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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



Form 10-K



|x | Annual Report under Section 13 or 15(d) of the Securities Exchange Act of 1934
|- | ------------------------------------------------------------------------------



For the fiscal year ended December 31, 2005





Commission File No. 000-23261



SECURITY BANK CORPORATION

(Exact Name of Registrant Specified in Its Charter)





|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Georgia                                                       |  | 58-2107916                         
|(State or Other Jurisdictionof Incorporation or Organization) |  | (I.R.S. EmployerIdentification No.)
|                                                              | 
|4219 Forsyth Road Macon, Georgia                              |  | 31210                              
|(Address of Principal Executive Offices)                      |  | (Zip Code)                         



(478) 722-6200

Issuers Telephone Number, Including Area Code



Securities registered pursuant to Section 12(b) of the Act: None.



Securities registered pursuant to Section 12(g) of the Act:



COMMON STOCK, $1.00 PAR VALUE

(Title of Class)



Indicate by check mark whether the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes ̈No  x



Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Exchange Act. Yes ̈No  x



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



Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-K in this form, and no disclosure will be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ̈



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer (see definition of
accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act).



Large accelerated filer ̈Accelerated
filer  x          Non-accelerated filer ̈



Indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act of 1934). Yes ̈No  x



State the aggregate market
value of the voting stock held by nonaffiliates computed by reference to the price at which the stock was sold, or the average bid and asked prices of such stock, as of June 30, 2005: $259,118,446 based on stock price of $22.90.



State the number of shares outstanding of each of the issuers classes
of common equity, as of the latest practicable date: 14,387,877 shares of $1.00 par value common stock as of February 20, 2006.



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Table of Contents



|         |  |                                      |  |                                                                                                              |  |     
|-------- |  | ------------------------------------ |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|         |  |                                      |  |                                                                                                              |  | Page
|         |  |                                      | 
|PART I   |  |                                      |  |                                                                                                              |  |     
|         |  |                                     
|         |  | Forward Looking Statement Disclosure |  |                                                                                                             
|         |  |                                      | 
|         |  | Item 1.                              |  | Business                                                                                                     |  | 4   
|         |  |                                      | 
|         |  | Item 1A.                             |  | Risk Factors                                                                                                 |  | 20  
|         |  |                                      | 
|         |  | Item 1B.                             |  | Unresolved Staff Comments                                                                                    |  | 25  
|         |  |                                      | 
|         |  | Item 2.                              |  | Properties                                                                                                   |  | 25  
|         |  |                                      | 
|         |  | Item 3.                              |  | Legal Proceedings                                                                                            |  | 26  
|         |  |                                      | 
|         |  | Item 4.                              |  | Submission of Matters to a Vote of Security Holders                                                          |  | 26  
|         |  |                                      | 
|PART II  |  |                                      |  |                                                                                                              |  |     
|         |  |                                      | 
|         |  | Item 5.                              |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 27  
|         |  |                                      | 
|         |  | Item 6.                              |  | Selected Financial Data                                                                                      |  | 28  
|         |  |                                      | 
|         |  | Item 7.                              |  | Managements Discussion and Analysis of Financial Condition and Resultsof Operations                         |  | 30  
|         |  |                                      | 
|         |  | Item 7A.                             |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 61  
|         |  |                                      | 
|         |  | Item 8.                              |  | Financial Statements and Supplementary Data                                                                  |  | 61  
|         |  |                                      | 
|         |  | Item 9.                              |  | Changes in and Disagreements with Accountants on Accounting And Financial Disclosure                         |  | 61  
|         |  |                                      | 
|         |  | Item 9A.                             |  | Controls and Procedures                                                                                      |  | 61  
|         |  |                                      | 
|         |  | Item 9B.                             |  | Other Information                                                                                            |  | 62  
|         |  |                                      | 
|PART III |  |                                      |  |                                                                                                              |  |     
|         |  |                                      | 
|         |  | Item 10.                             |  | Directors and Executive Officers of the Registrant                                                           |  | 63  
|         |  |                                      | 
|         |  | Item 11.                             |  | Executive Compensation                                                                                       |  | 63  
|         |  |                                      | 
|         |  | Item 12.                             |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  | 63  
|         |  |                                      | 
|         |  | Item 13.                             |  | Certain Relationships and Related Transactions                                                               |  | 64  
|         |  |                                      | 
|         |  | Item 14.                             |  | Principal Accountant Fees and Services                                                                       |  | 64  
|         |  |                                      | 
|PART IV  |  |                                      |  |                                                                                                              |  |     
|         |  |                                      | 
|         |  | Item 15.                             |  | Exhibits and Financial Statement Schedules                                                                   |  | 65  
|         |  |                                     
|         |  | Signatures                           |  | 66                                                                                                          
|         |  |                                     
|         |  | Index to Exhibits                    |  |                                                                                                             



Forward Looking
Statement Disclosure



Statements in this Annual Report
regarding future events or performance are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the PSLRA) and are made pursuant to the safe harbors of the PSLRA. Actual
results of Security Bank Corporation (the Company) could be quite different from those expressed or implied by the forward-looking statements. Any statements containing



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the words could, may, will, should, plan, believes, anticipates,
estimates, predicts, expects, projections, potential, continue, or words of similar import, constitute forward-looking statements, as do any other statements that
expressly or implicitly predict future events, results, or performance. Factors that could cause results to differ from results expressed or implied by our forward-looking statements include, among others, risks discussed in the text of this Annual
Report as well as the following specific items:




General economic conditions, whether national or regional, that could affect the demand for loans or lead to increased loan losses;



 Competitive factors, including increased competition with community, regional, and national financial institutions, that may lead to pricing
pressures that reduce yields the Company achieves on loans and increase rates the Company pays on deposits, loss of the Companys most valued customers, defection of key employees or groups of employees, or other losses;



 Increasing or decreasing interest rate environments, including the
shape and level of the yield curve, that could lead to decreases in net interest margin, lower net interest and fee income, including lower gains on sales of loans, and changes in the value of the Companys investment securities;



 Changing business or regulatory conditions, or new legislation,
affecting the financial services industry that could lead to increased costs, changes in the competitive balance among financial institutions, or revisions to our strategic focus;



 Changes or failures in technology or third party vendor relationships in important revenue production or service
areas, or increases in required investments in technology that could reduce our revenues, increase our costs or lead to disruptions in our business.



Readers are cautioned not to place undue reliance on our forward-looking statements, which reflect managements analysis only as of the date of the
statements. The Company does not intend to publicly revise or update forward-looking statements to reflect events or circumstances that arise after the date of this report.



Readers should carefully review all disclosures we file from time to time with the Securities and Exchange Commission
(SEC).



DOCUMENTS INCORPORATED BY REFERENCE



Portions of the information required by Part III of this
Annual Report are incorporated by reference from the Registrants definitive Proxy Statement to be filed with Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this
Annual Report.



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Unless indicated otherwise, references in this Report to we, us, our,
SBKC or the Company refer to Security Bank Corporation and its consolidated subsidiaries, Security Bank of Bibb County, Security Bank of Houston County, Security Bank of Jones County, Security Bank of North Metro and
Rivoli Bank and Trust (collectively, the Banks).



Part I



|Item 1 | BUSINESS
|------ | --------



General



Overview.    We are a multi-bank holding
company headquartered in Macon, the third largest city in Georgia outside of metropolitan Atlanta. Since our formation on February 10, 1994, we have made several strategic acquisitions and have expanded our market presence throughout Middle
Georgia, as well as toward the northern metropolitan area of Atlanta, Georgia, and toward the southeastern coastal region of Georgia. In June 2003, we changed our name from SNB Bancshares, Inc. to Security Bank Corporation and changed our stock
symbol on the Nasdaq National Market to SBKC. We changed our name to Security Bank Corporation to leverage our Security Bank branding, which is well recognized in our core markets.



We provide a wide variety of community banking services through thirty-one
banking and mortgage production offices, with a substantial portion of our business being drawn from Bibb, Houston and Jones Counties in the State of Georgia. At December 31, 2005, we had total assets of $1.7 billion, total deposits of $1.3
billion and total shareholders equity of $179.3 million.



Companys filings with the SEC, including its annual report on Form 10-K, quarterly reports on Form 10-Q, periodic reports on Form 8-K and amendments to these reports, are accessible free of charge at our website at
http://www.securitybank.netas soon as reasonably practicable after filing with the SEC. By making this reference to our website, we do not intend to incorporate into this report any information contained in the website. The website should
not be considered part of this report.



The SEC maintains a
website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers including the Company that file electronically with the SEC.



Our Subsidiary Banks.    Substantially all of our
business is conducted through our five subsidiary banks:



| |  |  | Security Bank of Bibb County  A state-chartered bank with $711.2 million in assets that engages in the commercial banking business primarily in Bibb County, Georgia.
Security Bank of Bibb County commenced operations on November 4, 1988. The bank operates eight full-service banking offices and one limited-service office in Macon, Georgia, as well as two full-service banking offices in Brunswick and Saint
Simons Island, Glynn County on the southeastern coast of Georgia. Security Bank of Bibb County is also the direct parent company of Fairfield Financial Services, Inc., which is further described below.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Rivoli Bank & Trust  A state-chartered bank with $235.8 million in assets that engages in the commercial banking business primarily in Bibb County, Georgia.
The bank operates two full-service banking offices in Macon, Georgia; one full-service banking office in Griffin, Georgia; and a loan production office in Oconee County, Georgia. Our ownership of Rivoli Bank & Trust resulted from our
December 2005 acquisition of Rivoli BanCorp, Inc. Effective January 4, 2006, Rivoli Bank and Trust was merged into Security Bank of Bibb County.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Security Bank of Houston County  A state-chartered bank with $263.3 million in assets that engages in the commercial banking business primarily in Houston County,
Georgia. The bank operates one full-service banking office in Perry, Georgia and four full-service banking offices in Warner Robins, Georgia. Our ownership of Security Bank of Houston County is a result of our 1998 acquisition of Crossroads Bank of
Georgia.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | Security Bank of Jones County  A state-chartered bank with $285.8 million in assets that engages in the commercial banking business primarily in Jones County, Georgia.
The bank operates one full-service banking office in Gray, Georgia. Our ownership of Security Bank of Jones County is a result of our 2003 acquisition of Bank of Gray.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Security Bank of North Metro  A state-chartered bank with $184.3 million in assets that engages in the commercial banking business in the northern metropolitan area of
Atlanta, Georgia. The bank operates one full-service banking office in Woodstock, Georgia and loan production offices in Hiram and Cumming, Georgia. Our ownership of Security Bank of North Metro resulted from our 2005 acquisition of SouthBank.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our subsidiary banks each operate autonomously under the
corporate umbrella of Security Bank Corporation. As a result, each bank has its own board of directors and management comprised of persons known in the local community in which each bank operates. We provide significant assistance and oversight to
our subsidiary banks in areas such as budgeting, marketing, human resource management, credit administration, operations and funding. This allows us to maintain efficient centralized reporting and policies while maintaining local decision-making
capabilities.



Fairfield Financial Services,
Inc. We also operate Fairfield Financial Services, Inc., a subsidiary of Security Bank of Bibb County. Fairfield Financial is a traditional residential mortgage originator and interim real estate development lender with a number of
production locations throughout Georgia, including offices in Macon, Columbus, Gray, Warner Robins, Richmond Hill, Pooler, St. Simons Island, Woodstock and Brunswick. During 2005, Fairfield Financial closed over $166.6 million in residential
mortgages, making it one of the largest residential mortgage originators in Middle Georgia. For the year ended December 31, 2005, Fairfield Financial posted approximately $3.2 million in net income. Approximately 20% of Fairfield
Financials 2005 gross revenue was a product of its traditional residential mortgage origination business, with the remaining 80% being derived from its interim real estate and real estate development lending activities. See
Managements Discussion and Analysis of Financial Condition and Results of Operations.



Our Market Area and Competitive Position



Our primary market area is located in the geographic center of the State of Georgia approximately 75 miles south of Atlanta and is primarily comprised of Bibb, Houston and Jones Counties. We refer to this market area
as Middle Georgia, and we are the largest independent, publicly traded bank holding company based in our primary market. Within this three-county area, we operate 17 of our 21 commercial banking offices. As a result, a majority of our
revenue is derived from our business activities in and around these counties.



We believe our existing markets are attractive and have stable demographic trends. Our core markets are home to a diverse pool of businesses and industries, as well as an established consumer base. Large employers in
Middle Georgia, such as GEICO General Insurance Company, YKK USA, Inc., GE Card Services, The Medical Center of Central Georgia, Mercer University and Robins Air Force Base, make Middle Georgia a desirable market for financial institutions. As the
largest independent bank holding company based in Middle Georgia, we believe we are well positioned to take advantage of strategic opportunities in our marketplace to grow our core business.



Another factor that we believe is beneficial to the Middle Georgia market is
the continued growth of Atlanta. Specifically, the increasing congestion of the Atlanta metropolitan area is a factor that we believe will provide new customers for the Middle Georgia market. Because we are approximately one hours drive south
from Atlanta, the metropolitan area of Macon, Georgia is beginning to become attractive to people working in Atlanta who do not want to live in Atlantas big city atmosphere. We expect this dynamic to continue as Atlantas
urban sprawl increases.



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In January 2003, we expanded our market presence by opening a de novo banking office in the city of
Brunswick, which is located on the southeastern coast of Georgia in Glynn County. This new banking office provides diversification outside of our Middle Georgia market and allows us to take advantage of opportunities presented by the Glynn County
area, which is situated midway between Savannah, Georgia and Jacksonville, Florida. In addition, we opened a de novo branch on Saint Simons Island in 2005.



In May 2005, we made our initial entry into the metro Atlanta market by acquiring SouthBank, a community bank located in Woodstock, Georgia. SouthBank
operated one full service banking office and two loan production offices in the fast growing north metropolitan Atlanta counties of Cherokee, Paulding and Forsyth. The north metropolitan Atlanta area continues to experience significant growth and
economic prosperity, and the acquisition of SouthBank will help us take advantage of the opportunities resulting from the tremendous growth and allow us to further increase our footprint in the state of Georgia.



In November 2005, we announced our second entry into the north metropolitan
Atlanta market and signed a definitive agreement to acquire Neighbors Bancshares, Inc., the parent of Neighbors Bank, located in Alpharetta, Georgia. The acquisition of SouthBank and pending acquisition of Neighbors Bank will significantly expand
our market reach into new areas with a large retail and commercial customer base. The acquisition is expected to close on March 31, 2006.



In addition, due primarily to the operations of Fairfield Financial Services, we service communities throughout Georgia and in northeastern Florida.



The deposit base for our core markets continues to expand.
According to the FDIC, bank and thrift deposits in these markets grew from approximately $3.7 billion in June 2000 to more than $5.2 billion in June 2005, representing a 41% increase during that period. At June 30, 2005, we controlled, through
our subsidiary banks, approximately $1.1 billion, or 21%, of this $5.2 billion deposit base; and, except for the North Metro and Glynn County markets, our subsidiary banks ranked first in market share when compared against other independent
community banks based in these designated markets. As a result, we believe we are the market leader among community banks based in Middle Georgia and continue to gain market share at the expense of our super-regional and national competitors.



Our Strategy



We understand that our ultimate success depends upon our ability to
consistently execute our core banking business better than our competitors. As a result, our guiding objective is to be the bank of choice for all of our customers banking needs. To accomplish this objective, we strive to deliver unparalleled
customer service as we anticipate and respond to the diverse banking needs of our customers. By doing so, we believe we can win repeat business because we emphasize strong commitment to our customers and expect high performance from all of our
employees. This corporate culture, which is fostered from the top down, is the foundation for our successful execution of our operating and growth strategies, which aim to maximize long-term shareholder value.



Positioning Ourselves as the Bank of Choice.    As
a community banking organization operating autonomous community banks with consolidated assets of $1.7 billion, we believe we are well positioned to continue to draw business from smaller community bank competitors and from super-regional and
national banking conglomerates that compete in our primary markets. Because of our size and autonomous operations, we attract customers from other community banks that lack either the ability to adequately satisfy customer demand for banking
convenience and product sophistication or the necessary capital levels needed to meet the significant borrowing needs of their customers. We also attract customers from larger institutions due to our focus on customer service and our localized
decision-making capabilities.



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Operating Strategies.    To carry out our guiding objective, our specific
operating strategies have been and continue to be:



| |  |  | Relationship Banking.    We believe that customers still want to do business with a person and that they want to feel that they are important to us. As a
result, we emphasize to our employees the importance of delivering exemplary customer service and seeking out opportunities to build deeper relationships with our customers. By doing so, we believe that we can avoid having to position ourselves as
the cheapest bank in town. Instead, we can rely on the strength of our customer service and relationships to be able to charge higher prices for our products and services. In this regard, we believe we have been effective in leveraging
our customer relationships through Fairfield Financials interim lending division, where we focus specifically on real estate borrowers with needs that place them above the level that can be accommodated comfortably by small community banks but
are not large enough to attract significant attention from our super-regional or national competitors. Our ability to rapidly respond to customers needs not only helps to solidify relationships, but provides important, timely feedback to
senior managers regarding key issues of service quality and products demanded by our markets.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our commitment to current technology has also allowed us to consistently lead our competition in offering new products and services to our retail and
small business customers. We were the first bank in Middle Georgia to offer imaged statements, and we have continued that leadership position with the first true free checking program and the first overdraft protection program in Middle Georgia. We
have recently extended these products into the small business segment and partnered them with an innovative unsecured small business line of credit. Additionally, our internet banking site is more extensive and user-friendly than many of our
competitors sites, allowing customers to access their account information, pay bills, download transaction history, transfer funds between accounts and print copies of checks or other transaction documents from their personal computers at
home. These products and services, combined with our 17 branches across our primary market area, provide an impressive combination of service and convenience in Middle Georgia.



| |  |  | Disciplined Execution.    We believe that our success as a banking organization depends on a disciplined approach to originating loans and monitoring the
performance of our loan portfolio. Accordingly, we take a methodical and systematic approach to credit approval and loan portfolio management. While we believe our credit process is quite innovative, we adhere to strict underwriting and pricing
guidelines, which has resulted in an excellent credit quality for our portfolio. We employ a sophisticated underwriting and approval process and have developed a comprehensive risk management system for monitoring and measuring the adequacy of our
allowance for loan losses and anticipating net charge-offs.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Growth Strategies.    Our experienced management team, competitive position and focus on relationship banking have enabled us to maintain solid, consistent growth over the last several
years. We have achieved compounded annual growth rates in total assets, loans and deposits in excess of 29% from December 31, 1998 to December 31, 2005. Excluding our 2005 acquisitions, our compounded annual growth for total assets, loans,
and deposits exceeded 25% during this time period. We have achieved this growth by expanding existing relationships, by increasing our market share and through expanding our market presence by de novo branching and strategic acquisition.
Specifically, our growth strategies are and continue to be:



| |  |  | Enhancing Existing Relationships.    We believe that our competitive position in the Middle Georgia market presents significant growth
opportunities in our primary market area, particularly in our ability to grow through our aggressive cross-selling efforts. We also plan to continue to increase business from existing customers by delivering exemplary customer service, developing
new products and services and otherwise exploiting our competitive advantage in our various markets. For example, due in large part to Fairfield Financials high-touch, rapid response business model, Fairfield Financial has been
able to grow its managed interim lending portfolio to over $217.4 million in five years while maintaining
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | outstanding credit quality. Additionally, our senior loan officers have significant lending experience (in most cases over 20 years) in our markets and are
well positioned to continue strong internal loan growth by meeting the borrowing needs of existing customers.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Growth Through Increased Market Share.    We expect that the continued consolidation of the banking industry and the customer disruption caused by mergers
initiated by super-regional and national competitors will provide opportunities to expand our operations and increase our market share. As these super-regional and national institutions focus on larger corporate customers and standardized loan and
deposit products, we believe we have an opportunity to compete effectively for the business of small and medium-sized businesses. Additionally, because our asset base and lending limits are higher than those of any other community banks located in
our primary market area, we are able to offer high quality, relationship banking services to customers whose banking needs are too large for our small community bank competitors. We believe these key advantages enable us to compete effectively
within our current markets and continue to gain market share.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Growth by Acquisition.    We will continue to seek and evaluate strategic acquisition targets as opportunities arise. We are focused on expansion
opportunities outside of Middle Georgia in geographic areas with favorable demographic data that support our expansion and in which consolidation in the banking industry would position us to gain market share. We have successfully completed and
integrated four acquisitions since 1998. We believe the following geographic areas represent potential additional growth markets for us:
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Interstate 75 and 85 corridors from Macon to Atlanta and from Atlanta to the Georgia-Tennessee and the Georgia-South Carolina state lines, outside of the I-285 perimeter
surrounding Atlanta;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Interstate 95 corridor of the Atlantic coastal area, ranging from Hilton Head Island, South Carolina to Jacksonville, Florida; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Targeted Georgia metropolitan areas other than Atlanta.
| | - |  | -------------------------------------------------------



Competition



We believe competition in our market area is based on several factors, including price, convenience, breadth of product lines and customer service.
Although our larger competitors may enjoy a competitive advantage in terms of price and offer a wide variety of products and services, we believe our focus on responsive, quality service to our customers and our ability to offer a sophisticated
array of products to customers provides us with a competitive advantage. We compete to a lesser extent with small community banks on the terms described above, but believe our larger capital base and higher lending limits enable us to serve
customers seeking to combine the personalized service typical of a community bank with the lending capacity and product offerings typical of a larger bank.



According to FDIC deposit data as of June 30, 2005, in the combined markets of Bibb, Jones and Houston Counties, our three core counties of
operation, bank and thrift deposits totaled approximately $3.9 billion.



Approximately 54.9% of this deposit base was controlled by super-regional and national institutions, including BB&T, Bank of America, SunTrust Bank, Wachovia Bank, Colonial Bank and CB&T Bank of Middle Georgia (Synovus). Despite the
considerable resources that these competitors possess, we have achieved a significant market share in each of these counties. Specifically, as of June 30, 2005, we controlled 28.1% of the combined deposit base for these three counties, which
ranked us first in overall market share and first in market share and asset base of any bank with branches located in these counties. Our expanded banking presence in Glynn County is still in its early stages of development; however, our market
share at June 2005 was three times greater than June 2004. We anticipate that similar competitive advantages enjoyed by us in our core markets, namely our ability to attract customers away from small community banks and super-regional and national
competitors due to our overall borrowing capacity and level of customer service, will allow us to make



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substantial headway in gaining market share in Glynn County. See GeneralOur Subsidiary Banks for additional information regarding our
market share and Our StrategiesGrowth Strategies for additional information regarding our efforts to increase market share.



Lending Services



Types of Loans.    We offer the following types of loans (which are based on Call Report classifications):



| |  |  | Real Estate-Construction. Our construction loan portfolio consists of loans for non-agricultural, residential and commercial construction and land development projects.
The majority of loans made to residential builders are made against presales wherein the purchaser has already been pre-qualified for a permanent loan. At December 31, 2005, speculative residential construction loans amounted to $52.7 million
or approximately 4.1% of our loan portfolio. Commercial construction loans for residential or retail properties are typically backed by pre-lease and/or pre-sale requirements prior to loan funding. Also all contractor customers (residential or
commercial) are required to meet stringent underwriting standards that focus on: experience, years of successful operation, high personal credit scores and significant unencumbered personal and corporate liquidity. Loans are made within regulatory
loan-to-value guidelines with additional collateral occasionally required as necessary to protect our interests. Progress reports are maintained on each loan and appropriate progress is required prior to funding. As of December 31, 2005, these
loans represented approximately 40.5% of our portfolio.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Real Estate-Mortgage.    Our residential mortgage loans consist of two types of loansresidential loans to individuals intended for resale and
residential loans to individuals intended to be held in our loan portfolio. These loans are generally made on the basis of the borrowers ability to repay the loan from his or her employment and other income and are secured by residential real
estate, the value of which is reasonably ascertainable. Other real estate mortgage loans may include loans where the primary reasons for the loans are for commercial, financial or agricultural purposes or loans made to individuals for personal,
family or household purposes but are secured by real estate. As of December 31, 2005, these loans represented approximately 47.3% of our portfolio.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Commercial, financial and agricultural.    We make commercial loans to qualified businesses in our market area. This portion of our portfolio consists
primarily of commercial and industrial loans for the financing of accounts receivable, inventory, property, plant and equipment. Because we make these loans based on the borrowers demonstrated ability to repay out of cash flow from his or her
business, and because we know the customers to whom these loans are made, we consider these loans to be of very high quality. Although large loans of this nature might otherwise be assumed to carry additional risk, our loans are typically
well-collateralized and our exposure to any one borrower is limited because we focus on overall relationships. Under our risk rating system, credit grades with higher intrinsic risk profiles limit the amount that can be loaned into any one borrowing
relationship, thereby limiting our exposure to riskier credits and applying larger loan loss allocations to the credit. As of December 31, 2005, these loans represented approximately 8.6% of our portfolio.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Loans to individuals.    This portfolio consists principally of installment loans to individuals for personal, family and household purposes. These loans
entail a high degree of risk due to the typically highly depreciable nature of any underlying collateral and collectibility risks resulting from the borrowers insolvency or bankruptcy. To mitigate this risk, we perform a thorough credit and
financial analysis of the borrower and seek adequate collateral for the loan. As of December 31, 2005, these loans represented approximately 3.7% of our portfolio.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We originate loans with a variety of terms, including fixed and floating or variable rates, and a variety of maturities.
Although we offer a variety of types of loans, we emphasize the use of real estate as collateral. As of December 31, 2005, approximately 87.8% of our loan portfolio, regardless of type, was secured by real estate. Although our banks generally
lend to clients located in their market areas, our Fairfield Financial subsidiary is more geographically diversified, with approximately 86.6% of its portfolio consisting of loans in areas of



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Georgia outside the Middle Georgia market and in northeastern Florida. This provides us with some diversification of risk, but may also increase our risk
since these loans are being made outside of our local market and local relationships.



Our loan portfolio constitutes our largest interest-earning asset. To analyze prospective loans, management reviews our credit quality and interest rate pricing guidelines to determine whether to extend a loan and the
appropriate rate of interest for each loan. At December 31, 2005 and 2004, loans and loans held for sale, net of unearned income, of $1.3 billion and $853.3 million, respectively, amounted to 76.9% and 80.2% of total assets, and 98.9% and
101.3% of deposits. Loans amounted to 87.4% of all funding sources from interest-bearing liabilities at December 31, 2005 and 89.9% at December 31, 2004. Our loan portfolio grew by 49.7% from December 31, 2004 to December 31,
2005. Excluding the Security Bank of North Metro and Rivoli BanCorp acquisitions, our loan portfolio grew by 17.7% during 2005. Loan yields were 7.27% for 2005, compared to 6.36% for 2004 and 6.61% for 2003. Our allowance for loan losses as a
percentage of outstanding loans and loans held for sale amounted to 1.26% at December 31, 2005, compared to 1.28% and 1.33% at December 31, 2004 and 2003, respectively.



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##### Table of Contents

The following table presents the amount of loans outstanding by category, both in dollars and in
percentages of the total portfolio, at the end of each of the past five years.



