holdings, Inc. and subsidiary****asof December 31, 2005 and 2004, and the results of their operations and theircash flows for the years then ended, in conformity with U.S. generally acceptedaccounting principles.

MAULDIN & JENKINS,LLC

Birmingham, Alabama

February 3, 2006

2000 SOUTHBRIDGE PARKWAY,SUITE 501 - BIRMINGHAM, AL 35209 - 205-445-2880 - FAX 205-445-2940 -www.mjcpa.comMEMBERS OF THE AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS 

----

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| **UNITY HOLDINGS, INC.**                                                                                       |
|----------------------------------------------------------------------------------------------------------------|
| **AND SUBSIDIARY**                                                                                             |
| ** **                                                                                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| **CONSOLIDATED BALANCE SHEETS**                                                                                |
| **DECEMBER 31, 2005 AND 2004**                                                                                 |
| ** **                                                                                                     | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                                                                                | **2005** |  | **2004** |
| **Assets**                                                                                                     |  |  |  |  |  |
| Cash and due from banks                                                                                        | **$** | **3,765,256 ** |  | **$** | **2,817,241 ** |
| Interest-bearing deposits in banks                                                                             | ** ** | **132,082 ** |  | ** ** | **132,253 ** |
| Federal funds sold                                                                                             | ** ** | **725,000 ** |  | ** ** | **3,668,000 ** |
| Securities available-for-sale                                                                                  | ** ** | **18,879,777 ** |  | ** ** | **13,781,608 ** |
| Restricted equity securities, at cost                                                                          | ** ** | **2,265,078 ** |  | ** ** | **1,705,809 ** |
| Loans                                                                                                          | ** ** | **195,599,390 ** |  | ** ** | **167,332,895 ** |
| Less allowance for loan losses                                                                                 | ** ** | **2,445,221 ** |  | ** ** | **2,258,994 ** |
|           Loans, net                                              | ** ** | **193,154,169 ** |  | ** ** | **165,073,901 ** |
| Premises and equipment                                                                                         | ** ** | **9,402,200 ** |  | ** ** | **8,090,849 ** |
| Other assets                                                                                                   | ** ** | **5,010,711 ** |  | ** ** | **4,191,094 ** |
| **          TOTAL ASSETS**                                        | **$** | **233,334,273 ** |  | **$** | **199,460,755 ** |
|                                                                                                                | ** ** | ** ** |  | ** ** | ** ** |
| **Liabilities, Redeemable Common Stock and Stockholders'  Equity**                                             | ** ** | ** ** |  | ** ** | ** ** |
| Deposits                                                                                                       | ** ** | ** ** |  | ** ** | ** ** |
|     Noninterest-bearing                                                                         | **$** | **14,133,868 ** |  | **$** | **12,900,310 ** |
|     Interest-bearing                                                                            | ** ** | **169,185,085 ** |  | ** ** | **148,509,303 ** |
|          Total deposits                                                | ** ** | **183,318,953 ** |  | ** ** | **161,409,613 ** |
| Other borrowings                                                                                               | ** ** | **29,250,000 ** |  | ** ** | **19,150,000 ** |
| Guaranteed subordinated debentures                                                                             | ** ** | **3,093,000 ** |  | ** ** | **3,093,000 ** |
| Other liabilities                                                                                              | ** ** | **973,653 ** |  | ** ** | **843,220 ** |
| **         TOTAL LIABILITIES**                                         | ** ** | **216,635,606 ** | ** ** | ** ** | **184,495,833 ** |
|                                                                                                                | ** ** | ** ** |  | ** ** | ** ** |
| Commitments and contingencies                                                                                  | ** ** | ** ** |  | ** ** | ** ** |
|                                                                                                                | ** ** | ** ** |  | ** ** | ** ** |
| Redeemable common stock held by KSOP                                                                           | ** ** | **106,548 ** |  | ** ** | **81,960 ** |
|                                                                                                                | ** ** | ** ** |  | ** ** | ** ** |
| Stockholders' equity                                                                                           | ** ** | ** ** |  | ** ** | ** ** |
|     Preferred stock, par value $.01; 10,000,000 shares                                          | ** ** | ** ** |  | ** ** | ** ** |
|         authorized; none issued                                             | ** ** | ** ** |  | ** ** | ** ** |
|     Common stock, par value $.01; 10,000,000 shares authorized;                                 | ** ** | ** ** |  | ** ** | ** ** |
|          1,014,510 and 1,013,510 issued and outstanding,  respectively | ** ** | **10,145 ** |  | ** ** | **10,135 ** |
|     Capital surplus                                                                             | ** ** | **10,847,421 ** |  | ** ** | **10,837,431 ** |
|     Retained earnings                                                                           | ** ** | **5,897,630 ** |  | ** ** | **3,958,780 ** |
|     Accumulated other comprehensive income (loss)                                               | ** ** | **(163,077)** |  | ** ** | **76,616 ** |
|           Total stockholders' equity                              | ** ** | **16,592,119 ** |  | ** ** | **14,882,962 ** |
| **          TOTAL LIABILITIES, REDEEMABLE COMMON STOCK**          | ** ** | ** ** |  | ** ** | ** ** |
| **             AND STOCKHOLDERS' EQUITY**          | **$** | **233,334,273 ** |  | **$** | **199,460,755 ** |
|                                                                                                                | ** ** |  |  |  |  |
| **See Notes to Consolidated Financial Statements.**                                                            | ** ** |  |  |  |  |
|                                                                                                                | ** ** |  |  |  |  |

** **

2

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** **

| **UNITY HOLDINGS , INC.**                                                                                   |
|-------------------------------------------------------------------------------------------------------------|
| **AND SUBSIDIARY**                                                                                          |
|                                                                                                             |  |  | ** ** |  |  |
| **CONSOLIDATED STATEMENTS OF INCOME**                                                                       |
| **YEARS ENDED DECEMBER 31, 2005 AND 2004**                                                                  |
| ** **                                                                                                  |  |  | ** ** |  |  |
|                                                                                                             | **2005** |  | **2004** |
| **Interest income**                                                                                         |  |  | ** ** |  |  |
|     Loans                                                                                    | **$** | **13,448,376 ** |  | **$** | 10,320,508  |
|     Taxable securities                                                                       | ** ** | **653,784 ** |  | ** ** | 339,243  |
|     Nontaxable securities                                                                    | ** ** | **258,932 ** |  | ** ** | 255,753  |
|     Federal funds sold                                                                       | ** ** | **67,802 ** |  | ** ** | 30,770  |
|     Interest-bearing deposits in banks                                                       | ** ** | **6,582 ** |  | ** ** | 2,821  |
|           Total interest income                                | ** ** | **14,435,476 ** |  | ** ** | 10,949,095  |
| ** **                                                                                                  | ** ** | ** ** |  | ** ** |  |
| **Interest expense**                                                                                        | ** ** |  |  | ** ** |  |
|     Deposits                                                                                 | ** ** | **5,228,555 ** |  | ** ** | 3,432,255  |
|     Borrowings                                                                               | ** ** | **885,595 ** |  | ** ** | 497,876  |
|           Total interest expense                               | ** ** | **6,114,150 ** |  | ** ** | 3,930,131  |
|                                                                                                             | ** ** | ** ** |  | ** ** |  |
|           Net interest income                                  | ** ** | **8,321,326 ** |  | ** ** | 7,018,964  |
| **Provision for loan losses**                                                                               | ** ** | **220,928 ** |  | ** ** | 732,380  |
|           Net interest income after provision for loan  losses | ** ** | **8,100,398 ** |  | ** ** | 6,286,584  |
|                                                                                                             | ** ** | ** ** |  | ** ** |  |
| **Other income**                                                                                            | ** ** | ** ** |  | ** ** |  |
|     Service charges on deposit accounts                                                      | ** ** | **761,132 ** |  | ** ** | 709,702  |
|     Mortgage loan fees                                                                       | ** ** | **373,211 ** |  | ** ** | 287,952  |
|     Gain on sale of securities available-for-sale                                            | ** ** | **4,921 ** |  | ** ** | -  |
|     Other operating income                                                                   | ** ** | **156,504 ** |  | ** ** | 92,527  |
|           Total other income                                   | ** ** | **1,295,768 ** | ** ** | ** ** | 1,090,181  |
|                                                                                                             | ** ** | ** ** |  | ** ** |  |
| **Other expenses**                                                                                          | ** ** | ** ** | ** ** | ** ** |  |
|     Salaries and employee benefits                                                           | ** ** | **3,324,719 ** |  | ** ** | 2,554,721  |
|     Equipment and occupancy expenses                                                         | ** ** | **898,955 ** |  | ** ** | 689,361  |
|     Other operating expenses                                                                 | ** ** | **2,255,134 ** |  | ** ** | 1,749,308  |
|           Total other expenses                                 | ** ** | **6,478,808 ** |  | ** ** | 4,993,390  |
| ** **                                                                                                  | ** ** | ** ** |  | ** ** |  |
| Income before income taxes                                                                                  | ** ** | **2,917,358 ** |  | ** ** | 2,383,375  |
| Income tax expense                                                                                          | ** ** | **953,919 ** | ** ** | ** ** | 772,888  |
| **NET INCOME**                                                                                              | **$** | **1,963,439 ** |  | **$** | 1,610,487  |
| ** **                                                                                                  |  |  |  |  |  |
| **Basic earnings per share**                                                                                | **$** | **1.94 ** |  | **$** | 1.59  |
| **Diluted earnings per share**                                                                              | **$** | **1.74 ** |  | **$** | 1.45  |
|                                                                                                             |  |  |  |  |  |
| **See Notes to Consolidated Financial Statements.**                                                         |  |  |  |  |  |

** **

** **

** **

3

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** **

| **UNITY HOLDINGS, INC.**                                                                                                         |
|----------------------------------------------------------------------------------------------------------------------------------|
| **AND SUBSIDIARY**                                                                                                               |
| ** **                                                                                                                       |  |  | ** ** |  |  |
| **CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME**                                                                              |
| **YEARS ENDED DECEMBER 31, 2005 AND 2004**                                                                                       |
|                                                                                                                                  |  |  |  |  |  |
|                                                                                                                                  |  | **2005** |  |  | 2004 |
|                                                                                                                                  |  |  |  |  |  |
| **Net income**                                                                                                                   | **$** | **1,963,439   ** |  | $ | 1,610,487    |
|                                                                                                                                  |  | ** ** |  |  |  |
| **Other comprehensive income (loss):**                                                                                           |  | ** ** | ** ** |  |  |
|     Unrealized holding gains (losses) on securities  available-for-sale:                                          |  | ** ** | ** ** |  |  |
|                                                                                                                                  |  | ** ** | ** ** |  |  |
|         Unrealized holding gains (losses) on securities  arising during period,               |  | ** ** | ** ** |  |  |
|             net of tax (benefit) of ($121,805) and  $39,075, respectively | ** ** | **(236,445)** | ** ** |  | 76,619    |
|                                                                                                                                  | ** ** | ** ** | ** ** |  |  |
|         Reclassification adjustment for gains realized in  net income,                        | ** ** | ** ** | ** ** |  |  |
|             net of tax of $1,673 and $0, respectively                     | ** ** | **(3,248)** | ** ** |  | -    |
|                                                                                                                                  |  | ** ** | ** ** |  |  |
| **Other comprehensive income (loss)**                                                                                            |  | **(239,693)** | ** ** |  | 76,619    |
|                                                                                                                                  |  | ** ** | ** ** |  |  |
| **Comprehensive income**                                                                                                         | **$** | **1,723,746   ** | ** ** | $ | 1,687,106    |
|                                                                                                                                  |  | ** ** | ** ** |  |  |
| ** **                                                                                                                       |  |  |  |  |  |
| **See Notes to Consolidated Financial Statements.**                                                                              |  | ** ** |  |  |  |

** **

** **

** **

4

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** **

| **UNITY HOLDINGS,  INC.**                            |
|------------------------------------------------------|
| **AND SUBSIDIARY**                                   |
|                                                      |  | ** ** | ** ** | ** ** | ** ** | ** ** |  |  |  |  |  |  |
| **CONSOLIDATED  STATEMENTS OF STOCKHOLDERS' EQUITY** |
| **YEARS ENDED  DECEMBER 31, 2005 AND 2004**          |
|                                                      |  |  |  |  |  |  |  |  |  |  |  |  |
|                                                      |  |  |  |  |  |  |  |  | **Accumulated** |  |  |
|                                                      |  | ** ** | ** ** | ** ** | ** ** | ** ** |  |  | **Other** | **Total** |
|                                                      |  | **Common Stock** | **Capital** | **Retained** | **Comprehensive** | **Stockholders'** |
|                                                      |  | **Shares** | **Par Value** | **Surplus** | **Earnings** | **Income** | **Equity** |
|                                                      |  |  |  | ** ** |  | ** ** |  |  |  |  |  |  |
| **Balance, December 31,  2003**                      | $ | 1,013,510  | $ | 10,135  | $ | 10,837,431  | $ | 2,356,489  | $ | 8,749  | $ | 13,212,804  |
|     Net income                        |  | -  |  | -  |  | -  |  | 1,610,487  |  | -  |  | 1,610,487  |
|     Adjustment for shares  owned      |  |  |  |  |  |  |  |  |  |  |  |  |
|         by KSOP   |  | -  |  | -  |  | -  |  | (8,196) |  | -  |  | (8,196) |
|     Other comprehensive  income       |  | -  |  | -  |  | -  |  | -  |  | 67,867  |  | 67,867  |
| **Balance, December 31,  2004**                      |  | 1,013,510  |  | 10,135  |  | 10,837,431  |  | 3,958,780  |  | 76,616  |  | 14,882,962  |
|     Net income                        |  | -  |  | -  |  | -  |  | 1,963,439  |  | -  |  | 1,963,439  |
|     Exercise of stock  options        |  | 1,000  |  | 10  |  | 9,990  |  | -  |  | -  |  | 10,000  |
|     Adjustment for shares  owned      |  |  |  |  |  |  |  |  |  |  |  |  |
|         by KSOP   |  | -  |  | -  |  | -  |  | (24,589) |  | -  |  | (24,589) |
|     Other comprehensive loss          |  | -  |  | -  |  | -  |  | -  |  | (239,693) |  | (239,693) |
| **Balance, December 31,  2005**                      | $ | 1,014,510  | $ | 10,145  | $ | 10,847,421  | $ | 5,897,630  | $ | (163,077) | $ | 16,592,119  |
|                                                      |  |  |  |  |  |  |  |  |  |  |  |  |
| **See Notes to Consolidated  Financial Statements.** |  |  |  |  |  |  |  |  |  |  |