LOANS BY TYPE



(In Thousands)



|                                              |  |              |           |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   
|--------------------------------------------- |  | ------------ | --------- | -- | ---- | - | ------- | ---- |  | - | ------- | -- |  | ---- | ------- | -- |  | - | ------- | --
|                                              |  | December 31, |          
|                                              |  | 2005         |           |    | 2004 |   |         | 2003 |  |   | 2002    |    |  | 2001 |        
|Commercial                                    |  | $            | 106,300   |    |      | $ | 86,575  |      |  | $ | 62,618  |    |  | $    | 42,613  |    |  | $ | 42,086  |   
|Financial                                     |  |              | 0         |    |      |   | 0       |      |  |   | 0       |    |  |      | 20      |    |  |   | 26      |   
|Agricultural                                  |  |              | 3,035     |    |      |   | 3,179   |      |  |   | 1,359   |    |  |      | 1,449   |    |  |   | 1,990   |   
|Real Estate - Construction                    |  |              | 517,373   |    |      |   | 350,150 |      |  |   | 267,201 |    |  |      | 182,948 |    |  |   | 134,940 |   
|Real Estate - Mortgage                        |  |              |           |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   
|Mortgage Loans Held for Sale                  |  |              | 5,562     |    |      |   | 7,507   |      |  |   | 11,448  |    |  |      | 35,955  |    |  |   | 40,764  |   
|Other Mortgage:                               |  |              |           |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   
|Loans Secured by Farm Residential             |  |              | 5,627     |    |      |   | 3,879   |      |  |   | 3,804   |    |  |      | 3,271   |    |  |   | 2,531   |   
|Secured by 1-4 Family Residential Properties  |  |              | 199,072   |    |      |   | 128,770 |      |  |   | 107,424 |    |  |      | 55,361  |    |  |   | 49,050  |   
|Secured by Multifamily Residential Properties |  |              | 18,366    |    |      |   | 13,660  |      |  |   | 6,036   |    |  |      | 1,149   |    |  |   | 786     |   
|Secured by Nonfarm Nonresidential Properties  |  |              | 376,302   |    |      |   | 220,593 |      |  |   | 213,799 |    |  |      | 132,635 |    |  |   | 127,067 |   
|Loans to Individuals                          |  |              | 47,608    |    |      |   | 40,012  |      |  |   | 36,212  |    |  |      | 19,421  |    |  |   | 20,241  |   
|                                              |  |              |           |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   
|Total Loans                                   |  | $            | 1,279,245 |    |      | $ | 854,325 |      |  | $ | 709,901 |    |  | $    | 474,822 |    |  | $ | 419,481 |   
|Unearned Income                               |  |              | (1,564    | )  |      |   | (1,053  | )    |  |   | (771    | )  |  |      | (421    | )  |  |   | (175    | ) 
|                                              |  |              |           |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   
|Total Net Loans                               |  | $            | 1,277,681 |    |      | $ | 853,272 |      |  | $ | 709,130 |    |  | $    | 474,401 |    |  | $ | 419,306 |   
|                                              |  |              |           |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   
|Percentage of Total Portfolio                 |  |              |           |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   
|Commercial                                    |  |              | 8.32      | %  |      |   | 10.15   | %    |  |   | 8.83    | %  |  |      | 8.98    | %  |  |   | 10.04   | % 
|Financial                                     |  |              | 0.00      | %  |      |   | 0.00    | %    |  |   | 0.00    | %  |  |      | 0.00    | %  |  |   | 0.01    | % 
|Agricultural                                  |  |              | 0.23      | %  |      |   | 0.37    | %    |  |   | 0.19    | %  |  |      | 0.31    | %  |  |   | 0.47    | % 
|Real Estate - Construction                    |  |              | 40.49     | %  |      |   | 41.04   | %    |  |   | 37.68   | %  |  |      | 38.56   | %  |  |   | 32.18   | % 
|Real Estate - Mortgage                        |  |              |           |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   
|Mortgage Loans Held for Sale                  |  |              | 0.44      | %  |      |   | 0.88    | %    |  |   | 1.61    | %  |  |      | 7.58    | %  |  |   | 9.72    | % 
|Other Mortgage:                               |  |              |           |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   
|Loans Secured by Farm Residential             |  |              | 0.44      | %  |      |   | 0.45    | %    |  |   | 0.54    | %  |  |      | 0.69    | %  |  |   | 0.60    | % 
|Secured by 1-4 Family Residential Properties  |  |              | 15.58     | %  |      |   | 15.09   | %    |  |   | 15.15   | %  |  |      | 11.67   | %  |  |   | 11.70   | % 
|Secured by Multifamily Residential Properties |  |              | 1.44      | %  |      |   | 1.60    | %    |  |   | 0.85    | %  |  |      | 0.24    | %  |  |   | 0.19    | % 
|Secured by Nonfarm Nonresidential Properties  |  |              | 29.45     | %  |      |   | 25.85   | %    |  |   | 30.15   | %  |  |      | 27.96   | %  |  |   | 30.30   | % 
|Loans to Individuals                          |  |              | 3.73      | %  |      |   | 4.69    | %    |  |   | 5.11    | %  |  |      | 4.09    | %  |  |   | 4.83    | % 
|                                              |  |              |           |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   
|Total Loans                                   |  |              | 100.12    | %  |      |   | 100.12  | %    |  |   | 100.11  | %  |  |      | 100.08  | %  |  |   | 100.04  | % 
|Unearned Income                               |  |              | (0.12     | )% |      |   | (0.12   | )%   |  |   | (0.11   | )% |  |      | (0.08   | )% |  |   | (0.04   | )%
|                                              |  |              |           |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   
|Total Net Loans                               |  |              | 100.00    | %  |      |   | 100.00  | %    |  |   | 100.00  | %  |  |      | 100.00  | %  |  |   | 100.00  | % 
|                                              |  |              |           |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   



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The largest components of our loan portfolio are the real estate construction loans and the other
mortgages secured by nonfarm, nonresidential properties. Real estate construction loans, which constituted 40.5% of the loans outstanding at December 31, 2005, are loans secured by real estate made to finance land development and residential
and commercial construction.



Lending
Limits.    When the amount of a loan or loans to a single borrower or relationship exceeds an individual officers lending authority, the lending decision must be approved by a more senior officer with the requisite loan
authority, or the lending decision will be made by either the officers or directors loan committee.



Lending limits vary based on the type of loan and nature of the borrower. In general, however, we are able to loan to any one borrower a maximum amount
equal to either 15% of total risk-based capital, or 25% of total risk-based capital if the amount that exceeds 15% is fully secured. As of December 31, 2005, our legal lending limit was approximately $27.6 million (unsecured) plus an additional
$18.4 million (secured) for a total of approximately $46.0 million, for loans that meet federal and/or state collateral guidelines. Regardless of the legal lending limit, our internal guidelines limit the amount available to be loaned to any one
borrowing relationship. We adjust the maximum amount available to any one borrower or relationship in accordance with an assigned credit grade. Every loan of material size is assigned a credit grade either by our credit administration department or
by the appropriate approval committee, with grades denoting more credit risk receiving a lower in-house maximum. As a result, our exposure to loans with more risk should be limited by the credit grades assigned to those loans. These credit grades
are reviewed regularly by bank management, regulatory authorities and our external loan review vendor for appropriateness and applicability.



Underwriting.    Collectively, our chief operating officer and our subsidiary bank presidents, who also act as our primary
local lending officers, have over 150 years of lending experience. This experienced loan team has developed stringent credit underwriting and monitoring guidelines/policies while simultaneously delivering strong growth in our loan portfolio. We
stress individual accountability to our loan officers, basing a portion of their compensation on the performance of the loans they approve. We employ a prudent credit approval process and have developed a comprehensive risk-management system for
monitoring and measuring the adequacy of our allowance for loan losses and anticipating net charge-offs.



Other Products and Services



We provide a full range of additional retail and commercial banking products and services, including checking, savings and money market accounts; certificates of deposit; credit cards; individual retirement accounts; safe-deposit boxes;
money orders; electronic funds transfer services; travelers checks and automatic teller machine access. We do not currently offer trust or fiduciary services.



We are committed to modifying existing, or developing new, products and services that are responsive to the banking demands
of our customers. For example, under a possible changing interest rate environment, we anticipate that the market demand for mortgage refinancing will likely be lower in 2006. We also project, however, that Fairfield Financials interim lending
division will experience increased activity. Accordingly, we are addressing necessary changes in, or additions to, Fairfield Financials mortgage origination and interim lending products and services in order to continue to position ourselves
appropriately to respond to potential shifts in the marketplace.



Employees



As of December 31, 2005, the Company had 422
employees on a full-time equivalent basis. The Company considers its relationship with its employees to be excellent.



Seasonality



We do not consider our business to be cyclical or seasonal in nature.



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Supervision and Regulation



Bank Holding Company Regulation



General



We are a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (BHCA). As a bank holding company registered with the Federal Reserve under the BHCA and the Georgia
Department of Banking and Finance (the Georgia Department) under the Financial Institutions Code of Georgia, we are subject to supervision, examination, and reporting by the Federal Reserve and the Georgia Department.



Our activities are limited to banking, managing or controlling banks,
furnishing services to or performing services for its subsidiaries, or engaging in any other activity that the Federal Reserve determines to be so closely related to banking, or managing or controlling banks, as to be a proper incident to these
activities.



We are required to file with the Federal Reserve
and the Georgia Department periodic reports and any additional information as they may require. The Federal Reserve and Georgia Department will also regularly examine us and may examine our bank or other subsidiaries.



Activity Limitations



The BHCA requires prior Federal Reserve approval for, among other things:



| |  |  | the acquisition by a bank holding company of direct or indirect ownership or control of more than 5% of the voting shares or substantially all of the assets of any bank, or
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a merger or consolidation of a bank holding company with another bank holding company.
| | - |  | --------------------------------------------------------------------------------------



Similar requirements are imposed by the Georgia Department.



A bank holding company may acquire direct or indirect ownership or control of voting shares of any company that is engaged
directly or indirectly in banking or managing or controlling banks or performing services for its authorized subsidiaries. A bank holding company may also engage in or acquire an interest in a company that engages in activities that the Federal
Reserve has determined by regulation or order to be so closely related to banking as to be a proper incident to these activities. The Federal Reserve normally requires some form of notice or application to engage in or acquire companies engaged in
such activities. Under the BHCA, we will generally be prohibited from engaging in or acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in activities other than those referred to above.



The BHCA permits a bank holding company located in one state to lawfully
acquire a bank located in any other state, subject to deposit-percentage, aging requirements, and other restrictions. The Riegle-Neal Interstate Banking and Branching Efficiency Act also generally provides that national and state-chartered banks
may, subject to applicable state law, branch interstate through acquisitions of banks in other states.



In November 1999, Congress enacted the Gramm-Leach-Bliley Act, which made substantial revisions to the statutory restrictions separating banking
activities from other financial activities. Under the Gramm-Leach-Bliley Act, bank holding companies that are well-capitalized and well-managed and meet other conditions can elect to become financial holding companies. As financial
holding companies, they and their subsidiaries are permitted to acquire or engage in activities that were not previously allowed bank holding companies such as insurance underwriting, securities underwriting and distribution, travel agency
activities, broad insurance agency activities, merchant banking, and other activities that the Federal Reserve determines to be financial in nature or complementary to these activities. Financial holding companies continue to be subject to the
overall oversight and supervision of the Federal Reserve, but the Gramm-Leach-Bliley Act applies the concept of functional



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regulation to the activities conducted by subsidiaries. For example, insurance activities would be subject to supervision and regulation by state insurance
authorities. While we have not elected to become a financial holding company in order to exercise the broader activity powers provided by the Gramm-Leach-Bliley Act, we may elect to do so in the future.



Limitations on Acquisitions of Bank Holding Companies



As a general proposition, other companies seeking to acquire control of a
bank holding company would require the approval of the Federal Reserve under the BHCA. In addition, individuals or groups of individuals seeking to acquire control of a bank holding company would need to file a prior notice with the Federal Reserve
(which the Federal Reserve may disapprove under certain circumstances) under the Change in Bank Control Act. Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting securities of the bank
holding company. Control may exist under the Change in Bank Control Act if the individual or company acquires 10% or more of any class of voting securities of the bank holding company.



Source of Financial Strength



Federal Reserve policy requires a bank holding company to act as a source of financial strength and to take measures to preserve and protect bank
subsidiaries in situations where additional investments in a troubled bank may not otherwise be warranted. In addition, if a bank holding company has more than one bank or thrift subsidiary, each of the bank holding companys subsidiary
depository institutions are responsible for any losses to the FDIC as a result of an affiliated depository institutions failure.



As a result, a bank holding company may be required to loan money to its subsidiaries in the form of capital notes or other instruments that qualify as
capital of the subsidiary bank under regulatory rules. However, any loans from the bank holding company to those subsidiary banks will likely be unsecured and subordinated to that banks depositors and perhaps to other creditors of that bank.



Bank Regulation



General



The Banks are commercial banks chartered under the laws of the State of Georgia, and as such are subject to supervision,
regulation and examination by the Georgia Department. The Banks are members of the FDIC, and their deposits are insured by the FDICs Bank Insurance Fund up to the amount permitted by law. The FDIC and the Georgia Department routinely examine
the Banks and monitor and regulate all of the Banks operations, including such things as the adequacy of reserves, the quality and documentation of loans, the payments of dividends, the capital adequacy, the adequacy of systems and controls,
credit underwriting and asset liability management, compliance with laws and the establishment of branches. Interest and other charges collected or contracted for by the Banks are subject to state usury laws and certain federal laws concerning
interest rates. The Banks file periodic reports with the FDIC and Georgia Department.



Transactions With Affiliates and Insiders



The
Company is a legal entity separate and distinct from the Banks. Various legal limitations restrict the Banks from lending or otherwise supplying funds to the Company and other non-bank subsidiaries of the Company, all of which are deemed to be
affiliates of the Banks for the purposes of these restrictions. The Company and the Banks are subject to Section 23A of the Federal Reserve Act. Section 23A defines covered transactions, which include extensions of
credit, and limits a banks covered transactions with any affiliate to 10% of such banks capital and surplus and with all affiliates to 20% of such banks capital and surplus. All covered and exempt transactions between a bank and
its affiliates must be on terms and conditions consistent with safe and sound banking practices, and banks and their subsidiaries are prohibited from purchasing



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low-quality assets from the banks affiliates. Finally, Section 23A requires that all of a banks extensions of credit to an affiliate be
appropriately secured by acceptable collateral, generally United States government or agency securities. The Company and the Banks are also subject to Section 23B of the Federal Reserve Act, which generally limits covered and other transactions
between a bank and its affiliates to terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the bank as prevailing at the time for transactions with unaffiliated companies.



Dividends



The Company is a legal entity separate and distinct from the Banks. The principal source of the Companys cash flow,
including cash flow to pay dividends to its shareholders, is dividends that the Banks pay to it. Statutory and regulatory limitations apply to the Banks payment of dividends to the Company as well as to the Companys payment of dividends
to its shareholders.



A variety of federal and state laws and
regulations affect the ability of the Bank and the Company to pay dividends. A depository institution may not pay any dividend if payment would cause it to become undercapitalized or if it already is undercapitalized. The federal banking agencies
may prevent the payment of a dividend if they determine that the payment would be an unsafe and unsound banking practice. Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should
generally only pay dividends out of current operating earnings. In addition, regulations promulgated by the Georgia Department limit the Banks payment of dividends.



Mortgage Banking Regulation



Fairfield is licensed and regulated as a mortgage banker by the Georgia Department. It is also qualified as a Fannie Mae and Freddie Mac
seller/servicer and must meet the requirements of such corporations and of the various private parties with which it conducts business, including warehouse lenders and those private entities to which it sells mortgage loans.



Enforcement Policies and Actions



Federal law gives the Federal Reserve and FDIC substantial powers to enforce
compliance with laws, rules and regulations. Banks or individuals may be ordered to cease and desist from violations of law or other unsafe or unsound practices. The agencies have the power to impose civil money penalties against individuals or
institutions of up to $1 million per day for certain egregious violations. Persons who are affiliated with depository institutions can be removed from any office held in that institution and banned from participating in the affairs of any financial
institution. The banking regulators have not hesitated to use the enforcement authorities provided in federal law.



Capital Regulations



The federal bank regulatory authorities have adopted capital guidelines for banks and bank holding companies. In general, the authorities measure the
amount of capital an institution holds against its assets. There are three major capital tests: (i) the Total Capital ratio (the total of Tier 1 Capital and Tier 2 Capital measured against risk-adjusted assets), (ii) the Tier 1 Capital
ratio (Tier 1 Capital measured against risk-adjusted assets), and (iii) the leverage ratio (Tier One Capital measured against total (i.e., non-risk-weighted) assets).



Tier 1 Capital consists of common equity, retained earnings and a limited amount of qualifying preferred stock, less
goodwill and certain core deposit intangibles. Tier 2 Capital consists of non-qualifying preferred stock, qualifying subordinated, perpetual, and/or mandatory convertible debt, term subordinated debt and intermediate term preferred stock and up to
45% of the pretax unrealized holding gains on available-for-sale equity securities with readily determinable market values that are prudently valued, and a limited amount of any loan loss allowance.



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In measuring the adequacy of capital, assets are generally weighted for risk. Certain assets, such as
cash and U.S. government securities, have a zero risk weighting. Others, such as commercial and consumer loans, have a 100% risk weighting. Risk weightings are also assigned for off-balance sheet items such as loan commitments. The various items are
multiplied by the appropriate risk-weighting to determine risk-adjusted assets for the capital calculations. For the leverage ratio mentioned above, assets are not risk-weighted.



The federal banking agencies must take prompt corrective action in respect of depository institutions that do
not meet minimum capital requirements. There are five capital tiers for financial institutions: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and
critically undercapitalized. Under these regulations, a bank will be:



| |  |  | well capitalized if it has a Total Capital ratio of 10% or greater, a Tier 1 Capital ratio of 6% or greater, a leverage ratio of 5% or better  or 4% in certain
circumstances  and is not subject to any written agreement, order, capital directive, or prompt corrective action directive by a federal bank regulatory agency to meet and maintain a specific capital level for any capital measure;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | adequately capitalized if it has a Total Capital ratio of 8% or greater, a Tier 1 Capital ratio of 4% or greater, and a leverage ratio of 4% or greater  or 3% in
certain circumstances  and is not well capitalized;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | undercapitalized if it has a Total Capital ratio of less than 8%, a Tier 1 Capital ratio of less than 4%  or 3% in certain circumstances;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | significantly undercapitalized if it has a Total Capital ratio of less than 6% or a Tier 1 Capital ratio of less than 3%, or a leverage ratio of less than 3%; or
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | critically undercapitalized if its tangible equity is equal to or less than 2% of average quarterly tangible assets.
| | - |  | ----------------------------------------------------------------------------------------------------------------------



Federal law generally prohibits a depository institution from making any capital
distribution, including the payment of a dividend or paying any management fee to its holding company if the depository institution would be undercapitalized as a result. Undercapitalized depository institutions are may not accept brokered deposits
absent a waiver from the FDIC, are subject to growth limitations and are required to submit a capital restoration plan for approval. For a capital restoration plan to be acceptable, the depository institutions parent holding company must
guarantee that the institution will comply with such capital restoration plan. The aggregate liability of the parent holding company is limited to the lesser of 5% of the depository institutions total assets at the time it became
undercapitalized, and the amount necessary to bring the institution into compliance with applicable capital standards. If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized. If the
controlling holding company fails to fulfill its obligations under this law and files, or has filed against it, a petition under the federal Bankruptcy Code, the FDIC claim related to the holding companys obligations would be entitled to a
priority in such bankruptcy proceeding over third party creditors of the bank holding company.



Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to
reduce total assets, and cessation of receipt of deposits from correspondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator.



At December 31, 2005, the Company exceeded the minimum Tier 1, risk-based and leverage ratios and qualified as
well-capitalized under current Federal Reserve Board criteria. As of December 31, 2005, we had Tier 1 Capital and Total Capital of approximately 10.12% and 11.27%, respectively, of risk-weighted assets. As of December 31, 2005,
we had a leverage ratio of Tier 1 Capital to total average assets of approximately 9.72%.



The guidelines also provide that institutions experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without



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##### Table of Contents

significant reliance on intangible assets. Higher capital may be required in individual cases, depending upon a bank or bank holding companys risk
profile. All bank holding companies and banks are expected to hold capital commensurate with the level and nature of their risks, including the volume and severity of their problem loans. Lastly, the Federal Reserves guidelines indicate that
the Federal Reserve will continue to consider a Tangible Tier 1 Leverage Ratio, calculated by deducting all intangibles, in evaluating proposals for expansion or new activity.



FDIC Insurance Assessments



The Banks deposits are insured by the FDIC and thus the Banks are subject to FDIC deposit insurance assessments. The FDIC utilizes a risk-based
deposit insurance premium scheme to determine the assessment rates for insured depository institutions. Each financial institution is assigned to one of three capital groups, well capitalized, adequately capitalized, or undercapitalized.



Each financial institution is further assigned to one of three subgroups
within a capital group, on the basis of supervisory evaluations by the institutions primary federal and, if applicable, state regulators and other information relevant to the institutions financial condition and the risk posed to the
insurance fund. The actual assessment rate applicable to a particular institution will, therefore, depend in part upon the risk assessment classification assigned to the institution by the FDIC. The FDIC is presently considering whether to charge
deposit insurance premiums based upon management weaknesses and whether the banks underwriting practices, concentrations of risk and growth are undisciplined or outside industry norms.



The deposit insurance assessment rates currently range from zero basis points
on deposits (for a financial institution in the highest category) to 27 basis points on deposits (for an institution in the lowest category), but may rate as high as 31 basis points. The Company was in the highest category during 2005, and therefore
did not incur any assessments. In addition, the FDIC collects The Financing Corporation (FICO) deposit assessments on assessable deposits at the same rate. FICO assessments are set quarterly, and in 2005 ranged from 1.34 to 1.44 basis
points. The FICO assessment rate for the Banks for the first quarter of 2006 is 1.32 basis points of assessable deposits.



Federal Deposit Insurance Reform Act



Congress passed the Federal Deposit Insurance Reform Act at the beginning of February 2006. Among other things, this new law will merge BIF and SAIF
during 2006. Deposits will remain insured up to a maximum of $100,000, but will be adjusted every five years based on inflation. Retirement accounts will be insured up to $250,000, and a bank that is less than adequately capitalized will not be able
to accept employee benefit deposits. This law also changes the way FDIC insurance assessments and credits are calculated and authorizes the FDIC to revise its risk-based deposit insurance assessment program.



Community Reinvestment Act



The Banks are subject to the provisions of the Community Reinvestment Act of
1977, as amended (the CRA), and the federal banking agencies related regulations. Under the CRA, all banks and thrifts have a continuing and affirmative obligation, consistent with safe and sound operation, to help meet the credit
needs for their entire communities, including low - and moderate-income neighborhoods. The CRA requires a depository institutions primary federal regulator, in connection with its examination of the institution or its evaluation of certain
regulatory applications, to assess the institutions record in assessing and meeting the credit needs of the community served by that institution, including low- and moderate-income neighborhoods. The regulatory agencys assessment of the
institutions record is made available to the public.



Current CRA regulations rate institutions based on their actual performance in meeting community credit needs. Following the most recent CRA examination which occurred in either 2004 or 2005, the Banks received a satisfactory
rating.



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Consumer Regulations



Interest and other charges collected or contracted for by the Banks are subject to state usury laws and certain federal laws concerning interest rates.
The Banks loan operations are also subject to federal laws and regulations applicable to credit transactions, such as those:



| |  |  | governing disclosures of credit terms to consumer borrowers;
| | - |  | ------------------------------------------------------------



| |  |  | requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help
meet the housing needs of the community it serves;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | prohibiting discrimination on the basis of race, creed, or other prohibited factors in extending credit;
| | - |  | --------------------------------------------------------------------------------------------------------



| |  |  | governing the use and provision of information to credit reporting agencies; and
| | - |  | --------------------------------------------------------------------------------



| |  |  | governing the manner in which consumer debts may be collected by collection agencies.
| | - |  | -------------------------------------------------------------------------------------



The deposit operations of the Banks are also subject to laws and regulations that:



| |  |  | impose a duty to maintain the confidentiality of consumer financial records and prescribe procedures for complying with administrative subpoenas of financial records; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | governs automatic deposits to and withdrawals from deposit accounts and customers rights and liabilities arising from the use of automated teller machines and other electronic
banking services.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Fiscal and Monetary Policy



Banking is a business that depends on interest rate differentials. In
general, the difference between the interest paid by a bank on its deposits and its other borrowings, and the interest received by a bank on its loans and securities holdings, constitutes the major portion of a banks earnings. Thus, our
earnings and growth and that of the Bank will be subject to the influence of economic conditions generally, both domestic and foreign, and also to the monetary and fiscal policies of the United States and its agencies, particularly the Federal
Reserve. The Federal Reserve regulates the supply of money through various means, including open market dealings in United States government securities, the discount rate at which banks may borrow from the Federal Reserve, and the reserve
requirements on deposits.



The monetary policies of the Federal
Reserve historically have had a significant effect on the operating results of commercial banks and mortgage banking operations and will continue to do so in the future. We cannot predict the conditions in the national and international economies
and money markets, the actions and changes in policy by monetary and fiscal authorities, or their effect on us or the Banks.



Anti-Terrorism Legislation



In the wake of the tragic events of September 11th, on October 26, 2001, the President signed the Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001. Under the USA PATRIOT Act, financial institutions are subject to prohibitions against specified financial transactions and account relationships as well as
enhanced due diligence and know your customer standards in their dealings with foreign financial institutions and foreign customers. For example, the enhanced due diligence policies, procedures, and controls generally require financial
institutions to take reasonable steps:



| |  |  | to conduct enhanced scrutiny of account relationships to guard against money laundering and report any suspicious transaction;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | to ascertain the identity of the nominal and beneficial owners of, and the source of funds deposited into, each account as needed to guard against money laundering and report any
suspicious transactions;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | to ascertain for any foreign bank, the shares of which are not publicly traded, the identity of the owners of the foreign bank, and the nature and extent of the ownership interest
of each such owner; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | to ascertain whether any foreign bank provides correspondent accounts to other foreign banks and, if so, the identity of those foreign banks and related due diligence information.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The USA PATRIOT Act requires financial institutions to establish anti-money laundering programs. The USA
PATRIOT Act sets forth minimum standards for these programs, including:



| |  |  | the development of internal policies, procedures, and controls;
| | - |  | ---------------------------------------------------------------



| |  |  | the designation of a compliance officer;
| | - |  | ----------------------------------------



| |  |  | an ongoing employee training program; and
| | - |  | -----------------------------------------



| |  |  | an independent audit function to test the programs.
| | - |  | ---------------------------------------------------



In addition, the USA PATRIOT Act authorizes the Secretary of the Treasury to adopt rules increasing the cooperation and information sharing between financial
institutions, regulators, and law enforcement authorities regarding individuals, entities and organizations engaged in, or reasonably suspected based on credible evidence of engaging in, terrorist acts or money laundering activities. Any financial
institution complying with these rules will not be deemed to have violated the privacy provisions of the Gramm-Leach-Bliley Act, as discussed above.



Commercial Real Estate Lending and Concentrations



On January 10, 2006, the federal bank regulatory agencies released proposed guidance on Concentrations in Commercial Real Estate Lending (the
Guidance). This proposal defines commercial real estate (CRE) loans as exposures secured by raw land, land development and construction (including 1-4 family residential construction), multi-family property, and non-farm
nonresidential property where the primary or a significant source of repayment is derived from rental income associated with the property (that is, loans for which 50% or more of the source of repayment comes from third party, non-affiliated, rental
income) or the proceeds of the sale, refinancing, or permanent financing of the property. Loans to REITs and unsecured loans to developers that closely correlate to the inherent risks in CRE markets would also be considered CRE loans under the
Guidance. Loans on owner occupied CRE are generally excluded from the Guidance.



The Guidance is triggered where either:



| |  |  | Total reported loans for construction, land development, and other land represent 100% or more of the banks total capital; or
| | - |  | ------------------------------------------------------------------------------------------------------------------------------



| |  |  | Total reported loans secured by multifamily and nonfarm nonresidential properties and loans for construction, land development, and other land represent 300% or more of the
banks total capital.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The requirements of
the Guidance may also be triggered where the bank has had a sharp increase in CRE lending or has significant concentrations of CRE secured by a particular property type. Banks that are subject to the Guidances triggers will need to implement
enhanced strategic planning, CRE underwriting policies, risk management and internal controls, portfolio stress testing, risk exposure limits, and other policies, including management compensation and incentives, to address the CRE risks. Higher
allowances for loan losses and capital levels may also be appropriate.



The Company believes that the Guidance is applicable to it, as its loan concentrations satisfy the criteria listed above. The Company and its Board of Directors have discussed the proposed guidance and believe that that the Companys
underwriting policy, management information systems, independent credit administration process and monthly monitoring of real estate loan concentrations will be sufficient to address the proposed guidance.



Sarbanes-Oxley Act of 2002



We are required to comply with various corporate governance and financial
reporting requirements under the Sarbanes-Oxley Act of 2002, as well as rules and regulations adopted by the SEC, the Public Company Accounting Oversight Board and Nasdaq. In particular, we are required to include management and independent auditor
reports on internal controls as part of our annual report on Form 10-K pursuant to Section 404 of the Sarbanes-Oxley Act. We have evaluated our controls, including compliance with the SEC rules on internal controls, and have and expect to continue
to spend significant amounts of time and money on compliance with these rules. Our failure to comply with these internal control rules may materially adversely affect our reputation, ability to obtain the necessary certifications to financial
statements, and the values of our securities. The assessments of financial reporting controls as of December 31, 2005 are included elsewhere in this report with no material weaknesses reported.



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|Item 1A | RISK FACTORS
|------- | ------------



Our business is
subject to the success of the local economies where we operate.



Our success significantly depends upon the growth in population, income levels, deposits and housing starts in our primary and secondary markets. If the communities in which we operate do not grow or if prevailing economic conditions
locally or nationally are unfavorable, our business may not succeed. Adverse economic conditions in our specific market area, including the loss of certain significant employers, such as Brown & Williamson Tobacco Corporation, which will
cease operations in March 2006 and Robins Air Force Base, the operations of which may be affected by recent legislation, could reduce our growth rate, affect the ability of our customers to repay their loans to us and generally affect our financial
condition and results of operations. We are less able than a larger institution to spread the risks of unfavorable local economic conditions across a large number of diversified economies. Moreover, we cannot give any assurance that we will benefit
from any market growth or favorable economic conditions in our primary market areas if they do occur.



Any adverse market or economic conditions in the State of Georgia may disproportionately increase the risk that our borrowers are unable to make their
loan payments. In addition, the market value of the real estate securing loans as collateral could be adversely affected by unfavorable changes in market and economic conditions. As of December 31, 2005, approximately 87.8% of our loans held
for investment were secured by real estate. Of the commercial real estate loans in our portfolio, approximately 26% represents properties owned and occupied by businesses to which we have extended loans. Any sustained period of increased payment
delinquencies, foreclosures or losses caused by adverse market or economic conditions in the State of Georgia could adversely affect the value of our assets, our revenues, results of operations and financial condition.



Commercial banks and other financial institutions are affected by economic
and political conditions, both domestic and international, and by governmental monetary policies. Conditions such as inflation, recession, unemployment, high interest rates, short money supply, scarce natural resources, international disorders,
terrorism and other factors beyond the Companys control may adversely affect profitability. In addition, a significant portion of the Companys primary business area is located near Robins Air Force Base, one of the largest employers in
Georgia, and many of the Companys customers are financially dependent, directly and indirectly, on the continued operation of Robins Air Force Base. Military installations, such as Robins Air Force Base, are subject to annual review and
potential closing by the United States Congress. The closing of Robins Air Force Base, or a significant reduction in the operations conducted there may result in, among other things, deterioration in the Companys credit quality or a reduced
demand for credit and may harm the financial stability of the Companys customers. Due to the Companys limited market area, these negative conditions may have a more noticeable effect on the Company than would be experienced by an
institution with a larger, more diverse market area.



We may face risks with
respect to future expansion and acquisitions or mergers.



We continuously seek to acquire other financial institutions or parts of those institutions and may engage in de novo branch expansion in the future. We may also consider and enter into new lines of business or offer new products or
services. We also may receive future inquiries and have discussions with potential acquirers of us. Acquisitions and mergers involve a number of risks, including:



| |  |  | the time and costs associated with identifying and evaluating potential acquisitions and merger partners;
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | the estimates and judgments used to evaluate credit, operations, management and market risks with respect to the target institution may not be accurate;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the time and costs of evaluating new markets, hiring experienced local management and opening new offices, and the time lags between these activities and the generation of
sufficient assets and deposits to support the costs of the expansion;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to finance an acquisition and possible dilution to our existing shareholders;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | the diversion of our managements attention to the negotiation of a transaction, and the integration of the operations and personnel of the combining businesses;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | entry into new markets where we lack experience;
| | - |  | ------------------------------------------------



| |  |  | the introduction of new products and services into our business;
| | - |  | ----------------------------------------------------------------



| |  |  | the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse short-term effects on our results of operations; and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the risk of loss of key employees and customers.
| | - |  | ------------------------------------------------



We may incur substantial costs to expand, and we can give no assurance that such expansion will result in the levels of profits we seek. There can be no assurance that,
integration efforts for any future mergers or acquisitions will be successful. Also, we may issue equity securities, including common stock and securities convertible into shares of our common stock in connection with future acquisitions, which
could cause ownership and economic dilution to our current shareholders. There is no assurance that, following any future mergers or acquisition, our integration efforts will be successful or that our company, after giving effect to the acquisition,
will achieve profits comparable to or better than our historical experience.



Combining acquired companies may be more difficult, costly, or time-consuming than we expect.



The Company has executed a definitive agreement to acquire Neighbors Bancshares, Inc. (Neighbors), the parent of Neighbors Bank. The Company
and Neighbors have operated, and, until completion of the merger, will continue to operate, independently. In addition, in May 2005, the Company acquired SouthBank in Woodstock, Georgia, which now operates as Security Bank of North Metro, and on
December 31, 2005, completed the acquisition of Rivoli BanCorp, Inc and its subsidiary, Rivoli Bank & Trust, which operates in Macon, Georgia. It is possible that the integration process for these acquisitions could result in the loss
of key employees or disruption of each companys ongoing business or inconsistencies in standards, procedures and policies that would adversely affect the Companys ability to maintain relationships with clients and employees or to achieve
the anticipated benefits of the merger. If the Company has difficulties with the integration process, it might not achieve the economic benefits expected to result from the acquisition. As with any merger of banking institutions, there also may be
business disruptions that cause the Company to lose customers or cause customers to remove their deposits or loans from the Companys banks and move their business to competing financial institutions.



Our recent operating results may not be indicative of our future operating results.



We may not be able to sustain our historical rate of
growth or may not even be able to grow our business at all. In addition, our recent and rapid growth, including our growth through acquisitions, may distort some of our historical financial ratios and statistics. For example, our earnings grew by
more than 365% from 2000 to 2005. Our strong performance during this time period was, in part, the result of an extremely favorable residential mortgage refinancing market, our successful acquisitions of Security Bank of Jones County and Security
Bank of North Metro and our de novo entry into Glynn County. In the future, we may not have the benefit of a favorable interest rate environment, a strong residential mortgage market, or the ability to find suitable candidates for acquisition.
Various factors, such as economic conditions, regulatory and legislative considerations and competition, may also impede or prohibit our ability to expand our market presence. If we experience a significant decrease in our historical rate of growth,
our results of operations and financial condition may be adversely affected due to a high percentage of our operating costs being fixed expenses.



Our continued pace of growth may require us to raise additional capital in the future, but that capital may not be available when it is needed.



We are required by federal and state regulatory authorities to maintain
adequate levels of capital to support our operations. We anticipate that our capital resources will satisfy our capital requirements for the foreseeable future. We may at some point, however, need to raise additional capital to support our continued
growth.



Our ability to raise additional capital, if needed,
will depend on conditions in the capital markets at that time, which are outside our control, and on our financial performance. Accordingly, we cannot assure you of our



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ability to raise additional capital if needed on terms acceptable to us. If we cannot raise additional capital when needed, our ability to further expand our
operations through internal growth and acquisitions could be materially impaired.



Changes in interest rates may negatively affect our earnings and the value of our assets.



Changes in interest rates may affect our level of interest income, the primary component of our gross revenue, as well as the level of our interest
expense, our largest recurring expenditure. In a period of rising interest rates, our interest expense could increase in different amounts and at different rates while the interest that we earn on our assets may not change in the same amounts or at
the same rates. Accordingly, increases in interest rates could decrease our net interest income.



Residential mortgage originations generated $4.5 million, or 4.8%, of our gross revenue in 2005. We expect to originate fewer residential real estate
loans. Accordingly, a period of rising interest rates would negatively affect our residential mortgage origination business.



Changes in the level of interest rates also may negatively affect our ability to originate real estate loans, the value of our assets and our ability to
realize gains from the sale of our assets, all of which ultimately affect our earnings. A decline in the market value of our assets may limit our ability to borrow additional funds or result in our lenders requiring additional collateral from us
under our loan agreements. As a result, we could be required to sell some of our loans and investments under adverse market conditions, upon terms that are not favorable to us, in order to maintain our liquidity. If those sales are made at prices
lower than the amortized costs of the investments, we will incur losses.



Our loan portfolio includes a substantial amount of commercial and industrial loans which include risks that may be greater than the risks related to residential loans.



Our commercial and industrial loan portfolio was $106.3 million at December 31, 2005, comprising 8.3% of total loans.
Commercial and industrial loans generally carry larger loan balances and involve a greater degree of financial and credit risks than home equity loans or residential mortgage loans. Any significant failure to pay on time by our customers would hurt
our earnings. The increased financial and credit risk associated with these types of loans is a result of several factors, including the concentration of principal in a limited number of loans and borrowers, the size of loan balances, the effects of
general economic conditions on income-producing properties and the increased difficulty of evaluating and monitoring these types of loans. In addition, when underwriting a commercial or industrial loan, we may take a security interest in commercial
real estate and, in some instances upon a default by the borrower, we may foreclose on and take title to the property, which may lead to potential financial risk for us under applicable environmental laws. If hazardous substances were discovered on
any of these properties, we may be liable to governmental entities or third parties for the costs of remediation of the hazard, as well as for personal injury and property damage. Many environmental laws can impose liability regardless of whether we
knew of, or were responsible for, the contamination. Furthermore, the repayment of loans secured by commercial real estate is typically dependent upon the successful operation of the related real estate or commercial project. If the cash flow from
the project is reduced, the borrowers ability to repay the loan may be impaired. This cash flow shortage may result in the failure to make loan payments. In such cases, we may be compelled to modify the terms of the loan. In addition, the
nature of these loans is such that they are generally less predictable and more difficult to evaluate and monitor. As a result, repayment of these loans may, to a greater extent than residential loans, be subject to adverse conditions in the real
estate market or economy.



We face regulatory risks related to our
commercial real estate loan concentrations.



Commercial
real estate or CRE is cyclical and poses risks of possible loss due to concentration levels and similar risks of the asset, especially since 71.4% of our loan portfolio consisted of CRE loans at December 31, 2005. The banking regulators
have begun giving CRE lending greater scrutiny, and may require banks with



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higher levels of CRE loans to implement improved underwriting, internal controls, risk management policies and portfolio stress testing, as well as possibly
requiring higher levels of allowances for possible loan losses and capital levels as a result of CRE lending growth and exposures. See Supervision and RegulationCommercial Real Estate Lending and Concentrations.



If our allowance for loan losses is not sufficient to cover actual loan losses, our
earnings could decrease.



Our loan customers may not repay
their loans according to the terms of these loans, and the collateral securing the payment of these loans may be insufficient to assure repayment. We may experience significant loan losses, which could have a material adverse effect on our operating
results. Management makes various assumptions and judgments about the collectibility of our loan portfolio, including the creditworthiness of our borrowers and the value of the real estate and other assets serving as collateral for the repayment of
many of our loans. We maintain an allowance for loan losses in an attempt to cover any loan losses, which may occur. In determining the size of the allowance, we rely on an analysis of our loan portfolio based on historical loss experience, volume
and types of loans, trends in classification, volume and trends in delinquencies and non-accruals, national and local economic conditions and other pertinent information. As we expand into new markets, our determination of the size of the allowance
could be understated due to our lack of familiarity with market-specific factors.



If our assumptions are wrong, our current allowance may not be sufficient to cover future loan losses, and adjustments may be necessary to allow for different economic conditions or adverse developments in our loan
portfolio. Material additions to our allowance would materially decrease our net income. Our allowance for loan losses was $16.1 million, $10.9 million and $9.4 million as of December 31, 2005, 2004 and 2003, respectively.



In addition, federal and state regulators periodically review our allowance
for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs, based on judgments different than those of our management. Any increase in our allowance for loan losses or loan charge-offs as
required by these regulatory agencies could have a negative effect on our operating results.



If We Are Unable to Increase Our Share of Deposits in Our Market, We May Accept Out of Market and Brokered Deposits, the Costs of Which May Be Higher than Expected.



We can offer no assurance that we can maintain or increase our market share
of deposits in our highly competitive service area. If we are unable to do so, we may be forced to accept increased amounts of out of market or brokered deposits. As of December 31, 2005, we had approximately $330.8 million in out of market
deposits, including brokered deposits, which represented approximately 25.6% of our total deposits. Typically, the cost of out of market and brokered deposits exceeds the cost of deposits in our local market. In addition, the cost of out of market
and brokered deposits can be volatile, and if we are unable to access these markets or if our costs related to out of market and brokered deposits increases, our liquidity and ability to support demand for loans could be adversely affected.



Competition from financial institutions and other financial service
providers may adversely affect our profitability.



The
banking business is highly competitive and we experience competition in each of our markets from many other financial institutions. We compete with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer
finance companies, securities brokerage firms, insurance companies, money market funds, and other mutual funds, as well as other super-regional, national and international financial institutions that operate offices in our primary market areas and
elsewhere.



We compete with these institutions both in
attracting deposits and in making loans. In addition, we have to attract our customer base from other existing financial institutions and from new residents. Many of our competitors are well-established, larger financial institutions. While we
believe we can and do successfully



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compete with these other financial institutions in our primary markets, we may face a competitive disadvantage as a result of our smaller size, lack of
geographic diversification and inability to spread our marketing costs across a broader market. Although we compete by concentrating our marketing efforts in our primary markets with local advertisements, personal contacts, and greater flexibility
and responsiveness in working with local customers, we can give no assurance that this strategy will be successful.



We are subject to extensive regulation that could limit or restrict our activities.



We operate in a highly regulated industry and are subject to examination, supervision, and comprehensive regulation by
various federal and state agencies. Our compliance with these regulations is costly and restricts certain of our activities, including payment of dividends, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid
on deposits and locations of offices. We are also subject to capitalization guidelines established by our regulators, which require us to maintain adequate capital to support our growth.



The laws and regulations applicable to the banking industry could change at any time, and we cannot predict the effects of
these changes on our business and profitability. Because government regulation greatly affects the business and financial results of all commercial banks and bank holding companies, our cost of compliance could adversely affect our ability to
operate profitably.



The Sarbanes-Oxley Act of 2002, and the
related rules and regulations promulgated by the Securities and Exchange Commission and Nasdaq that are now applicable to us, have increased the scope, complexity and cost of corporate governance, reporting and disclosure practices. In order to
comply with the Sarbanes-Oxley Act, we no longer use our independent auditors for internal audit and internal controls functions. As a result, we have experienced greater compliance costs and we can give no assurances that the effectiveness of our
internal audit and internal controls functions will remain the same as when those functions were performed by our independent auditors.



Our directors and executive officers own a significant portion of our common stock.



Our directors and executive officers, as a group, beneficially owned approximately 16.6% of our outstanding common stock as
of February 20, 2006. As a result of their ownership, the directors and executive officers will have the ability, by voting their shares in concert, to significantly influence the outcome of all matters submitted to our shareholders for
approval, including the election of directors.



Additionally,
the directors of Security Bank of Jones County have agreed that as long as they serve as directors on our board or one of the boards of our subsidiaries that they will vote all of the shares of our common stock owned by them in accordance with the
recommendation of our board of directors through our annual meeting in 2007. In April 2000, we also entered into an agreement with Group Financial Southeast to buy specific assets of Group Financial, which we generally refer to in this document as
our Fairfield Financial acquisition. Director John W. Ramsey owned 100% of the outstanding stock of Group Financial at the time of the acquisition and continues to own those shares. Under our purchase agreement with Group Financial, Group Financial
is entitled to receive additional shares of our common stock based on the future financial performance of Fairfield Financial. Any common stock issued as part of the additional purchase price paid under this purchase agreement must be voted in favor
of the written recommendations of our board of directors, and if it is not, Group Financial will forfeit any future contingent payments under the purchase agreement. As of December 31, 2005, the total number of shares of our common stock that
were subject to voting agreements was 1,487,619 shares or 10.3% of our outstanding stock at that time.



Risks Related to an Investment in Our Common Stock



Our ability to pay dividends is limited and we may be unable to pay future dividends.



Our ability to pay dividends is limited by regulatory restrictions and the need to maintain sufficient consolidated capital. The ability of our five bank
subsidiaries to pay dividends to us is limited by their



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obligations to maintain sufficient capital and by other general restrictions on their dividends that are applicable to Georgia banks and banks that are
regulated by the FDIC. If we do not satisfy these regulatory requirements, we will be unable to pay dividends on our common stock.



We may issue additional shares of our common stock in the future, which would dilute your ownership if you did not, or were not permitted to, invest in the additional
issuances.



Our articles of incorporation authorize our
board of directors, without shareholder approval, to, among other things:



| |  |  | issue additional common stock or issue preferred stock in connection with future equity offerings and acquisitions of securities or assets of other companies; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



From time to time, we expect to issue additional
equity securities to raise additional equity to support our portfolio. The issuance of any additional shares of common stock could be substantially dilutive to our common shareholders if they elect not to invest in future offerings. Moreover, to the
extent that we issue restricted stock units, stock appreciation rights, options or warrants to purchase our common stock in the future and those stock appreciation rights, options or warrants are exercised or as the restricted stock units vest, our
shareholders may experience further dilution. Holders of our shares of common stock have no preemptive rights that entitle holders to purchase their pro rata share of any offering of shares of any class or series and, therefore, our shareholders may
not be permitted to invest in future issuances of our common stock.



We may
issue debt and equity securities, which are senior to our common stock as to distributions and in liquidation, which could negatively affect the value of our common stock.



In the future, we may attempt to increase our capital resources by entering into debt or debt-like financing that is
unsecured or secured by all or up to all of our assets, or issuing debt or equity securities, which could include issuances of secured or unsecured commercial paper, medium-term notes, senior notes, subordinated notes, preferred stock or common
stock. In the event of our liquidation, our lenders and holders of our debt securities would receive a distribution of our available assets before distributions to the holders of our common stock. Because our decision to incur debt and issue
securities in our future offerings will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings and debt financings. Further, market conditions could
require us to accept less favorable terms for the issuance of our securities in the future. Thus, you will bear the risk of our future offerings reducing the value of your shares of common stock and diluting your interest in us.



|Item 1B | UNRESOLVED STAFF COMMENTS
|------- | -------------------------



None.



|Item 2 | PROPERTIES
|------ | ----------



The
Banks (or Our subsidiary banks) owned sixteen full-service banking locations and one limited-service banking location, one stand alone ATM machine and night depository and Security Bank of Bibb Countys operations center, which
houses its in-house data processing facility and operational support functions as of December 31, 2005. Fairfield Financial Services, Inc., a subsidiary of Security Bank of Bibb County, leases a number of mortgage production offices throughout
Georgia and the Southeast, each of which management believes to be reasonable and appropriate for the market area. The net book value of all facilities including furniture, fixtures and equipment totaled $32.0 million as of December 31, 2005.
Management considers that its properties are well maintained.



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|Item 3 | LEGAL PROCEEDINGS
|------ | -----------------



The Company and its subsidiaries may become parties to various legal proceedings arising from the normal course of business. As of December 31, 2005, there are no material pending legal proceedings to which SBKC or its subsidiaries are
a party or of which any of its property is the subject.



We
have not incurred any penalties for failing to include, in our tax returns, any information required to be disclosed under Section 6011 of the Internal Revenue Code of 1986, as amended (the Code) with respect to a reportable transaction
under the Code that is required to be reported under Code Section 6707A(e).



|Item 4 | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|------ | ---------------------------------------------------



No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.



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Part II



|Item 5 | MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|------ | ------------------------------------------------------------------------------------------------------------



Our common stock is quoted on the NASDAQ National Market under the symbol SBKC. Prior to December 1, 1997, our common stock was not
traded on any public market or exchange, although certain brokerage firms made a market for the common stock. The following table sets forth the high and low sale prices and closing prices per share of the common stock as reported on the NASDAQ
National Market, and the dividends declared per share for the periods indicated.



|                             |  |      |       |     |   |       |  |                    |       |  |   |      
|---------------------------- |  | ---- | ----- | --- | - | ----- |  | ------------------ | ----- |  | - | -----
|Year Ended December 31, 2005 |  | High |       | Low |   | Close |  | Dividend Per Share
|Fourth Quarter               |  | $    | 26.00 |     | $ | 21.25 |  | $                  | 23.29 |  | $ | 0.065
|Third Quarter                |  | $    | 25.39 |     | $ | 21.78 |  | $                  | 24.89 |  | $ | 0.065
|Second Quarter               |  | $    | 24.00 |     | $ | 17.71 |  | $                  | 22.90 |  | $ | 0.065
|First Quarter                |  | $    | 21.22 |     | $ | 19.85 |  | $                  | 20.59 |  | $ | 0.065
|                             |  |      |       |    
|Year Ended December 31, 2004 |  | High |       | Low |   | Close |  | Dividend Per Share
|Fourth Quarter               |  | $    | 21.65 |     | $ | 16.97 |  | $                  | 20.00 |  | $ | 0.055
|Third Quarter                |  | $    | 18.00 |     | $ | 15.62 |  | $                  | 17.50 |  | $ | 0.055
|Second Quarter               |  | $    | 17.77 |     | $ | 14.34 |  | $                  | 17.30 |  | $ | 0.055
|First Quarter                |  | $    | 16.00 |     | $ | 14.53 |  | $                  | 15.00 |  | $ | 0.055



As of
February 20, 2006 the Company had approximately 1,331 shareholders of record plus approximately 1,558 shareholders listed in street name.



For a discussion on dividend restrictions, refer to Item 1, BusinessSupervision and Bank Regulation - General.



The Company did not purchase any shares of the Companys common stock
during the quarter ended December 31, 2005.



For equity
compensation plan information, refer to Item 12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.



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|Item 6 | SELECTED FINANCIAL DATA
|------ | -----------------------



Our selected consolidated financial data presented below as of and for the years ended December 31, 2001 through December 31, 2005 is derived
from our audited consolidated financial statements, which are included elsewhere in this report. In the opinion of management, all adjustments (consisting only of normal recurring accruals) that are necessary for a fair presentation for such periods
or dates have been made. Refer to Item 7Managements Discussion and Analysis of Financial Condition and Results of Operations for a full discussion of comparability between periods.



|                                                                        |  |                                                  |            |   |      |   |            |      |  |   |           |   |  |      |           |   |  |   |           |  
|----------------------------------------------------------------------- |  | ------------------------------------------------ | ---------- | - | ---- | - | ---------- | ---- |  | - | --------- | - |  | ---- | --------- | - |  | - | --------- | -
|                                                                        |  | At or For the Year Ended December 31,            |           
|                                                                        |  | 2005                                             |            |   | 2004 |   |            | 2003 |  |   | 2002      |   |  | 2001 |          
|                                                                        |  | (Dollars in thousands, except per share amounts) |           
|Selected Balance Sheet Data:                                            |  |                                                  |            |   |      |   |            |      |  |   |           |   |  |      |           |   |  |   |           |  
|Assets                                                                  |  | $                                                | 1,662,413  |   |      | $ | 1,063,485  |      |  | $ | 911,269   |   |  | $    | 581,319   |   |  | $ | 504,762   |  
|Investment securities                                                   |  |                                                  | 150,986    |   |      |   | 111,412    |      |  |   | 102,855   |   |  |      | 53,905    |   |  |   | 51,041    |  
|Loans receivable (net of unearned income)                               |  |                                                  | 1,277,681  |   |      |   | 853,272    |      |  |   | 709,130   |   |  |      | 474,401   |   |  |   | 419,306   |  
|Allowance for loan losses                                               |  |                                                  | 16,148     |   |      |   | 10,903     |      |  |   | 9,407     |   |  |      | 5,480     |   |  |   | 4,099     |  
|Goodwill and other intangible assets, net                               |  |                                                  | 79,269     |   |      |   | 29,164     |      |  |   | 25,631    |   |  |      | 1,900     |   |  |   | 848       |  
|Deposits                                                                |  |                                                  | 1,291,253  |   |      |   | 842,558    |      |  |   | 743,301   |   |  |      | 440,595   |   |  |   | 375,065   |  
|Borrowings and securities sold under agreements to repurchase           |  |                                                  | 130,903    |   |      |   | 88,947     |      |  |   | 67,429    |   |  |      | 77,753    |   |  |   | 90,418    |  
|Subordinated debentures                                                 |  |                                                  | 41,238     |   |      |   | 18,557     |      |  |   | 18,557    |   |  |      | 18,557    |   |  |   | 0         |  
|Shareholders equity                                                    |  |                                                  | 179,305    |   |      |   | 106,671    |      |  |   | 75,809    |   |  |      | 39,548    |   |  |   | 34,777    |  
|                                                                        |  |                                                  |            |   |     
|Selected Results of Operations Data:                                    |  |                                                  |            |   |      |   |            |      |  |   |           |   |  |      |           |   |  |   |           |  
|Interest income                                                         |  |                                                  | 78,192     |   |      |   | 53,926     |      |  |   | 42,894    |   |  |      | 32,920    |   |  |   | 33,608    |  
|Interest expense                                                        |  |                                                  | 27,839     |   |      |   | 14,373     |      |  |   | 12,912    |   |  |      | 12,110    |   |  |   | 16,586    |  
|Net interest income                                                     |  |                                                  | 50,353     |   |      |   | 39,553     |      |  |   | 29,982    |   |  |      | 20,810    |   |  |   | 17,022    |  
|Provision for loan losses                                               |  |                                                  | 2,833      |   |      |   | 2,819      |      |  |   | 2,859     |   |  |      | 2,603     |   |  |   | 1,912     |  
|Net interest income after provision for loan losses                     |  |                                                  | 47,520     |   |      |   | 36,734     |      |  |   | 27,123    |   |  |      | 18,207    |   |  |   | 15,110    |  
|Other income                                                            |  |                                                  | 16,603     |   |      |   | 14,814     |      |  |   | 17,302    |   |  |      | 13,146    |   |  |   | 11,147    |  
|Other expenses                                                          |  |                                                  | 38,628     |   |      |   | 32,289     |      |  |   | 30,840    |   |  |      | 23,022    |   |  |   | 19,397    |  
|Income before income taxes                                              |  |                                                  | 25,495     |   |      |   | 19,259     |      |  |   | 13,585    |   |  |      | 8,331     |   |  |   | 6,860     |  
|Income taxes                                                            |  |                                                  | 9,310      |   |      |   | 6,940      |      |  |   | 4,938     |   |  |      | 3,065     |   |  |   | 2,518     |  
|Net income (1)                                                          |  |                                                  | 16,185     |   |      |   | 12,319     |      |  |   | 8,647     |   |  |      | 5,266     |   |  |   | 4,342     |  
|                                                                        |  |                                                  |            |   |     
|Per Share Data:                                                         |  |                                                  |            |   |      |   |            |      |  |   |           |   |  |      |           |   |  |   |           |  
|Earnings:                                                               |  |                                                  |            |   |      |   |            |      |  |   |           |   |  |      |           |   |  |   |           |  
|Basic (1)                                                               |  |                                                  | 1.31       |   |      |   | 1.10       |      |  |   | 0.99      |   |  |      | 0.77      |   |  |   | 0.65      |  
|Diluted (1)                                                             |  |                                                  | 1.27       |   |      |   | 1.07       |      |  |   | 0.96      |   |  |      | 0.76      |   |  |   | 0.64      |  
|Dividends                                                               |  |                                                  | 0.26       |   |      |   | 0.22       |      |  |   | 0.20      |   |  |      | 0.18      |   |  |   | 0.16      |  
|Book value                                                              |  |                                                  | 12.46      |   |      |   | 9.15       |      |  |   | 7.54      |   |  |      | 5.82      |   |  |   | 5.15      |  
|Weighted average shares outstanding:                                    |  |                                                  |            |   |      |   |            |      |  |   |           |   |  |      |           |   |  |   |           |  
|Basic                                                                   |  |                                                  | 12,393,980 |   |      |   | 11,156,372 |      |  |   | 8,725,276 |   |  |      | 6,779,220 |   |  |   | 6,745,938 |  
|Diluted                                                                 |  |                                                  | 12,736,545 |   |      |   | 11,482,830 |      |  |   | 8,993,832 |   |  |      | 6,912,492 |   |  |   | 6,752,102 |  
|                                                                        |  |                                                  |            |   |     
|Performance Ratios:                                                     |  |                                                  |            |   |      |   |            |      |  |   |           |   |  |      |           |   |  |   |           |  
|Return on average assets (1)                                            |  |                                                  | 1.31       | % |      |   | 1.27       | %    |  |   | 1.16      | % |  |      | 1.03      | % |  |   | 1.00      | %
|Return on average equity (1)                                            |  |                                                  | 12.80      | % |      |   | 13.04      | %    |  |   | 14.27     | % |  |      | 14.11     | % |  |   | 13.05     | %
|Net interest margin (2) (7)                                             |  |                                                  | 4.46       | % |      |   | 4.45       | %    |  |   | 4.40      | % |  |      | 4.38      | % |  |   | 4.24      | %
|Interest rate spread (3) (7)                                            |  |                                                  | 4.07       | % |      |   | 4.18       | %    |  |   | 4.12      | % |  |      | 3.96      | % |  |   | 3.48      | %
|Efficiency ratio (4) (7)                                                |  |                                                  | 57.42      | % |      |   | 59.00      | %    |  |   | 64.81     | % |  |      | 67.38     | % |  |   | 68.38     | %
|Average interest-earning assets to average interest-bearing liabilities |  |                                                  | 115.84     | % |      |   | 117.08     | %    |  |   | 114.70    | % |  |      | 116.92    | % |  |   | 118.61    | %
|Average loans to average deposits                                       |  |                                                  | 100.28     | % |      |   | 100.21     | %    |  |   | 103.09    | % |  |      | 108.30    | % |  |   | 107.47    | %



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|                                                             |  |                                                  |   |  |        |   |  |        |   |  |        |   |  |        |  
|------------------------------------------------------------ |  | ------------------------------------------------ | - |  | ------ | - |  | ------ | - |  | ------ | - |  | ------ | -
|                                                             |  | At or For the Year Ended December 31,            |  
|                                                             |  | 2005                                             |   |  | 2004   |   |  | 2003   |   |  | 2002   |   |  | 2001   |  
|                                                             |  | (Dollars in thousands, except per share amounts) |  
|Asset Quality Ratios:                                        |  |                                                  |   |  |        |   |  |        |   |  |        |   |  |        |  
|Nonperforming loans to net loans (5)                         |  | 0.55                                             | % |  | 0.73   | % |  | 0.59   | % |  | 0.92   | % |  | 0.82   | %
|Nonperforming assets to total assets (6)                     |  | 0.56                                             | % |  | 0.77   | % |  | 0.90   | % |  | 1.08   | % |  | 1.22   | %
|Net charge-offs to average total loans                       |  | 0.12                                             | % |  | 0.17   | % |  | 0.32   | % |  | 0.28   | % |  | 0.23   | %
|Total allowance for loan losses to total nonperforming loans |  | 230.78                                           | % |  | 175.46 | % |  | 224.99 | % |  | 125.75 | % |  | 119.57 | %
|Total allowance for loan losses to total loans receivable    |  | 1.26                                             | % |  | 1.28   | % |  | 1.33   | % |  | 1.16   | % |  | 0.98   | %
|                                                             |  |                                                  |   |  |       
|Capital Ratios:                                              |  |                                                  |   |  |        |   |  |        |   |  |        |   |  |        |  
|Average equity to average assets                             |  | 10.21                                            | % |  | 9.72   | % |  | 8.11   | % |  | 7.27   | % |  | 7.63   | %
|Leverage ratio                                               |  | 9.72                                             | % |  | 9.58   | % |  | 7.85   | % |  | 8.94   | % |  | 7.66   | %
|Tier 1 risk-based capital ratio                              |  | 10.12                                            | % |  | 10.27  | % |  | 8.93   | % |  | 10.25  | % |  | 8.02   | %
|Total risk-based capital ratio                               |  | 11.27                                            | % |  | 11.40  | % |  | 10.33  | % |  | 12.60  | % |  | 9.00   | %

---

|(1) | Beginning in 2002, new accounting standards eliminated the amortization of goodwill, which is included in previous years net income and returns.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Net interest income divided by average interest-earning assets.
|--- | ---------------------------------------------------------------

|(3) | Yield on interest-earning assets less cost of interest-bearing liabilities.
|--- | ---------------------------------------------------------------------------

|(4) | Other expenses divided by net interest income and other income.
|--- | ---------------------------------------------------------------

|(5) | Nonperforming loans include nonaccrual loans and loans past due 90 days or more and still accruing interest.
|--- | ------------------------------------------------------------------------------------------------------------

|(6) | Nonperforming assets are nonperforming loans plus other real estate owned.
|--- | --------------------------------------------------------------------------

|(7) | Calculated on a fully tax equivalent basis.
|--- | -------------------------------------------



29



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|Item 7 | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------ | -------------------------------------------------------------------------------------



The following discussion reviews our financial condition and results of operations. You should read the following
discussion and analysis of our financial condition and results of operations in conjunction with Selected Financial Data and our Consolidated Financial Statements and the related notes included elsewhere in this report.