** **

** **

** **

5

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6

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** **

| **UNITY HOLDINGS, INC.  AND SUBSIDIARY**                                                                                      |
|-------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                    |  |  | ** ** |  |  |
| **CONSOLIDATED STATEMENTS OF CASH FLOWS**                                                                                     |
| **YEARS ENDED DECEMBER 31, 2005 AND 2004**                                                                                    |
| **(Unaudited)**                                                                                                               |
|                                                                                                                               |  | **2005** |  |  | **2004** |
| **OPERATING ACTIVITIES**                                                                                                      |  | ** ** |  |  |  |
|     Net income                                                                                                 | **$** | **1,963,439  ** |  | $ | 1,610,487  |
|     Adjustments to reconcile  net income to net                                                                | ** ** | ** ** |  |  |  |
|         cash provided by  operating activities:                                            | ** ** | ** ** |  |  |  |
|         Depreciation                                                                       | ** ** | **446,920 ** |  |  | 307,264  |
|         Provision for loan  losses                                                         | ** ** | **220,928 ** |  |  | 732,380  |
|         Deferred income  taxes                                                             | ** ** | **(162,018)** |  |  | (114,140) |
|         Gain on sale of  securities available-for-sale                                     | ** ** | **(4,921)** |  |  | -  |
|         Increase in interest  receivable                                                   | ** ** | **(437,830)** |  |  | (175,513) |
|         Decrease in interest  payable                                                      | ** ** | **(48,349)** |  |  | (76,924) |
|         Net other operating  activities                                                    | ** ** | **194,690 ** |  |  | 404,857  |
| **              Net cash  provided by operating activities** | ** ** | **2,172,859 ** |  |  | 2,688,411  |
|                                                                                                                               | ** ** | ** ** | ** ** |  |  |
| **INVESTING ACTIVITIES**                                                                                                      | ** ** | ** ** |  |  |  |
|     Net (increase) decrease  in interest-bearing deposits in banks                                             | ** ** | **171 ** |  |  | (73,013) |
|     Purchases of securities  available-for-sale                                                                | ** ** | **(11,259,134)** |  |  | (5,499,848) |
|     Proceeds from sales of  securities available-for-sale                                                      | ** ** | **5,007,964 ** |  |  | -  |
|     Proceeds from  maturities\calls of securities available-for-sale                                           | ** ** | **842,149 ** |  |  | 2,582,240  |
|     Redemption of restricted  equity-based securities                                                          | ** ** | **135,000 ** |  |  | 702,500  |
|     Purchases of restricted  equity securities                                                                 | ** ** | **(694,269)** |  |  | (1,108,200) |
|     Net (increase) decrease  in federal funds sold                                                             | ** ** | **2,943,000 ** |  |  | (3,668,000) |
|     Net increase in loans                                                                                      | ** ** | **(28,398,861)** |  |  | (29,079,620) |
|     Purchase of cash  surrender value life insurance                                                           | ** ** | **(61,933)** |  |  | (1,200,000) |
|     Purchase of premises and  equipment                                                                        | ** ** | **(1,758,271)** |  |  | (3,405,339) |
| **          Net cash used  in investing activities**                             | ** ** | **(33,244,184)** |  |  | (40,749,280) |
|                                                                                                                               | ** ** | ** ** |  |  |  |
| **FINANCING ACTIVITIES**                                                                                                      | ** ** | ** ** |  |  |  |
|     Net increase in deposits                                                                                   | ** ** | **21,909,340 ** |  |  | 31,939,466  |
|     Net increase (decrease)  in Fed funds purchased                                                            | ** ** | **- ** |  |  | (2,100,000) |
|     Proceeds from other  borrowings                                                                            | ** ** | **23,000,000 ** |  |  | 13,000,000  |
|     Repayments of other  borrowings                                                                            | ** ** | **(12,900,000)** |  |  | (4,859,000) |
|     Proceeds from exercise  of stock options                                                                   | ** ** | **10,000 ** |  |  | -  |
| **          Net cash  provided by financing activities**                         | ** ** | **32,019,340 ** |  |  | 37,980,466  |
|                                                                                                                               | ** ** | ** ** | ** ** |  |  |
| Net increase (decrease) in  cash and due from banks                                                                           | ** ** | **948,015 ** |  |  | (80,403) |
| Cash and due from banks at  beginning of period                                                                               | ** ** | **2,817,241 ** |  |  | 2,897,644  |
| **Cash and due from banks  at end of period**                                                                                 | **$** | **3,765,256 ** |  |  $ | 2,817,241  |
|                                                                                                                               | ** ** | ** ** |  |  |  |
| **SUPPLEMENTAL DISCLOSURES**                                                                                                  |  | ** ** |  |  |  |
|     Cash paid during the  period for:                                                                          | ** ** | ** ** |  |  |  |
|         Interest                                                                           | **$** | **6,162,499 ** |  |  $ | 4,007,055  |
|         Income taxes                                                                       | **$** | **1,107,660 ** |  |  $ | 954,529  |
|                                                                                                                               |  | ** ** |  |  |  |
| **NONCASH TRANSACTIONS**                                                                                                      |  | ** ** |  |  |  |
|         Loans transferred to  other real estate owned                                      | **$** | **132,366 ** |  |  $ | 787,845  |
|                                                                                                                               |  | ** ** |  |  |  |
| **See Notes to Consolidated  Financial Statements.**                                                                          |  | ** ** |  |  |  |
|                                                                                                                               |  |  |  |  |  |  |

** **

7

----

**UNITY HOLDINGS, INC.**

**AND SUBSIDIARY**

**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

** **

** **

**NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

** **

**Nature of Business**

** **

Unity Holdings, Inc. (the "Company") is a bankholding company whose business is conducted by its wholly-owned subsidiary,Unity National Bank (the "Bank").  The Bank is a commercial bank headquarteredin Cartersville, Bartow County, Georgia with offices in Adairsville, BartowCounty, Georgia and Rome, Floyd County, Georgia and a loan production office inCalhoun, Gordon County, Georgia.  The Bank provides a full range of bankingservices in its primary market areas.

**Basis of Presentation and Accounting Estimates**

The consolidatedfinancial statements include the accounts of the Company and its subsidiary.Significant intercompany transactions and balances have been eliminated inconsolidation.

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

Material estimates that are particularly susceptible to significant change inthe near term relate to the determination of the allowance for loan losses,deferred tax assets, valuation of foreclosed assets and contingent assets andliabilities.  The determination of the adequacy of the allowance for loanlosses is based on estimates that are susceptible to significant changes in theeconomic environment and market conditions.  In connection with thedetermination of the estimated losses on loans and foreclosed assets,management obtains independent appraisals for significant collateral.

**Cash, Due From Banks and Cash Flows**

For purposes ofreporting cash flows, cash and due from banks includes cash on hand, cash itemsin process of collection and amounts due from banks.  Cash flows from loans,federal funds sold, interest-bearing deposits in banks, deposits, and federalfunds purchased are reported net.

The Bank is required tomaintain reserve balances in cash or on deposit with the Federal Reserve Bank,based on a percentage of deposits.  The total of those reserve balances wasapproximately $571,000 and $594,000 at December 31, 2005 and 2004,respectively.

**Securities**

Debt securities that managementhas the positive intent and ability to hold to maturity are classified asheld-to-maturity and recorded at amortized cost.  Debt securities not classifiedas held-to-maturity are classified as available-for-sale and recorded at fairvalue with unrealized gains and losses excluded from earnings and reported inother comprehensive income net of the related deferred tax effect.  Equitysecurities, including restricted stock, without a readily determinable fairvalue are recorded at cost.

7

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)**

**Securities (Continued)**

Purchasedpremiums and discounts are recognized in interest income using the interestmethod over the terms of the securities.  Gains and losses on the sale ofsecurities are determined using the specific identification method.  Declinesin the fair value of securities below their cost that are deemed to be otherthan temporary are reflected in earnings as realized losses.  In estimatingother-than-temporary impairment losses, management considers (1) the length oftime and the extent to which the fair value has been less than cost, (2) thefinancial condition and near-term prospects of the issuer, and (3) the intentand ability of the Company to retain its investment in the issuer for a periodof time sufficient to allow for any anticipated recovery in fair value.

**Loans**

Loans are reported attheir outstanding principal balances less net deferred loan fees and theallowance for loan losses.  Interest income is accrued on the outstandingprincipal balance.  Nonrefundable loan fees, net of direct loan originationcosts, are deferred with the net amount recognized in interest income over thelife of the loans using a method which approximates a level yield.

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

A loan is consideredimpaired when it is probable, based on current information and events, theCompany will be unable to collect all principal and interest payments due inaccordance with the contractual terms of the loan agreement.  Impaired loansare measured by either the present value of expected future cash flowsdiscounted at the loan's effective interest rate, the loan's obtainable marketprice, or the fair value of the collateral if the loan is collateraldependent.  The amount of impairment, if any, and any subsequent changes areincluded in the allowance for loan losses.  Interest on accruing impaired loansis recognized as long as such loans do not meet the criteria for nonaccrualstatus.

**Allowance for Loan Losses**

The allowance for loanlosses is established through a provision for loan losses charged to expense. Loan losses are charged against the allowance when management believes thecollectibility of the principal is unlikely.  Subsequent recoveries arecredited to the allowance.

The allowance is anamount that management believes will be adequate to absorb estimated lossesrelating to specifically identified loans, as well as probable credit lossesinherent in the balance of the loan portfolio, based on an evaluation of thecollectibility of existing loans and prior loss experience.  This evaluationalso takes into consideration such factors as changes in the nature and volumeof the loan portfolio, overall portfolio quality, review of specific problemloans, concentrations and current economic conditions that may affect theborrower's ability to pay.  This evaluation does not include the effects ofexpected losses on specific loans or groups of loans that are related to futureevents or expected changes in economic conditions.  While management uses thebest information available to make its evaluation, future adjustments to theallowance may be necessary if there are any significant changes in economicconditions.  In addition, regulatory agencies, as an integral part of theirexamination process, periodically review the Company's allowance for loanlosses, and may require the Company to make additions to the allowance based ontheir judgment about information available to them at the time of theirexaminations.

8

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)**

**Premises and Equipment**

Land is carried atcost.  Premises and equipment are carried at cost less accumulated depreciation. Depreciation is computed principally by the straight-line method over theestimated useful lives of the assets.  Estimated useful lives for premises andequipment are three years to forty years.  

**Other Real Estate Owned**

Other real estate ownedrepresents properties acquired through foreclosure.  Other real estate owned isheld for sale and is carried at the lower of cost or fair value less estimatedcosts to sell.  Any write-down to fair value at the time of transfer to otherreal estate owned is charged to the allowance for loan losses.  Revenue andexpenses from operations and changes in the valuation allowance are included innet expenses from foreclosed assets.  The Company had $132,366 and $247,383 ofother real estate owned at December 31, 2005 and 2004, respectively.

**Stock Compensation Plans**

At December 31, 2005,the Company has two stock-based employee compensation plans, which aredescribed more fully in Note 8.  The Company accounts for those plans under therecognition and measurement principles of APB Opinion No. 25, *Accounting forStock Issued to Employees*, and related Interpretations.  No stock-basedemployee compensation cost is reflected in net income, as all options grantedunder those plans had an exercise price equal to the market value of theunderlying stock on the date of grant.  The following table illustrates theeffect on net income and earnings per share if the Company had applied the fairvalue recognition provisions of SFAS No. 123, *Accounting for Stock-BasedCompensation*, to stock-based employee compensation.

|                                                        |                | **Years Ended  December 31,** |
|--------------------------------------------------------|----------------|-------------------------------|
|                                                        |                | **2005**                      | ** ** | **2004** |
|                                                        |                | ** **                    | ** ** | ** ** |
| Net income, as reported                                | ** $**    | **1,963,439 **           | ** ** |  $ | 1,610,487  |
| Deduct: Total stock-based employee compensation        | ** **     | ** **                    |  |
|    Expense determined under fair value based | ** **     | ** **                    |  |
|    method for all awards                     | **(46,377)**   | ** **                    | (53,969) |
| **Pro forma net income**                               | ** $**    | **1,917,062 **           | ** ** |  $ | 1,556,518  |
|                                                        |                | ** **                    | ** ** | ** ** |
| **Earnings per share:**                                | ** **     | ** **                    |  |
| Basic - as reported                                    | ** $**    | **1.94 **                | ** ** |  $ | 1.59  |
| Basic - pro forma                                      | **1.89 ** | ** **                    | 1.54  |
| Diluted - as reported                                  | **1.74 ** | ** **                    | 1.45  |
| Diluted - pro forma                                    | ** $**    | **1.70 **                | ** ** |  $ | 1.40  |

**Earnings Per Share**

Basic earnings per shareare computed by dividing net income  by the weighted average number of sharesof common stock outstanding.  Diluted earnings per share are computed bydividing net income  by the sum of the weighted average number of shares ofcommon stock outstanding and potential common shares.  Potential common sharesconsist of stock options and stock warrants.

9

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

** **

**NOTE 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(Continued)**

**Comprehensive Income**

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

**RecentAccounting Standards**

In December 2004, the Financial Accounting Standards Board("FASB") published Statement of Financial Accounting Standards No. 123 (revised2005), *Share-Based Payment* ("SFAS 123(R)").  SFAS 123(R) requires thatthe compensation cost relating to share-based payment transactions, includinggrants of employee stock options, be recognized in financial statements. Thatcost will be measured based on the fair value of the equity or liabilityinstruments issued. FAS 123(R) covers a wide range of share-based compensationarrangements including stock options, restricted share plans, performance-basedawards, share appreciation rights, and employee share purchase plans.  SFAS 123(R)is a replacement of SFAS Statement No. 123, *Accounting for Stock-BasedCompensation*, and supersedes APB Opinion No. 25, Accounting *for StockIssued to Employees*, and its related interpretive guidance. 

The effect of the Statement will be to require entities tomeasure the cost of employee services received in exchange for stock optionsbased on the grant-date fair value of the award, and to recognize the cost overthe period the employee is required to provide services for the award.  SFAS123(R) permits entities to use any option-pricing model that meets the fairvalue objective in the Statement.  

The Company is required to apply SFAS 123(R) as of thebeginning of its first interim period that begins after December 15, 2005,which will be the quarter ending March 31, 2006.  

SFAS 123(R) allows two methods for determining the effectsof the transition: the modified prospective transition method and the modifiedretrospective method of transition. Under the modified prospective transitionmethod, an entity would use the fair value based accounting method for allemployee awards granted, modified, or settled after the effective date. As ofthe effective date, compensation cost related to the nonvested portion ofawards outstanding as of that date would be based on the grant-date fair valueof those awards as calculated under the original provisions of SFAS No. 123;that is, an entity would not remeasure the grant-date fair value estimate ofthe unvested portion of awards granted prior to the effective date of SFAS123(R). An entity will have the further option to either apply the Statement toonly the quarters in the period of adoption and subsequent periods, or applythe Statement to all quarters in the fiscal year of adoption. Under themodified retrospective method of transition, an entity would revise itspreviously issued financial statements to recognize employee compensation costfor prior periods presented in accordance with the original provisions of SFASNo. 123. The Company will adopt the modified prospective transition method. Theprovisions of this statement are not expected to have a material impact onresults of operations, financial position, or liquidity of the Company.

10

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 2.  SECURITIES**

The amortized cost and fair value of securities aresummarized as follows:

|                                                           |                |                           |                      | **Gross**              |             | **Gross**        | ** ** | ** **                |
|-----------------------------------------------------------|----------------|---------------------------|----------------------|------------------------|-------------|------------------|------------|---------------------------|
| **Amortized**                                             | **Unrealized** |                           | **Unrealized**       | ** **             | **Fair**    |
| **Cost**                                                  | **Gains**      |                           | **Losses**           | ** **             | **Value**   |
| **Securities Available for Sale**                         |                |                           |                      |                        |             |                  |            |                           |
| **December  31, 2005:**                                   |                |                           | ** **           |                        |             |                  |            |                           |
| **   U.S. Government and agency  securities**   | ** **     | ** $**               | **8,992,454 **  | ** **             | ** $** | **- **      | ** ** | ** $**               | **(188,392)** | ** ** | ** $** | **8,804,062 ** |
| **Municipal  securities**                                 | ** **     | **5,567,954  ** | ** **           | **62,539  ** | ** **  | **(11,160)**     | ** ** | **5,619,333  ** |
| **Mortgage-backed  securities**                           | ** **     | **4,566,456  ** | ** **           | **20  **     | ** **  | **(110,094)**    | ** ** | **4,456,382 **       |
|                                                           | ** **     | ** $**               | **19,126,864 ** | ** **             | ** $** | **62,559 ** | ** ** | ** $**               | **(309,646)** | ** ** | ** $** | **18,879,777 ** |
|                                                           |                |                           |                      |                        |             |                  |            |                           |
| December  31, 2004:                                       |                | ** **                | ** **           | ** **             | ** **  | ** **       | ** ** | ** **                |
|     U.S. Government and agency  securities |                |  $                   | 7,223,464       |                        |  $     | 26,757      |            |  $                   | (59,988) |  |  $ | 7,190,233  |
| Municipal  securities                                     |                | 5,963,715       |                      | 148,784      |             | (2,304)          |            | 6,110,195       |
|     Mortgage-backed securities             |                | 478,345         |                      | 2,835        |             | -      |            | 481,180         |
|                                                           |                |  $                   | 13,665,524      |                        |  $     | 178,376     |            |  $                   | (62,292) |  |  $ | 13,781,608  |
|                                                           |                |                           |                      |                        |             |                  |            |                           |  |  |  |  |  |  |  |  |

Securities with acarrying value of $5,984,350 and $4,655,713 at December 31, 2005 and 2004,respectively, were pledged to secure public deposits and for other purposesrequired or permitted by law.  

Gross gains of $36,913and gross losses of $31,992 were realized on sales of securities available for salefor the years ended December 31, 2005.  There were no sales of securitiesduring 2004.