Overview



Security Bank Corporation was incorporated on February 10, 1994 for the purpose of becoming a bank holding company. We
are subject to extensive federal and state banking laws and regulations, including the Bank Holding Company Act of 1956 and the bank holding company laws of Georgia. We own five subsidiary banksSecurity Bank of Bibb County, Security Bank of
Houston County, Security Bank of Jones County, Security Bank of North Metro and Rivoli Bank & Trust. We also own Fairfield Financial Services, Inc., an operating subsidiary of Security Bank of Bibb County. Our subsidiaries are also subject
to various federal and state banking laws and regulations.



Like most financial institutions, our profitability depends largely upon net interest income, which is the difference between the interest received on earning assets, such as loans and investment securities, and the interest paid on
interest-bearing liabilities, principally deposits and borrowings. Our results of operations are also affected by our provision for loan losses; non-interest expenses, such as salaries, employee benefits, and occupancy expenses; and non-interest
income, such as mortgage loan fees and service charges on deposit accounts.



Economic conditions, competition and federal monetary and fiscal policies also affect financial institutions. For example, 2005 was characterized by continuing increases in the Federal Reserves target federal
funds rate to reduce inflationary pressures and, therefore, sustain the pace of economic growth. Lending activities are also influenced by regional and local economic factors, such as housing supply and demand, competition among lenders, customer
preferences and levels of personal income and savings in our primary market area.



Our balanced growth continued during 2005, with increases in assets, deposits, shareholders equity, earnings per share and returns on average assets and equity. The following chart shows our growth in these
areas from December 31, 2004 to December 31, 2005:



|                           |  |                                                 |         |   |                  |   |         |                 |  |      |  
|-------------------------- |  | ----------------------------------------------- | ------- | - | ---------------- | - | ------- | --------------- |  | ---- | -
|                           |  | December 31,2005                                |         |   | December 31,2004 |   |         | PercentIncrease | 
|                           |  | (Dollars in millions, except per share amounts) |        
|Diluted earnings per share |  | $                                               | 1.27    |   |                  | $ | 1.07    |                 |  | 18.7 | %
|Total assets               |  |                                                 | 1,662.4 |   |                  |   | 1,063.5 |                 |  | 56.3 | %
|Loans                      |  |                                                 | 1,277.7 |   |                  |   | 853.3   |                 |  | 49.7 | %
|Investment securities      |  |                                                 | 151.0   |   |                  |   | 111.4   |                 |  | 35.5 | %
|Deposits                   |  |                                                 | 1,291.3 |   |                  |   | 842.6   |                 |  | 53.2 | %
|Shareholders equity       |  |                                                 | 179.3   |   |                  |   | 106.7   |                 |  | 68.0 | %
|Return on average assets   |  |                                                 | 1.31    | % |                  |   | 1.27    | %               |  | 3.1  | %
|Return on average equity   |  |                                                 | 12.80   | % |                  |   | 13.04   | %               |  | -1.8 | %



A total increase in
loan volume of $424.4 million, $151.2 million excluding our acquisitions, resulted from continued strong loan demand in our core markets and was the primary contributor to an increase in net income to $16.2 million for 2005.



Approximately $266.6 million of the total increase in deposits of $448.7
million resulted from our acquisitions. The remaining $182.1 million increase in deposits in 2005 is the result of intensive marketing



30



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efforts aimed at increasing local low-cost deposits and funding requirements driven by our loan growth. We often met these funding needs with out-of-market
deposits, which we can often acquire at targeted maturities to mitigate interest rate risk.



Our investment portfolio increased $39.6 million during 2005. Excluding our acquisitions, investment securities increased $1.7 million or 1.5%, primarily in order to provide on-balance sheet liquidity in support of
strong loan demand. The overall level of investment securities declined to 9.1% of assets at the end of 2005, as compared to 10.5% of assets at the end of 2004.



Fairfield Financial closed over $166.6 million in residential mortgage loans during 2005 and posted approximately $3.2 million in net income.
Approximately 20% of its 2005 gross revenue was a product of its traditional residential mortgage origination business, with the remaining 80% being derived from its interim real estate and real estate development lending activities.



31



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The following table illustrates our selected key financial data for each of the past five years.



SELECTED FIVE YEAR FINANCIAL DATA



(Dollars in thousands, except per share data and number of shares)



|                                 |  |                          |            |   |      |   |            |      |  |   |            |   |  |      |           |   |  |   |           |  
|-------------------------------- |  | ------------------------ | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | - |  | ---- | --------- | - |  | - | --------- | -
|                                 |  | Years Ended December 31, |           
|                                 |  | 2005                     |            |   | 2004 |   |            | 2003 |  |   | 2002       |   |  | 2001 |          
|INCOME STATEMENT:                |  |                          |            |   |      |   |            |      |  |   |            |   |  |      |           |   |  |   |           |  
|Interest Income                  |  | $                        | 78,192     |   |      | $ | 53,926     |      |  | $ | 42,894     |   |  | $    | 32,920    |   |  | $ | 33,608    |  
|Interest Expense                 |  |                          | 27,839     |   |      |   | 14,373     |      |  |   | 12,912     |   |  |      | 12,110    |   |  |   | 16,586    |  
|                                 |  |                          |            |   |      |   |            |      |  |   |            |   |  |      |           |   |  |   |           |  
|Net Interest Income              |  |                          | 50,353     |   |      |   | 39,553     |      |  |   | 29,982     |   |  |      | 20,810    |   |  |   | 17,022    |  
|Provision for Loan Losses        |  |                          | 2,833      |   |      |   | 2,819      |      |  |   | 2,859      |   |  |      | 2,603     |   |  |   | 1,912     |  
|Noninterest Income               |  |                          | 16,603     |   |      |   | 14,814     |      |  |   | 17,302     |   |  |      | 13,146    |   |  |   | 11,147    |  
|Noninterest Expense              |  |                          | 38,628     |   |      |   | 32,289     |      |  |   | 30,840     |   |  |      | 23,022    |   |  |   | 19,397    |  
|                                 |  |                          |            |   |      |   |            |      |  |   |            |   |  |      |           |   |  |   |           |  
|Income Before Tax                |  |                          | 25,495     |   |      |   | 19,259     |      |  |   | 13,585     |   |  |      | 8,331     |   |  |   | 6,860     |  
|Income Taxes                     |  |                          | 9,310      |   |      |   | 6,940      |      |  |   | 4,938      |   |  |      | 3,065     |   |  |   | 2,518     |  
|                                 |  |                          |            |   |      |   |            |      |  |   |            |   |  |      |           |   |  |   |           |  
|Net Income                       |  | $                        | 16,185     |   |      | $ | 12,319     |      |  | $ | 8,647      |   |  | $    | 5,266     |   |  | $ | 4,342     |  
|                                 |  |                          |            |   |      |   |            |      |  |   |            |   |  |      |           |   |  |   |           |  
|                                 |  |                          |            |   |     
|PER SHARE:                       |  |                          |            |   |      |   |            |      |  |   |            |   |  |      |           |   |  |   |           |  
|Earnings Per Common Share:       |  |                          |            |   |      |   |            |      |  |   |            |   |  |      |           |   |  |   |           |  
|Basic                            |  | $                        | 1.31       |   |      | $ | 1.10       |      |  | $ | 0.99       |   |  | $    | 0.77      |   |  | $ | 0.65      |  
|Diluted                          |  |                          | 1.27       |   |      |   | 1.07       |      |  |   | 0.96       |   |  |      | 0.76      |   |  |   | 0.64      |  
|Cash Dividends Paid              |  |                          | 0.26       |   |      |   | 0.22       |      |  |   | 0.20       |   |  |      | 0.17      |   |  |   | 0.15      |  
|Weighted Average Shares          |  |                          | 12,393,980 |   |      |   | 11,156,372 |      |  |   | 8,725,276  |   |  |      | 6,779,220 |   |  |   | 6,745,938 |  
|                                 |  |                          |            |   |     
|RATIOS:                          |  |                          |            |   |      |   |            |      |  |   |            |   |  |      |           |   |  |   |           |  
|Return on Average Assets         |  |                          | 1.31       | % |      |   | 1.27       | %    |  |   | 1.16       | % |  |      | 1.03      | % |  |   | 1.00      | %
|Return on Average Equity         |  |                          | 12.80      | % |      |   | 13.04      | %    |  |   | 14.27      | % |  |      | 14.11     | % |  |   | 13.05     | %
|Dividend Payout Ratio            |  |                          | 19.85      | % |      |   | 20.00      | %    |  |   | 20.20      | % |  |      | 22.08     | % |  |   | 23.08     | %
|Average Equity to Average Assets |  |                          | 10.21      | % |      |   | 9.72       | %    |  |   | 8.11       | % |  |      | 7.27      | % |  |   | 7.63      | %
|Net Interest Margin              |  |                          | 4.46       | % |      |   | 4.45       | %    |  |   | 4.40       | % |  |      | 4.38      | % |  |   | 4.24      | %
|                                 |  |                          |            |   |     
|BALANCE SHEET:                   |  |                          |            |   |      |   |            |      |  |   |            |   |  |      |           |   |  |   |           |  
|(At end of period)               |  |                          |            |   |      |   |            |      |  |   |            |   |  |      |           |   |  |   |           |  
|Assets                           |  | $                        | 1,662,413  |   |      | $ | 1,063,485  |      |  | $ | 911,269    |   |  | $    | 581,319   |   |  | $ | 504,762   |  
|Investment Securities (a)        |  |                          | 150,986    |   |      |   | 111,412    |      |  |   | 102,855    |   |  |      | 53,905    |   |  |   | 51,041    |  
|Loans Held for Sale              |  |                          | 5,562      |   |      |   | 7,507      |      |  |   | 11,448     |   |  |      | 35,955    |   |  |   | 40,764    |  
|Loans, Net of Unearned Income    |  |                          | 1,272,119  |   |      |   | 845,765    |      |  |   | 697,682    |   |  |      | 438,446   |   |  |   | 378,542   |  
|Allowance for Loan Losses        |  |                          | 16,148     |   |      |   | 10,903     |      |  |   | 9,407      |   |  |      | 5,480     |   |  |   | 4,099     |  
|Deposits                         |  |                          | 1,291,253  |   |      |   | 842,558    |      |  |   | 743,301    |   |  |      | 440,595   |   |  |   | 375,065   |  
|Borrowed Funds                   |  |                          | 172,141    |   |      |   | 107,504    |      |  |   | 85,986     |   |  |      | 96,310    |   |  |   | 90,418    |  
|Shareholders Equity             |  |                          | 179,305    |   |      |   | 106,671    |      |  |   | 75,809     |   |  |      | 39,548    |   |  |   | 34,777    |  
|Shares Outstanding               |  |                          | 14,386,960 |   |      |   | 11,639,810 |      |  |   | 10,048,600 |   |  |      | 6,796,634 |   |  |   | 6,745,938 |  

---

|(a) | Investment Securities include Restricted Stock (in thousands): 2005 - $6,974; 2004 - $4,918; 2003 - $3,935; 2002 - $3,614 and 2001 - $3,533.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------



Critical Accounting Policies



The accounting principles we follow and our methods of applying these
principles conform with accounting principles generally accepted in the United States and with general practices within the banking industry. In connection with the application of those principles, we have made judgments and estimates which, in the
case of



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the determination of our allowance for loan losses (ALL), goodwill and stock-based compensation have been critical to the determination of our financial
position and results of operations.



Allowance for Loan Losses (ALL)



Our management assesses the adequacy of the ALL prior to
the end of each calendar quarter. This assessment includes procedures to estimate the allowance and test the adequacy and appropriateness of the resulting balance. The ALL consists of two portions: (1) an allocated amount representative of
specifically identified credit exposure and exposures that are readily predictable by historical or comparative experience; and, (2) an unallocated amount representative of inherent loss that is not readily identifiable. Even though the ALL is
composed of two components, the entire ALL is available to absorb any credit losses.



We establish the allocated amount separately for three tiers:



| |  |  | substandard loans with specific allocations based on collateral exposure,
| | - |  | -------------------------------------------------------------------------



| |  |  | loans based on five different credit ratings (watch list, other assets specifically mentioned, substandard, doubtful and loss) with allocations based on historical losses per rating
category, and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the rest of the loan portfolio with allocations based on historical losses in the total portfolio.
| | - |  | --------------------------------------------------------------------------------------------------



We base the allocation for unique loans primarily on risk rating grades assigned to each of these loans as a result of our
loan management and internal loan review processes. We then assign each risk-rating grade a loss ratio, which is determined based on the experience of management, discussions with banking regulators and our internal loan review process (which is
maintained at the holding company level).



The unallocated
amount is particularly subjective and does not lend itself to exact mathematical calculation. The unallocated amount represents estimated inherent credit losses, which may exist, but have not yet been identified, as of the balance sheet date. In
estimating the unallocated amount, we apply two stress factors. The first stress factor consists of economic factors including such matters as changes in the local or national economy, the depth or experience in the lending staff, any concentrations
of credit (such as commercial real estate) in any particular industry group, and new banking laws or regulations. The second stress factor is based on the credit grade of the loans in our unsecured consumer loan portfolio. After we assess applicable
factors, we evaluate the aggregate unallocated amount based on our managements experience.



We then test the resulting ALL balance by comparing the balance in the ALL with historical trends and peer information. Our management then evaluates the
result of the procedures performed, including the result of our testing, and makes a conclusion regarding the appropriateness of the balance of the ALL in its entirety. The directors loan committee reviews the assessments prior to the filing
of quarterly and annual financial information.



In assessing
the adequacy of the ALL, we also rely on an ongoing independent credit administration review process. We undertake this process both to ascertain whether there are loans in the portfolio whose credit quality has weakened over time and to assist in
our overall evaluation of the risk characteristics of the entire loan portfolio. Our credit administration review process includes the judgment of management, the input of our internal loan review function, and reviews that may have been conducted
by bank regulatory agencies as part of their usual examination process.



Stock-Based Compensation



In accordance with
SFAS No. 123, Accounting for Stock-Based Compensation management has elected to expense the fair value of stock options. We utilize the Black-Scholes model in determining the fair value of the stock options. The model takes into
account certain estimated factors such as the expected life of the stock option



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and the volatility of the stock. The expected life of the stock option is a function of the vesting period of the grant, the average length of time similar
grants have remained outstanding, and the expected volatility of the underlying stock. Volatility is a measure of the amount by which a price has fluctuated or is expected to fluctuate during a period.



Goodwill



Effective January 1, 2002, the Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and
Other Intangible Assets was adopted. In accordance with this statement, goodwill and intangible assets deemed to have indefinite lives no longer are being amortized but will be subject to impairment tests in accordance with the pronouncement.
Other intangible assets, primarily core deposits, will continue to be amortized over their estimated useful lives. In 2002, the required impairment testing of goodwill was performed and no impairment existed as of the valuation date, as the fair
value of our net assets exceeded their carrying value. If for any future period we determine that there has been impairment in the carrying value of our goodwill balances, we will record a charge to our earnings, which could have a material adverse
effect on our net income.



Results of Operations For The Years Ended
December 31, 2005, 2004 and 2003



Our net income was
$16.2 million, $12.3 million, and $8.6 million, for the years 2005, 2004, and 2003, respectively. Our 2005 earnings were up by 31% over 2004, and the 2004 earnings showed a 42% increase over 2003. Diluted earnings per share (EPS)
amounted to $1.27 in 2005, $1.07 in 2004 and $0.96 in 2003. The $1.27 EPS in 2005 was up $0.20 per share over 2004 results for an increase of 18.7%. The $1.07 EPS in 2004 was up $0.11 per share over 2003 results for an increase of 11.5%. Our return
on average equity (ROE) of 12.80% in 2005 is a 24 basis-point decline from our 2004 ROE of 13.04%. The decline in the ROE in 2005 was primarily attributable to common equity offerings of approximately $58.4 million in connection with our
two acquisitions. The ROE for 2004 of 13.04% was a 123 basis point decline from the ROE of 14.27% for 2003. This decline was caused primarily by our common equity offering of $19.0 million in May 2004.



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The following tables provide recaps of the dollar and percentage changes we have experienced in our
income statements, balances sheets and key ratios in recent years.



RECAP OF
CHANGES IN INCOME STATEMENT & KEY RATIOS



(Dollars in
thousands, except per share data and number of shares)



|                               |  |                          |            |   |      |   |            |                     |  |   |                     |   |  |       |   |  |                     |           |   |                     |   |           |    |  |        |   
|------------------------------ |  | ------------------------ | ---------- | - | ---- | - | ---------- | ------------------- |  | - | ------------------- | - |  | ----- | - |  | ------------------- | --------- | - | ------------------- | - | --------- | -- |  | ------ | --
|                               |  | Years Ended December 31, |           
|                               |  | 2005                     |            |   | 2004 |   |            | $ Change2005 vs2004 |  |   | % Change2005 vs2004 |   |  | 2003  |   |  | $ Change2004 vs2003 |           |   | % Change2004 vs2003 |  
|INCOME STATEMENT:              |  |                          |            |   |      |   |            |                     |  |   |                     |   |  |       |   |  |                     |           |   |                     |   |           |    |  |        |   
|Interest Income                |  | $                        | 78,192     |   |      | $ | 53,926     |                     |  | $ | 24,266              |   |  | 45.00 | % |  | $                   | 42,894    |   |                     | $ | 11,032    |    |  | 25.72  | % 
|Interest Expense               |  |                          | 27,839     |   |      |   | 14,373     |                     |  |   | 13,466              |   |  | 93.69 | % |  |                     | 12,912    |   |                     |   | 1,461     |    |  | 11.32  | % 
|                               |  |                          |            |   |      |   |            |                     |  |   |                     |   |  |       |   |  |                     |           |   |                     |   |           |    |  |        |   
|Net Interest Income            |  |                          | 50,353     |   |      |   | 39,553     |                     |  |   | 10,800              |   |  | 27.31 | % |  |                     | 29,982    |   |                     |   | 9,571     |    |  | 31.92  | % 
|Provision for Loan Losses      |  |                          | 2,833      |   |      |   | 2,819      |                     |  |   | 14                  |   |  | 0.50  | % |  |                     | 2,859     |   |                     |   | (40       | )  |  | (1.40  | )%
|Noninterest Income             |  |                          | 16,603     |   |      |   | 14,814     |                     |  |   | 1,789               |   |  | 12.08 | % |  |                     | 17,302    |   |                     |   | (2,488    | )  |  | (14.37 | )%
|Noninterest Expense            |  |                          | 38,628     |   |      |   | 32,289     |                     |  |   | 6,339               |   |  | 19.63 | % |  |                     | 30,840    |   |                     |   | 1,449     |    |  | 4.70   | % 
|                               |  |                          |            |   |      |   |            |                     |  |   |                     |   |  |       |   |  |                     |           |   |                     |   |           |    |  |        |   
|Income Before Tax              |  |                          | 25,495     |   |      |   | 19,259     |                     |  |   | 6,236               |   |  | 32.38 | % |  |                     | 13,585    |   |                     |   | 5,674     |    |  | 41.77  | % 
|Income Taxes                   |  |                          | 9,310      |   |      |   | 6,940      |                     |  |   | 2,370               |   |  | 34.15 | % |  |                     | 4,938     |   |                     |   | 2,002     |    |  | 40.54  | % 
|                               |  |                          |            |   |      |   |            |                     |  |   |                     |   |  |       |   |  |                     |           |   |                     |   |           |    |  |        |   
|Net Income                     |  | $                        | 16,185     |   |      | $ | 12,319     |                     |  | $ | 3,866               |   |  | 31.38 | % |  | $                   | 8,647     |   |                     | $ | 3,672     |    |  | 42.47  | % 
|                               |  |                          |            |   |      |   |            |                     |  |   |                     |   |  |       |   |  |                     |           |   |                     |   |           |    |  |        |   
|                               |  |                          |            |   |      |   |           
|PER SHARE:                     |  |                          |            |   |      |   |            |                     |  |   |                     |   |  |       |   |  |                     |           |   |                     |   |           |    |  |        |   
|Earnings Per Common Share:     |  |                          |            |   |      |   |            |                     |  |   |                     |   |  |       |   |  |                     |           |   |                     |   |           |    |  |        |   
|Basic                          |  | $                        | 1.31       |   |      | $ | 1.10       |                     |  | $ | 0.21                |   |  | 19.09 | % |  | $                   | 0.99      |   |                     | $ | 0.11      |    |  | 11.11  | % 
|Diluted                        |  |                          | 1.27       |   |      |   | 1.07       |                     |  |   | 0.20                |   |  | 18.69 | % |  |                     | 0.96      |   |                     |   | 0.11      |    |  | 11.46  | % 
|Cash Dividends Paid            |  |                          | 0.26       |   |      |   | 0.22       |                     |  |   | 0.04                |   |  | 18.18 | % |  |                     | 0.20      |   |                     |   | 0.02      |    |  | 10.00  | % 
|Weighted Avg. Shares (Basic)   |  |                          | 12,393,980 |   |      |   | 11,156,372 |                     |  |   | 1,237,608           |   |  | 11.09 | % |  |                     | 8,725,276 |   |                     |   | 2,431,096 |    |  | 27.86  | % 
|Weighted Avg. Shares (Diluted) |  |                          | 12,736,545 |   |      |   | 11,482,830 |                     |  |   | 1,253,715           |   |  | 10.92 | % |  |                     | 8,993,842 |   |                     |   | 2,488,988 |    |  | 27.67  | % 
|                               |  |                          |            |   |      |   |           
|RATIOS:                        |  |                          |            |   |      |   |            |                     |  |   |                     |   |  |       |   |  |                     |           |   |                     |   |           |    |  |        |   
|Return on Average Assets       |  |                          | 1.31       | % |      |   | 1.27       | %                   |  |   | 0.04                | % |  | 3.15  | % |  |                     | 1.16      | % |                     |   | 0.11      | %  |  | 9.48   | % 
|Return on Average Equity       |  |                          | 12.80      | % |      |   | 13.04      | %                   |  |   | -0.24               | % |  | -1.84 | % |  |                     | 14.27     | % |                     |   | (1.23     | )% |  | (8.62  | )%
|Dividend Payout Ratio          |  |                          | 19.85      | % |      |   | 20.00      | %                   |  |   | -0.15               | % |  | -0.76 | % |  |                     | 20.20     | % |                     |   | 0.20      | %  |  | (0.99  | )%
|Avg Equity to Avg Assets       |  |                          | 10.21      | % |      |   | 9.72       | %                   |  |   | 0.49                | % |  | 5.04  | % |  |                     | 8.11      | % |                     |   | 1.61      | %  |  | 19.85  | % 
|Net Interest Margin            |  |                          | 4.46       | % |      |   | 4.45       | %                   |  |   | 0.01                | % |  | 0.22  | % |  |                     | 4.40      | % |                     |   | 0.05      | %  |  | 1.14   | % 



Net Interest Income



Net interest income (the difference between the interest earned on assets
and the interest paid on deposits and liabilities) is the principal source of our earnings. Our average net interest rate margin, on a taxable equivalent basis, was 4.46% in 2005, 4.45% in 2004, and 4.40% in 2003. Net interest income before tax
equivalency adjustments in 2005 amounted to $50.4 million, up 27% from $39.6 million in 2004. The 2004 net interest income was up 32% from $30.0 million posted in 2003.



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The following table presents a recap of interest income, adjusted to a tax-equivalent basis, interest
expense and the resulting average net interest rate margins for the past three years.