The amortized cost andfair value of debt securities as of December 31, 2005 by contractual maturityare shown below.  Maturities may differ from contractual maturities ofmortgage-backed securities because the mortgages underlying the securities maybe called or repaid without penalty.  Therefore, these securities are notincluded in the maturity categories in the following summary.

| ** **                 | **Amortized** | ** **           | **Fair**   |
|----------------------------|---------------|----------------------|------------|
| ** **                 | **Cost**      | ** **           | **Value**  |
| Due from one to five years | $             | 5,325,378       | ** ** | 5,260,525  |
| Due from five to ten years |               | 1,668,392       | ** ** | 1,643,589  |
| Due after ten years        | ** **    | 7,566,638       | ** ** | 7,519,281  |
| Mortgage-backed securities | ** **    | 4,566,456       | ** ** | 4,456,382  |
| ** **                 | $             | **19,126,864 ** | ** ** | **18,879,777 ** |
| ** **                 |               | ** **           | ** ** | ** ** |
|                            |               |                      |            |  |

11

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 2.  SECURITIES (Continued)**

Restricted equity securities consist of thefollowing:

| ** **                     |            | **2005**          |                     | 2004          |
|--------------------------------|------------|-------------------|---------------------|---------------|
| Federal Home Loan Bank stock   | ** ** | ** $**       | **1,715,000 ** |               |  $ | 1,181,200  |
| Federal Reserve Bank stock     |            | **333,900 ** |                     | 318,900  |
| Other correspondent bank stock | ** ** | **123,178 ** |                     | 112,709  |
| Trust preferred securities     | ** ** | **93,000 **  |                     | 93,000   |
| ** **                     | ** ** | ** $**       | **2,265,078 ** |               |  $ | 1,705,809  |
|                                |            |                   |                     |               |
|                                |            |                   |                     |               |

The FASB Emerging IssuesTask Force released Issue No. 03-01, *The Meaning of Other-Than-TemporaryImpairment and Its Application to Certain Investments,*which**requiresdisclosure of certain information about other than temporary impairments in themarket value of securities.  The market value of investment securities is basedon quoted market values and is significantly affected by the interest rateenvironment.  At December 31, 2005 and 2004, all unrealized losses in thesecurities portfolio were for debt securities.  

The following table shows the gross unrealizedlosses and fair value of securities, aggregated by category and length of timethat securities have been in a continuous unrealized loss position at December31, 2005.

|                                                 |            | **Less Than Twelve  Months** |                   | **Twelve Months or  More** |
|-------------------------------------------------|------------|------------------------------|-------------------|----------------------------|
|                                                 |            | **Gross**                    | ** **        |                            | **Gross** | ** ** |
| **Unrealized**                                  | **Fair**   | **Unrealized**               | **Fair**          |
| **Losses**                                      | **Value**  | **Losses**                   | **Value**         |
| **December 31, 2005:**                          |            |                              |                   |                            |  |  |  |  |
| U.S. Government and federal  agencies           | ** ** | ** $**                  | **66,375 **  | ** **                 | ** $** | **4,935,938 ** | ** ** | ** $** | **122,016 ** | ** ** | ** $** | **3,868,125 ** |
| State and municipal securities                  |            | **11,161 **             | ** **        | **677,303 **          |  | **- ** | ** ** | **- ** |
| Mortgage-backed securities                      |            | **110,094 **            | ** **        | **4,452,287 **        |  | **- ** | ** ** | **- ** |
|  Total debt securities                     | ** ** | **187,630 **            | ** **        | **10,065,528 **       | ** ** | **122,016 ** | ** ** | **3,868,125 ** |
| Equity securities                               | ** ** | **- **                  | ** **        | **- **                | ** ** | **- ** | ** ** | **- ** |
|       Total securities | ** ** | ** $**                  | **187,630 ** | ** **                 | ** $** | **10,065,528 ** | ** ** | ** $** | **122,016 ** | ** ** | ** $** | **3,868,125 ** |
|                                                 |            |                              |                   |                            |  |  |  |  |

12

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

|                                            |           | **Less Than Twelve  Months** |                    | **Twelve Months or  More** |
|-------------------------------------------------|-----------|------------------------------|--------------------|----------------------------|
|                                                 |           | **Gross**                    | ** **         |                            | **Gross** | ** ** |
| **Unrealized**                                  | **Fair**  | **Unrealized**               | **Fair**           |
| **Losses**                                      | **Value** | **Losses**                   | **Value**          |
| December 31, 2004:                              |           |                              |                    |                            |  |  |  |  |
| U.S. Government and federal  agencies           |           |  $                      | 36,649   |                            |  $ | 3,459,219   |  |  $ | 23,337   |  |  $ | 972,188   |
| State and municipal securities                  |           | 2,304              |                    | 271,023          |  | -   |  | -   |
| Mortgage-backed securities                      |           | -                  |                    | -                |  | -   |  | -   |
|  Total debt securities                     |           | 38,953             |                    | 3,730,242        |  | 23,337   |  | 972,188   |
| Equity securities                               |           | -                  |                    | -                |  | -   |  | -   |
|       Total securities |           |  $                      | 38,953   |                            |  $ | 3,730,242   |  |  $ | 23,337   |  |  $ | 972,188   |
|                                                 |           |                              |                    |                            |  |  |  |  |

The following tableshows the gross unrealized losses and fair value of securities, aggregated bycategory and length of time that securities have been in a continuousunrealized loss position at December 31, 2004.

**NOTE 2.  SECURITIES (Continued)**

** **

Managementevaluates securities for other-than-temporary impairment at least on aquarterly basis, and more frequently when economic or market concerns warrantsuch evaluation.  Consideration is given to (1) the length of time and theextent to which the fair value has been less than cost, (2) the financialcondition and near-term prospects of the issuer, and (3) the intent and abilityof the Company to retain its investment in the issuer for a period of timesufficient to allow for any anticipated recovery in fair value.

AtDecember 31, 2005 and 2004, no debt securities have unrealized losses withaggregate depreciation of 5% from the Company's amortized cost basis.  Inanalyzing an issuer's financial condition, management considers whether thesecurities are issued by the federal government or its agencies, whetherdowngrades by bond rating agencies occurred, and industry analysts' reports. As management has the ability to hold debt securities until maturity, or forthe foreseeable future if classified as available for sale, no declines are deemedto be other than temporary.

**NOTE 3.  LOANS**

** **

The composition of loans is summarized asfollows: Changes in the allowance for loan losses are as follows:

|                                        | **December 31,**      |
|----------------------------------------|-----------------------|
|                                        | **2005**              |  | 2004 |
|                                        |                       |  |  |
| Commercial, financial and agricultural | ** $**           | **11,014,158 ** |  |  $ | 16,564,965  |
| Real estate - construction             | **35,407,516 **  |  | 26,352,755  |
| Real estate - mortgage                 | **142,881,136 ** |  | 106,870,199  |
| Consumer, installment and other        | **6,695,488 **   |  | 17,866,421  |
|                                        | **195,998,298 ** |  | 167,654,340  |
| Net deferred loan fees                 | **(398,908)**         |  | (321,445) |
| Allowance for loan losses              | **(2,445,221)**       |  | (2,258,994) |
| **Loans, net**                         | ** $**           | **193,154,169 ** |  |  $ | 165,073,901  |
| ** **                             |                       |  |  |

Changes in the allowance for loan losses are asfollows:

|                                                         | **Years Ended  December 31,** |
|---------------------------------------------------------|-------------------------------|
|                                                         | **2005**                      |  | 2004 |
|                                                         | ** **                    |  | ** ** |
| Balance, beginning of year                              | ** $**                   | **2,258,994 ** |  |  $ | 1,866,467  |
|    Provision for loan losses                  | **220,928 **             |  | 732,380  |
|    Loans charged off                          | **(80,982)**                  |  | (358,704) |
|    Recoveries of loans previously charged off | **46,281 **              |  | 18,851  |
| Balance, end of year                                    | ** $**                   | **2,445,221 ** |  |  $ | 2,258,994  |
|                                                         |                               |  |  |

13

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 3.  LOANS (Continued)**

The following is asummary of information pertaining to impaired loans:

|                                               | **As of and for  the Years Ended** |
|-----------------------------------------------|------------------------------------|
|                                               | **December 31,**                   |
|                                               | **2005**                           |  | **2004** |
| Impaired loans without a valuation allowance  | ** $**                        | **- ** |  |  $ | -  |
| Impaired loans with a valuation allowance     | **3,001,830 **                |  | 458,778  |
| Total Impaired loans                          | **3,001,830 **                |  | 458,778  |
| Valuation allowance related to impaired loans | **303,740 **                  |  | 46,403  |
| Average investment in impaired loans          | ** $**                        | **2,977,575 ** |  |  $ | 799,651  |
|                                               |                                    |  |  |

Interest incomerecognized on impaired loans for cash payments received was not material forthe years ended December 31, 2005 and 2004.  Loans on nonaccrual statusamounted to approximately $2,964,227 and $456,577 at December 31, 2005 and 2004,respectively.  Loans past due ninety days or more and still accruing interestwere approximately $38,000 and $2,000 at December 31, 2005 and 2004,respectively.

In the ordinary courseof business, the Company has granted loans to certain related parties includingdirectors, executive officers and their affiliates.  The interest rates onthese loans were substantially the same as rates prevailing at the time of thetransaction and repayment terms are customary for the type of loan.  Changes inrelated party loans for the year ended December 31, 2005 are as follows:

| Balance, beginning of year   |  $         | 1,797,616  |
|------------------------------|-----------------|-----------------|
|    Advances        | 1,263,770  |
|    Less repayments | 1,449,817  |
| Balance, end of year         |  $         | 1,611,569  |
|                              | ** **      |

**NOTE 4.  PREMISES AND EQUIPMENT**

Premises and equipment are summarized asfollows:

|                                         | **December 31,**     |
|-----------------------------------------|----------------------|
|                                         | **2005**             | ** ** | 2004 |
|                                         |                      |  |  |
| Land and land improvements              | ** $**          | **2,906,345 ** |  |  $ | 3,060,384  |
| Buildings & construction in process | **6,068,166 **  |  | 4,592,847  |
| Equipment                               | **2,334,461 **  |  | 1,897,469  |
|                                         | **11,308,972 ** |  | 9,550,700  |
| Accumulated depreciation                | **(1,906,772)**      |  | (1,459,851) |
|                                         | ** $**          | **9,402,200 ** |  |  $ | 8,090,849  |
|                                         | ** **           |  |  |

14

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

The Company leased atemporary facility for its Rome, Georgia branch until completion of thepermanent facility in late 2004.  The Company continues to lease office spacein Calhoun, Georgia on an annual basis for a loan production office.  Totalrental expense incurred for these leased facilities for the years endedDecember 31, 2005 and 2004 was $9,000 and $54,106, respectively.  

In late 2005, theCompany purchased a lot in Calhoun, Gordon County, Georgia for a full servicebanking facility.  Construction will begin in early 2006 and conclude by thethird quarter of 2006.  Upon opening of the new facility, the Company will notmaintain the leased space in that market.

**NOTE 5.  DEPOSITS**

The aggregate amount oftime deposits in denominations of $100,000 or more at December 31, 2005 and 2004was $30,193,739 and $30,088,018, respectively.  The scheduled maturities oftime deposits at December 31, 2005 are as follows:

| 2006 |  $          | 40,424,308  |
|------|------------------|------------------|
| 2007 | 18,362,205  |
| 2008 | 8,262,937   |
| 2009 | 928,172     |
| 2010 | 1,690,407   |
|      |  $          | 69,668,029  |
|      |                  |

The Company had brokeredcertificates of deposit at December 31, 2005 and 2004 of $14,185,382 and $23,316,051,respectively.  

** **

**NOTE 6.  OTHER BORROWINGS**

Other borrowings consist of the following:

|                                                                                                                                                                                                                | **December 31,** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------|
|                                                                                                                                                                                                                | **2005**         | ** ** | **2004** |
|                                                                                                                                                                                                                |                  |  |  |
| Federal Home Loan Bank advances with interest payable at  various intervals at interest rates ranging from 1.98% to to 4.44%, due at  various maturity dates between December 27, 2006 and September 16, 2009. | ** $**      | **29,250,000 ** |  |  $ | 19,150,000  |
|                                                                                                                                                                                                                | ** **       |  | ** ** |
|                                                                                                                                                                                                                |                  |  |  |  |  |

Contractual maturitiesof other borrowings as of December 31, 2005 are as follows:

| 2007 |   | 8,900,000   |
|------|---|------------------|
| 2008 |   | 450,000     |
| 2009 |   | 13,000,000  |
|      | $ | 29,250,000  |
|      |   |                  |
|      |   |                  |

The advance iscollateralized by a blanket lien on the Company's 1-4 family mortgage and homeequity loans.  The loans pledged as collateral had an approximate carryingamount of $43,618,897 as of December 31, 2005.

##  

15

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 7.  GUARANTEED SUBORDINATED DEBENTURES**

In 2003, the Company formed a wholly-owned grantor trust to issuecumulative trust preferred securities.  The grantor trust has invested theproceeds of the trust preferred securities in junior subordinated debentures ofthe Company.  The trust preferred securities can be redeemed prior to maturityat the option of the Company on or after December 17, 2008.  The sole assets of the guarantor trust are the Junior Subordinated Deferrable InterestDebentures of the Company (the "Debentures") held by the grantor trust.  Thedebentures have the same interest rate (three month LIBOR plus 2.95%, floating)as the trust preferred securities.  The Company has the right to defer interestpayments on the Debentures at any time or from time to time for a period notexceeding 20 consecutive quarters provided that no extension period may extendbeyond the stated maturity of the related Debentures.  During any suchextension period, distributions on the trust preferred certificates would alsobe deferred.

Payment of periodic cash distributions and payment upon liquidation orredemption with respect to the trust preferred securities are guaranteed by theCompany to the extent of funds held by the grantor trust (the "PreferredSecurities Guarantee").  The Preferred Securities Guarantee, when takentogether with the Company's other obligations under the Debentures, constitutea full and unconditional guarantee, on a subordinated basis, by the Company ofpayments due on the trust preferred securities.

The trust preferred securities and the related debentures were issuedon December 18, 2003.  Distributions on the trust preferred securities are paidquarterly.  Interest on the Debentures is paid on the corresponding dates.  Theaggregate principal amount of Debentures outstanding at December 31, 2005 was $3,093,000. Certain issue costs have been deferred and recorded in other assets in theaccompanying balance sheet.  The issue costs are being amortized over theinitial five year period until the first call date.  The remaining outstanding balanceof the unamortized issue costs at December 31, 2005 and 2004 was $43,025 and $57,773,respectively, and is included in other assets.

** **

**NOTE 8.   STOCK COMPENSATION PLANS**

The Company has anincentive stock option plan and has reserved 113,942 shares of common stock forissuance to key employees and directors.  Options are granted at the fair valueof the Company's common stock on the date of grant and expire ten years fromthe effective date of the grant.  The options vest at a rate of 20% per year.

Other pertinentinformation related to the options is as follows:

|                                                                 | **Years Ended  December 31,** |
|-----------------------------------------------------------------|-------------------------------|
|                                                                 | **2005**                      | ** ** | 2004 |
|                                                                 | ** **                    | ** ** | **Weighted Average** | ** ** |  |  | Weighted Average |
|                                                                 | **Number**                    | ** ** | **Exercise Price** | ** ** | Number |  | Exercise Price |
| Under option, beginning of year                                 | **89,960 **              |  | ** $** | **13.36 ** |  | 84,960  |  |  $ | 12.52  |
| Granted                                                         | **- **                   |  | **-   ** |  | 10,000  |  | 20.50  |
| Exercised                                                       | **(1,000)**                   |  | **10.00 ** |  | -  |  | -    |
| Terminated                                                      | **- **                   |  | **-   ** |  | (5,000) |  | 13.00  |
| Under option, end of year                                       | **88,960 **              |  | **13.39 ** |  | 89,960  |  | 13.36  |
|                                                                 | ** **                    |  | ** ** |  |  |  |  |
| Exercisable, end of year                                        | **75,360 **              |  | ** $** | **12.49 ** |  | 67,910  |  |  $ | 11.89  |
|                                                                 | ** **                    |  |  |  |  |  |  |
| Weighted-average fair value of  options granted during the year | ** $**                   | **- ** |  |  |  |  $ | 7.65  |  |  |
|                                                                 | ** **                    |  |  |  |  |  |  |
|                                                                 |                               |  |  |  |  |  |  |  |  |  |  |

16

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 8.   STOCK COMPENSATION PLANS (Continued)**

Information pertainingto options outstanding at December 31, 2005 is as follows:

| ** **                  | **Options  Outstanding** | ** ** | **Options  Exercisable**        |
|-----------------------------|--------------------------|------------|---------------------------------|
| ** **                  | ** **               |            | **Weighted Average  Remaining** | ** ** | **Weighted Average** | ** ** | ** ** | ** ** | **Weighted Average** |
| **Range of Exercise Price** | **Number  Outstanding**  |            | **Contractual Life**            | ** ** | **Exercise Price** | ** ** | **Number  Exercisable** | ** ** | **Exercise Price** |
| $10 - $15                   | 46,960              |            | 3 years                         |  |  $ | 10.10  |  | 46,760  |  |  $ | 10.09  |
| $16                         | 32,000              |            | 6 years                         |  | 16.00  |  | 25,600  |  | 16.00  |
| $19 - $22                   | 10,000              |            | 9 years                         |  |  $ | 20.00  |  | 3,000  |  |  $ | 20.00  |

In 1998, the Companygranted 140,000 common stock warrants to its initial directors.  The warrantsare exercisable at a price of $10 per share and are fully vested.  The warrantsexpire ten years from date of grant and have a weighted average remainingcontractual life of three years.