NET INTEREST INCOME



(Dollars in thousands)



|                              |  |                         |        |      |   |        |  |   |       
|----------------------------- |  | ----------------------- | ------ | ---- | - | ------ |  | - | ------
|                              |  | Years Ended December 31
|                              |  | 2005                    |        | 2004 |   | 2003  
|Interest Income               |  | $                       | 78,192 |      | $ | 53,926 |  | $ | 42,895
|Taxable Equivalent Adjustment |  |                         | 324    |      |   | 365    |  |   | 302   
|                              |  |                         |        |      |   |        |  |   |       
|Interest Income (1)           |  |                         | 78,516 |      |   | 54,291 |  |   | 43,197
|Interest Expense              |  |                         | 27,839 |      |   | 14,372 |  |   | 12,912
|                              |  |                         |        |      |   |        |  |   |       
|Net Interest Income (1)       |  | $                       | 50,677 |      | $ | 39,919 |  | $ | 30,285
|                              |  |                         |        |      |   |        |  |   |       



|                             |  |                                    |   |  |      |   |  |      |  
|---------------------------- |  | ---------------------------------- | - |  | ---- | - |  | ---- | -
|                             |  | Years Ended December 31            |  
|                             |  | 2005                               |   |  | 2004 |   |  | 2003 |  
|                             |  | (As a % of Average Earning Assets) |  
|Interest Income (1)          |  | 6.90                               | % |  | 6.06 | % |  | 6.27 | %
|Interest Expense             |  | 2.44                               | % |  | 1.61 | % |  | 1.87 | %
|                             |  |                                    |   |  |      |   |  |      |  
|Net Interest Rate Margin (1) |  | 4.46                               | % |  | 4.45 | % |  | 4.40 | %
|                             |  |                                    |   |  |      |   |  |      |  

---

|(1) | Reflects taxable equivalent adjustments using the statutory federal income tax rate of 34% in adjusting interest on tax-exempt securities to a fully taxable basis.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Average Earning Assets used in ratios as follows (in thousands): 2005-$1,137,202; 2004-$896,582 and 2003-$689,109.
|--- | ------------------------------------------------------------------------------------------------------------------



2005 compared to 2004:



Net Interest Income.    Net interest income on a
tax-equivalent basis for the year ended December 31, 2005 increased $10.8 million to $50.7 million from $39.9 million for the year ended December 31, 2004. The increase in net interest income was attributable to an increase of $24.2
million, or 45%, in interest income while interest expense only increased $13.4 million during 2005. The net interest rate spread (the yield on earning assets minus the cost of interest-bearing liabilities) decreased 11 basis points from 4.18% for
the year ended December 31, 2004 to 4.07% for the year ended December 31, 2005, while the net interest margin (net interest income on a tax equivalent basis divided by average earning assets) increased 1 basis point from 4.45% to 4.46%
during the same period.



The decrease in the net interest rate
spread in 2005 was primarily reflective of a 95 basis-point increase in the average cost of interest-bearing liabilities, while the yield on earning assets increased 84 basis points. We experienced significant increases in the costs of all deposits
except for savings accounts as our average cost of interest bearing deposits increased to 2.69% in 2005 from 1.73% in 2004. Meanwhile, the loan portfolio yield increased 91 basis points as higher-yielding fixed rate loans repriced at higher rates
and variable rate loans with interest-rate floors began to participate fully in rate increases during 2005.



Interest Income.    Interest income on a tax-equivalent basis was $78.5 million for the year ended December 31, 2005, an
increase of $24.2 million from $54.3 million for the year ended December 31, 2004. Interest income on loans and investment securities increased $23.3 million and $0.5 million, respectively, for the year ended December 31, 2005 compared to
the year ended December 31, 2004.



The increase in
interest income on loans for the year ended December 31, 2005 compared to the year ended December 31, 2004 was primarily attributable to an increase in average balance of $222.0 million, of which



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$72.8 million was attributable to the inclusion of seven months of loan balances acquired from SouthBank in May 2005. Excluding the loan balances acquired
from SouthBank, the $149.2 million increase in average loans is attributable to continued strong loan growth in our core markets.



Interest income on investment securities increased $0.5 million as a result of an increase of $12.2 million in average balance for the year ended
December 31, 2005 compared to the year ended December 31, 2004, and an increase of 1 basis point in the average yield on these securities during the same period. Excluding investment securities acquired from SouthBank, the average balance
of investment securities increased $2.1 million.



The primary
reason for the increase in the average balance of investment securities of $2.1 million was to maintain the level of investment securities as a percent of total assets, so that on-balance sheet liquidity would keep pace with loan growth. At
December 31, 2005, investment securities equaled 9.1% of assets, as compared to 10.5% at December 31, 2004.



Overall, the yield on interest-earning assets increased 84 basis points from 6.06% during the year ended December 31, 2004 to 6.90% for the year
ended December 31, 2004.



Interest
Expense.    Interest expense increased $13.4 million, to $27.8 million, for the year ended December 31, 2005, from $14.4 million for the year ended December 31, 2004. The increase in interest expense resulted
primarily from an increase of $12.0 million in interest expense on deposits. Excluding seven months of expense resulting from our acquisition of SouthBank, interest expense increased $10.5 million and interest expense on deposits increased $9.3
million. The average cost of interest-bearing deposits, the largest component of interest expense, increased by 96 basis points and the average balance increased by $206.7 million. Of the $206.7 million increase in average balances, interest-bearing
NOW accounts increased $76.9 million, money market accounts decreased $5.2 million and savings accounts increased $0.7 million. The increase in the average balance for interest-bearing NOW accounts is primarily due to the introduction of the
Premium Select Checking account, which offers a competitive interest rate and the benefits of a traditional checking account. Given the advantages and attractive interest rate offered with the Premium Select Checking account, some of our customers
transferred their deposits from our traditional money market account to the Premium Select Checking account. Time deposits, the largest category of deposits, increased $134.3 million, primarily due to the increase in brokered and internet-based
CDs to fund loan growth in the Fairfield Interim Lending (Acquisition and Development) division.



The interest expense on borrowed funds in 2005 increased by $1.4 million or 54% when compared to 2004. This increase was caused by an increase of $9.2
million or 10.1% in the average balance of borrowed funds combined with an increase of 117 basis points to 4.11% in the average costs of borrowings.



2004 compared to 2003:



Net Interest Income.    Net interest income on a tax-equivalent basis for the year ended December 31, 2004 increased $9.6
million to $39.9 million from $30.3 million for the year ended December 31, 2003. The increase in net interest income was attributable to an increase of $11.1 million, or 26%, in interest income for the year ended December 31, 2004
compared to the year ended December 31, 2003. The net interest rate spread (the yield on earning assets minus the cost of interest-bearing liabilities) increased 6 basis points from 4.12% for the year ended December 31, 2003 to 4.18% for
the year ended December 31, 2004, while the net interest margin (net interest income on a tax equivalent basis divided by average earning assets) increased 5 basis points from 4.40% to 4.45% during the same period.



The increase in both the net interest rate spread and net interest rate
margin in 2004 was primarily reflective of a 27 basis-point decline in the average cost of interest-bearing liabilities, while the yield on earning assets declined 21 basis points. Although the average cost of interest-bearing demand deposits and
money market accounts was virtually unchanged, we were able to significantly reduce the costs of time deposits as longer-term, higher rate time deposits matured in a lower rate environment and we were able to reprice the renewals at lower



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rates. New time deposit money raised in the lower rate environment also reduced the weighted average cost of the total time deposit portfolio. Meanwhile, the
loan portfolio yield declined 25 basis points as higher-yielding fixed rate loans repriced at lower rates and variable rate loans with interest-rate floors did not participate fully in rate increases in the second half of 2004.



Interest Income.    Interest income on a
tax-equivalent basis was $54.3 million for the year ended December 31, 2004, an increase of $11.1 million from $43.2 million for the year ended December 31, 2003. Interest income on loans and investment securities increased $9.8 million
and $1.2 million, respectively, for the year ended December 31, 2004 compared to the year ended December 31, 2003.



The increase in interest income on loans for the year ended December 31, 2004 compared to the year ended December 31, 2003 was primarily
attributable to an increase in average balance of $178.0 million, of which $21.1 million was attributable to including in 2004 a full year of loan balances acquired from Security Bank of Jones County in May 2003. The year ended December 31,
2003 included 7 months of these balances.



Interest income on
investment securities increased $1.2 million as a result of an increase of $26.2 million in average balance for the year ended December 31, 2004 compared to the year ended December 31, 2003, and an increase of 18 basis points in the
average yield on these securities during the same period.



The
primary reason for the increase in the average balance of investment securities of $26.2 million was to maintain the level of investment securities as a percent of total assets, so that on-balance sheet liquidity would keep pace with loan growth. At
December 31, 2004, investment securities equaled 10.5% of assets, as compared to 11.3% at December 31, 2003.



Overall, the yield on interest-earning assets declined 21 basis points from 6.27% during the year ended December 31, 2003 to 6.06% for the year ended
December 31, 2003.



Interest
Expense.    Interest expense increased $1.5 million, to $14.4 million, for the year ended December 31, 2004, from $12.9 million for the year ended December 31, 2003. The increase in interest expense resulted
primarily from an increase of $1.4 million in interest expense on deposits. The average cost of interest-bearing deposits, the largest component of interest expense, declined by 31 basis points and the average balance increased by $169.3 million. Of
the $169.3 million increase in average balances, interest-bearing accounts increased $22.9 million, money market accounts increased $14.1 million and savings accounts increased $5.1 million, primarily as a result of our increased marketing
efforts to bring in low cost deposits. Time deposits, the largest category of deposits, increased $127.2 million; primarily due to the increase in brokered and internet-based CDs to fund loan growth in the Fairfield Interim Lending
(Acquisition and Development) division.



The interest expense
on borrowed funds in 2004 was relatively unchanged when compared to 2003. A decline in the average balance in borrowed funds of $4.2 million was offset by an increase in the average cost of borrowed funds of 20 basis points, which resulted in a net
increase in the cost of other borrowings of $62,000 when comparing 2004 to 2003.



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Interest Rates and Interest Differential



The following tables set forth our average balance sheets, interest and yield information on a taxable equivalent basis for
the years ended December 31, 2005, 2004, and 2003.



AVERAGE BALANCE
SHEETS, INTEREST AND YIELDS



(Tax equivalent basis, dollars in
thousands)



|                                                       |  |                             |           |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|------------------------------------------------------ |  | --------------------------- | --------- | -------- | --------------------------- | ---------- | ---- | --------------------------- | -------------- | - | -------- |  | ---------- |  | ---- | -------------- |  | -------- | ------- | ---------- | ------ |  | ---- | -
|                                                       |  | Year EndedDecember 31, 2005 |           |          | Year EndedDecember 31, 2004 |            |      | Year EndedDecember 31, 2003 |               
|                                                       |  | AverageBalance              |           | Interest |                             | Yield/Rate |      |                             | AverageBalance |   | Interest |  | Yield/Rate |  |      | AverageBalance |  | Interest |         | Yield/Rate |       
|ASSETS:                                                |  |                             |           |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Loans, Net of Unearned Income: (a) (b)                 |  |                             |           |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Taxable                                                |  | $                           | 997,526   |          | 72,599                      |            | 7.28 | %                           |                | $ | 775,274  |  | 49,303     |  | 6.36 | %              |  | $        | 574,706 |            | 38,328 |  | 6.67 | %
|Tax Exempt (c)                                         |  |                             | 0         |          | 0                           |            | 0    |                             |                |   | 0        |  | 0          |  | 0    |                |  |          | 0       |            | 0      |  | 0    |  
|Loans Held for Sale                                    |  |                             | 6,726     |          | 373                         |            | 5.55 |                             |                |   | 6,955    |  | 419        |  | 6.02 |                |  |          | 29,518  |            | 1,611  |  | 5.46 |  
|                                                       |  |                             |           |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Net Loans                                              |  |                             | 1,004,252 |          | 72,972                      |            | 7.27 |                             |                |   | 782,229  |  | 49,722     |  | 6.36 |                |  |          | 604,224 |            | 39,939 |  | 6.61 |  
|                                                       |  |                             |           |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Investment Securities: (d)                             |  |                             |           |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Taxable                                                |  |                             | 101,992   |          | 4,007                       |            | 3.93 |                             |                |   | 88,247   |  | 3,352      |  | 3.80 |                |  |          | 65,001  |            | 2,296  |  | 3.53 |  
|Tax Exempt (c)                                         |  |                             | 14,680    |          | 947                         |            | 6.45 |                             |                |   | 16,206   |  | 1,077      |  | 6.65 |                |  |          | 13,341  |            | 888    |  | 6.66 |  
|                                                       |  |                             |           |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Total Investment Securities                            |  |                             | 116,672   |          | 4,954                       |            | 4.25 |                             |                |   | 104,453  |  | 4,429      |  | 4.24 |                |  |          | 78,342  |            | 3,184  |  | 4.06 |  
|                                                       |  |                             |           |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Interest Earning Deposits                              |  |                             | 2,950     |          | 112                         |            | 3.80 |                             |                |   | 1,539    |  | 25         |  | 1.62 |                |  |          | 1,115   |            | 10     |  | 0.90 |  
|Federal Funds Sold                                     |  |                             | 13,328    |          | 478                         |            | 3.59 |                             |                |   | 8,361    |  | 115        |  | 1.38 |                |  |          | 5,428   |            | 64     |  | 1.18 |  
|                                                       |  |                             |           |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Total Interest Earning Assets                          |  |                             | 1,137,202 |          | 78,516                      |            | 6.90 |                             |                |   | 896,582  |  | 54,291     |  | 6.06 |                |  |          | 689,109 |            | 43,197 |  | 6.27 |  
|                                                       |  |                             |           |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Non-Earning Assets                                     |  |                             | 100,831   |          |                             |            |      |                             |                |   | 75,509   |  |            |  |      |                |  |          | 57,521  |            |        |  |      |  
|                                                       |  |                             |           |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Total Assets                                           |  | $                           | 1,238,033 |          |                             |            |      |                             |                | $ | 972,091  |  |            |  |      |                |  | $        | 746,630 |            |        |  |      |  
|                                                       |  |                             |           |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|                                                       |  |                             |          
|                                                       |  | Year EndedDecember 31, 2005 |           |          | Year EndedDecember 31, 2004 |            |      | Year EndedDecember 31, 2003 |               
|                                                       |  | AverageBalance              |           | Interest |                             | Yield/Rate |      |                             | AverageBalance |   | Interest |  | Yield/Rate |  |      | AverageBalance |  | Interest |         | Yield/Rate |       
|LIABILITIES AND STOCKHOLDERS EQUITY:                  |  |                             |           |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Interest Bearing Demand Deposits                       |  | $                           | 158,264   |          | 3,043                       |            | 1.92 | %                           |                | $ | 81,385   |  | 383        |  | 0.47 | %              |  | $        | 58,498  |            | 263    |  | 0.45 | %
|Money Market Accounts                                  |  |                             | 80,640    |          | 1,350                       |            | 1.67 |                             |                |   | 85,886   |  | 865        |  | 1.01 |                |  |          | 71,802  |            | 743    |  | 1.03 |  
|Savings Deposits                                       |  |                             | 19,969    |          | 102                         |            | 0.51 |                             |                |   | 19,299   |  | 96         |  | 0.50 |                |  |          | 14,166  |            | 88     |  | 0.62 |  
|Time Deposits of $100,000 or More                      |  |                             | 317,143   |          | 10,395                      |            | 3.28 |                             |                |   | 195,300  |  | 3,679      |  | 1.88 |                |  |          | 117,634 |            | 2,683  |  | 2.28 |  
|Other Time Deposits                                    |  |                             | 305,609   |          | 8,837                       |            | 2.89 |                             |                |   | 293,039  |  | 6,679      |  | 2.28 |                |  |          | 243,554 |            | 6,527  |  | 2.68 |  
|                                                       |  |                             |           |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Total Interest Bearing Deposits                        |  |                             | 881,625   |          | 23,727                      |            | 2.69 |                             |                |   | 674,909  |  | 11,702     |  | 1.73 |                |  |          | 505,654 |            | 10,304 |  | 2.04 |  
|                                                       |  |                             |           |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Federal Funds Purchased and Repurchase Agreements Sold |  |                             | 16,294    |          | 528                         |            | 3.24 |                             |                |   | 10,871   |  | 145        |  | 1.33 |                |  |          | 10,272  |            | 105    |  | 1.02 |  
|Other Borrowed Money & FHLB                            |  |                             | 83,755    |          | 3,584                       |            | 4.28 |                             |                |   | 80,003   |  | 2,525      |  | 3.16 |                |  |          | 84,290  |            | 2,499  |  | 2.96 |  
|Demand Note U.S. Treasury                              |  |                             | 0         |          | 0                           |            | 0    |                             |                |   | 21       |  | 0          |  | 0.00 |                |  |          | 553     |            | 4      |  | 0.72 |  
|                                                       |  |                             |           |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Total Borrowed Funds                                   |  |                             | 100,049   |          | 4,112                       |            | 4.11 |                             |                |   | 90,895   |  | 2,670      |  | 2.94 |                |  |          | 95,115  |            | 2,608  |  | 2.74 |  
|                                                       |  |                             |           |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Total Interest Bearing Funding                         |  |                             | 981,674   |          | 27,839                      |            | 2.83 |                             |                |   | 765,804  |  | 14,372     |  | 1.88 |                |  |          | 600,769 |            | 12,912 |  | 2.15 |  
|                                                       |  |                             |           |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Non-Int. Bearing Demand Deposits                       |  |                             | 119,867   |          |                             |            |      |                             |                |   | 105,695  |  |            |  |      |                |  |          | 80,472  |            |        |  |      |  
|Other Liabilities                                      |  |                             | 10,031    |          |                             |            |      |                             |                |   | 6,139    |  |            |  |      |                |  |          | 4,808   |            |        |  |      |  
|Stockholders Equity                                   |  |                             | 126,461   |          |                             |            |      |                             |                |   | 94,453   |  |            |  |      |                |  |          | 60,581  |            |        |  |      |  
|                                                       |  |                             |           |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Total Liabilities & Stockholders Equity               |  | $                           | 1,238,033 |          |                             |            |      |                             |                | $ | 972,091  |  |            |  |      |                |  | $        | 746,630 |            |        |  |      |  
|                                                       |  |                             |           |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Interest Rate Spread                                   |  |                             |           |          |                             |            | 4.07 | %                           |                |   |          |  |            |  | 4.18 | %              |  |          |         |            |        |  | 4.12 | %
|                                                       |  |                             |           |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Net Interest Income                                    |  |                             |           |          | 50,677                      |            |      |                             |                |   |          |  | 39,919     |  |      |                |  |          |         |            | 30,285 |  |      |  
|                                                       |  |                             |           |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Net Interest Margin                                    |  |                             |           |          |                             |            | 4.46 | %                           |                |   |          |  |            |  | 4.45 | %              |  |          |         |            |        |  | 4.40 | %
|                                                       |  |                             |           |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  



39



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##### Table of Contents

---

|Notes | to Table of Average Balance Sheets, Interest and Yields:
|----- | --------------------------------------------------------



|(a) | Interest income includes loan fees as follows (in thousands): 2005$4,367; 2004-$3,287 and 2003-$2,586.
|--- | -------------------------------------------------------------------------------------------------------



|(b) | Average loans are shown net of unearned income. Nonaccrual loans are included.
|--- | ------------------------------------------------------------------------------



|(c) | Reflects taxable equivalent adjustments using the statutory income tax rate of 34% in adjusting interest on tax exempt investment securities to a fully taxable basis. The taxable
equivalent adjustment included above amounts to (in thousands) $324 for 2005; $365 for 2004; and $302 for 2003.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(d) | Investment securities are stated at amortized or accreted cost.
|--- | ---------------------------------------------------------------



The following table provides a detailed analysis of the changes in interest income and interest expense due to changes in rate and volume for the year
2005 compared to the year 2004 and for the year 2004 compared to the year 2003.



RATE / VOLUME ANALYSIS



(In thousands)



|                                                       |  |                                        |        |   |                                        |   |        |           |  |   |        |   |  |      |        |   |           |   |        |   |  |   |        |  
|------------------------------------------------------ |  | -------------------------------------- | ------ | - | -------------------------------------- | - | ------ | --------- |  | - | ------ | - |  | ---- | ------ | - | --------- | - | ------ | - |  | - | ------ | -
|                                                       |  | For the Years Ended December 31        |       
|                                                       |  | 2005 Compared to 2004Change Due To (a) |        |   | 2004 Compared to 2003Change Due To (a) |  
|                                                       |  | Volume                                 |        |   | Rate                                   |   |        | NetChange |  |   | Volume |   |  | Rate |        |   | NetChange |  
|INTEREST EARNED ON:                                    |  |                                        |        |   |                                        |   |        |           |  |   |        |   |  |      |        |   |           |   |        |   |  |   |        |  
|Taxable Loans, Net                                     |  | $                                      | 14,134 |   |                                        | $ | 9,162  |           |  | $ | 23,296 |   |  | $    | 13,376 |   |           | $ | (2,401 | ) |  | $ | 10,975 |  
|Tax Exempt Loans (b)                                   |  |                                        | 0      |   |                                        |   | 0      |           |  |   | 0      |   |  |      | 0      |   |           |   | 0      |   |  |   | 0      |  
|Loans Held for Sale                                    |  |                                        | (14    | ) |                                        |   | (32    | )         |  |   | (46    | ) |  |      | (1,231 | ) |           |   | 39     |   |  |   | (1,192 | )
|Taxable Investment Securities                          |  |                                        | 522    |   |                                        |   | 133    |           |  |   | 655    |   |  |      | 821    |   |           |   | 235    |   |  |   | 1,056  |  
|Tax Exempt Investment Securities (b)                   |  |                                        | (101   | ) |                                        |   | (29    | )         |  |   | (130   | ) |  |      | 191    |   |           |   | (2     | ) |  |   | 189    |  
|Interest Earning Deposits                              |  |                                        | 23     |   |                                        |   | 64     |           |  |   | 87     |   |  |      | 4      |   |           |   | 11     |   |  |   | 15     |  
|Federal Funds Sold                                     |  |                                        | 68     |   |                                        |   | 295    |           |  |   | 363    |   |  |      | 35     |   |           |   | 16     |   |  |   | 51     |  
|                                                       |  |                                        |        |   |                                        |   |        |           |  |   |        |   |  |      |        |   |           |   |        |   |  |   |        |  
|Total Interest Income                                  |  |                                        | 14,632 |   |                                        |   | 9,593  |           |  |   | 24,225 |   |  |      | 13,196 |   |           |   | (2,102 | ) |  |   | 11,094 |  
|                                                       |  |                                        |        |   |                                        |   |        |           |  |   |        |   |  |      |        |   |           |   |        |   |  |   |        |  
|                                                       |  |                                        |        |   |                                        |  
|INTEREST PAID ON:                                      |  |                                        |        |   |                                        |   |        |           |  |   |        |   |  |      |        |   |           |   |        |   |  |   |        |  
|Interest Bearing Demand Deposits                       |  |                                        | 362    |   |                                        |   | 2,298  |           |  |   | 2,660  |   |  |      | 103    |   |           |   | 17     |   |  |   | 120    |  
|Money Market Accounts                                  |  |                                        | (53    | ) |                                        |   | 538    |           |  |   | 485    |   |  |      | 146    |   |           |   | (24    | ) |  |   | 122    |  
|Savings Deposits                                       |  |                                        | 3      |   |                                        |   | 3      |           |  |   | 6      |   |  |      | 32     |   |           |   | (24    | ) |  |   | 8      |  
|Time Deposits of $100,000 or More                      |  |                                        | 2,295  |   |                                        |   | 4,421  |           |  |   | 6,716  |   |  |      | 1,771  |   |           |   | (775   | ) |  |   | 996    |  
|Other Time Deposits                                    |  |                                        | 286    |   |                                        |   | 1,872  |           |  |   | 2,158  |   |  |      | 1,326  |   |           |   | (1,174 | ) |  |   | 152    |  
|Federal Funds Purchased and Repurchase Agreements Sold |  |                                        | 72     |   |                                        |   | 311    |           |  |   | 383    |   |  |      | 6      |   |           |   | 34     |   |  |   | 40     |  
|FHLB & Other Borrowings                                |  |                                        | 118    |   |                                        |   | 941    |           |  |   | 1,059  |   |  |      | (127   | ) |           |   | 153    |   |  |   | 26     |  
|Demand Note U.S. Treasury                              |  |                                        | 0      |   |                                        |   | 0      |           |  |   | 0      |   |  |      | (4     | ) |           |   | 0      |   |  |   | (4     | )
|                                                       |  |                                        |        |   |                                        |   |        |           |  |   |        |   |  |      |        |   |           |   |        |   |  |   |        |  
|                                                       |  |                                        |        |   |                                        |  
|Total Interest Expense                                 |  |                                        | 3,083  |   |                                        |   | 10,384 |           |  |   | 13,467 |   |  |      | 3,253  |   |           |   | (1,793 | ) |  |   | 1,460  |  
|                                                       |  |                                        |        |   |                                        |   |        |           |  |   |        |   |  |      |        |   |           |   |        |   |  |   |        |  
|                                                       |  |                                        |        |   |                                        |  
|Net Interest Income                                    |  | $                                      | 11,549 |   |                                        | $ | (791   | )         |  | $ | 10,758 |   |  | $    | 9,943  |   |           | $ | (309   | ) |  | $ | 9,634  |  
|                                                       |  |                                        |        |   |                                        |   |        |           |  |   |        |   |  |      |        |   |           |   |        |   |  |   |        |  

---

|(a) | The change in interest due to both rate and volume has been allocated to the rate component.
|--- | --------------------------------------------------------------------------------------------



|(b) | Reflects taxable equivalent adjustments using the statutory federal income tax rate of 34% in adjusting interest on tax exempt investment securities to a fully taxable basis.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Provision for Loan Losses



The provision for loan losses is a charge to current earnings taken to increase the allowance for loan losses. The general
nature of lending results in periodic charge-offs of non-performing loans, in spite of our continuous loan review process, credit standards, and internal controls. During 2005 and 2004, we factored into our provision for loan losses a subjective
assessment of the economic downturns effect on the cash flow of some of our borrowers. We expensed $2.83 million in 2005, $2.82 in 2004, and $2.86 million in 2003 for loan loss provisions. The slight decrease in the provision for loan losses
in 2005 was primarily due to a low level of net charge-offs as compared to the Companys five year average of net charge-offs. Our net charge-offs as a percentage of average loans outstanding were 0.12% in 2005, 0.17% in 2004, and 0.32% in
2003. The 2005 level of net charge-offs to average loans of 0.12% was low compared to the five-year average of 0.22%. Amounts of net loans charged off during recent years are reasonable by industry standards and are below peer group institutions of
similar asset size. We incurred net charge-offs of $1.22 million in 2005, compared to $1.32 million during 2004, and $1.82 million during 2003. The allowance for loan losses on December 31, 2005 stood at 1.26% of outstanding net loans and loans
held for sale, down from 1.28% at December 31, 2004 and 1.33% at December 31, 2003.



Non-interest Income



Non-interest income of $16.6 million in 2005 represented an increase of 12.2% or $1.8 million from $14.8 million recorded in 2004. Service charges on deposit accounts, which constitute 44.3% of non-interest income, are the largest component
of non-interest income, generating $7.4 million for 2005, up from $6.5 million in 2004. Service charges on deposit accounts, which are primarily fees generated from our courtesy overdraft protection product, accounted for $5.3 million, or 72.4% of
all service charges. The courtesy overdraft product completed its fourth full year in 2005, but its growth was enhanced by the success of the high-performance checking program. The increase in fees from our courtesy overdraft product is also
attributable to the significant growth in deposits during the year of $182.1 million or 22%, excluding the impact of the SouthBank and Rivoli BanCorp acquisitions. The second largest component of non-interest income is mortgage banking income, which
constituted 27.5% of non-interest income during 2005. Mortgage banking income decreased $392,000 from $4.9 million in 2004 to $4.5 million in 2005. The decrease in mortgage banking income is attributable to the slow down in the refinance market
resulting from increasing interest rates. This decline was offset by commissions and fees generated by Fairfield Financials interim lending division. Commissions and fees increased 5.4% to $2.5 million over amounts reported in 2004.



Non-interest Expense



Non-interest expense was $38.6 million for the year ended 2005, up 19.5% or
$6.3 million, from $32.3 million in 2004. Salaries and benefits, the largest component of non-interest expense, constituting 59.2% of non-interest expense, increased $4.2 million to $22.8 million in 2005 from $18.6 million in 2004. Approximately
$1.1 million of the increase in salaries and benefits is related to the hiring of approximately twenty employees in connection with the acquisition of SouthBank. The remainder of the increase is due to normal salary and benefit increases from merit
increases and the hiring of new employees.



All other operating
overhead increased by $2.2 million or 15.8% during 2005. Excluding SouthBanks operating results for the seven months ended December 31, 2005, other operating overhead increased approximately $1,402,000 or 10.3%. The primary increases were
due to the fees associated with and expenses incurred by the Company in connection with the acquisitions of SouthBank and Rivoli BanCorp as well as increases in directors fees and audit and accounting fees primarily attributable to compliance
with Section 404 of the Sarbanes-Oxley Act of 2002.



Income Tax Expense



Our consolidated federal and state income tax expense
increased to $9.3 million in 2005, up from $6.9 million in 2004 and $4.9 million in 2003. The effective tax rate was 36.5%, 36.0%, and 36.4% in 2005, 2004 and



41



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##### Table of Contents

2003, respectively. Our effective tax rate has historically been at or just below the maximum corporate federal and state income tax rates due to the
relatively small percentage of tax-free investments carried on the balance sheet. See Note 8 to our Consolidated Financial Statements for a detailed analysis of income taxes.



Quarterly Results of Operations



The following table provides income statement recaps and earnings per share data for each of the four quarters for the years ended December 31, 2005
and 2004.



QUARTERLY RESULTS OF OPERATIONS



(Dollars in thousands, except per share data)



|                            |  |                    |        |          |   |         |  |         |        |            |   |        |  |   |       
|--------------------------- |  | ------------------ | ------ | -------- | - | ------- |  | ------- | ------ | ---------- | - | ------ |  | - | ------
|                            |  | Three Months Ended |        |         
|                            |  | Dec. 31            |        | Sept. 30 |   | June 30 |  | Mar. 31 |        | Total Year
|For The Year 2005           |  |                    |        |          |   |         |  |         |        |            |   |        |  |   |       
|Interest Income             |  | $                  | 22,860 |          | $ | 21,444  |  | $       | 18,023 |            | $ | 15,865 |  | $ | 78,192
|Interest Expense            |  |                    | 8,864  |          |   | 7,976   |  |         | 6,162  |            |   | 4,837  |  |   | 27,839
|                            |  |                    |        |          |   |         |  |         |        |            |   |        |  |   |       
|Net Interest Income         |  |                    | 13,996 |          |   | 13,468  |  |         | 11,861 |            |   | 11,028 |  |   | 50,353
|Provision For Loan Losses   |  |                    | 630    |          |   | 624     |  |         | 804    |            |   | 775    |  |   | 2,833 
|Noninterest Income          |  |                    | 4,097  |          |   | 4,410   |  |         | 4,582  |            |   | 3,514  |  |   | 16,603
|Noninterest Expense         |  |                    | 10,577 |          |   | 10,256  |  |         | 9,332  |            |   | 8,463  |  |   | 38,628
|                            |  |                    |        |          |   |         |  |         |        |            |   |        |  |   |       
|Income Before Income Taxes  |  |                    | 6,886  |          |   | 6,998   |  |         | 6,307  |            |   | 5,304  |  |   | 25,495
|Provision For Income Taxes  |  |                    | 2,507  |          |   | 2,509   |  |         | 2,397  |            |   | 1,897  |  |   | 9,310 
|                            |  |                    |        |          |   |         |  |         |        |            |   |        |  |   |       
|Net Income                  |  | $                  | 4,379  |          | $ | 4,489   |  | $       | 3,910  |            | $ | 3,407  |  | $ | 16,185
|                            |  |                    |        |          |   |         |  |         |        |            |   |        |  |   |       
|Net Income per Common Share |  |                    |        |          |   |         |  |         |        |            |   |        |  |   |       
|Basic                       |  | $                  | 0.34   |          | $ | 0.36    |  | $       | 0.32   |            | $ | 0.29   |  | $ | 1.31  
|Diluted                     |  |                    | 0.33   |          |   | 0.33    |  |         | 0.32   |            |   | 0.29   |  |   | 1.27  



|                            |  |                    |        |          |   |         |  |         |        |            |   |        |  |   |       
|--------------------------- |  | ------------------ | ------ | -------- | - | ------- |  | ------- | ------ | ---------- | - | ------ |  | - | ------
|                            |  | Three Months Ended |        |         
|                            |  | Dec. 31            |        | Sept. 30 |   | June 30 |  | Mar. 31 |        | Total Year
|For The Year 2004           |  |                    |        |          |   |         |  |         |        |            |   |        |  |   |       
|Interest Income             |  | $                  | 14,717 |          | $ | 13,824  |  | $       | 13,057 |            | $ | 12,328 |  | $ | 53,926
|Interest Expense            |  |                    | 4,135  |          |   | 3,669   |  |         | 3,294  |            |   | 3,275  |  |   | 14,373
|                            |  |                    |        |          |   |         |  |         |        |            |   |        |  |   |       
|Net Interest Income         |  |                    | 10,582 |          |   | 10,155  |  |         | 9,763  |            |   | 9,053  |  |   | 39,553
|Provision For Loan Losses   |  |                    | 852    |          |   | 529     |  |         | 718    |            |   | 720    |  |   | 2,819 
|Noninterest Income          |  |                    | 4,130  |          |   | 3,688   |  |         | 3,640  |            |   | 3,356  |  |   | 14,814
|Noninterest Expense         |  |                    | 8,592  |          |   | 8,206   |  |         | 7,946  |            |   | 7,545  |  |   | 32,289
|                            |  |                    |        |          |   |         |  |         |        |            |   |        |  |   |       
|Income Before Income Taxes  |  |                    | 5,268  |          |   | 5,108   |  |         | 4,739  |            |   | 4,144  |  |   | 19,259
|Provision For Income Taxes  |  |                    | 1,851  |          |   | 1,898   |  |         | 1,729  |            |   | 1,462  |  |   | 6,940 
|                            |  |                    |        |          |   |         |  |         |        |            |   |        |  |   |       
|Net Income                  |  | $                  | 3,417  |          | $ | 3,210   |  | $       | 3,010  |            | $ | 2,682  |  | $ | 12,319
|                            |  |                    |        |          |   |         |  |         |        |            |   |        |  |   |       
|Net Income per Common Share |  |                    |        |          |   |         |  |         |        |            |   |        |  |   |       
|Basic                       |  | $                  | 0.29   |          | $ | 0.28    |  | $       | 0.27   |            | $ | 0.26   |  | $ | 1.10  
|Diluted                     |  |                    | 0.29   |          |   | 0.27    |  |         | 0.27   |            |   | 0.24   |  |   | 1.07  



42



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##### Table of Contents

Distribution of Assets, Liabilities & Shareholders Equity



The following table presents condensed average balance sheets for the
periods indicated, and the percentages of each of these categories to total average assets for each period.



AVERAGE BALANCE SHEETS



(Dollars in
thousands)



|                              |  |                         |           |   |   |        |    |      |   |         |   |  |        |      |  |   |         |   |  |        |   
|----------------------------- |  | ----------------------- | --------- | - | - | ------ | -- | ---- | - | ------- | - |  | ------ | ---- |  | - | ------- | - |  | ------ | --
|                              |  | Years Ended December 31 |          
|                              |  | 2005                    |           |   | % |        |    | 2004 |   |         | % |  |        | 2003 |  |   | %       |  
|ASSETS:                       |  |                         |           |   |   |        |    |      |   |         |   |  |        |      |  |   |         |   |  |        |   
|Cash & Due From Banks         |  | $                       | 32,483    |   |   | 2.62   | %  |      | $ | 26,089  |   |  | 2.68   | %    |  | $ | 22,255  |   |  | 2.98   | % 
|Time Deposits-Other Banks     |  |                         | 2,950     |   |   | 0.24   | %  |      |   | 1,539   |   |  | 0.16   | %    |  |   | 1,115   |   |  | 0.15   | % 
|Federal Funds Sold            |  |                         | 13,328    |   |   | 1.08   | %  |      |   | 8,361   |   |  | 0.86   | %    |  |   | 5,428   |   |  | 0.73   | % 
|Taxable Investment Securities |  |                         | 101,992   |   |   | 8.24   | %  |      |   | 88,247  |   |  | 9.08   | %    |  |   | 65,001  |   |  | 8.70   | % 
|Non-Taxable Inv. Securities   |  |                         | 14,680    |   |   | 1.19   | %  |      |   | 16,206  |   |  | 1.67   | %    |  |   | 13,341  |   |  | 1.79   | % 
|Loans, Net of Interest        |  |                         | 997,526   |   |   | 80.56  | %  |      |   | 775,274 |   |  | 79.75  | %    |  |   | 574,706 |   |  | 76.97  | % 
|Loans Held for Sale           |  |                         | 6,726     |   |   | 0.54   | %  |      |   | 6,955   |   |  | 0.72   | %    |  |   | 29,518  |   |  | 3.95   | % 
|Allowance for Loan Losses     |  |                         | (12,583   | ) |   | (1.02  | )% |      |   | (9,970  | ) |  | (1.03  | )%   |  |   | (7,489  | ) |  | (1.00  | )%
|Bank Premises & Equipment     |  |                         | 21,367    |   |   | 1.73   | %  |      |   | 18,182  |   |  | 1.87   | %    |  |   | 15,432  |   |  | 2.07   | % 
|Other Real Estate             |  |                         | 1,680     |   |   | 0.14   | %  |      |   | 2,330   |   |  | 0.24   | %    |  |   | 2,982   |   |  | 0.40   | % 
|Intangible Assets             |  |                         | 43,025    |   |   | 3.48   | %  |      |   | 28,643  |   |  | 2.95   | %    |  |   | 13,943  |   |  | 1.87   | % 
|Other Assets                  |  |                         | 14,859    |   |   | 1.20   | %  |      |   | 10,235  |   |  | 1.05   | %    |  |   | 10,398  |   |  | 1.39   | % 
|                              |  |                         |           |   |   |        |    |      |   |         |   |  |        |      |  |   |         |   |  |        |   
|TOTAL ASSETS                  |  | $                       | 1,238,033 |   |   | 100.00 | %  |      | $ | 972,091 |   |  | 100.00 | %    |  | $ | 746,630 |   |  | 100.00 | % 
|                              |  |                         |           |   |   |        |    |      |   |         |   |  |        |      |  |   |         |   |  |        |   



|                                                       |  |                         |           |   |        |   |      |   |         |  |        |      |  |   |         |  |        |  
|------------------------------------------------------ |  | ----------------------- | --------- | - | ------ | - | ---- | - | ------- |  | ------ | ---- |  | - | ------- |  | ------ | -
|                                                       |  | Years Ended December 31 |          
|                                                       |  | 2005                    |           | % |        |   | 2004 |   | %       |  |        | 2003 |  | % |        
|LIABILITIES & STOCKHOLDERS EQUITY:                    |  |                         |           |   |        |   |      |   |         |  |        |      |  |   |         |  |        |  
|Deposits:                                              |  |                         |           |   |        |   |      |   |         |  |        |      |  |   |         |  |        |  
|Non-Interest Bearing                                   |  | $                       | 119,867   |   | 9.68   | % |      | $ | 105,695 |  | 10.87  | %    |  | $ | 80,472  |  | 10.78  | %
|Interest Bearing                                       |  |                         | 881,625   |   | 71.21  | % |      |   | 674,909 |  | 69.43  | %    |  |   | 505,654 |  | 67.73  | %
|                                                       |  |                         |           |   |        |  
|Federal Funds Purchased and Repurchase Agreements Sold |  |                         | 16,294    |   | 1.32   | % |      |   | 10,871  |  | 1.12   | %    |  |   | 10,272  |  | 1.38   | %
|FHLB & Other Borrowings                                |  |                         | 83,755    |   | 6.77   | % |      |   | 80,003  |  | 8.23   | %    |  |   | 84,290  |  | 11.29  | %
|Demand Notes-US Treasury                               |  |                         | 0         |   | 0.00   | % |      |   | 21      |  | 0.00   | %    |  |   | 553     |  | 0.07   | %
|Other Liabilities                                      |  |                         | 10,031    |   | 0.81   | % |      |   | 6,139   |  | 0.63   | %    |  |   | 4,808   |  | 0.64   | %
|                                                       |  |                         |           |   |        |   |      |   |         |  |        |      |  |   |         |  |        |  
|Total Liabilities                                      |  |                         | 1,111,572 |   | 89.79  | % |      |   | 877,638 |  | 90.28  | %    |  |   | 686,049 |  | 91.89  | %
|                                                       |  |                         |           |   |        |   |      |   |         |  |        |      |  |   |         |  |        |  
|                                                       |  |                         |           |   |        |  
|Common Stock                                           |  |                         | 10,062    |   | 0.81   | % |      |   | 10,560  |  | 1.09   | %    |  |   | 8,718   |  | 1.17   | %
|Surplus                                                |  |                         | 76,527    |   | 6.18   | % |      |   | 55,491  |  | 5.71   | %    |  |   | 30,494  |  | 4.08   | %
|Undivided Profits                                      |  |                         | 39,872    |   | 3.22   | % |      |   | 28,402  |  | 2.92   | %    |  |   | 21,369  |  | 2.86   | %
|                                                       |  |                         |           |   |        |   |      |   |         |  |        |      |  |   |         |  |        |  
|Total Stockholders Equity                             |  |                         | 126,461   |   | 10.21  | % |      |   | 94,453  |  | 9.72   | %    |  |   | 60,581  |  | 8.11   | %
|                                                       |  |                         |           |   |        |   |      |   |         |  |        |      |  |   |         |  |        |  
|TOTAL LIABILITIES & STOCKHOLDERS EQUITY               |  | $                       | 1,238,033 |   | 100.00 | % |      | $ | 972,091 |  | 100.00 | %    |  | $ | 746,630 |  | 100.00 | %
|                                                       |  |                         |           |   |        |   |      |   |         |  |        |      |  |   |         |  |        |  



As of
December 31, 2005, total assets were $1.66 billion, an increase of $598.9 million, or 56.3% over 2004. Total loans and loans held for sale increased by $424.4 million, or 49.7%, in 2005. The increase in loans was the primary driver of asset
growth during 2005. Excluding the acquisitions of SouthBank and Rivoli BanCorp, total assets increased $205.1 million or 19.3% and loans increased $151.2 million or 17.7%. Excluding



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our acquisitions, to fund our loan and asset growth, we increased deposits by $182.1 million and stockholders equity by $14.2 million.



As of December 31, 2004, total assets were $1.06 billion, an increase of
$152.2 million or 16.7% over year-end 2003 levels. Total loans and loans held for sale increased by $144.2 million or 20.3% in 2004. To fund our asset and loan growth, we increased deposits by $99.2 million, borrowed funds by $21.5 million and
stockholders equity by $30.9 million. Of the total increase in stockholders equity, $19.0 million was attributable to the proceeds of our common stock offering of 1,352,400 shares (adjusted for the May 2005 two-for-one stock split) in
May 2004.



Loan Portfolio



Non-Performing Assets



Nonperforming assets consist of nonaccrual loans, loans restructured due to debtors financial difficulties, loans past
due 90 days or more as to interest or principal and still accruing, and other real estate owned, which is real estate acquired through foreclosure and repossession. Nonaccrual loans are those loans on which recognition of interest income has been
discontinued. Restructured loans generally allow for an extension of the original repayment period or a reduction or deferral of interest or principal because of deterioration in the financial position of the borrower. Loans, whether secured or
unsecured, are generally placed on nonaccrual status when principal and/or interest is 60 days or more past due, or sooner if it is known or expected that the collection of all principal and/or interest is unlikely. Other real estate owned is
initially recorded at the lower of cost or estimated market value at the date of acquisition. A provision for estimated losses is recorded when a subsequent decline in value occurs.



Nonperforming assets at December 31, 2005 amounted to approximately $9.4 million, or 0.74% of total loans and other
real estate. This compares to approximately $8.2 million in nonperforming assets or 0.96% of total loans and other real estate at December 31, 2004.



Nonperforming assets at December 31, 2004 amounted to approximately $8.2 million, which is essentially unchanged from the level at December 31,
2003. However, the level of nonperforming assets as a percentage of total loans and other real estate at December 31, 2004 was down to 0.96% from 1.15% at December 31, 2003.



The following table sets forth our nonaccrual, restructured and past-due loans, along with other real estate owned at the
end of the past five years, and the amount of interest foregone in 2005 on our nonperforming assets.



NONPERFORMING ASSETS



(Dollars in
thousands)



|                                                          |  |              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|--------------------------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|                                                          |  | December 31, |       
|                                                          |  | 2005         |        |   | 2004 |   |        | 2003 |  |   | 2002   |   |  | 2001 |       
|Nonperforming loans:                                      |  |              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Nonaccrual loans                                          |  | $            | 6,997  |   |      | $ | 6,214  |      |  | $ | 4,154  |   |  | $    | 4,349  |   |  | $ | 3,133  |  
|Restructured loans                                        |  |              | 0      |   |      |   | 0      |      |  |   | 0      |   |  |      | 0      |   |  |   | 0      |  
|Loans 90 days or more past due and still accruing         |  |              | 0      |   |      |   | 0      |      |  |   | 27     |   |  |      | 9      |   |  |   | 295    |  
|                                                          |  |              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total nonperforming loans                                 |  |              | 6,997  |   |      |   | 6,214  |      |  |   | 4,181  |   |  |      | 4,358  |   |  |   | 3,428  |  
|Other real estate owned                                   |  |              | 2,394  |   |      |   | 1,991  |      |  |   | 4,007  |   |  |      | 1,903  |   |  |   | 2,705  |  
|                                                          |  |              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total nonperforming assets                                |  | $            | 9,391  |   |      | $ | 8,205  |      |  | $ | 8,188  |   |  | $    | 6,261  |   |  | $ | 6,133  |  
|                                                          |  |              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Nonperforming assets to total loans and other real estate |  |              | 0.74   | % |      |   | 0.96   | %    |  |   | 1.15   | % |  |      | 1.31   | % |  |   | 1.45   | %
|                                                          |  |              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Allowance for loan losses to nonperforming loans          |  |              | 230.78 | % |      |   | 175.46 | %    |  |   | 224.99 | % |  |      | 125.75 | % |  |   | 119.57 | %
|                                                          |  |              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  



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|                                         |  |            |     |              |   |       |  |   |    
|---------------------------------------- |  | ---------- | --- | ------------ | - | ----- |  | - | ---
|                                         |  | Nonaccrual |     | Restructured |   | Total
|Year ended December 31, 2005:            |  |            |     |              |   |       |  |   |    
|Interest at contracted rates (a)         |  | $          | 351 |              | $ | 0     |  | $ | 351
|Interest recorded as income              |  |            | 0   |              |   | 0     |  |   | 0  
|                                         |  |            |     |              |   |       |  |   |    
|Reduction of interest income during 2005 |  | $          | 351 |              | $ | 0     |  | $ | 351
|                                         |  |            |     |              |   |       |  |   |    

---

|(a) | Interest income that would have been recorded, if the loans had been current and in accordance with their original terms.
|--- | -------------------------------------------------------------------------------------------------------------------------



At December 31, 2005 and December 31, 2004, there were no other
loans classified for regulatory purposes as loss or doubtful that are not included in the table above, but there were other loans classified for regulatory purposes as substandard or special mention that are not included in the table above. However,
management is aware of no such substandard or special mention loans not included above which (i) represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity, or
capital resources, or (ii) represent material credits about which any information causes management to have serious doubts as to the ability of the borrowers to comply with the loan repayment terms. We have no loans in our portfolio to
borrowers in foreign countries.



Loan concentrations exist when
large amounts of money are loaned to multiple borrowers who would be similarly impacted by economic or other conditions. The loan portfolio is concentrated in various commercial, real estate and consumer loans to individuals and entities located in
Middle Georgia, and to a lesser extent northern metropolitan Atlanta and Glynn County and in other Georgia markets where Fairfield Financial operates loan offices. As of December 31, 2005 and 2004, approximately 87.8% and 84.9%, respectively,
of our loan portfolio was secured by real estate. These loans are well collateralized and, in managements opinion, do not pose an unacceptable level of credit risk. The Company does make speculative loans to borrowers in that the collateral
property has not been pre-sold or pre-leased. While these loans are inherently riskier due to the fact that the borrower may not be able to sell or lease the property as intended, the Company only makes these loans to established customers with a
good history of prior developments. At December 31, 2005, the Company had outstanding speculative loans of approximately $210.2 million.



The largest components of our loan portfolio are the construction and land development loans and mortgage loans secured by nonfarm, nonresidential
properties. Real estate construction and development loans, which are 40.5% of the loan portfolio, are made to finance land development and residential and commercial construction. Mortgage loans secured by nonfarm, nonresidential properties, which
are 29.5% of the portfolio, are loans made to finance the purchase or development of commercial properties such as hotels, motels, shopping centers, timber holdings, office buildings and convenience stores. Of the total, the largest collateral types
are retail facilities (23.1%) and office facilities (18.5%).



We have no other interest-bearing assets that would be required to be disclosed as nonperforming assets if they were loans.



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##### Table of Contents

Summary of Loan Loss Experience



The following table summarizes loans charged off, recoveries of loans previously charged off and additions to the allowance
for loan losses that have been charged to operating expense (i.e. provisions for loan losses) for the periods indicated. We have no lease financing or foreign loans.



ALLOWANCE FOR LOAN LOSSES



(Dollars in thousands)



|                                                                                                    |  |                         |        |   |      |   |        |      |  |   |       |   |  |      |       |   |  |   |       |  
|--------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ----- | - |  | ---- | ----- | - |  | - | ----- | -
|                                                                                                    |  | Years Ended December 31 |       
|                                                                                                    |  | 2005                    |        |   | 2004 |   |        | 2003 |  |   | 2002  |   |  | 2001 |      
|Allowance for loan losses at beginning of period                                                    |  | $                       | 10,903 |   |      | $ | 9,407  |      |  | $ | 5,480 |   |  | $    | 4,099 |   |  | $ | 3,003 |  
|Loans charged off during the period:                                                                |  |                         |        |   |      |   |        |      |  |   |       |   |  |      |       |   |  |   |       |  
|Commercial, financial and agricultural                                                              |  |                         | 470    |   |      |   | 290    |      |  |   | 68    |   |  |      | 881   |   |  |   | 299   |  
|Real estate-construction                                                                            |  |                         | 84     |   |      |   | 455    |      |  |   | 835   |   |  |      | 0     |   |  |   | 0     |  
|Real estate-mortgage                                                                                |  |                         | 364    |   |      |   | 236    |      |  |   | 699   |   |  |      | 87    |   |  |   | 119   |  
|Loans to individuals                                                                                |  |                         | 797    |   |      |   | 1,069  |      |  |   | 654   |   |  |      | 479   |   |  |   | 457   |  
|                                                                                                    |  |                         |        |   |      |   |        |      |  |   |       |   |  |      |       |   |  |   |       |  
|Total loans charged off                                                                             |  |                         | 1,715  |   |      |   | 2,050  |      |  |   | 2,256 |   |  |      | 1,447 |   |  |   | 875   |  
|                                                                                                    |  |                         |        |   |      |   |        |      |  |   |       |   |  |      |       |   |  |   |       |  
|Recoveries during the period of loans previously charged off:                                       |  |                         |        |   |      |   |        |      |  |   |       |   |  |      |       |   |  |   |       |  
|Commercial, financial and agricultural                                                              |  |                         | 103    |   |      |   | 170    |      |  |   | 136   |   |  |      | 149   |   |  |   | 13    |  
|Real estate-construction                                                                            |  |                         | 5      |   |      |   | 37     |      |  |   | 3     |   |  |      | 1     |   |  |   | 0     |  
|Real estate-mortgage                                                                                |  |                         | 16     |   |      |   | 46     |      |  |   | 187   |   |  |      | 2     |   |  |   | 0     |  
|Loans to individuals                                                                                |  |                         | 372    |   |      |   | 474    |      |  |   | 109   |   |  |      | 73    |   |  |   | 46    |  
|                                                                                                    |  |                         |        |   |      |   |        |      |  |   |       |   |  |      |       |   |  |   |       |  
|Total loans recovered                                                                               |  |                         | 496    |   |      |   | 727    |      |  |   | 435   |   |  |      | 225   |   |  |   | 59    |  
|                                                                                                    |  |                         |        |   |      |   |        |      |  |   |       |   |  |      |       |   |  |   |       |  
|Net loans charged off during the period                                                             |  |                         | 1,219  |   |      |   | 1,323  |      |  |   | 1,821 |   |  |      | 1,222 |   |  |   | 816   |  
|                                                                                                    |  |                         |        |   |      |   |        |      |  |   |       |   |  |      |       |   |  |   |       |  
|Additions to allowance-provision expense                                                            |  |                         | 2,833  |   |      |   | 2,819  |      |  |   | 2,859 |   |  |      | 2,603 |   |  |   | 1,912 |  
|                                                                                                    |  |                         |        |   |      |   |        |      |  |   |       |   |  |      |       |   |  |   |       |  
|Business Combination, SouthBank                                                                     |  |                         | 1,420  |   |      |   | 0      |      |  |   | 0     |   |  |      | 0     |   |  |   | 0     |  
|Business Combination, Rivoli BanCorp                                                                |  |                         | 2,211  |   |      |   | 0      |      |  |   | 0     |   |  |      | 0     |   |  |   | 0     |  
|Business Combination, Bank of Gray                                                                  |  |                         | 0      |   |      |   | 0      |      |  |   | 2,889 |   |  |      | 0     |   |  |   | 0     |  
|                                                                                                    |  |                         |        |   |      |   |        |      |  |   |       |   |  |      |       |   |  |   |       |  
|Allowance for loan losses at end of period                                                          |  | $                       | 16,148 |   |      | $ | 10,903 |      |  | $ | 9,407 |   |  | $    | 5,480 |   |  | $ | 4,099 |  
|                                                                                                    |  |                         |        |   |      |   |        |      |  |   |       |   |  |      |       |   |  |   |       |  
|Allowance for loan losses to period end net loans                                                   |  |                         | 1.26   | % |      |   | 1.28   | %    |  |   | 1.33  | % |  |      | 1.16  | % |  |   | 0.98  | %
|                                                                                                    |  |                         |        |   |      |   |        |      |  |   |       |   |  |      |       |   |  |   |       |  
|Ratio of net loans charged off during the period to average net loans outstanding during the period |  |                         | 0.12   | % |      |   | 0.17   | %    |  |   | 0.32  | % |  |      | 0.28  | % |  |   | 0.23  | %
|                                                                                                    |  |                         |        |   |      |   |        |      |  |   |       |   |  |      |       |   |  |   |       |  



The allowance for loan
losses as a percentage of net loans, excluding loans held for sale, decreased to 1.27% at December 31, 2005 from 1.29% at December 31, 2004. The decrease in the allowance is primarily attributable to the substantial loan growth during
2005. Excluding our acquisitions, loans increased $151.2 million or 17.7% in 2005 from the prior year.



The provision for loan losses represents managements determination of the amount necessary to be transferred to the allowance for loan losses to
maintain a level that it considers adequate in relation to the risk of future losses inherent in the loan portfolio. It is the policy of our subsidiary banks to provide for exposure to losses principally through an ongoing loan review process. This
review process is undertaken to ascertain any probable losses that must be charged off and to assess the risk characteristics of individually significant loans and of the portfolio in the aggregate. This review takes into consideration the judgments
of the responsible lending officers and the loan committees of our subsidiary banks boards of directors, and also those of the regulatory



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agencies that review the loans as part of their regular examination process. During routine examinations of banks, the primary banking regulators may, from
time to time, require additions to banks provisions for loan losses and allowances for loan losses if the regulators credit evaluations differ from those of management.



In addition to ongoing internal loan reviews and risk assessment, management uses other factors to judge the adequacy of the
allowance, including current economic conditions, loan loss experience, regulatory guidelines and current levels of non-performing loans. Management believes that the balances of $16.1 million and $10.9 million in the allowance for loan losses at
December 31, 2005 and 2004, respectively, were adequate to absorb known risks in the loan portfolio at those dates. No assurance can be given, however, that adverse economic conditions or other circumstances will not result in increased losses
in our loan portfolio or that our allowance for loan losses will be sufficient to absorb such unexpected losses.



In accordance with SFAS No. 114, Accounting by Creditors for Impairment of a Loan, and SFAS No. 118, Accounting by Creditors
for Impairment of a Loan-Income Recognition and Disclosures, management, considering current information and events regarding the borrowers ability to repay their obligations, considers a loan to be impaired when the ultimate
collectibility of all amounts due, according to the contractual terms of the loan agreement, is in doubt. When a loan becomes impaired, management calculates the impairment based on the present value of expected future cash flows discounted at the
loans effective interest rate. If the loan is collateral dependent, the fair value of the collateral is used to measure the amount of impairment. The amount of impairment and any subsequent changes are recorded, through a charge to earnings,
as an adjustment to the allowance for loan losses. When management considers a loan, or a portion thereof, as uncollectible, it is charged against the allowance for loan losses.



An allocation of the allowance for loan losses has been made to provide for the possibility of incurred losses within the
various loan categories. The allocation is based primarily on previous charge-off experience adjusted for risk characteristic changes among each category. Additional allowance amounts are allocated by evaluating the loss potential of individual
loans that management has considered impaired. The allowance for loan loss allocation is based on subjective judgment and estimates, and therefore is not necessarily indicative of the specific amounts or loan categories in which charge-offs may
ultimately occur.



The following table shows a five-year
comparison of the allocation of the allowance for loan losses based on loan categories.