The fair value of eachoption grant is estimated on the date of grant using the Black-Scholesoption-pricing model with the following weighted-average assumptions:

|                         | **Years Ended  December 31,** |
|-------------------------|-------------------------------|
|                         | **2005**                      |  | 2004 |
| Dividend yield          | **N/A**                       |  | 0.00% |
| Expected life           | **N/A**                       |  | 10 years |
| Expected volatility     | **N/A**                       |  | 1.00% |
| Risk-free interest rate | **N/A**                       |  | 3.60% |

** **

**NOTE 9.   OTHER EMPLOYEE AND DIRECTORBENEFIT PLANS**

** **

**Employee Stock Ownership Plan**

In 2002, the Companyestablished a leveraged Employee Stock Ownership Plan with 401(k) provisions(KSOP) for the benefit of employees who meet certain eligibility requirements,subject to IRS limits.  Contributions to the KSOP are determined by the Boardof Directors of the Company taking into consideration the financial conditionand fiscal requirements of the Company and such other factors as the Board ofDirectors may deem pertinent and applicable under the circumstances.  TheCompany made matching contributions totaling $44,488 and $43,277 in 2005 and2004, respectively.  The KSOP also has no debt as of December 31, 2005 andDecember 31, 2004.  The KSOP owned 4,098 shares of the Company's common stockas of December 31, 2005 and 2004, which were purchased solely from employeecontributions to the KSOP.  

In accordance with theKSOP, the Company is expected to honor the rights of certain participants todiversify their account balances or to liquidate their ownership of the commonstock in the event of termination.  The purchase price of the common stockwould be based on the fair market value of the Company's common stock as of theannual valuation date, which precedes the date the put option is exercised.  Noparticipant has exercised these rights since the inception of the KSOP. However, since the redemption of common stock is outside the control of theCompany, the Company's maximum cash obligation based on the approximate marketprices of common stock as of the reporting date has been presented outsidestockholders' equity.  The amount presented as redeemable common stock held bythe KSOP in the consolidated balance sheet represents the Company's maximumcash obligation and has been reflected as a reduction of retained earnings.

17

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 9.   OTHER EMPLOYEE AND DIRECTORBENEFIT PLANS (Continued)**

**Deferred Compensation Plan**

In 2002, the Companyestablished a deferred compensation plan providing for death and retirement benefitsfor its directors.  The estimated amounts to be paid under the compensationplan are being offset by the earnings of life insurance policies on thedirectors.  The balance of the director policy surrender values included inother assets amounted to $316,599 and $192,051 at December 31, 2005 and 2004,respectively.  Expense recognized on these director policies amounted to $7,384and $3,949 for the years ended December 31, 2005 and 2004, respectively.  Thebalance of deferred compensation included in other liabilities at December 31,2005 and December 31, 2004 amounted to $244,883 and $87,721, respectively. Expense recognized for deferred compensation amounted to $157,162 and $38,185for the years ended December 31, 2005 and 2004, respectively.

In December 2004, theCompany established a deferred compensation plan providing for death andretirement benefits for certain officers.  The estimated amounts to be paidunder the compensation plan are being funded through the purchase of lifeinsurance policies on the officers.  The balance of the policy surrender valuesincluded in other assets amounted to $1,246,963 and $1,200,000 at December 31,2005 and 2004.  The balance of deferred compensation included in otherliabilities amounted to $57,644 and $4,380 at December 31, 2005 and 2004. Expense recognized for deferred compensation amounted to 53,264 and $4,380 forthe years ended December 31, 2005 and 2004.

**NOTE 10.  INCOME TAXES**

Income tax expense consists of the following:

|                        | **Years Ended  December 31,** |
|------------------------|-------------------------------|
|                        | **2005**                      |  | **2004** |
|                        | ** **                    |  | ** ** |
| Current                | ** $**                   | **1,115,937 ** |  |  $ | 887,027  |
| Deferred               | **(162,018)**                 |  | (114,140) |
| **Income tax expense** | ** $**                   | **953,919 ** |  |  $ | 772,888  |
| ** **             | ** **                    |  |  |

The Company's income taxexpense differs from the amounts computed by applying the federal income taxstatutory rates to income before income taxes.  A reconciliation of the differencesis as follows:

|                                | **Years Ended  December 31,** |
|--------------------------------|-------------------------------|
|                                | **2005**                      |  | **2004** |
|                                | ** **                    |  |  |
| Income taxes at statutory rate | ** $**                   | **991,902 ** | ** ** |  $ | 815,946  |
| Tax-free income                | **(93,464)**                  | ** ** | (89,921) |
| State tax expense              | **53,298 **              | ** ** | 47,294  |
| Other items                    | **2,183 **               | ** ** | (431) |
| **Income tax expense**         | ** $**                   | **953,919 ** | ** ** |  $ | 772,888  |
| ** **                     | ** **                    | ** ** |  |

18

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 10.  INCOME TAXES (Continued)**

The components of deferred income taxes are asfollows:

|                                     | **December 31,**    |
|-------------------------------------|---------------------|
|                                     | **2005**            |  | **2004** |
| Deferred tax assets:                | ** **          |  |  |
|  Loan loss reserves            | ** $**         | **842,826 ** |  |  $ | 768,366  |
|  Loan fees                     | **150,531 **   |  | 121,301  |
|  Deferred compensation         | **114,161 **   |  | 33,102  |
| Nonaccrual loan interest            | **26,466 **    |  | 24,646  |
| Securities available-for-sale       | **84,010 **    |  | -  |
|                                     | **1,217,994 ** |  | 947,415  |
| Deferred tax liabilities:           | ** **          |  |  |
|  Depreciation                  | **173,190 **   |  | 148,720  |
|  Securities available-for-sale | **- **         |  | 39,468  |
|                                     | **173,190 **   |  | 188,188  |
|                                     | ** **          |  |  |
| Net deferred tax assets             | ** $**         | **1,044,804 ** |  |  $ | 759,227  |
|                                     | ** **          |  |  |

**NOTE 11.  EARNINGS PER SHARE**

Presentedbelow is a summary of the components used to calculate basic and dilutedearnings per common share.  

|                                                                                                                                                |                     | **Years Ended  December 31,** |
|------------------------------------------------------------------------------------------------------------------------------------------------|---------------------|-------------------------------|
|                                                                                                                                                |                     | **2005**                      | ** ** | **2004** |
| Basic Earnings Per Share:                                                                                                                      | ** **          | ** **                    |  |
| Weighted average common shares outstanding                                                                                                     | **1,014,154 ** |                               | 1,013,510  |
|                                                                                                                                                |                     | ** **                    |  |  |
| Net income                                                                                                                                     | ** $**         | **1,963,439 **           |  |  $ | 1,610,487  |
| Basic earnings  per share                                                                                                                 | ** $**         | **1.94 **                |  |  $ | 1.59  |
|                                                                                                                                                |                     | ** **                    |  |  |
| Diluted Earnings Per Share:                                                                                                                    | ** **          |                               |  |
|  Weighted average common shares outstanding                                                                                               | **1,014,154 ** |                               | 1,013,510  |
| Net effect of the assumed exercise of stock options and  warrants based on the treasury stock method using average market prices for  the year | **116,300 **   |                               | 99,867  |
| Total weighted  average common shares and common stock equivalents outstanding                                                                 | **1,130,454 ** |                               | 1,113,377  |
|                                                                                                                                                |                     | ** **                    |  |  |
| Net income                                                                                                                                     | ** $**         | **1,963,439 **           |  |  $ | 1,610,487  |
| Diluted earnings per share                                                                                                                     | ** $**         | **1.74 **                |  |  $ | 1.45  |
|                                                                                                                                                |                     |                               |  |  |

19

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

20

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 12.  COMMITMENTS AND CONTINGENCIES**

**Loan Commitments**

The Company is a partyto financial instruments with off-balance sheet risk in the normal course ofbusiness to meet the financing needs of its customers.  These financialinstruments include commitments to extend credit and letters of credit.  Suchcommitments involve, to varying degrees, elements of credit risk and interestrate risk in excess of the amount recognized in the balance sheets.

The Company's exposureto credit loss in the event of nonperformance by the other party to thefinancial instrument for commitments to extend credit and letters of credit isrepresented by the contractual amount of those instruments.  The Company usesthe same credit policies in making commitments and conditional obligations asit does for on-balance sheet instruments.  A summary of the Company'scommitments is as follows:

|                              | **December 31,**        |
|------------------------------|-------------------------|
|                              | **2005**                |  | 2004 |
|                              | ** **              |  |  |
| Commitments to extend credit | ** $**             | **41,862,000 ** |  |  $ | 19,564,000  |
| Letters of credit            | **179,000  ** |  | 201,000   |
|                              | ** $**             | **42,041,000 ** |  |  $ | 19,765,000  |
|                              | ** **              |  |  |

Commitments to extendcredit are agreements to lend to a customer as long as there is no violation ofany condition established in the contract.  Since many of the commitments areexpected to expire without being drawn upon, the total commitment amounts donot necessarily represent future cash requirements.

Letters of credit areconditional commitments issued by the Company to guarantee the performance of acustomer to a third party.  Those letters of credit are primarily issued tosupport public and private borrowing arrangements.  The credit risk involved inissuing letters of credit is essentially the same as that involved in extendingloans to customers.  Collateral is required in instances which the Companydeems necessary.

At December 31, 2005 and2004, the carrying amount of liabilities related to the Company's obligation toperform under financial standby letters of credit was insignificant.  TheCompany has not been required to perform on any financial standby letters ofcredit, and the Company has not incurred any losses on financial standbyletters of credit for the years ended December 31, 2005 and 2004.

**Other Commitments**

As of December 31, 2005,the Company had no commitments to construct additional banking offices.  TheCompany does intend to build a full service office in Calhoun, Georgia. However, no construction commitments were finalized at year end.  Constructionwill commence in early 2006 with completion expected to be in mid-2006.  Duringthis period, the Company will enter into the normal construction commitments.

** **

**Contingencies**

In the normal course ofbusiness, the Company is involved in various legal proceedings.  The Company isalso involved in other non-recurring legal matters, the ultimate outcome ofwhich has not been determined.  In the opinion of management, any liabilityresulting from such proceedings would not have a material effect on theCompany's financial statements.

** **

21

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 13.   CONCENTRATIONS OF CREDIT**

The Company originatesprimarily commercial, residential, and consumer loans to customers in Bartow County and surrounding counties.  The ability of the majority of the Company's customersto honor their contractual loan obligations is dependent on the economy inthese areas.

Approximately 90%percent of the Company's loan portfolio is concentrated in loans secured byreal estate, of which a substantial portion is secured by real estate in theCompany's primary market area.  Accordingly, the ultimate collectibility of theloan portfolio is susceptible to changes in market conditions in the Company'sprimary market area.  The other significant concentrations of credit by type ofloan are set forth in Note 3.

The Company, as a matterof policy, does not generally extend credit to any single borrower or group ofrelated borrowers in excess of 15% of the Bank's capital and surplus as definedby the Office of the Comptroller of the Currency (the "OCC"), or approximately$2,991,000.  Because of the Company's capital strength, the Company qualifiesfor the OCC's pilot lending program, which increases the lending limit toapproximately $4,985,000.

**NOTE 14.  REGULATORY MATTERS**

The Bank is subject tocertain restrictions on the amount of dividends that may be declared withoutprior regulatory approval.  At December 31, 2005, dividends of $5,193,000 couldbe declared without regulatory approval.

The Company and the Bankare subject to various regulatory capital requirements administered by thefederal banking agencies.  Failure to meet minimum capital requirements caninitiate certain mandatory, and possibly additional discretionary actions byregulators that, if undertaken, could have a direct material effect on the financialstatements.  Under capital adequacy guidelines and the regulatory framework forprompt corrective action, the Company and Bank must meet specific capitalguidelines that involve quantitative measures of the assets, liabilities, andcertain off-balance sheet items as calculated under regulatory accountingpractices.  Capital amounts and classification are also subject to qualitativejudgments by the regulators about components, risk weightings, and otherfactors.  Prompt corrective provisions are not applicable to bank holdingcompanies.

Quantitative measuresestablished by regulation to ensure capital adequacy require the Company andBank to maintain minimum amounts and ratios of Total and Tier I capital torisk-weighted assets, as defined, and of Tier I capital to average assets, asdefined.  Management believes, as of December 31, 2005 and 2004, the Companyand the Bank met all capital adequacy requirements to which they are subject.

As of December 31, 2005,the most recent notification from the Federal Deposit Insurance Corporationcategorized the Bank as well capitalized under the regulatory framework forprompt corrective action.  To be categorized as well capitalized, the Bank mustmaintain minimum Total risk-based, Tier I risk-based, and Tier I leverageratios as set forth in the following table.  There are no conditions or eventssince that notification that management believes have changed the Bank'scategory.

22

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 14.  REGULATORY MATTERS (Continued)**

The Company and Bank'sactual capital amounts and ratios are presented in the following table:

|                                             |             | ** **       | ** **   | ** **       | **For**                | ** **  | **To Be Well  Capitalized**  |
|---------------------------------------------|-------------|------------------|--------------|------------------|------------------------|-------------|------------------------------|
|                                             | ** **  | ** **       | ** **   | ** **       | **Capital Adequacy**   | ** **  | **Under Prompt  Corrective** |
|                                             | **Actual**  | ** **       | **Purposes** | ** **       | **Action  Provisions** |
| **December 31, 2005: (Dollars in '000s)**   | **Amount**  |                  | **Ratio**    |                  | **Amount**             |             | **Ratio**                    | ** ** | **Amount** |  | **Ratio** |
| **Total Capital to Risk Weighted Assets:**  | ** **  | ** **       | ** **   | ** **       | ** **             | ** **  | ** **                   | ** ** | ** ** | ** ** | ** ** |
| **   Consolidated**               | ** $** | **22,265 ** | ** **   | **11.58 %** | ** **             | ** $** | **15,382 **             | ** ** | **8.00 %** | ** ** | **N/A** | ** ** | **N/A** |
| **   Bank**                       | ** $** | **19,897 ** | ** **   | **10.36 %** | ** **             | ** $** | **15,371 **             | ** ** | **8.00 %** | ** ** | ** $** | **19,214 ** | ** ** | **10.00 %** |
| **Tier I Capital to Risk Weighted Assets:** | ** **  | ** **       | ** **   | ** **       | ** **             | ** **  | ** **                   | ** ** | ** ** | ** ** | ** ** |
| **   Consolidated**               | ** $** | **19,861 ** | ** **   | **10.33 %** | ** **             | ** $** | **7,691 **              | ** ** | **4.00 %** | ** ** | ** N/A** | ** ** | **N/A** |
| **   Bank**                       | ** $** | **17,495 ** | ** **   | **9.11 %**  | ** **             | ** $** | **7,686 **              | ** ** | **4.00 %** | ** ** | ** $** | **11,529 ** | ** ** | **6.00 %** |
| **Tier I Capital to Average Assets:**       | ** **  | ** **       | ** **   | ** **       | ** **             | ** **  | ** **                   | ** ** | ** ** | ** ** | ** ** |
| **   Consolidated**               | ** $** | **19,861 ** | ** **   | **8.55 %**  | ** **             | ** $** | **9,288 **              | ** ** | **4.00 %** | ** ** | ** N/A** | ** ** | **N/A** |
| **   Bank**                       | ** $** | **17,495 ** | ** **   | **7.58 %**  | ** **             | ** $** | **9,233 **              | ** ** | **4.00 %** | ** ** | ** $** | **11,541 ** | ** ** | **5.00 %** |

|                                         |         |              |          |              | For               |         | To Be Well  Capitalized  |
|-----------------------------------------|---------|--------------|----------|--------------|-------------------|---------|--------------------------|
|                                         |         |              |          |              | Capital Adequacy  |         | Under Prompt  Corrective |
|                                         | Actual  |              | Purposes |              | Action Provisions |
| December 31, 2004: (Dollars in '000s)   | Amount  |              | Ratio    |              | Amount            |         | Ratio                    |  | Amount |  | Ratio |
| Total Capital to Risk Weighted Assets:  |         |              |          |              |                   |         |                          |  |  |  |  |
|    Consolidated               |  $ | 20,015  |          | 11.77 % |                   |  $ | 13,604              |  | 8.00 % |  | N/A |  | N/A |
|    Bank                       |  $ | 17,520  |          | 10.31 % |                   |  $ | 1,392               |  | 8.00 % |  |  $ | 16,990  |  | 10.00 % |
| Tier I Capital to Risk Weighted Assets: |         |              |          |              |                   |         |                          |  |  |  |  |
|    Consolidated               |  $ | 17,888  |          | 10.52 % |                   |  $ | 6,802               |  | 4.00 % |  |  N/A |  | N/A |
|    Bank                       |  $ | 15,395  |          | 9.06 %  |                   |  $ | 6,796               |  | 4.00 % |  |  $ | 10,194  |  | 6.00 % |
| Tier I Capital to Average Assets:       |         |              |          |              |                   |         |                          |  |  |  |  |
|    Consolidated               |  $ | 17,888  |          | 9.22 %  |                   |  $ | 7,759               |  | 4.00 % |  |  N/A |  | N/A |
|    Bank                       |  $ | 15,395  |          | 7.93 %  |                   |  $ | 7,764               |  | 4.00 % |  |  $ | 9,705  |  | 5.00 % |

** **

** **

23

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 15.   FAIR VALUE OF FINANCIAL INSTRUMENTS**

The fair value of afinancial instrument is the current amount that would be exchanged betweenwilling parties, other than in a forced liquidation.  Fair value is bestdetermined based upon quoted market prices.  However, in many instances, thereare no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based onestimates using present value or other valuation techniques.  Those techniquesare significantly affected by the assumptions used, including the discount rateand estimates of future cash flows.  Accordingly, the fair value estimates maynot be realized in an immediate settlement of the instrument.  SFAS No. 107, *Disclosuresabout Fair Values of Financial Instruments,*excludes certain financial instrumentsand all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarilyrepresent the underlying fair value of the Company.

**Cash, Due From Banks,Interest-bearing Deposits in Banks and Federal Funds Sold: **The carrying amounts ofcash, due from banks, interest-bearing deposits in banks and federal funds soldapproximate fair values.

**Securities: **Fair values forsecurities are based on available quoted market prices.  The carrying values ofrestricted equity securities with no readily determinable fair valueapproximate fair values.

**Loans: **For variable-rate loansthat reprice frequently and have no significant change in credit risk, fairvalues are based on carrying values.  For other loans, the fair values areestimated using discounted cash flow analyses, using interest rates currentlybeing offered for loans with similar terms to borrowers with similar creditquality.  Fair values for impaired loans are estimated using discounted cashflow analyses or underlying collateral values, where applicable.

** **

**BankOwned Life Insurance: **The carrying amounts of bank owned life insuranceapproximates their fair values.

** **

**Deposits: **The carrying amounts ofdemand deposits, savings deposits, and variable-rate certificates of deposit approximatetheir fair values.  Fair values for fixed-rate certificates of deposit areestimated using a discounted cash flow calculation that applies interest ratescurrently being offered on certificates to a schedule of aggregated expectedmonthly maturities on time deposits.

**Other Borrowings and GuaranteedSubordinated Debentures: **The carrying amounts of variable-rate other borrowings, guaranteedsubordinated debentures and federal funds purchased approximate their fairvalues.  Fair values for fixed-rate other borrowings are estimated using adiscounted cash flow calculation that applies interest rates currently beingoffered on other borrowings with similar terms.

**Accrued Interest: **The carrying amounts ofaccrued interest approximate their fair values.

**Off-Balance SheetInstruments: **Fairvalues of the Company's off-balance sheet financial instruments are based onfees currently charged to enter into similar agreements.  Since the majority ofthe Company's off-balance sheet instruments consist of nonfee-producing,variable-rate commitments, the Company has determined they do not have adistinguishable fair value.

24

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 15.   FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)**

The carrying amounts andestimated fair values of the Company's financial instruments were as follows:

|                                                                                   | **December 31, 2005**  |                 | December 31, 2004 |
|-----------------------------------------------------------------------------------|------------------------|-----------------|-------------------|
|                                                                                   | **Carrying**           |                 | **Fair**          |  | Carrying |  | Fair |
|                                                                                   | **Value**              | **Value**       | Value             | Value |
|                                                                                   | (Dollars in Thousands) |
| **Financial  assets:**                                                            |                        |                 |                   |  |  |  |  |
| Cash, due from  banks, interest-bearing deposits in banks, and federal funds sold | ** $**            | **4,622 ** | ** **        | ** $** | **4,622 ** |  |  $ | 6,617  |  |  $ | 6,617  |
| Securities  available-for-sale                                                    | **18,880 **       |                 | **18,880 **  |  | 13,782  |  | 13,782  |
| Restricted  equity securities                                                     | **2,265 **        |                 | **2,265 **   |  | 1,706  |  | 1,706  |
| Loans                                                                             | **193,154 **      |                 | **187,694 ** |  | 165,074  |  | 165,422  |
| Bank owned life  insurance                                                        | **2,244 **        |                 | **2,244 **   |  | 2,055  |  | 2,055  |
| Accrued interest  receivable                                                      | **1,352 **        |                 | **1,352 **   |  | 914  |  | 914  |
|                                                                                   | ** **             |                 | ** **        |  |  |  |  |
| **Financial  liabilities:**                                                       | ** **             |                 | ** **        |  |  |  |  |
| Deposits                                                                          | **183,319 **      |                 | **182,434 ** |  | 161,410  |  | 162,320  |
| Borrowings                                                                        | **29,250 **       |                 | **28,287 **  |  | 19,150  |  | 18,800  |
| Guaranteed  subordinated debentures                                               | **3,093 **        |                 | **3,093 **   |  | 3,093  |  | 3,093  |
| Accrued interest  payable                                                         | **272 **          |                 | **272 **     |  | 318  |  | 318  |
|                                                                                   |                        |                 |                   |  |  |  |  |  |  |  |  |

**NOTE 16.  SUPPLEMENTAL FINANCIAL DATA**

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

|                 | **Years Ended  December 31,** |
|-----------------|-------------------------------|
|                 | **2005**                      | ** ** | 2004 |
|                 |                               |  |  |
| Data Processing | ** $**                   | **480,049 ** |  |  $ | 410,491  |
| Advertising     | **233,833  **       |  | 202,795   |
|                 | ** **                    |  |  |
|                 |                               |  |  |  |  |

25

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

** **

**NOTE 17.  PARENT COMPANY FINANCIAL INFORMATION**

The followinginformation presents the condensed balance sheets, statements of income andcash flows of Unity Holdings, Inc. as of and for the years ended December 31,2005 and 2004:

|                                                                    | **2005**             | ** **           | 2004             |
|--------------------------------------------------------------------|----------------------|----------------------|------------------|
| **Assets**                                                         | ** **           |                      |                  |
|  Cash                                                         | ** $**          | **2,246,779 **  |                  |  $ | 2,376,586  |
| Investment in subsidiary                                           | **17,332,855 ** |                      | 15,471,201  |
| Restricted equity securities, at cost                              | **93,000 **     |                      | 93,000      |
| Other assets                                                       | **126,606 **    |                      | 123,602     |
| **      Total assets**                    | ** $**          | **19,799,240 ** |                  |  $ | 18,064,389  |
|                                                                    | ** **           |                      |                  |
| **Liabilities, Redeemable Common Stock and Stockholders'  Equity** | ** **           |                      |                  |
| Miscellaneous liabilities                                          | ** $**          | **7,573 **      |                  |  $ | 6,467  |
| Redeemable common stock held by KSOP                               | **106,548 **    |                      | 81,960      |
| Subordinated debentures                                            | **3,093,000 **  |                      | 3,093,000   |
| Stockholders' equity                                               | **16,592,119 ** |                      | 14,882,962  |
| **Total redeemable common stock and stockholders' equity**         | ** $**          | **19,799,240 ** |                  |  $ | 18,064,389  |
|                                                                    |                      |                      |                  |

26

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 17.  PARENT COMPANY FINANCIAL INFORMATION (Continued)**

| **CONDENSED  STATEMENTS OF INCOME**                                               |
|-----------------------------------------------------------------------------------|
| ** **                                                                        | ** ** | ** ** | ** ** |
|                                                                                   | **2005** | ** ** | 2004 |
| **Income**                                                                        | ** ** | ** ** |  |
| Interest income on investments                                                    | ** $** | **5,843 ** | ** ** |  $ | 4,143  |
|     Total Income                                                   | **5,843 ** | ** ** | 4,143  |
|                                                                                   | ** ** | ** ** |  |
| **Expenses**                                                                      | ** ** | ** ** |  |
| Interest expense on subordinated debentures                                       | **210,168 ** | ** ** | 158,994  |
| Noninterest expense                                                               | **17,165 ** | ** ** | 19,597  |
|     Total Expenses                                                 | **227,333 ** | ** ** | 178,591  |
| ** **                                                                        | ** ** | ** ** |  |
| Loss before income tax benefits and equity in  undistributed income of subsidiary | **(221,490)** | ** ** | (174,448) |
|        Income tax benefits                          | **(83,581)** | ** ** | (65,829) |
| Loss before equity in undistributed income of subsidiary                          | **(137,909)** | ** ** | (108,619) |
| **Equity in undistributed income of subsidiary**                                  | **2,101,348 ** | ** ** | 1,719,106  |
|         **Net income**                         | ** $** | **1,963,439 ** | ** ** |  $ | 1,610,487  |

27

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**NOTE 17.  PARENT COMPANY FINANCIAL INFORMATION (Continued)**

|                                                                                              |                     |                     |                     |
|----------------------------------------------------------------------------------------------|---------------------|---------------------|---------------------|
| **CONDENSED  STATEMENTS OF CASH FLOWS**                                                      |
| ** **                                                                                   | ** **          | ** **          | ** **          |
|                                                                                              | **2005**            | ** **          | **2004**            |
| **OPERATING ACTIVITIES**                                                                     |                     |                     |
|  Net income                                                                             | ** $**         | **1,963,439 ** | ** **          | ** $** | **1,610,487 ** |
|  Adjustments to reconcile net income  to net cash                                  | ** **          | ** **          | ** **          |
|     used in operating activities:                                             | ** **          | ** **          | ** **          |
| Equity in undistributed income  of subsidiary                                                | **(2,101,348)**     | ** **          | **(1,719,106)**     |
| Net other operating activities                                                               | **8,102 **     | ** **          | **(29,836)**        |
|           Net cash used in operating activities | **(129,807)**       | ** **          | **(138,455)**       |
|                                                                                              | ** **          | ** **          | ** **          |
| **INVESTING ACTIVITIES**                                                                     | ** **          | ** **          | ** **          |
|  Investment in subsidiary                                                               | **- **         | ** **          | **(500,000)**       |
|  Purchases of restricted equity securities                                              | **- **         | ** **          | **- **         |
|           Net cash used in investing activities | **- **         | ** **          | **(500,000)**       |
|                                                                                              | ** **          | ** **          | ** **          |
| Net decrease in cash                                                                         | **(129,807)**       | ** **          | **(638,455)**       |
| Cash at beginning of year                                                                    | **2,376,586 ** | ** **          | **3,015,041 ** |
| Cash at end of year                                                                          | ** $**         | **2,246,779 ** | ** **          | ** $** | **2,376,586 ** |

28

----

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

29

----

**UNITY HOLDINGS, INC.SELECTED FINANCIAL DATA**

| **(Dollars in 000s)**                  |                   | **2005**          | **2004**          | **2003**          | **2002**          | **2001**      |
|----------------------------------------|-------------------|-------------------|-------------------|-------------------|-------------------|---------------|
| **STATEMENT OF CONDITION**             |                   |                   |                   |                   |                   |
| **Assets:**                            | ** **        |                   |                   |                   |                   |               |
| Cash & Due From Banks              | 3,765        | 2,817        | 2,898        | 3,574        | 2,421        |
| Federal Funds Sold \ Int. Earning Deps | 857          | 3,800        | 59           | 873          | 2,665        |
| Investment Securities                  | 21,145       | 15,488       | 12,281       | 13,124       | 12,487       |
| Gross Loans                            |                   | 195,599      | 167,333      | 138,257      | 107,854      | 88,072   |
| Loan Loss Provision                    | 2,445        | 2,259        | 1,866        | 1,471        | 1,196        |
|  Net Loans                        |                   | 193,154      | 165,074      | 136,391      | 106,383      | 86,876   |
| Fixed Assets                           |                   | 9,402        | 8,091        | 4,993        | 5,102        | 5,344    |
| Other Assets                           |                   | 5,011        | 4,191        | 3,227        | 1,881        | 1,879    |
| **TOTAL ASSETS **                 | **233,334 ** | **199,461 ** | **159,849 ** | **130,937 ** | **111,672 ** |
| **Liabilities & Capital:**         |                   |                   |                   |                   |                   |
| Total Deposits                         |                   | 183,319      | 161,410      | 129,470      | 117,971      | 102,292  |
| FHLB & Other Borrowings            | 29,250       | 19,150       | 13,109       | 0            | 0            |
| Guaranteed subordinated debentures     | 3,093        | 3,093        | 3,093        | 0            | 0            |
| Other Liabilties                       |                   | 974          | 843          | 890          | 958          | 1,067    |
| TOTAL LIABILITIES                      | 216,636      | 184,496      | 146,562      | 118,929      | 103,359      |
| Redeemable KSOP shares                 | 106          | 82           | 74           | 66           | 0            |
| Capital                                |                   | 16,592       | 14,883       | 13,213       | 11,944       | 8,313    |
| **TOTAL LIAB. & CAPITAL**          | **233,334 ** | **199,461 ** | **159,849 ** | **130,939 ** | **111,672 ** |
|                                        |                   |                   |                   |                   |                   |               |
| **INCOME STATEMENT**                   | ** **        | ** **        |                   |                   |                   |
| Interest Income                        |                   | 14,435       | 10,949       | 9,449        | 8,467        | 8,018    |
| Interest Expense                       |                   | 6,114        | 3,930        | 3,474        | 3,766        | 4,290    |
| Net Interest Income                    | 8,321        | 7,019        | 5,975        | 4,701        | 3,728        |
|    Provision for Loan Losses | 221          | 732          | 495          | 529          | 413          |
| Net Int Income after LL Prov           | 8,100        | 6,287        | 5,480        | 4,172        | 3,315        |
| Noninterest Income                     | 1,296        | 1,090        | 1,070        | 1,071        | 708          |
| Noninterest Expense                    | 6,479        | 4,993        | 4,515        | 3,968        | 3,369        |
| Income Before Taxes                    | 2,917        | 2,384        | 2,035        | 1,275        | 654          |
| Income Tax Expense                     | 954          | 773          | 673          | 442          | 78           |
| **DIRECT NET INCOME**                  | **1,963 **   | **1,611 **   | **1,362 **   | **833 **     | **576 **     |
|                                        |                   |                   |                   |                   |                   |               |
| **AVERAGE BALANCES**                   |                   |                   |                   |                   |                   |
| Gross Loans                            |                   | 178,667      | 150,704      | 122,142      | 97,565       | 73,967   |
| Earning Assets                         |                   | 202,736      | 166,420      | 137,259      | 111,978      | 88,186   |
| Assets                                 |                   | 217,312      | 175,840      | 137,134      | 111,907      | 88,124   |
| Deposits                               |                   | 175,995      | 141,075      | 123,628      | 109,484      | 87,386   |
| Borrowings & Trups                 | 23,848       | 19,284       | 8,965        | 464          | 28           |
| Stockholders Equity                    | 15,738       | 14,235       | 12,512       | 9,648        | 9,016        |
|                                        |                   |                   |                   |                   |                   |               |
| Weighted Avg Shares  (undiluted)  | 1,014,154    | 1,013,510    | 1,010,719    | 896,086      | 839,211      |
|                                        |                   |                   |                   |                   |                   |               |
| **KEY RATIOS**                         |                   |                   |                   |                   |                   |               |
| Return on Average Assets               | 0.90         | 0.92         | 0.99         | 0.74         | 0.65         |
| Return on Average Equity               | 12.47        | 11.32        | 10.89        | 8.63         | 6.39         |
| Dividend Payout Ratio                  | 0.00         | 0.00         | 0.00         | 0.00         | 0.00         |
| Net Interest Margin                    | 4.10         | 4.22         | 4.35         | 4.20         | 4.23         |
| Equity To Assets                       |                   | 7.11         | 7.46         | 8.27         | 9.12         | 7.44     |
| Earnings Per Share (undiluted)         | 1.94         | 1.59         | 1.35         | 0.93         | 0.69         |
| Average Book Value per Share           | 15.52        | 14.05        | 12.38        | 10.77        | 10.74        |
|                                        |                   |                   |                   |                   |                   |               |

30

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**Management's Discussion and Analysis**

**Of Financial Condition and Results ofOperations**

Thefollowing is a discussion of our financial condition and the financialcondition of our bank subsidiary, Unity National Bank, at December 31, 2005 and2004 and the results of operations f or the years then ended. The purpose ofthis discussion is to focus on information about our financial condition andresults of operations that are not otherwise apparent from our auditedconsolidated financial statements.  Reference should be made to thosestatements and the selected financial data presented elsewhere in this reportfor an understanding of the following discussion and analysis.