ALLOCATION OF ALLOWANCE FOR LOAN LOSSES



(Dollars in
thousands)



|                                        |  |             |        |    |      |   |        |      |        |  |      |        |  |      |       |  |        |   |    |   |       |        |     |    |  |   |       |  |     |  
|--------------------------------------- |  | ----------- | ------ | -- | ---- | - | ------ | ---- | ------ |  | ---- | ------ |  | ---- | ----- |  | ------ | - | -- | - | ----- | ------ | --- | -- |  | - | ----- |  | --- | -
|                                        |  | December 31 |       
|                                        |  | 2005        |        |    | 2004 |   |        | 2003 |        |  | 2002 |        |  | 2001 |      
|                                        |  | Amount      |        | %* |      |   | Amount |      | %*     |  |      | Amount |  | %*   |       |  | Amount |   | %* |   |       | Amount |     | %* | 
|Balance at end of period applicable to: |  |             |        |    |      |   |        |      |        |  |      |        |  |      |       |  |        |   |    |   |       |        |     |    |  |   |       |  |     |  
|Commercial, financial and agricultural  |  | $           | 1,109  |    | 9    | % |        | $    | 872    |  | 10   | %      |  | $    | 677   |  | 9      | % |    | $ | 1,184 |        | 9   | %  |  | $ | 689   |  | 11  | %
|Real estate-construction                |  |             | 5,248  |    | 41   | % |        |      | 3,576  |  | 41   | %      |  |      | 2,860 |  | 38     | % |    |   | 877   |        | 39  | %  |  |   | 623   |  | 32  | %
|Real estate-mortgage                    |  |             | 6,078  |    | 46   | % |        |      | 3,838  |  | 44   | %      |  |      | 3,612 |  | 48     | % |    |   | 1,271 |        | 48  | %  |  |   | 1,311 |  | 52  | %
|Loans to individuals                    |  |             | 483    |    | 4    | % |        |      | 436    |  | 5    | %      |  |      | 376   |  | 5      | % |    |   | 1,052 |        | 4   | %  |  |   | 656   |  | 5   | %
|Unallocated                             |  |             | 3,230  |    |     |   |        |      | 2,181  |  |     |        |  |      | 1,882 |  |       |   |    |   | 1,096 |        |    |    |  |   | 820   |  |    |  
|                                        |  |             |        |    |      |   |        |      |        |  |      |        |  |      |       |  |        |   |    |   |       |        |     |    |  |   |       |  |     |  
|Total allowance for loan losses         |  | $           | 16,148 |    | 100  | % |        | $    | 10,903 |  | 100  | %      |  | $    | 9,407 |  | 100    | % |    | $ | 5,480 |        | 100 | %  |  | $ | 4,099 |  | 100 | %
|                                        |  |             |        |    |      |   |        |      |        |  |      |        |  |      |       |  |        |   |    |   |       |        |     |    |  |   |       |  |     |  

---

|* | Loan balance in each category expressed as a percentage of total end of period loans.
|- | -------------------------------------------------------------------------------------



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##### Table of Contents

Investment Portfolio



The investment securities portfolio is another major interest-earning asset and consists of debt and equity securities categorized as either Available for
Sale or Held to Maturity. Given our strong loan demand, the investment portfolio is viewed primarily as a source of liquidity, with yield as a secondary consideration. Because the investment portfolio is primarily for liquidity purposes, the
investment portfolio has a relatively short effective duration of 2.3 years. The investment portfolio also serves to balance interest rate risk and credit risk related to the loan portfolio.



As of December 31, 2005, our portfolio of bonds and equity investments
amounted to $151.0 million, or 9.1% of total assets, compared to $111.4 million, or 10.5% of total assets at December 31, 2004. Excluding securities acquired from SouthBank and Rivoli BanCorp, the Companys total investment portfolio was
$113.1 million at December 31, 2005.



The average
tax-equivalent yield on the portfolio was 4.25% for the year 2005 versus 4.24% in 2004 and 4.06% in 2003. During 2005, net (losses) gains on the sale of securities were $(5,598), compared to $12,703 for 2004 and $55,484 for 2003.



At December 31, 2005, the major portfolio components, based on amortized
or accreted cost, included 51.2% in mortgage-backed securities issued by U.S. government agencies; 30.8% in other bonds of U.S. government agencies; 13.0% in state, county and municipal bonds; 4.6% in restricted stocks; and 0.4% in other securities.
As of December 31, 2005, the investment portfolio had gross unrealized gains of $419,291 and gross unrealized losses of $2,860,141 for a net unrealized loss of $2,440,850. As of December 31, 2004, the portfolio had a net unrealized gain of
$557,225. In accordance with SFAS No. 115, stockholders equity included net unrealized losses of $1,599,442 for December 31, 2005 and net unrealized gains of $352,801 for December 31, 2004 recorded on the Available for Sale
portfolio, net of deferred tax effects. No trading account has been established by us and none is anticipated.



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##### Table of Contents

The following table summarizes the Available for Sale and Held to Maturity investment securities
portfolios as of December 31, 2005, 2004, and 2003. Available for Sale securities are shown at fair value, while Held to Maturity securities are shown at amortized or accreted cost. Unrealized gains and losses on securities Available for Sale
are excluded from earnings and are reported, net of deferred taxes, in accumulated other comprehensive income, a component of shareholders equity.



INVESTMENT SECURITIES



(Dollars in thousands)



|                                              |  |              |         |      |   |         |  |   |        
|--------------------------------------------- |  | ------------ | ------- | ---- | - | ------- |  | - | -------
|                                              |  | December 31,
|                                              |  | 2005         |         | 2004 |   | 2003   
|Securities Available for Sale                 |  |              |         |      |   |         |  |   |        
|U. S. Treasury                                |  | $            | 0       |      | $ | 815     |  | $ | 859    
|U. S. Government Agencies                     |  |              |         |      |   |         |  |   |        
|Mortgage-Backed                               |  |              | 76,713  |      |   | 62,623  |  |   | 48,052 
|Other                                         |  |              | 46,190  |      |   | 24,796  |  |   | 32,633 
|State, County & Municipal                     |  |              | 20,068  |      |   | 15,205  |  |   | 15,984 
|Other Investments (Restricted stocks & Other) |  |              | 7,665   |      |   | 5,589   |  |   | 3,935  
|                                              |  |              |         |      |   |         |  |   |        
|                                              |  | $            | 150,636 |      | $ | 109,028 |  | $ | 101,463
|                                              |  |              |         |      |   |         |  |   |        
|Securities Held to Maturity                   |  |              |         |      |   |         |  |   |        
|U. S. Treasury                                |  | $            | 0       |      | $ | 0       |  | $ | 0      
|U. S. Government Agencies                     |  |              |         |      |   |         |  |   |        
|Mortgage-Backed                               |  |              | 0       |      |   | 0       |  |   | 0      
|Other                                         |  |              | 0       |      |   | 999     |  |   | 0      
|State, County & Municipal                     |  |              | 350     |      |   | 1,385   |  |   | 1,392  
|Other Investments                             |  |              | 0       |      |   | 0       |  |   | 0      
|                                              |  |              |         |      |   |         |  |   |        
|                                              |  | $            | 350     |      | $ | 2,384   |  | $ | 1,392  
|                                              |  |              |         |      |   |         |  |   |        
|Total Investment Securities                   |  |              |         |      |   |         |  |   |        
|U. S. Treasury                                |  | $            | 0       |      | $ | 815     |  | $ | 859    
|U. S. Government Agencies                     |  |              |         |      |   |         |  |   |        
|Mortgage-Backed                               |  |              | 76,713  |      |   | 62,623  |  |   | 48,052 
|Other                                         |  |              | 46,190  |      |   | 25,795  |  |   | 32,633 
|State, County & Municipal                     |  |              | 20,418  |      |   | 16,590  |  |   | 17,376 
|Other Investments                             |  |              | 7,665   |      |   | 5,589   |  |   | 3,935  
|                                              |  |              |         |      |   |         |  |   |        
|                                              |  | $            | 150,986 |      | $ | 111,412 |  | $ | 102,855
|                                              |  |              |         |      |   |         |  |   |        



The following table
illustrates the contractual maturities and weighted average yields of investment securities Available for Sale held at December 31, 2005. Expected maturities will differ from contractual maturities because certain issuers have the right to call
or prepay obligations with or without call or prepayment penalties. No prepayment assumptions have been estimated in the table. The weighted average yields are calculated on the basis of the amortized cost and effective yields of each security
weighted for the scheduled maturity of each security. The yield on state, county and municipal securities is computed on a tax equivalent basis using a statutory federal income tax rate of 34%. At December 31, 2005, the Company had $350,000
carrying value ($353,000 of fair value) of State, County and Municipal investment securities classified as held to maturity, with an average yield of 4.97% with all securities maturing in either the within 1 year or the 1-5 year time periods.



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##### Table of Contents

MATURITIES OF INVESTMENT SECURITIES AND AVERAGE YIELDS



(Dollars in thousands)



|                                  |  |                                            |     |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|--------------------------------- |  | ------------------------------------------ | --- | ------------------ | ---- | - | --------- | - | ------------- |  | ------------ | ------- |  | ---------- | - |  | - | -------
|                                  |  | Investment Securities at December 31, 2005
|                                  |  | Held to Maturity                           |     | Available for Sale
|                                  |  | AmortizedCost                              |     | AverageYield       |      |   | FairValue |   | AmortizedCost |  | AverageYield |         |  | Fair Value
|U.S. Treasury:                    |  |                                            |     |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|Within 1 Year                     |  | $                                          | 0   |                    | 0.00 | % |           | $ | 0             |  | $            | 0       |  | 0.00       | % |  | $ | 0      
|After 1 through 5 Years           |  |                                            | 0   |                    | 0.00 | % |           |   | 0             |  |              | 0       |  | 0.00       | % |  |   | 0      
|After 5 through 10 Years          |  |                                            | 0   |                    | 0.00 | % |           |   | 0             |  |              | 0       |  | 0.00       | % |  |   | 0      
|More Than 10 Years                |  |                                            | 0   |                    | 0.00 | % |           |   | 0             |  |              | 0       |  | 0.00       | % |  |   | 0      
|                                  |  |                                            |     |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|                                  |  | $                                          | 0   |                    | 0.00 | % |           | $ | 0             |  | $            | 0       |  | 0.00       | % |  | $ | 0      
|                                  |  |                                            |     |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|Mortgage-Backed                   |  |                                            |     |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|Government Agencies:              |  |                                            |     |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|Within 1 Year                     |  | $                                          | 0   |                    | 0.00 | % |           | $ | 0             |  | $            | 46      |  | 4.60       | % |  | $ | 46     
|After 1 through 5 Years           |  |                                            | 0   |                    | 0.00 | % |           |   | 0             |  |              | 66,120  |  | 4.06       | % |  |   | 64,762 
|After 5 through 10 Years          |  |                                            | 0   |                    | 0.00 | % |           |   | 0             |  |              | 2,957   |  | 3.88       | % |  |   | 2,856  
|More Than 10 Years                |  |                                            | 0   |                    | 0.00 | % |           |   | 0             |  |              | 9,323   |  | 4.59       | % |  |   | 9,049  
|                                  |  |                                            |     |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|                                  |  | $                                          | 0   |                    | 0.00 | % |           | $ | 0             |  | $            | 78,446  |  | 4.12       | % |  | $ | 76,713 
|                                  |  |                                            |     |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|Other U.S. Government Agencies    |  |                                            |     |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|Within 1 Year                     |  | $                                          | 0   |                    | 0.00 | % |           | $ | 0             |  | $            | 8,740   |  | 3.89       | % |  | $ | 8,725  
|After 1 through 5 Years           |  |                                            | 0   |                    | 0.00 | % |           |   | 0             |  |              | 31,644  |  | 3.88       | % |  |   | 30,906 
|After 5 through 10 Years          |  |                                            | 0   |                    | 0.00 | % |           |   | 0             |  |              | 6,722   |  | 4.58       | % |  |   | 6,559  
|More Than 10 Years                |  |                                            | 0   |                    | 0.00 | % |           |   | 0             |  |              | 0       |  | 0.00       | % |  |   | 0      
|                                  |  |                                            |     |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|                                  |  | $                                          | 0   |                    | 0.00 | % |           | $ | 0             |  | $            | 47,106  |  | 3.97       | % |  | $ | 46,190 
|                                  |  |                                            |     |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|State, County and Municipal:      |  |                                            |     |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|Within 1 Year                     |  | $                                          | 110 |                    | 4.98 | % |           | $ | 110           |  | $            | 956     |  | 6.00       | % |  | $ | 959    
|After 1 through 5 Years           |  |                                            | 240 |                    | 4.96 | % |           |   | 243           |  |              | 7,604   |  | 5.08       | % |  |   | 7,617  
|After 5 through 10 Years          |  |                                            | 0   |                    | 0.00 | % |           |   | 0             |  |              | 7,176   |  | 6.09       | % |  |   | 7,394  
|More Than 10 Years                |  |                                            | 0   |                    | 0.00 | % |           |   | 0             |  |              | 4,129   |  | 4.83       | % |  |   | 4,098  
|                                  |  |                                            |     |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|                                  |  | $                                          | 350 |                    | 4.97 | % |           | $ | 353           |  | $            | 19,865  |  | 5.44       | % |  | $ | 20,068 
|                                  |  |                                            |     |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|Other Investments (FHLB & Other): |  |                                            |     |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|Within 1 Year                     |  | $                                          | 0   |                    | 0.00 | % |           | $ | 0             |  | $            | 0       |  | 0.00       | % |  | $ | 0      
|After 1 through 5 Years           |  |                                            | 0   |                    | 0.00 | % |           |   | 0             |  |              | 0       |  | 0.00       | % |  |   | 0      
|After 5 through 10 Years          |  |                                            | 0   |                    | 0.00 | % |           |   | 0             |  |              | 500     |  | 6.25       | % |  |   | 500    
|More Than 10 Years                |  |                                            | 0   |                    | 0.00 | % |           |   | 0             |  |              | 7,165   |  | 4.48       | % |  |   | 7,165  
|                                  |  |                                            |     |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|                                  |  | $                                          | 0   |                    | 0.00 | % |           | $ | 0             |  | $            | 7,665   |  | 4.60       | % |  | $ | 7,665  
|                                  |  |                                            |     |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|Total Securities:                 |  |                                            |     |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|Within 1 Year                     |  | $                                          | 110 |                    | 4.98 | % |           | $ | 110           |  | $            | 9,742   |  | 4.10       | % |  | $ | 9,730  
|After 1 through 5 Years           |  |                                            | 240 |                    | 4.96 | % |           |   | 243           |  |              | 105,368 |  | 4.08       | % |  |   | 103,285
|After 5 through 10 Years          |  |                                            | 0   |                    | 0.00 | % |           |   | 0             |  |              | 17,355  |  | 5.13       | % |  |   | 17,309 
|More Than 10 Years                |  |                                            | 0   |                    | 0.00 | % |           |   | 0             |  |              | 20,617  |  | 4.60       | % |  |   | 20,312 
|                                  |  |                                            |     |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|                                  |  | $                                          | 350 |                    | 4.97 | % |           | $ | 353           |  | $            | 153,082 |  | 4.27       | % |  | $ | 150,636
|                                  |  |                                            |     |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        



As of
December 31, 2005 and 2004, we had no holdings of securities of a single issuer in which the aggregate book value and aggregate market value of the securities exceeded 10% of stockholders equity.



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##### Table of Contents

Deposits



Deposits are our primary liability and funding source. Total deposits as of December 31, 2005 were $1.3 billion, an increase of 53.2% from
$842.6 million at December 31, 2004. Average deposits in 2005 were $1.0 billion, an increase of 28.3% from $780.6 million during 2004. Excluding the deposits acquired in our acquisitions of SouthBank and Rivoli BanCorp, deposits at
December 31, 2005 increased $182.1 million or 21.6% over the balances at December 31, 2004. The average cost of deposits, considering non-interest checking accounts, was 2.37% during 2005, up from 1.50% during 2004 and 1.76% for 2003. We
seek to set competitive deposit rates in our local markets to retain and grow our market share of deposits in our market area as our principal funding source. On an average basis for the year 2005, 12.0% of our deposits were held in
non-interest-bearing checking accounts, 25.8% were in lower yielding interest-bearing transaction and savings accounts, and 62.2% were in time certificates with higher yields. Comparable average deposit mix percentages during 2004 were 13.5%, 23.9%
and 62.6%, respectively. We hold no deposit funds from foreign depositors.



To help generate additional local, low-cost consumer core deposits, we continued a comprehensive marketing program during 2005. The program has been, in our view, extremely successful. For the year ended
December 31, 2005, we opened 11,211 new transaction accounts primarily through the efforts of our High Performance Checking campaign.



The following table reflects average balances of deposit categories for the years 2005, 2004 and 2003.



AVERAGE DEPOSITS



(Dollars in thousands)



|                                     |  |                         |           |   |        |   |      |   |         |  |        |      |  |   |         |  |        |  
|------------------------------------ |  | ----------------------- | --------- | - | ------ | - | ---- | - | ------- |  | ------ | ---- |  | - | ------- |  | ------ | -
|                                     |  | Years Ended December 31 |          
|                                     |  | 2005                    |           | % |        |   | 2004 |   | %       |  |        | 2003 |  | % |        
|Non-Interest Bearing Demand Deposits |  | $                       | 119,867   |   | 11.97  | % |      | $ | 105,695 |  | 13.54  | %    |  | $ | 80,472  |  | 13.73  | %
|Interest Bearing Demand Deposits     |  |                         | 158,264   |   | 15.80  | % |      |   | 81,385  |  | 10.43  | %    |  |   | 58,498  |  | 9.98   | %
|Money Market Accounts                |  |                         | 80,640    |   | 8.05   | % |      |   | 85,886  |  | 11.00  | %    |  |   | 71,802  |  | 12.25  | %
|Savings Deposits                     |  |                         | 19,969    |   | 1.99   | % |      |   | 19,299  |  | 2.47   | %    |  |   | 14,166  |  | 2.42   | %
|Time Deposits of $100,000 or More    |  |                         | 317,143   |   | 31.67  | % |      |   | 195,300 |  | 25.02  | %    |  |   | 117,634 |  | 20.07  | %
|Other Time Deposits                  |  |                         | 305,609   |   | 30.52  | % |      |   | 293,039 |  | 37.54  | %    |  |   | 243,554 |  | 41.55  | %
|                                     |  |                         |           |   |        |   |      |   |         |  |        |      |  |   |         |  |        |  
|                                     |  | $                       | 1,001,492 |   | 100.00 | % |      | $ | 780,604 |  | 100.00 | %    |  | $ | 586,126 |  | 100.00 | %
|                                     |  |                         |           |   |        |   |      |   |         |  |        |      |  |   |         |  |        |  



The following table
outlines the maturities of certificates of deposit of $100,000 or more as of December 31, 2005, 2004 and 2003. All of our time deposits as of December 31, 2005 are certificates of deposit.



MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT OF $100,000 OR MORE



(In Thousands)



|                                |  |              |         |      |   |         |  |   |        
|------------------------------- |  | ------------ | ------- | ---- | - | ------- |  | - | -------
|                                |  | December 31,
|                                |  | 2005         |         | 2004 |   | 2003   
|As of the End of Period:        |  |              |         |      |   |         |  |   |        
|3 Months or Less                |  | $            | 96,263  |      | $ | 37,573  |  | $ | 35,484 
|Over 3 Months through 6 Months  |  |              | 106,542 |      |   | 59,843  |  |   | 21,070 
|Over 6 Months through 12 Months |  |              | 142,354 |      |   | 100,918 |  |   | 76,193 
|Over 12 Months                  |  |              | 48,784  |      |   | 35,182  |  |   | 32,137 
|                                |  |              |         |      |   |         |  |   |        
|                                |  | $            | 393,943 |      | $ | 233,516 |  | $ | 164,884
|                                |  |              |         |      |   |         |  |   |        



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Borrowed Funds



Our interest-bearing sources of borrowed funds at December 31, 2005 totaled $172.1 million. The major component was $85.4 million in various advances
from the Federal Home Loan Bank of Atlanta (FHLB). We borrow from the FHLB under two separate programs. Our first program is a Blanket Agreement for Advances and Security Agreement with the FHLB, under which our banks have pledged
residential first-mortgage loans, commercial real estate loans and investment securities as collateral to secure available lines of credit totaling $209.9 million. At December 31, 2005, our lendable collateral value, which represents
approximately 65% of eligible collateral was $135.6 million, $50.2 million of which was available. These advances have maturities in varying amounts through March 2011 and interest rates ranging from 2.11% to 5.92%. Our second FHLB program allowed
for advances to our banks under a warehouse line secured by our loans held for sale. This warehouse line matured on January 24, 2005. Total outstanding advances from the FHLB averaged $58.6 million during 2005, with an average interest cost of
3.37%. Of the $85.4 million in FHLB advances outstanding at December 31, 2005, $29.9 million, or 35.0%, mature during 2006. Another $33.5 million, or 39.2%, mature in 2007, and another $2.0 million or 2.3% mature in 2008. The remaining $20.0
million, or 23.4%, mature after four years. In connection with our acquisitions of SouthBank and Rivoli Bancorp, we assumed $34.8 million in FHLB advances with maturities ranging from 2006 to 2011. For 2004, FHLB advances averaged $58.9 million with
an average interest cost of 2.62%.



We have a revolving line of
credit with The Bankers Bank in Atlanta, Georgia totaling $17 million. The line is secured with the common stock of Security Bank of Bibb County (and indirectly the stock of Fairfield Financial as its subsidiary), Security Bank of Houston County and
Security Bank of Jones County as collateral, and carries a floating interest rate of prime minus 100 basis points on $14 million and prime minus 50 basis points on $3 million. We use the revolving line of credit primarily to provide
capital injections as necessary to our subsidiary banks. At December 31, 2005 and 2004, the outstanding balance on the revolving line of credit was zero. The maximum aggregate indebtedness on the line during 2005 was $12.9 million, which was
paid using the proceeds from our issuance of $19 million in trust preferred securities in December 2005. Per an agreement with the Federal Reserve Bank of Atlanta, we may not draw more than $4 million on the line without prior approval. The average
balance of debt under The Bankers Bank line of credit for the year 2005 was $5.4 million at an average rate of 6.80%. For 2004, the average balance was $2.5 million at a cost of 3.05%.



As a result of our acquisition of Rivoli BanCorp in December 2005, we assumed a line of credit for $2 million with a
correspondent bank. The line of credit matures on March 6, 2006 and interest is payable quarterly based on the prime rate. The balance on this note payable at December 31, 2005 was $1.6 million.



During the fourth quarter of 2002, we formed Statutory Trust I, a Delaware
statutory trust subsidiary whose purpose was to issue $18.0 million in trust preferred securities through a pool sponsored by FTN Financial Capital Markets. To support the trust preferred securities issued by the trust, we issued a like amount of
junior subordinated debentures to the trust, which the trust purchased from us using proceeds from its sale of the trust preferred securities. The trust preferred securities and related junior subordinated debentures pay interest at a floating
annual rate, reset quarterly, equal to the three-month LIBOR rate plus 3.25%, which rate equaled 4.66% at December 31, 2005. We used the proceeds from the offering to retire holding company debt and to fund our acquisition of Security Bank of Jones
County. . In December 2005, we formed another Delaware statutory trust subsidiary, Statutory Trust II, that issued an additional $19.0 million in trust preferred securities through a pool sponsored by FTN Financial Capital Markets. To support the
trust preferred securities issued by the trust, we issued a like amount of junior subordinated debentures to the trust, which the trust purchased from us using proceeds from its sale of the trust preferred securities. We used the proceeds from the
offering to pay off our line of credit with The Bankers Bank and to fund the acquisition of the Rivoli BanCorp. The trust preferred securities issued by the trust in 2005, and the junior subordinated debentures we issued to the trust in connection
with that offering, bear a fixed rate of interest equal to 6.46% annually for the first five years and a floating rate of interest, reset quarterly, equal to the three-month LIBOR rate plus 1.40% annually thereafter. In each case, the trust
preferred securities and related junior subordinated debentures issued by us have a maturity of 30 years and are redeemable after five years, subject to certain conditions and limitations.



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In our acquisition of Rivoli BanCorp, we assumed $3.0 million in junior subordinated debentures it had
issued to a trust subsidiary in connection with an issuance of trust preferred securities. Rivioli BanCorps trust subsidiary issued trust preferred securities in 2002 through a pool sponsored by Wells Fargo Bank. The Rivoli BanCorp trust
preferred securities and related junior subordinated debentures have a 30-year maturity and are redeemable after five years, subject to certain conditions and limitations. The Rivoli BanCorp trust preferred securities and related junior subordinated
debentures pay interest at a floating annual rate, reset quarterly, equal to the three-month LIBOR rate plus 3.45%, which rate equaled 7.24% at December 31, 2005.



The average balances of the junior subordinated debentures issued by the Company in relation to trust preferred security
issuances was $20.5 million during 2005, at an average cost of 6.07%. The junior subordinated debentures issued by the Company related to trust preferred securities is recorded as Subordinated Debentures on the consolidated balance sheets. These
securities qualify as Tier 1 capital for regulatory capital purposes, subject to certain limitations.



The following table outlines our various sources of borrowed funds during the years 2005, 2004 and 2003, the amounts outstanding at year-end, at the
maximum point for each component during the three years and on average for each year, and the average interest rate that we paid for each borrowing source. The maximum month-end balance represents the high indebtedness for each component of borrowed
funds at any time during each of the calendar years shown.



BORROWED FUNDS



(Dollars in thousands)



|                                               |  |               |         |                         |   |                |  |                 |         |                      |   |       |  |      |  
|---------------------------------------------- |  | ------------- | ------- | ----------------------- | - | -------------- |  | --------------- | ------- | -------------------- | - | ----- |  | ---- | -
|                                               |  | 31-DecBalance |         | MaximumMonth-EndBalance |   | AverageBalance |  | InterestExpense |         | AverageInterest Rate |  
|For The Year 2005                              |  |               |         |                         |   |                |  |                 |         |                      |   |       |  |      |  
|Federal Home Loan Bank Advances                |  | $             | 85,427  |                         | $ | 85,427         |  | $               | 58,618  |                      | $ | 1,975 |  | 3.37 | %
|Correspondent Bank Line of Credit              |  |               | 1,600   |                         |   | 12,950         |  |                 | 6,411   |                      |   | 368   |  | 5.74 | %
|Securities Sold Under Agreements to Repurchase |  |               | 15,219  |                         |   | 15,219         |  |                 | 6,868   |                      |   | 206   |  | 3.00 | %
|Federal Funds Purchased                        |  |               | 28,657  |                         |   | 28,657         |  |                 | 9,426   |                      |   | 322   |  | 3.42 | %
|Demand Note U.S. Treasury                      |  |               | 0       |                         |   | 0              |  |                 | 0       |                      |   | 0     |  | 0    |  
|Subordinated Debentures                        |  |               | 41,238  |                         |   | 41,238         |  |                 | 18,726  |                      |   | 1,241 |  | 6.63 | %
|                                               |  |               |         |                         |   |                |  |                 |         |                      |   |       |  |      |  
|Total Borrowed Funds                           |  | $             | 172,141 |                         | $ | 183,491        |  | $               | 100,049 |                      | $ | 4,112 |  | 4.11 | %
|                                               |  |               |         |                         |   |                |  |                 |         |                      |   |       |  |      |  
|For The Year 2004                              |  |               |         |                         |   |                |  |                 |         |                      |   |       |  |      |  
|Federal Home Loan Bank Advances                |  | $             | 67,136  |                         | $ | 71,283         |  | $               | 58,924  |                      | $ | 1,546 |  | 2.62 | %
|Correspondent Bank Line of Credit              |  |               | 0       |                         |   | 10,000         |  |                 | 2,522   |                      |   | 77    |  | 3.05 | %
|Securities Sold Under Agreements to Repurchase |  |               | 5,338   |                         |   | 6,786          |  |                 | 5,598   |                      |   | 56    |  | 1.00 | %
|Federal Funds Purchased                        |  |               | 16,473  |                         |   | 16,473         |  |                 | 5,273   |                      |   | 89    |  | 1.69 | %
|Demand Note U.S. Treasury                      |  |               | 0       |                         |   | 12             |  |                 | 21      |                      |   | 0     |  | 0.00 | %
|Subordinated Debentures                        |  |               | 18,557  |                         |   | 18,557         |  |                 | 18,557  |                      |   | 902   |  | 4.86 | %
|                                               |  |               |         |                         |   |                |  |                 |         |                      |   |       |  |      |  
|Total Borrowed Funds                           |  | $             | 107,504 |                         | $ | 123,111        |  | $               | 90,895  |                      | $ | 2,670 |  | 2.94 | %
|                                               |  |               |         |                         |   |                |  |                 |         |                      |   |       |  |      |  
|For The Year 2003                              |  |               |         |                         |   |                |  |                 |         |                      |   |       |  |      |  
|Federal Home Loan Bank Advances                |  | $             | 52,587  |                         | $ | 75,758         |  | $               | 63,368  |                      | $ | 1,572 |  | 2.48 | %
|Correspondent Bank Line of Credit              |  |               | 6,500   |                         |   | 9,000          |  |                 | 2,365   |                      |   | 88    |  | 3.72 | %
|Securities Sold Under Agreements to Repurchase |  |               | 5,024   |                         |   | 5,990          |  |                 | 5,200   |                      |   | 41    |  | 0.79 | %
|Federal Funds Purchased                        |  |               | 3,318   |                         |   | 20,811         |  |                 | 5,072   |                      |   | 64    |  | 1.26 | %
|Demand Note U.S. Treasury                      |  |               | 0       |                         |   | 1,046          |  |                 | 553     |                      |   | 4     |  | 0.72 | %
|Subordinated Debentures                        |  |               | 18,557  |                         |   | 18,557         |  |                 | 18,557  |                      |   | 839   |  | 4.52 | %
|                                               |  |               |         |                         |   |                |  |                 |         |                      |   |       |  |      |  
|Total Borrowed Funds                           |  | $             | 85,986  |                         | $ | 131,162        |  | $               | 95,115  |                      | $ | 2,608 |  | 2.74 | %
|                                               |  |               |         |                         |   |                |  |                 |         |                      |   |       |  |      |  



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Capital Resources and Dividends



We place an emphasis on maintaining an adequate capital base to support our activities in a safe manner while at the same
time maximizing shareholder returns. We continue to exceed all minimum regulatory capital requirements as shown in the table below. Our equity capital of $179.3 million at December 31, 2005 amounts to 10.8% of total assets, compared to 10.0% at
December 31, 2004, and 8.3% at December 31, 2003. On average, our equity capital was 10.2% of assets during 2005, compared to 9.7% for 2004 and 8.1% for 2003. The increase in the capital ratios in 2005 was primarily due to our issuance of
approximately $58.4 million in new equity capital in connection with the acquisitions of SouthBank and Rivoli BanCorp.