**Forward-LookingStatements**

Wemay from time to time make written or oral forward-looking statements,including statements contained in filings with the Securities and ExchangeCommission and our reports to stockholders.  Statements made in this report,other than those concerning historical information, should be consideredforward-looking and subject to various risks and uncertainties. Forward-looking statements are made based upon management's belief as well asassumptions made by, and information currently available to, managementpursuant to "safe harbor" provisions of the Private Securities LitigationReform Act of 1995.  Our actual results may differ materially from the resultsanticipated in forward-looking statements due to a variety of factors,including governmental monetary and fiscal policies, deposit levels, loandemand, loan collateral values, securities portfolio values, interest rate riskmanagement, the effects of competition in the banking business from othercommercial banks, thrifts, mortgage banking firms, consumer finance companies,credit unions, securities brokerage firms, insurance companies, money marketfunds and other financial institutions operating in our market area andelsewhere, including institutions operating through the Internet, changes in governmentalregulation relating to the banking industry, including regulations relating tobranching and acquisitions, failure of assumptions underlying the establishmentof reserves for loan losses, including the value of collateral underlyingdelinquent loans and other factors.  We caution that these factors are notexclusive.  We do not undertake to update any forward-looking statement thatmay be made from time to time by us, or on our behalf.

**CriticalAccounting Policies**

We have adopted various accounting policies which govern theapplication of accounting principles generally accepted in the United States ofAmerica in the preparation of our financial statements.  Our significantaccounting policies are described in the footnotes to the consolidatedfinancial statements at December 31, 2005.

Certain accounting policies involve significant judgments andassumptions by us which have a material impact on the carrying value of certainassets and liabilities.  We consider these accounting policies to be criticalaccounting policies.  The judgments and assumptions we use are based onhistorical experience and other factors, which we believe to be reasonableunder the circumstances.  Because of the nature of the judgments and assumptionswe make, actual results could differ from these judgments and estimates whichcould have a material impact on our carrying values of assets and liabilitiesand our results of operations.

Webelieve the allowance for loan losses is a critical accounting policy thatrequires the most significant judgments andestimates used in preparation of our consolidated financial statements.  Referto the portion of this discussion that addresses our allowance for loan lossesfor a description of our processes and methodology for determining ourallowance for loan losses.

31

----

**MANAGEMENT'SDISCUSSION AND ANALYSIS**

**OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

**Overview**

Our2005 results were highlighted by reporting net income of $1,963,439.  TheCompany continued to leverage its equity base through strong loan and depositgrowth coupled with operating expense control.  

**FinancialCondition at December 31, 2005 and 2004**

Asof December 31, 2005, we had total assets of $233.3 million, an increase of 17.0%over December 31, 2004.  Total interest-earning assets were $217.6 million atDecember 31, 2005 or 93% of total assets as compared to 92% of totalassets at December 31, 2004.  Our primary interest-earning assets atDecember 31, 2005 were loans, which made up 90% of total interest-earningassets in both 2005 and 2004.  Our loan to total funding ratio was 92% atDecember 31, 2005 as compared to 91% at December 31, 2004.  Increased fundinglevels from deposit growth of $21.9 million and borrowings of $10.1 millionwere used primarily to fund loan growth of $28.0 million and growth ininvestments of $5.1 million.  

Oursecurities portfolio was $18.9 million at December 31, 2005, compared to $13.8million at December 31, 2004.  Funds in excess of the loan portfolio aregenerally used to purchase investments to acquire an acceptable yield onfunds.  Fixed assets increased $1.3 million in 2005 over year ending 2004levels.  During 2005, our additional office in Cartersville - the "HendersonDrive Office" - opened upon completion in June 2005.

**Liquidity and Capital Resources**

Thepurpose of liquidity management is to ensure that there are sufficient cashflows to satisfy demands for credit, deposit withdrawals, and other needs. Traditional sources of liquidity include asset maturities and growth in coredeposits.  A company may achieve its desired liquidity objectives from themanagement of assets and liabilities and through funds provided by operations. Funds invested in short-term marketable instruments and the continuous maturingof other earning assets are sources of liquidity from the asset perspective. The liability base provides sources of liquidity through deposit growth, thematurity structure of liabilities, and accessibility to external sources offunds.

Asour loan demand has continued to increase, we have increased the use ofexternal funding sources in a manner to achieve acceptable net interest marginsand to relegate interest rate risk in the balance sheet.  Federal Home LoanBank ("FHLB") advances were $29.2 million at December 31, 2005 compared to $19.10million at December 31, 2004.  The Bank also used FHLB advances to lock inacceptable margins when they proved more economically acceptable compared toother external funding sources.  Secondary market time deposits stood at $14.1million at December 31, 2005 compared to $23.3 million for the same period lastyear.  The Company has lowered its position in the brokered market as othersources of funds proved more advantageous to net interest income.

Scheduledloan payments are a relatively stable source of funds, but loan payoffs anddeposit flows fluctuate significantly, being influenced by interest rates andgeneral economic conditions and competition.   We attempt to price our depositsto meet our asset/liability objectives consistent with local market conditions.

Ourliquidity and capital resources are monitored on a periodic basis by managementand Federal regulatory authorities.  As determined under guidelines establishedby the Asset/Liability Committee and acceptable current banking practices, ourcore liquidity ratio of 12.57% at December 31, 2005, was within our targetrange of 10% - 35%.  

32

----

**MANAGEMENT'SDISCUSSION AND ANALYSIS**

**OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

AtDecember 31, 2005, we had loan commitments outstanding of approximately $42million.  Because these commitments generally have fixed expiration dates andmany will expire without being drawn upon, the total commitment amounts do notnecessarily represent future cash requirements.  If needed, we have the abilityto borrow and purchase federal funds from other financial institutions.  AtDecember 31, 2005, we had an arrangement with two correspondent commercial banksfor short-term unsecured advances of $4.5 million each. Also in place with acorrespondent commercial bank is a security repurchase agreement utilizingsecurities available for sale as the underlying collateral with a line of securedcredit of approximately $5 million.   At December 31, 2005, we also had theability to borrow an additional $3.2 million from the Federal Home Loan Bank. By having this readily available credit, our secondary, or liability, liquidityratio was 44%, substantially higher than our 20% minimum directive.

AtDecember 31, 2005, our capital levels were adequate based on regulatory minimumcapital requirements.  Our stockholders' equity increased primarily due to netincome of $1,963,439.  For regulatory purposes, the net unrealized gains onsecurities available-for-sale are excluded in the computation of the capitalratios.

Inthe future, our primary source of funds available to Unity Holdings, Inc. willbe the payment of dividends by the Bank.  Banking regulations limit the amountof the dividends that may be paid without prior approval of the bank'sregulatory agency.  Currently, the Bank can pay $5.2 million in dividendswithout regulatory approval.

Theminimum capital requirements to be considered "well capitalized" under promptcorrective action provisions and the actual capital ratios for us and the Bankas of December 31, 2005 are as follows:

|                            | **Actual**       | ** ** | **Regulatory** |
|----------------------------|------------------|------------|----------------|
|                            | **Consolidated** | ** ** | **Bank**       | ** ** | **Requirements** |
| Leverage capital ratio     | 8.55 %      |            | 7.58 %    |  | 5.00 % |
| Risk-based capital ratios: |                  |            |                |  |  |
|    Core capital  | 10.33 %     |            | 9.11 %    |  | 6.00 % |
|    Total capital | 11.58 %     |            | 10.36 %   |  | 10.00 % |

Theseratios may decline as asset growth continues, but are expected to exceed theregulatory minimum requirements.  Anticipated future earnings will keep theseratios at satisfactory levels.  We have adequate cash resources and a line ofcredit available at the holding company level to maintain "well-capitalized"status at the subsidiary bank.

Webelieve that our liquidity and capital resources are adequate and will meet ourforeseeable short and long-term needs.  We anticipate that we will havesufficient funds available to meet current loan commitments and to fund orrefinance, on a timely basis, our other material commitments and liabilities.

Managementis not aware of any known trends, events or uncertainties, other than thosediscussed above, that will have or that are reasonably likely to have amaterial effect on our liquidity, capital resources or operations.  Management isalso not aware of any current recommendations by the regulatory authoritiesthat, if they were implemented, would have such an effect.

Effectsof Inflation

Theimpact of inflation on banks differs from its impact on non-financialinstitutions.  Banks, as financial intermediaries, have assets which areprimarily monetary in nature and that tend to fluctuate in concert withinflation.  A bank can reduce the impact of inflation if it can manage its ratesensitivity gap.  This gap represents the difference between rate sensitiveassets and rate sensitive liabilities.  We, through our asset/liabilitycommittee, attempt to structure the assets and liabilities and manage the ratesensitivity gap, thereby seeking to minimize the potential effects ofinflation.  For information on the management of our interest rate sensitiveassets and liabilities, see "Asset/Liability Management".

33

----

**MANAGEMENT'SDISCUSSION AND ANALYSIS**

**OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

**Resultsof Operations****For The Years Ended December 31, 2005 and 2004**

Net Interest Income

Ourresults of operations are determined by our ability to manage interest incomeand expense effectively, to minimize loan and investment losses, to generatenon-interest income, and to control operating expenses.  Because interest ratesare determined by market forces and economic conditions, our ability togenerate net interest income depends on our ability to obtain an adequate netinterest spread between the rate we pay on interest-bearing liabilities and therate we earn on interest-earning assets.

Ourtax equivalent net yield on average interest-earning assets was 4.17% in 2005as compared to 4.22% in 2004.  Average net loans increased by $28.0 million,which accounted for the majority of a $36.3 million increase in total averageinterest-earning assets.  Average interest-bearing liabilities increased by $39.1million with average interest bearing demand deposits and money market depositsaccounting for the vast majority of this increase.  The rate earned on averageinterest-earning assets increased to 7.12% in 2005 from 6.58% in 2004.  Therate paid on average interest-bearing liabilities increased to 3.26% in 2005from 2.65% in 2004.  The rising rate environment had a positive effect on assetyields as a whole.  Concurrently, the cost of funds also increased.  We soldsome investment securities to provide liquidity for loan growth rather thanborrow funds at a higher cost.  The Company grew its money market and otherdemand deposits by $40.5 million, which carried a cost of 2.97%.  This actionwas favorable when compared to the other funding alternatives withsignificantly higher interest costs.

Provision for Loan Losses

Theprovision for loan losses was approximately $221,000 and $732,000 in 2005 and2004, respectively.  The amounts provided were due primarily to the growth ofthe portfolio, loan loss experience, and to our assessment of the inherent riskin the portfolio.  Net charge-offs for 2005 were $35,000 as compared to $339,000for 2004.  Management continually evaluates its loan loss reserve foradequacy.  In reviewing the historical loss percentages and current risk in theloan portfolio, Management adjusted its reserve adequacy calculation in use for2005, which also contributed to a decrease in the loan loss provision.  Theallowance for loan losses as a percentage of total loans was 1.25% at December31, 2005 and 1.35% at December 31, 2004.

OtherIncome

Otherincome consists of service charges on deposit accounts, mortgage loanorigination fees, and other miscellaneous revenues and fees.  Other income was$1,296,000 in 2005 as compared to $1,090,000 for 2004.  Mortgage loanorigination income increased $85,000 for the year ended December 31, 2005 whencompared to the year ended December 31, 2004.  The Company has added to itsmortgage lending division, and the business unit continues to produce strongresults.  Service charges on deposit accounts increased $51,000 for the yearended December 31, 2005 as compared to the same period in 2004.  Otheroperating income increased $64,000 for 2005 over 2004. The primary cause forthis increase was the gain earned on the condemnation of a portion of ourHenderson Drive property due to a road widening project by the Department ofTransportation.

Other Expenses

Otherexpenses of $6,479,000 for 2005 represent an approximately 30% increase overthe $4,993,000 posted for 2004.  Salaries and employee benefits increased $770,000in 2005 over 2004.  Additional locations and balance sheet growth were thefactors involved in this substantial increase.  The new business units willquickly grow to support the additional costs.  With the addition of the Romepermanent facility in late 2004 , the Henderson Drive office in mid-2005, andthe additional space and equipment for support staff,  occupancy expensesincreased approximately $210,000 for the year ended December 31, 2005 whencompared to the same period for 2004.  As business volumes grow, so do ourprocessing and personnel costs. The increase in total other operating expensesis directly related to the overall growth of the Bank.

34

----

**MANAGEMENT'SDISCUSSION AND ANALYSIS**

**OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

IncomeTax

Incometax expense was $954,000 in 2005 as compared to $773,000 in 2004.  The rate ofincome tax compared to pretax income was 33% in 2005 as compared to 32% in 2004. 

Asset/Liability Management

Ourobjective is to manage assets and liabilities to provide a satisfactory,consistent level of profitability within the framework of established cash,loan, investment, borrowing, and capital policies.  Specific officers arecharged with the responsibility for monitoring policies and procedures designedto ensure acceptable composition of the asset/liability mix. Management'soverall philosophy is to support asset growth primarily through growth of coredeposits of all categories made by local individuals, partnerships, andcorporations.

Ourasset/liability mix is monitored on a regular basis with a report reflectingthe interest rate-sensitive assets and interest rate-sensitive liabilitiesbeing prepared and presented to the Bank's Board of Directors on a quarterlybasis.  The objective of this policy is to monitor interest rate-sensitiveassets and liabilities so as to minimize the impact of substantial movements ininterest rates on earnings.  An asset or liability is considered to be interestrate-sensitive if it will reprice or mature within the time period analyzed,usually one year or less. The interest rate-sensitivity gap is the differencebetween the interest-earning assets and interest-bearing liabilities scheduledto mature or reprice within such time period.  A gap is considered "asset-sensitive"when the amount of interest rate-sensitive assets exceeds the amount of interestrate-sensitive liabilities.  A gap is considered "liability-sensitive" when theamount of interest rate-sensitive liabilities exceeds the interestrate-sensitive assets.  During a period of rising interest rates, a liability-sensitivegap would tend to affect net interest income adversely, while anasset-sensitive gap would tend to result in an increase in net interest income.Conversely, during a period of falling interest rates, a liability-sensitivegap would tend to result in an increase in net interest income, while anasset-sensitive gap would tend to affect net interest income adversely.  If ourassets and liabilities were equally flexible and moved concurrently, the impactof any increase or decrease in interest rates on net interest income would beminimal.

Asimple interest rate "gap" analysis by itself may not be an accurateindicator of how net interest income will be affected by changes in interestrates.  Accordingly, we also evaluate how the repayment of particular assetsand liabilities is impacted by changes in interest rates.  Income associatedwith interest-earning assets and costs associated with interest-bearing liabilitiesmay not be affected uniformly by changes in interest rates.  In addition, themagnitude and duration of changes in interest rates may have a significantimpact on net interest income.  For example, although certain assets andliabilities may have similar maturities or periods of repricing, they may reactin different degrees to changes in market interest rates.  Interest rates oncertain types of assets and liabilities fluctuate in advance of changes ingeneral market rates, while interest rates on other types may lag behindchanges in general market rates.  In addition, certain assets, such asadjustable rate mortgage loans, have features (generally referred to as"interest rate caps and floors") that limit changes in interestrates.  Prepayment and early withdrawal levels also could deviate significantlyfrom those assumed in calculating the interest rate gap.  The ability of manyborrowers to service their debts also may decrease during periods of risinginterest rates.

Changesin interest rates also affect our liquidity position.  We currently pricedeposits in response to market rates and it is management's intention tocontinue this policy.  If deposits are not priced in response to market rates,a loss of deposits could occur that would negatively affect our liquidityposition.

AtDecember 31, 2005, our cumulative one year interest rate-sensitivity gap ratiowas 0.79, or liability-sensitive.  If our assets and liabilities were equallyflexible and moved concurrently, the impact of any increase or decrease ininterest rates on net interest income would be virtually nonexistent. Thecurrent ratio indicates that our balance sheet is responsive to interest ratesand can be adjusted quickly to take advantage of several interest ratescenarios.

35

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**MANAGEMENT'SDISCUSSION AND ANALYSIS**

**OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

Thefollowing table sets forth the distribution of the repricing of ourinterest-earning assets and interest-bearing liabilities as of December 31, 2005,the interest rate-sensitivity gap, the cumulative interest rate-sensitivitygap, the interest rate-sensitivity gap ratio and the cumulative interestrate-sensitivity gap ratio.  The table also sets forth the time periods inwhich interest-earning assets and interest-bearing liabilities will mature ormay reprice in accordance with their contractual terms.  However, the tabledoes not necessarily indicate the impact of general interest rate movements onthe net interest margin as the repricing of various categories of assets andliabilities is subject to competitive pressures and the needs of ourcustomers.  The non-maturity deposit portfolio, for example, can reprice in itsentirety at any time.  However, rate changes on several types of these depositshappen rarely.  In addition, various assets and liabilities indicated asrepricing within the same period may in fact, reprice at different times withinsuch period and at different rates.

|                                                 |                                      |              |                     | **Within**                  | **Over Three**      | **Over One**        | **After**           |                   |
|-------------------------------------------------|--------------------------------------|--------------|---------------------|-----------------------------|---------------------|---------------------|---------------------|-------------------|
|                                                 |                                      |              |                     | **Three**                   | **Months To**       | **Year to**         | **Three**           |                   |
|                                                 |                                      |              |                     | **Months**                  | **One Year**        | **Three Years**     | **Years**           | **Total**         |
|                                                 |                                      |              |                     | **( Dollars in Thousands)** |
| **Interest-earning assets:**                    |                                      |              |                     |                             |                     |                     |
|                                                 | Interest-bearing deposits in  banks  | 132     | -    | -            | -    | 132            |
|                                                 | Fed funds Sold                       |              | 725            |                             |                     |                     | 725            |
|                                                 | Securities                           |              |                     | 2,265                  | -    | 330            | 18,550         | 21,145       |
|                                                 | Loans                                |              |                     | 94,633                 | 29,331         | 47,315         | 24,719         | 195,998      |
|                                                 | **   Total**               | ** **   | ** **          | **97,755 **            | **29,331 **    | **47,645 **    | **43,269 **    | **218,000 ** |
|                                                 |                                      |              |                     |                             |                     |                     |                     |                   |
| **Interest-bearing  liabilities:**              |                                      |              |                     |                             |                     |
|                                                 | Interest-bearing demand  deposits    | 14,229  | -    | -            | -    | 14,229         |
|                                                 | Savings & Money Market  Deposits | 85,305  | -    | -            | -    | 85,305         |
|                                                 | Time Deposits                        |              | 5,403          | 34,977                 | 26,653         | 2,618          | 69,651         |
|                                                 | Federal Funds Purchased              |              | -    | -            | -    | -    | -    |
|                                                 | Other Borrowings                     |              | 9,900          | 8,900                  | 450            | 10,000         | 29,250         |
|                                                 | Subordinated Debentures              |              | 3,093          | -            | -    | -    | 3,093          |
|                                                 |    Total                   |              |                     | **117,930 **           | **43,877 **    | **27,103 **    | **12,618 **    | **#REF!**         |
|                                                 |                                      |              |                     |                             |                     |                     |                     |                   |
| Interest rate sensitivity  gap                  |                                      | (20,175)     | (14,546)            | 20,542                 | 30,651         | 16,472         |
| Cumulative interest rate  sensitivity gap       | (20,175)                             | (34,721)     | (14,179)            | 16,472                 |                     |
| Interest rate sensitivity  gap ratio            | 0.83                            | 0.67    | 1.76           | 3.43                   |                     |
| Cumulative interest rate  sensitivity gap ratio | 0.83                            | 0.79    | 0.92           | 1.08                   |                     |
|                                                 |                                      |              |                     |                             |                     |                     |                     |                   |

36

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**MANAGEMENT'SDISCUSSION AND ANALYSIS**

**OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

**SELECTEDFINANCIAL INFORMATION AND STATISTICAL DATA**

Thefollowing tables and schedules set forth certain significant financialinformation and statistical data with respect to: the distribution of assets, liabilitiesand stockholders' equity, the interest rates we experience; our investment portfolio;our loan portfolio, including types of loans, maturities, and sensitivities ofloans to changes in interest rates and information on nonperforming loans;summary of the loan loss experience and allowance for loan losses; and types ofdeposits.

**INTERESTRATES AND INTEREST DIFFERENTIALS**

**Average Balance Sheets, Interest and Rates**

37

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**MANAGEMENT'SDISCUSSION AND ANALYSIS**

**OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

|                                                               | ** ** | **For the Years  Ended December 31,** |
|---------------------------------------------------------------|------------|---------------------------------------|
| ** **                                                    | ** ** | ** **                            | ** ** | **2005** |  |  |  |  |  | **2004** |  |  |
|                                                               |            | ** **                            | ** ** | **Interest** |  | **Weighted** |  | ** ** | ** ** | **Interest** |  | **Weighted** |
|                                                               |            | **Average**                           |  | **Income/** |  | **Average** |  | **Average** |  | **Income/** |  | **Average** |
|                                                               |            | **Balance**                           |  | **Expense** |  | **Rate** |  | **Balance** |  | **Expense** |  | **Rate** |
| (Dollars in Thousands)                                        |            |                                       |  |  |  |  |  |  |  |  |  |  |
|                                                               |            |                                       |  |  |  |  |  |  |  |  |  |  |
| **ASSETS**                                                    |            |                                       |  |  |  |  |  |  |  |  |  |  |
| Interest earning assets:                                      |            | ** **                            |  |  |  |  |  | ** ** |  |  |  |  |
| Interest bearing deposits in banks                            |            | ** $**                           | **299 ** |  | ** $** | **7 ** |  | **2.34 %** |  |  $ | 171  |  |  $ | 3  |  | 1.75 % |
| Federal funds sold                                            |            | **2,429 **                       |  | **68 ** |  | **2.80 %** |  | 2,126  |  | 30  |  | 1.41 % |
| Taxable Investments, amortized cost                           |            | **15,289 **                      |  | **653 ** |  | **4.27 %** |  | 7,692  |  | 339  |  | 4.41 % |
| Non-taxable investments, amortized cost                       |            | **6,052 **                       |  | **259 ** |  | **4.28 %** |  | 5,727  |  | 256  |  | 4.47 % |
| Loans                                                         |            | **178,667 **                     |  | **13,448 ** |  | **7.53 %** |  | 150,704  |  | 10,321  |  | 6.85 % |
|     Total interest earning assets              |            | **202,736 **                     |  | ** $** | **14,435 ** |  | **7.12 %** |  | 166,420  |  |  $ | 10,949  |  | 6.58 % |
| Allowance for Loan losses                                     |            | **(2,228)**                           |  | ** ** |  |  |  | (2,012) |  |  |  |  |
| Other assets                                                  |            | **16,804 **                      |  | ** ** |  |  |  | 11,432  |  |  |  |  |
|     Total assets                               |            | ** $**                           | **217,312 ** |  | ** ** |  |  |  |  $ | 175,840  |  |  |  |  |
|                                                               |            |                                       |  |  |  |  |  |  |  |  |  |  |
|                                                               |            |                                       |  |  |  |  |  |  |  |  |  |  |
| **LIABILITIES AND STOCKHOLDERS' EQUITY**            |            |                                       |  |  |  |  |  |  |  |  |  |  |
| Interest bearing liabilities:                                 |            |                                       |  |  |  |  |  |  |  |  |  |  |
| Deposits:                                                     |            |                                       |  |  |  |  |  |  |  |  |  |  |
| Demand, including MMDA                                        |            | ** $**                           | **81,808 ** |  | ** $** | **2,430 ** |  | **2.97 %** |  |  $ | 41,349  |  |  $ | 650  |  | 1.57 % |
| Savings                                                       |            | **3,744 **                       |  | **53 ** |  | **1.42 %** |  | 3,176  |  | 38  |  | 1.20 % |
| Time                                                          |            | **77,393 **                      |  | **2,745 ** |  | **3.55 %** |  | 84,004  |  | 2,744  |  | 3.27 % |
| Federal funds purchased                                       |            | **689 **                         |  | **24 ** |  | **3.48 %** |  | 617  |  | 7  |  | 1.13 % |
| FHLB advances & other borrowings                          |            | **20,782 **                      |  | **667 ** |  | **3.21 %** |  | 16,191  |  | 332  |  | 2.05 % |
| Guaranteed sub debentures                                     |            | **3,093 **                       |  | **195 ** |  | **6.30 %** |  | 3,093  |  | 159  |  | 5.14 % |
|     Total interest bearing liabilities         |            | **187,509 **                     |  | ** $** | **6,114 ** |  | **3.26 %** |  | 148,430  |  |  $ | 3,930  |  | 2.65 % |
|                                                               |            |                                       |  |  |  |  |  |  |  |  |  |  |
| Non-interest bearing demand deposits                          |            | **13,050 **                      |  |  |  |  |  | 12,546  |  |  |  |  |
| Other liabilities                                             |            | **1,015 **                       |  |  |  |  |  | 629  |  |  |  |  |
| Stockholders' equity                                          |            | **15,738 **                      |  |  |  |  |  | 14,235  |  |  |  |  |
|     Total liabilities and stockholders' equity |            | ** $**                           | **217,312 ** |  |  |  |  |  |  $ | 175,840  |  |  |  |  |
|                                                               |            |                                       |  |  |  |  |  |  |  |  |  |  |
| Net interest income                                           |            |                                       |  | ** $** | **8,321 ** |  |  |  |  |  |  $ | 7,019  |  |  |
|                                                               |            |                                       |  |  |  |  |  |  |  |  |  |  |
| Net interest spread                                           |            |                                       |  |  |  | **3.86 %** |  |  |  |  |  | 3.93 % |
| Net interest margin (TE)                                      |            |                                       |  |  |  | **4.17 %** |  |  |  |  |  | 4.22 % |
|                                                               |            |                                       |  |  |  |  |  |  |  |  |  |  |

The table below shows the year-to-date averagebalance for each category of interest earning assets and interest-bearingliabilities for the indicated periods and the average rate of interest earnedor paid thereon. 

Non-accrualloans and the interest income which was recorded on these loans, if any, areincluded in the yield calculation for loans in all periods reported.  

(TE) - Tax Equivalent. Loan fees of $1,014,000 and $894,000 are included in the yields for 2005 and2004, respectively.

**Rate and Volume Analysis**

Thefollowing table shows a summary of the changes in interest income and interestexpense resulting from changes in volume and changes in rates for each majorcategory of interest earning assets and interest-bearing liabilities for 2005over 2004.  The changes in interest income and interest expense attributable toboth volume and rate have been allocated proportionately on a consistent basisto the change due to volume and the change due to rate.

|                                                       |  | **2005 vs. 2004**       |
|-------------------------------------------------------|--|-------------------------|
|                                                       |  | **Rate**                |  | **Volume** |  | **Net** |
|                                                       |  | (Dollars in  Thousands) |
| *Income from interest-earning assets:*                |  |                         |  |  |  |  |
| Interest bearing deposits in banks                    |  |  $                 | 1  |  |  $ | 3  |  |  $ | 4  |
| Federal funds sold                                    |  | 30                 |  | 8  |  | 38  |
| Taxable Investments, amortized cost                   |  | (10)                    |  | 324  |  | 314  |
| Non-taxable investments, amortized cost               |  | (11)                    |  | 14  |  | 3  |
| Loans                                                 |  | 1,022              |  | 2,105  |  | 3,127  |
| Total interest income                                 |  |  $                 | 1,031  |  |  $ | 2,455  |  |  $ | 3,486  |
|                                                       |  |                         |  |  |  |  |
| *Expense from interest-bearing liabilities:*          |  |                         |  |  |  |  |
| Demand, including MMDA                                |  |  $                 | 578  |  |  $ | 1,202  |  |  $ | 1,780  |
| Savings                                               |  | 7                  |  | 8  |  | 15  |
| Time                                                  |  | 235                |  | (234) |  | 1  |
| Federal funds purchased                               |  | 14                 |  | 3  |  | 17  |
| FHLB advances & other borrowings                  |  | 188                |  | 147  |  | 335  |
| Guaranteed sub debentures                             |  | 36                 |  | -  |  | 36  |
|     Total interest bearing liabilities |  |  $                 | 1,059  | ** ** |  $ | 1,125  | ** ** |  $ | 2,184  |
|                                                       |  |                         |  |  |  |  |
| NET INTEREST INCOME                                   |  |  $                 | (27) |  |  $ | 1,329  |  |  $ | 1,302  |
|                                                       |  |                         |  |  |  |  |
|                                                       |  |                         |  |  |  |  |  |  |  |  |

38

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**MANAGEMENT'SDISCUSSION AND ANALYSIS**

**OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

**INVESTMENT PORTFOLIO**

** **

**Types of Investments**

Oursecurities portfolio, consisting of U.S. Government and Agency,mortgage-backed, municipal and restricted equity securities, amounted to $21.1million at December 31, 2005, a 36% increase from the $15.5 million at December31, 2004.  Strong growth in the deposit base allowed us to place excess fundsinto the investment portfolio.  We have not specifically identified any securitiesfor sale in future periods that, if so designated, would require a charge tooperations if the market value would not be reasonably expected to recoverprior to the time of sale.

Thecarrying amounts of securities and the corresponding interest yield, which areall classified as available-for-sale, are summarized as follows:

| ** **                            |                 | **December 31,  2005**      |
|---------------------------------------|-----------------|-----------------------------|
| ** **                            |                 | ** **                  | ** ** |  |
|                                       |                 | **Amortized**               | ** ** | **Fair** |
|                                       |                 | **Cost**                    | ** ** | **Value** |
|                                       |                 | **(Dollars in  Thousands)** |
| U.S. Government and agency securities | ** $**     | **8,993 **             | ** ** | ** $** | **8,804 ** |
| Mortgage-backed securities            | **4,566 ** | ** **                  | **4,456 ** |
| Municipal securities                  | **5,568 ** | ** **                  | **5,619 ** |
| Restricted equity securities          | **2,265 ** | ** **                  | **2,265 ** |
|                                       |                 | ** $**                 | **21,392 ** | ** ** | ** $** | **21,144 ** |
|                                       |                 |                             |  |  |
|                                       |                 |                             |  |  |
|                                       |                 | December 31, 2004           |
|                                       |                 |                             |  |  |
|                                       |                 | Amortized                   |  | Fair |
|                                       |                 | Cost                        |  | Value |
|                                       |                 | (Dollars in Thousands)      |
| U.S. Government and agency securities |  $         | 7,223                  |  |  $ | 7,190  |
| Mortgage-backed securities            | 478        |                             | 481  |
| Municipal securities                  | 5,964      |                             | 6,110  |
| Restricted equity securities          | 1,706      |                             | 1,706  |
|                                       |                 |  $                     | 15,371  |  |  $ | 15,487  |
|                                       |                 |                             |  |  |
|                                       |                 |                             |  |  |  |  |  |  |  |

39

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**MANAGEMENT'SDISCUSSION AND ANALYSIS**

**OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

**Maturities**

Theamounts of debt securities are shown in the following table according tocontractual maturity classifications (1) one year or less, (2) after onethrough three years, (3) after three through five years and (4) after fiveyears.  Restricted equity securities are not included in the table because theyhave no contractual maturity.  

| ** **          |                  | **December 31,  2005**      |
|---------------------|------------------|-----------------------------|
| ** **          |                  | ** **                  | ** ** |  |
|                     |                  | **Amortized**               | ** ** | **Fair** |
|                     |                  | **Cost**                    | ** ** | **Value** |
|                     |                  | **(Dollars in  Thousands)** |
| One Year or Less    | ** $**      | **- **                 | ** ** | ** $** | **- ** |
| One to Three Years  | **329 **    | ** **                  | **330 ** |
| Three to Five Years | **5,000 **  | ** **                  | **4,934 ** |
| Over Five Years     | **13,798 ** | ** **                  | **13,616 ** |
|                     |                  | ** $**                 | **19,127 ** | ** ** | ** $** | **18,880 ** |
|                     |                  | ** **                  | ** ** | ** ** |
|                     |                  |                             |  |  |  |  |  |

**LOANPORTFOLIO**

Wegenerally require that loans collateralized by real estate not exceed thecollateral values by the following percentages for each type of real estateloan as follows:

| One-  to four-family residential properties                       | 85% |
|-------------------------------------------------------------------|-----|
| Construction  loans on one- to four-family residential properties | 80% |
| Nonresidential  property                                          | 80% |

Forcommercial, consumer, and other non-real estate loans, we require collateralcommensurate with the repayment ability and creditworthiness of the borrower.

Thespecific economic and credit risks associated with our loan portfolio,especially the real estate portfolio, include, but are not limited to, ageneral downturn in the economy which could affect unemployment rates in ourmarket area, general real estate market deterioration, interest ratefluctuations, deteriorated or non-existing collateral, title defects,inaccurate appraisals, financial deterioration of borrowers, fraud, and anyviolation of banking protection laws.  Construction lending can also presentother specific risks to the lender such as whether developers can find buildersto buy lots for home construction, whether the builders can obtain financing forthe construction, whether the builders can sell the home to a buyer, andwhether the buyer can obtain permanent financing.  Currently, real estatevalues and employment trends in our market area are stable.  However, globaluncertainties could negatively impact the local economy.

Weattempt to reduce these economic and credit risks not only by adhering to loanto value guidelines, but also by investigating the creditworthiness of theborrower and monitoring the borrower's financial position.  Also, we establishand periodically review our lending policies and procedures.  National bankingregulations limit exposure by prohibiting loan relationships that exceed 15% ofthe Bank's statutory capital.  Because of the Company's capital strength, theCompany qualifies for the OCC's pilot lending program, which increases the lendinglimit to 25% of statutory capital.

40

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**MANAGEMENT'SDISCUSSION AND ANALYSIS**

**OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

**Types of Loans**

Theamounts of loans outstanding at the indicated dates are shown in the followingtable according to the type of loan.

|                                        | **2005**          |                   | **2005**     |            | 2004          |         | 2004          |
|----------------------------------------|-------------------|-------------------|--------------|------------|---------------|---------|---------------|
|                                        | **Total**         |                   | **%**        |            | Total         |         | %             |
| (Dollars in Thousands)                 |                   |                   |              |            |               |         |               |
| Commercial, financial and agricultural | ** $**       | **11,014 **  |              | 5.6 % |               |  $ | 16,565   |  | 9.9 % |
| Real estate - construction             | **35,408 **  |                   | 18.1 %  |            | 26,353   |         | 15.7 %   |
| Real estate - mortgage                 | **142,881 ** |                   | 72.9 %  |            | 106,870  |         | 63.7 %   |
| Consumer, installment and other        | **6,695 **   |                   | 3.4 %   |            | 17,866   |         | 10.7 %   |
|                                        | **195,998 ** |                   | 100.0 % |            | 167,654  |         | 100.0 %  |
| Unearned income                        | **(399)**         |                   |              |            | (321)         |         |               |
| Allowance for loan losses              | **(2,445)**       |                   |              |            | (2,259)       |         |               |
| **Loans, net**                         | ** $**       | **193,154 ** | ** **   | ** ** |               |  $ | 165,074  |  |  |
| ** **                             | ** **        | ** **        | ** **   |            |               |         |               |

**Maturities and Sensitivities of Loans to Changesin Interest Rates**

Totalloans as of December 31, 2005 are shown in the following table according to contractualmaturity.  

|                               | **Commercial**              |              | **Construction** |         | **Other**    |  | **Total**    |
|-------------------------------|-----------------------------|--------------|------------------|---------|--------------|--|--------------|
|                               | **(Dollars in  Thousands)** |
| Within Three Months           |  $                     | 5,871   |                  |  $ | 24,801  |  |  $      | 61,342  |  |  $ | 92,014  |
| Over Three Months to One Year | 923                    |              | 7,480       |         | 16,888  |  | 25,291  |
| Over One Year to Three Years  | 2,175                  |              | 3,079       |         | 43,181  |  | 48,435  |
| Over Three Years              | 2,045                  |              | 48          |         | 28,165  |  | 30,258  |
|                               |  $                     | 11,014  |                  |  $ | 35,408  |  |  $      | 149,576  |  |  $ | 195,998  |

Thefollowing table summarizes loans at December 31, 2005 with due dates after oneyear that have predetermined and floating or adjustable interest rates.

|                                       | **(Dollars**      |
|---------------------------------------|-------------------|
|                                       | **in Thousands)** |
| Predetermined interest rates          |  $           | 31,531  |
| Floating or adjustable interest rates | 47,162       |
|                                       |  $           | 78,693  |
|                                       |                   |

41

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**MANAGEMENT'SDISCUSSION AND ANALYSIS**

**OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

**Risk Elements**

Informationwith respect to nonaccrual, past due, restructured and other problem loans atDecember 31, 2005 and 2004 is as follows:

|                                                                                         |            |                  | **December 31,** |
|-----------------------------------------------------------------------------------------|------------|------------------|------------------|
|                                                                                         |            |                  | **2005**         |  | **2004** |
| **Nonperforming loans:**                                                                | ** ** |                  |                  |  |  |
| Nonaccrual loans                                                                        |            |                  | ** $**      | **2,964 ** |  |  $ | 456  |
| Restructured loans                                                                      |            |                  | **221 **    |  | 253  |
| Other real estate owned                                                                 |            |                  | **132 **    |  | 247  |
| **  Total nonperforming loans**                                                    | ** ** |                  | **3,317 **  |  | 956  |
|                                                                                         |            |                  | ** **       |  |  |
| **Potential problem loans:**                                                            | ** ** |                  | ** **       |  |  |
| Loans 90 days or more past due and still accruing                                       |            | **38 **     |                  | 2  |
| **Total nonperforming and potential problem loans**                                     |            | ** $**      | **3,355 **  |  | ** $** | **958 ** |
|                                                                                         |            |                  | ** **       | ** ** | ** ** |
| Nonperforming assets to total loans and other real estate                               |            | **1.71 %**  | ** **       | **0.57 %** |
| Reserve for loan losses to nonperforming loans                                          |            | **72.88 %** | ** **       | **235.80 %** |
|                                                                                         |            |                  | ** **       |  |  |
| Interest at contracted rates (a)                                                        |            |                  | ** $**      | **124 ** |  |  $ | 37  |
| Interest recorded as income                                                             |            |                  | 0           |  | 5  |
| Reduction of Interest Income for period                                                 |            |                  | ** $**      | **124 ** |  | ** $** | **32 ** |
|                                                                                         |            |                  |                  |  |  |
| (a)  Interest income on nonaccruals that would have beeen  recorded, if the loans  |
|       remained current and in accordance with original  terms. |            |                  |                  |
|                                                                                         |            |                  |                  |  |  |  |  |  |

Itis our policy to discontinue the accrual of interest income when, in theopinion of management, collection of interest becomes doubtful.  This status isaccorded interest when (1) there is a significant deterioration in thefinancial condition of the borrower and full repayment of principal andinterest is not expected and (2) the principal or interest is more than ninetydays past due, unless the loan is both well-secured and in the process ofcollection.

Nonaccrualloans at December 31, 2005 were $2,964,000, compared to $456,000 at  December31, 2004.  The increase is the result of two large loans for the same customerbeing placed in nonaccrual status in the second quarter.  These loans are fullycollateralized by commercial real estate, and it is Management's belief that nosignificant loss will occur.

Loansthat are classified for regulatory purposes as loss, doubtful, substandard, orspecial mention that have not been included in the table above do not representor result from trends or uncertainties that management reasonably expects willmaterially impact future operating results, liquidity, or capital resources. These classified loans do not represent material credits about which managementis aware of any information that causes management to have serious doubts as tothe ability of such borrowers to comply with the loan repayment terms.

** **

42

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**MANAGEMENT'SDISCUSSION AND ANALYSIS**

**OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

**SUMMARYOF LOAN LOSS EXPERIENCE**

Thefollowing table summarizes average loan balances for the year determined usingthe daily average balances during the year; changes in the allowance for loanlosses arising from loans charged off; recoveries on loans previously chargedoff; additions to the allowance which have been charged to operating expense;and the ratio of net charge-offs during the year to average loans.

|                                                                              | **Year Ended  December 31,** |
|------------------------------------------------------------------------------|------------------------------|
|                                                                              | **2005**                     |  | **2004** |
|                                                                              | **(Dollars in Thousands)**   |
| Average amount of loans outstanding                                          | ** $**                  | **165,074 ** |  |  $ | 150,704  |
|                                                                              | ** **                   |  |  |
| Balance of allowance for loan losses at beginning of  period                 | **2,259 **              |  | 1,866  |
|                                                                              | ** **                   |  |  |
| Loans charged off:                                                           | ** **                   |  |  |
| Installment loans                                                            | **80 **                 |  | 278  |
| Real estate-mortgage                                                         | **- **                  |  | 5  |
| Commercial                                                                   | **- **                  |  | 75  |
|                                                                              | **80 **                 |  | 358  |
|                                                                              | ** **                   |  |  |
| Loans recovered:                                                             | ** **                   | ** ** |  |
| Installment loans                                                            | **25 **                 |  | 19  |
| Real estate mortgage                                                         | **3 **                  |  | -  |
| Commercial                                                                   | **17 **                 |  | -  |
|                                                                              | **45 **                 |  | 19  |
|                                                                              | ** **                   |  |  |
| Net charge-offs                                                              | **35 **                 |  | 339  |
|                                                                              | ** **                   |  |  |
| Additions to allowance charged to operating expense during  year             | **221 **                |  | 732  |
| Balance of allowance for loan losses at end of year                          | ** $**                  | **2,445 ** | ** ** |  $ | 2,259  |
|                                                                              | ** **                   |  |  |
| Ratio of net loans charged off during the year to average  loans outstanding | **0.02 %**              |  | 0.22 % |
|                                                                              |                              |  |  |
|                                                                              |                              |  |  |  |  |  |

43

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**MANAGEMENT'SDISCUSSION AND ANALYSIS**

**OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

**Allowance for Loan Losses**

Management continually evaluates its loan lossreserve for adequacy.  In reviewing the historical loss percentages and currentrisk in the loan portfolio, Management adjusted its reserve adequacycalculation in use for 2005, which contributed to a decrease in the loan lossprovision.  Our evaluation considers significant factors relative to the creditrisk and loss exposure in the loan portfolio, including past due and classifiedloans, historical experience, underlying collateral values, and currenteconomic conditions that may affect the borrower's ability to repay.  Theallowance for loan losses is evaluated by segmenting the loan portfolio intounclassified and classified loans.  The unclassified loans are furthersegmented by loan type with an allowance percentage applied to each type inorder to establish a general allowance for loan losses.  The allowancepercentage determined is based upon the historical loss experience of each loancategory.  Further, we allocate a reserve for the loan portfolio in generalbased on industry standards.  The classified loans, including impaired loans,are analyzed individually in order to establish a specific allowance for loanlosses.  This evaluation is inherently subjective, as it requires estimates thatare susceptible to significant change.  Ultimately, losses may vary fromcurrent estimates and future additions to the allowance may be necessary. Thus, there can be no assurance that charge-offs in future periods will notexceed the allowance for loan losses as estimated at any point in time. Management believes the loan loss reserve is adequate at this time.

Asof December 31, 2005 and 2004, our allocations of the allowance for loan lossesdo not specifically correspond to the categories of loans listed below.   Thefollowing table represents our best estimate for the allocation of theallowance for loan losses to types of loans, as of the indicated dates.  Theunallocated portion represents excess reserves over our regular reservecalculations.

|                                           | **December 31,  2005**      |                 | **December 31,  2004**                                |
|-------------------------------------------|-----------------------------|-----------------|-------------------------------------------------------|
|                                           | **Amount**                  |                 | **Percent of Loans  in each category to total loans** |  | **Amount** |  | **Percent of Loans  in each category to total loans** |
|                                           | **(Dollars in  Thousands)** | ** **      | **(Dollars in  Thousands)**                           |
| Commercial, financial and agricultural    |  $                     | 99         |                                                       | 5.62 % |  |  |  $ | 199  |  | 9.88 % |  |
| Real estate - construction                |  $                     | 317        |                                                       | 18.07 % |  |  |  $ | 264  |  | 15.72 % |  |
| Real estate - mortgage                    |  $                     | 1,280      |                                                       | 72.90 % |  |  |  $ | 851  |  | 63.74 % |  |
| Consumer, installment and other           |  $                     | 72         |                                                       | 3.42 % |  |  |  $ | 290  |  | 10.66 % |  |
| Specific allocation for rated  loans |  $                     | 461        |                                                       | N/A |  |  |  $ | 426  |  | N/A |  |
| Unallocated                               |  $                     | 216        |                                                       | N/A |  |  |  $ | 229  |  | N/A |  |
|                                           | ** $**                 | **2,445 ** | ** **                                            | **100 %** | ** ** | ** ** | ** $** | **2,259 ** | ** ** | **100 %** | ** ** |
|                                           |                             |                 |                                                       |  |  |  |  |  |  |
|                                           |                             |                 |                                                       |  |  |  |  |  |  |  |  |  |  |

44

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**MANAGEMENT'SDISCUSSION AND ANALYSIS**

**OF FINANCIALCONDITION AND RESULTS OF OPERATIONS**

**DEPOSITS**

Averageamount of deposits and average rates paid thereon, classified as to noninterest-bearingdemand deposits, interest-bearing demand deposits, savings deposits, and timedeposits, for the year is presented below. 

| ** **                                  | **December 31,  2005**      | ** **        | **December 31,  2004**      |
|---------------------------------------------|-----------------------------|-------------------|-----------------------------|
|                                             | **Average**                 | ** **        |                             | **Average** | ** ** |
|                                             | **Balance (1)**             | **Percent**       |                             | **Balance (1)** | **Percent** |
|                                             | **(Dollars in  Thousands)** |                   | **(Dollars in  Thousands)** |
| Noninterest-bearing demand deposits         | ** $**                 | **13,050 **  | **N/A   **   |  |  $ | 12,546  | **N/A   ** |
| Interest-bearing demand deposits & MMDA | **81,808 **            | **2.97 %**   |                             | 41,349  | 1.57 % |
| Savings Deposits                            | **3,744 **             | **1.42 %**   |                             | 3,176  | 1.20 % |
| Time Deposits                               | **77,393 **            | **3.55 %**   |                             | 84,004  | 3.27 % |
|                                             | ** $**                 | **175,995 ** | **2.97 %**             |  |  $ | 141,075  | 2.43 % |
|                                             |                             |                   |                             |  |  |

 (1)   Average balanceswere determined using the daily average balances during the year.

Theamounts of time certificates of deposit issued in amounts of $100,000 or moreas of December 31, 2005 are shown below by category, which is based on timeremaining until maturity of (1) three months or less, (2) over three throughsix months, (3) over six through twelve months, and (4) over twelve months.

| Three months or less                  |  $      | 1,205   |
|---------------------------------------|--------------|--------------|
| Over three months through six months  | 3,387   |
| Over six months through twelve months | 9,289   |
| Over twelve months                    | 16,207  |
|                                       |  $      | 30,088  |
|                                       |              |

45

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