In June 2003, our common stock was added to the Russell 2000 Index, recognizing us as one of the largest 3,000 publicly traded companies in the U.S. in
terms of market capitalization. Our market capitalization increased from $233.2 million at the end of 2004 to $335.1 million at the end of 2005, an increase of 43.7%. The increase in market capitalization was primarily due to the issuance of common
stock discussed above, as well as, an increase of $3.29 per share, or 16.4%, in our common stock price from December 31, 2004 to December 31, 2005.



Principal uses of our capital base in recent years have been:



| |  |  | sustaining the capital adequacy of our subsidiaries as they continue to grow at a steady pace;
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | expanding our presence in Middle Georgia with more physical locations and improved delivery systems;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | expanding into contiguous Houston County through our 1998 acquisition of Crossroads Bank of Georgia (Security Bank of Houston County) and developing a mortgage loan division;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | acquiring Fairfield Financial to broaden and expand our mortgage services markets with new management talent and more physical locations throughout Georgia;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | expanding into Jones County through our 2003 acquisition of the Bank of Gray (Security Bank of Jones County);
| | - |  | -------------------------------------------------------------------------------------------------------------



| |  |  | enhancing corporate infrastructure systems to support our multi-bank environment;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | opening de novobranches in Glynn County in 2003 and 2005;
| | - |  | ---------------------------------------------------------



| |  |  | expanding into northern metropolitan Atlanta through our 2005 acquisition of SouthBank (Security Bank of North Metro); and
| | - |  | --------------------------------------------------------------------------------------------------------------------------



| |  |  | expanding our presence in Middle Georgia through our 2005 acquisition of Rivoli BanCorp.
| | - |  | ----------------------------------------------------------------------------------------



Potential uses of our capital base could include future acquisitions and de novo branches.



Current regulatory standards require bank holding companies to maintain a
minimum risk-based capital ratio of qualifying total capital to risk weighted assets of 8.0%, with at least 4.0% of the capital consisting of Tier 1 capital, and a Tier 1 leverage ratio of at least 4.0%. Additionally, the regulatory agencies define
a well-capitalized bank as one that has a Tier 1 leverage ratio of at least 5.0%, a Tier 1 capital ratio of at least 6.0%, and a total risk-based capital ratio of at least 10%. As of December 31, 2005, we had a Tier 1 leverage ratio of 9.7%, a
Tier 1 capital ratio of 10.1%, and a total risk-based capital ratio of 11.3%, and were therefore well-capitalized according to all regulatory guidelines. Maintaining these capital levels is crucial to our growth strategy, because the
Federal Reserve Bank of Atlanta has indicated that it will not approve any future acquisition whereby the resulting combined company is not well-capitalized at the holding company level.



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The following table demonstrates our capital ratio calculations as of December 31, 2005 and 2004.



CAPITAL RATIOS



(Dollars in thousands)



|                                                                         |  |              |         |   |      |   |        
|------------------------------------------------------------------------ |  | ------------ | ------- | - | ---- | - | -------
|                                                                         |  | December 31,
|                                                                         |  | 2005         |         |   | 2004
|As of End of Period:                                                     |  |              |         |   |      |   |        
|Tier 1 Capital:                                                          |  |              |         |   |      |   |        
|Total Equity Capital                                                     |  | $            | 179,305 |   |      | $ | 106,671
|Less Net Unrealized Gains (Losses) on Available for Sale Securities      |  |              | (1,599  | ) |      |   | 353    
|Qualifying Subordinated Debentures Related to Trust Preferred Securities |  |              | 40,000  |   |      |   | 18,000 
|Less Disallowed Goodwill and Other Intangible Assets                     |  |              | 80,636  |   |      |   | 28,579 
|                                                                         |  |              |         |   |      |   |        
|Total Tier 1 Capital                                                     |  |              | 140,268 |   |      |   | 95,739 
|                                                                         |  |              |         |   |      |   |        
|Tier 2 Capital:                                                          |  |              |         |   |      |   |        
|Eligible Portion of Reserve for Loan Losses                              |  |              | 15,858  |   |      |   | 10,574 
|Qualifying Trust Preferred Securities                                    |  |              | 0       |   |      |   | 0      
|Subordinated and Other Qualifying Debt                                   |  |              | 0       |   |      |   | 0      
|                                                                         |  |              |         |   |      |   |        
|Total Tier 2 Capital                                                     |  |              | 15,858  |   |      |   | 10,574 
|                                                                         |  |              |         |   |      |   |        
|Total Risk Based Capital                                                 |  | $            | 156,126 |   |      | $ | 106,313
|                                                                         |  |              |         |   |      |   |        



|                                 |  |                         |   |  |                 |   |  |       |   |  |       |  
|-------------------------------- |  | ----------------------- | - |  | --------------- | - |  | ----- | - |  | ----- | -
|                                 |  | Regulatory Requirement: |   |  | December 31,    |  
|                                 |  |                        
|                                 |  | Minimum                 |   |  | WellCapitalized |   |  | 2005  |   |  | 2004  |  
|Total Risk Based Capital Ratio   |  | 8.00                    | % |  | 10.00           | % |  | 11.27 | % |  | 11.40 | %
|Tier 1 Capital Ratio             |  | 4.00                    | % |  | 6.00            | % |  | 10.12 | % |  | 10.27 | %
|Tier 1 Capital to Average Assets |  | 4.00                    | % |  | 5.00            | % |  | 9.72  | % |  | 9.58  | %



We declared and paid
cash dividends of $3,271,320, or $0.26 per common share, were declared and paid during 2005, up from $2,483,659, or $0.22 per common share, during 2004 and $1,847,129, or $0.20 per common share, in 2003. The ratios of cash dividends paid to net
income for these years were 19.9%, 20.0% and 20.2%, respectively. Since the commencement of cash dividend payments in 1992, our board of directors has consistently declared and paid dividends on a quarterly basis.



As of December 31, 2005, $40.0 million of junior subordinated debentures
related to trust preferred securities was classified as Tier 1 capital under Federal Reserve Board guidelines. For regulatory purposes, the trust preferred securities represent a minority investment in a consolidated subsidiary, which is currently
included in Tier 1 capital, so long as it does not exceed 25% of total Tier 1 capital. Under Financial Accounting Standards Board (FASB) Interpretation No. 46 (FIN 46) and Revised Amendment to FIN 46, however, the trust subsidiary must be
deconsolidated for accounting purposes. The Federal Reserve recently adopted amendments to its capital adequacy rules that explicitly deduct goodwill and intangibles from equity in determining the amount of trust preferred securities and other
restricted core capital elements that can be included in Tier 1 Capital.



Liquidity



Primarily through the actions of
our subsidiary banks, we engage in liquidity management to ensure adequate cash flow for deposit withdrawals, credit commitments and repayments of borrowed funds. Liquidity needs are met through loan repayments, net interest and fee income, and the
sale or maturity of existing assets. In



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addition, liquidity is continuously provided through the acquisition of new deposits, the renewal of maturing deposits, and external borrowings. Management
monitors deposit flow and evaluates alternate pricing structures to retain and grow deposits as needed. To the extent needed to fund loan demand, traditional local deposit funding sources are supplemented by the use of FHLB borrowings, brokered
deposits, and other wholesale deposit sources outside our immediate market area, including an Internet-based national CD service. Management has found that most non-relationship oriented retail CDs are interchangeable with wholesale funding sources
such as brokered deposits and national market CDs and alternates between these sources depending on the relative cost.



Our Asset/Liability Management Committee meets weekly to discuss liquidity-related issues such as loan pipelines, deposit pricing and upcoming deposit
maturities, among others. Through various asset/liability management strategies, we maintain a balance among goals of liquidity, safety and earnings potential. Our subsidiary banks monitor internal policies that are consistent with regulatory
liquidity guidelines.



The investment portfolio provides a
ready means to raise cash if liquidity needs arise. As of December 31, 2005, we held $143.7 million in bonds (excluding restricted stock) at current market value in our Available for Sale portfolio. We purchase only marketable investment grade
bonds. Although a portion of our bond portfolio is encumbered as pledges to secure various public funds deposits, repurchase agreements, and for other purposes, management can restructure and free up investment securities for sale if required to
meet liquidity needs. At December 31, 2005, approximately $73.5 million, or 51.2%, of our available for sale investment portfolio was pledged to secure deposits, repurchase agreements and for other related purposes.



Management continues to emphasize programs to generate local core deposits as
our primary funding source. The stability of our core deposit base is an important factor in our liquidity position. A heavy percentage of the deposit base is comprised of accounts of individuals and small businesses with comprehensive banking
relationships and limited volatility.



At December 31,
2005 and 2004, our subsidiary banks had $393.9 million and $233.5 million, respectively, in certificates of deposit of $100,000 or more. These larger deposits represented 34.7% and 32.3% of respective total interest-bearing deposits. Management
seeks to monitor and control the use of these larger certificates, which tend to be more volatile in nature, to ensure an adequate supply of funds as needed. Relative interest costs to attract local core relationships are compared to market rates of
interest on various external deposit sources to help minimize our overall cost of funds.



Our local market deposit sources have not been sufficient to fund the strong loan growth trends of Fairfield Financial over the past five years. Our banks supplemented deposit sources with brokered deposits and
Internet-based CDs. As of December 31, 2005 the banks reported $242.8 million, or 18.8% of total deposits, in brokered certificates of deposit attracted by external third parties with a weighted average rate of 3.96%. Additionally, the banks
use external wholesale or Internet services to obtain out-of-market certificates of deposits at competitive interest rates when funding is needed. As of December 31, 2005, the banks reported $88.0 million in wholesale CDs, representing 6.8% of
total deposits and carrying a weighted average rate of 4.10% at year-end.



To plan for contingent sources of funding not satisfied by both local and out-of-market deposit balances, we have established multiple borrowing sources to augment our funds management. At the holding company level,
we have an unsecured line of credit, and borrowing capacity also exists through the membership of our subsidiary banks in the Federal Home Loan Bank program. At December 31, 2005 we had, at the holding company level, a $17 million revolving
line of credit with The Bankers Bank, with zero outstanding at year-end. This line of credit is secured by the common stock of three of our subsidiary banks and indirectly, the stock of Fairfield Financial. Based on the collateral value of assets
pledged to the Federal Home Loan Bank at December 31, 2005 under our two programs for advances, our subsidiary banks had total borrowing capacity of up to $135.6 million, of which $85.4 million was drawn and outstanding at year-end. Our
subsidiary banks have also established overnight borrowing lines for federal funds purchased through various correspondent banks that



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collectively amounted to $96.7 million in capacity at December 31, 2005. Approximately $28.8 million of our federal funds lines were in use at year-end.
Management believes that the various funding sources discussed above are adequate to meet our liquidity needs in the future without any material adverse impact on operating results.



Interest Rate Risk Management



We have successfully managed the level of our net interest margin since 2001, despite the pressure on our net interest margin from a low interest rate
environment that has evolved into a moderate rate environment with a flattening yield curve. Our net interest margin was 4.46% in 2005, 4.45% in 2004, 4.40% in 2003 and 4.38% in 2002. Since 2002 we have aggressively worked to lower deposit costs to
offset lower yields from the loan portfolio. As noted above, we have been successful in generating low cost transaction accounts, as well as selectively alternating between retail CDs, borrowed funds and Internet/brokered CDs to generate the lowest
cost funding sources available.



To help us manage fluctuations
in our net interest income, we use simulation modeling to estimate the impact on net interest income of both the current level of market interest rates and for changes to the current level of market interest rates. We measure the projected changes
in market interest rates in terms of rate shifts of plus or minus 100, 200 and 300 basis points over the current levels of market interest rates. We assume rate shifts occur ratably over a 12-month measurement horizon. We then use a new
set of market interest rates to derive pricing for maturing or repricing assets and liabilities. We base projected pricing for maturing and repricing assets and liabilities upon market interest rates and actual pricing experience over the period
immediately preceding the projection period.



Using the current
level of market interest rates at December 31, 2005 and using actual pricing experience immediately preceding the projection, our simulation model projects a net interest margin of 4.53% for the twelve-month period ending December 31,
2006. This compares to a net interest margin of 4.46% for the year ended December 31, 2005. Assuming a 100 basis point rise in rates over year-end market levels, the net interest margin is projected to be 4.65% for the 12-month horizon. The net
interest margin is projected to be 4.76% and 4.88% for a 200 and 300 basis point rise in rates, respectively, over the same measurement period. The net interest margin is projected to be 4.49%, 4.44% and 4.37% for a 100, 200 and 300 basis point fall
in rates, respectively. Our interest rate risk profile shows a fairly balanced position for both rising and falling rates, with our balance sheet as of December 31, 2005 being slightly asset-sensitive. The consensus Blue Chip Economic Forecast
at December 31, 2005, called for a slight increase in both short-term and long-term rates, thereby maintaining a relatively flat yield curve. Rates are expected to reach a peak during 2006 and then remain flat for several months. Accordingly,
we are closely monitoring the estimated effects of these forecasted rates.



We also use a cumulative gap analysis model that seeks to measure the repricing differentials, or gap, between rate-sensitive assets and liabilities over various time horizons. The following table reflects the gap
positions of our consolidated balance sheets as of December 31, 2005 and 2004 at various repricing intervals. This gap analysis indicates that we had a slightly asset-sensitive balance sheet over a one-year time horizon at December 31,
2005 and 2004, with cumulative rate-sensitive assets amounting to 103% of cumulative rate-sensitive liabilities. At December 31, 2004, our balance sheet was slightly asset-sensitive over a one-year time horizon, with rate-sensitive assets
amounting to 103% of rate-sensitive liabilities. The projected deposit repricing volumes reflect adjustments based on managements assumptions of the expected rate sensitivity to current market rates for core deposits without contractual
maturity (i.e., interest-bearing checking, savings and money market accounts). Adjustments are also made for callable investment securities in the bond portfolio to place these bonds in call date categories. Management believes that our current
degree of interest rate risk is acceptable in the current interest rate environment.



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The following table sets forth information regarding interest rate sensitivity.



INTEREST RATE SENSITIVITY



(Dollars in thousands)

|                                                                                         |  |                   |         |   |                      |   |          |                         |  |   |             |   |  |   |         |   
|---------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | -------------------- | - | -------- | ----------------------- |  | - | ----------- | - |  | - | ------- | --
|                                                                                         |  | December 31, 2005 |        
|                                                                                         |  | 0 up to3 months   |         |   | Over3 up to12 Months |   |          | Over 1 yearup to5 years |  |   | Over5 years |  
|Amounts Maturing or Repricing:                                                           |  |                   |         |   |                      |   |          |                         |  |   |             |   |  |   |         |   
|Investment Securities (a)                                                                |  | $                 | 29,588  |   |                      | $ | 16,900   |                         |  | $ | 93,916      |   |  | $ | 13,025  |   
|Loans, Net of Unearned Income (b)                                                        |  |                   | 683,098 |   |                      |   | 220,282  |                         |  |   | 352,135     |   |  |   | 6,018   |   
|Other Earning Assets                                                                     |  |                   | 40,092  |   |                      |   | 0        |                         |  |   | 0           |   |  |   | 0       |   
|                                                                                         |  |                   |         |   |                      |   |          |                         |  |   |             |   |  |   |         |   
|Interest Sensitive Assets                                                                |  |                   | 752,778 |   |                      |   | 237,182  |                         |  |   | 446,051     |   |  |   | 19,043  |   
|                                                                                         |  |                   |         |   |                      |   |          |                         |  |   |             |   |  |   |         |   
|Nonmaturity Deposits                                                                     |  |                   | 167,267 |   |                      |   | 54,922   |                         |  |   | 292,394     |   |  |   | 61,373  |   
|Time Deposits                                                                            |  |                   | 152,002 |   |                      |   | 437,911  |                         |  |   | 125,272     |   |  |   | 112     |   
|Other Borrowings                                                                         |  |                   | 133,363 |   |                      |   | 17,171   |                         |  |   | 15,920      |   |  |   | 5,686   |   
|                                                                                         |  |                   |         |   |                      |   |          |                         |  |   |             |   |  |   |         |   
|Interest Sensitive Liabilities                                                           |  |                   | 452,632 |   |                      |   | 510,004  |                         |  |   | 433,586     |   |  |   | 67,171  |   
|                                                                                         |  |                   |         |   |                      |   |          |                         |  |   |             |   |  |   |         |   
|Interest Sensitivity Gap                                                                 |  | $                 | 300,146 |   |                      | $ | (272,822 | )                       |  | $ | 12,465      |   |  | $ | (48,128 | ) 
|                                                                                         |  |                   |         |   |                      |   |          |                         |  |   |             |   |  |   |         |   
|Cumulative Interest Sensitivity Gap                                                      |  | $                 | 300,146 |   |                      | $ | 27,324   |                         |  | $ | 39,789      |   |  | $ | (8,339  | ) 
|                                                                                         |  |                   |         |   |                      |   |          |                         |  |   |             |   |  |   |         |   
|Cumulative Interest Sensitivity Gap as a % of Total Interest Sensitive Assets            |  |                   | 20.63   | % |                      |   | 1.88     | %                       |  |   | 2.73        | % |  |   | (0.57   | )%
|                                                                                         |  |                   |         |   |                      |   |          |                         |  |   |             |   |  |   |         |   
|Cumulative Interest Sensitive Assets as a % of Cumulative Interest Sensitive Liabilities |  |                   | 166.31  | % |                      |   | 102.84   | %                       |  |   | 102.85      | % |  |   | 99.43   | % 
|                                                                                         |  |                   |         |   |                      |   |          |                         |  |   |             |   |  |   |         |   



(Dollars in thousands)

|                                                                                         |  |                   |         |   |                        |   |          |                          |  |   |              |   |  |   |         |  
|---------------------------------------------------------------------------------------- |  | ----------------- | ------- | - | ---------------------- | - | -------- | ------------------------ |  | - | ------------ | - |  | - | ------- | -
|                                                                                         | 
|                                                                                         |  | December 31, 2004 |        
|                                                                                         |  | 0 up to 3 months  |         |   | Over 3 up to 12 Months |   |          | Over 1 yearup to 5 years |  |   | Over 5 years |  
|Amounts Maturing or Repricing:                                                           |  |                   |         |   |                        |   |          |                          |  |   |              |   |  |   |         |  
|Investment Securities (a)                                                                |  | $                 | 12,181  |   |                        | $ | 15,535   |                          |  | $ | 72,363       |   |  | $ | 10,796  |  
|Loans, Net of Unearned Income (b)                                                        |  |                   | 458,420 |   |                        |   | 116,377  |                          |  |   | 261,562      |   |  |   | 6,010   |  
|Other Earning Assets                                                                     |  |                   | 20,342  |   |                        |   |         |                          |  |   |             |   |  |   |        |  
|                                                                                         |  |                   |         |   |                        |   |          |                          |  |   |              |   |  |   |         |  
|Interest Sensitive Assets                                                                |  |                   | 490,943 |   |                        |   | 131,912  |                          |  |   | 333,925      |   |  |   | 16,806  |  
|                                                                                         |  |                   |         |   |                        |   |          |                          |  |   |              |   |  |   |         |  
|Nonmaturity Deposits                                                                     |  |                   | 89,569  |   |                        |   | 29,582   |                          |  |   | 157,532      |   |  |   | 45,026  |  
|Time Deposits                                                                            |  |                   | 97,130  |   |                        |   | 325,771  |                          |  |   | 97,949       |   |  |   |        |  
|Other Borrowings                                                                         |  |                   | 40,473  |   |                        |   | 23,692   |                          |  |   | 33,105       |   |  |   | 10,234  |  
|                                                                                         |  |                   |         |   |                        |   |          |                          |  |   |              |   |  |   |         |  
|Interest Sensitive Liabilities                                                           |  |                   | 227,172 |   |                        |   | 379,045  |                          |  |   | 288,586      |   |  |   | 55,260  |  
|                                                                                         |  |                   |         |   |                        |   |          |                          |  |   |              |   |  |   |         |  
|Interest Sensitivity Gap                                                                 |  | $                 | 263,771 |   |                        | $ | (247,133 | )                        |  | $ | 45,339       |   |  | $ | (38,454 | )
|                                                                                         |  |                   |         |   |                        |   |          |                          |  |   |              |   |  |   |         |  
|Cumulative Interest Sensitivity Gap                                                      |  | $                 | 263,771 |   |                        | $ | 16,638   |                          |  | $ | 61,977       |   |  | $ | 23,523  |  
|                                                                                         |  |                   |         |   |                        |   |          |                          |  |   |              |   |  |   |         |  
|Cumulative Interest Sensitivity Gap as a % of Total Interest Sensitive Assets            |  |                   | 27.09   | % |                        |   | 1.71     | %                        |  |   | 6.37         | % |  |   | 2.42    | %
|                                                                                         |  |                   |         |   |                        |   |          |                          |  |   |              |   |  |   |         |  
|Cumulative Interest Sensitive Assets as a % of Cumulative Interest Sensitive Liabilities |  |                   | 216.11  | % |                        |   | 102.74   | %                        |  |   | 106.93       | % |  |   | 102.48  | %
|                                                                                         |  |                   |         |   |                        |   |          |                          |  |   |              |   |  |   |         |  

---

|(a) | Excludes the effect of SFAS No. 115 Accounting for Certain Investments in Debt and Equity Securities, consisting of a net unrealized loss of $2,445 in 2005 and a
net unrealized gain of $537 in 2004. Includes FHLB stock & other equity securities.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Includes loans held for sale, net of allowance.
|--- | -----------------------------------------------



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The following table provides information on the maturity distribution of selected categories of the loan
portfolio and certain interest sensitivity data as of December 31, 2005.



MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES



(Dollars in thousands)



|                                       |  |                   |         |                                |   |                |  |       |       |  |   |        
|-------------------------------------- |  | ----------------- | ------- | ------------------------------ | - | -------------- |  | ----- | ----- |  | - | -------
|                                       |  | December 31, 2005
|                                       |  | One Yearor Less   |         | Over OneYear ThroughFive Years |   | Over FiveYears |  | Total
|Selected loan categories:              |  |                   |         |                                |   |                |  |       |       |  |   |        
|Commercial, financial and agricultural |  | $                 | 63,229  |                                | $ | 42,328         |  | $     | 3,778 |  | $ | 109,335
|Real estate-construction               |  |                   | 390,689 |                                |   | 124,278        |  |       | 2,406 |  |   | 517,373
|                                       |  |                   |         |                                |   |                |  |       |       |  |   |        
|Total                                  |  | $                 | 453,918 |                                | $ | 166,606        |  | $     | 6,184 |  | $ | 626,708
|                                       |  |                   |         |                                |   |                |  |       |       |  |   |        
|Loans shown above due after one year:  |  |                   |         |                                |   |                |  |       |       |  |   |        
|Having predetermined interest rates    |  |                   |         |                                |   |                |  |       |       |  | $ | 58,185 
|Having floating interest rates         |  |                   |         |                                |   |                |  |       |       |  |   | 114,851
|                                       |  |                   |         |                                |   |                |  |       |       |  |   |        
|Total                                  |  |                   |         |                                |   |                |  |       |       |  | $ | 173,036
|                                       |  |                   |         |                                |   |                |  |       |       |  |   |        



Contractual Obligations



As of December 31, 2005, we are contractually
obligated under long-term agreements as follows:



(Dollars in thousands)



|                                  |  |                        |         |                  |   |           |  |           |        |                   |   |       |  |   |       
|--------------------------------- |  | ---------------------- | ------- | ---------------- | - | --------- |  | --------- | ------ | ----------------- | - | ----- |  | - | ------
|                                  |  | Payments Due by Period
|Contractual Obligations           |  | Total                  |         | Less than 1 year |   | 1-3 Years |  | 3-5 years |        | More than 5 years
|Federal Home Loan Bank Advances   |  | $                      | 85,427  |                  | $ | 29,900    |  | $         | 35,527 |                   | $ | 5,000 |  | $ | 15,000
|Subordinated Debentures           |  |                        | 41,238  |                  |   |          |  |           |       |                   |   |      |  |   | 41,238
|Correspondent Bank Line of Credit |  |                        | 1,600   |                  |   | 1,600     |  |           |       |                   |   |      |  |   |      
|Operating Leases                  |  |                        | 3,178   |                  |   | 594       |  |           | 1,032  |                   |   | 671   |  |   | 881   
|Purchase Obligations              |  |                        |        |                  |   |          |  |           |       |                   |   |      |  |   |      
|Deferred Compensation             |  |                        | 900     |                  |   |          |  |           |       |                   |   |      |  |   | 900   
|                                  |  |                        |         |                  |   |           |  |           |        |                   |   |       |  |   |       
|Total                             |  | $                      | 132,343 |                  | $ | 32,094    |  | $         | 36,559 |                   | $ | 5,671 |  | $ | 58,019
|                                  |  |                        |         |                  |   |           |  |           |        |                   |   |       |  |   |       



The Federal Home Loan
Bank Advances (FHLB) program is a Blanket Agreement for Advances and Security Agreement with the FHLB, under which our subsidiaries have pledged residential first-mortgage loans, commercial real estate loans and investments securities as collateral
to secure available lines of credit.



Our correspondent bank
line of credit is with the Thomasville National Bank in Thomasville, Georgia. The line is secured with the common stock of the Company and a pledged investment security. The line of credit was assumed in connection with the acquisition of Rivoli
BanCorp.



The $41.2 million of subordinated debentures above
relate to our trust preferred securities, which were issued or assumed in 2002 and 2005. The proceeds of the trust preferred securities were used to pay down holding company debt, and to fund the acquisitions of Security Bank of Jones County and
Rivoli BanCorp.



Other bank facilities are leased under
operating leases included in the table above.



Deferred
compensation plans are maintained by two of our subsidiary banks. These plans are for specific officers to defer current compensation until termination, retirement, death or an unforeseeable emergency. The contracts were initially funded through the
purchase of life insurance policies.



59



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##### Table of Contents

Off-Balance Sheet Arrangements



We are a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing
needs of our customers. These financial instruments consist of commitments to extend credit and standby letters of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition
established in the contract.



Standby letters of credit are
written conditional commitments issued by a bank to guarantee the performance of a customer to a third party. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. A commitment involves, to
varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. Our exposure to credit loss in the event of non-performance by the other party to the instrument is represented by the contractual
notional amount of the instrument.



Because certain commitments
are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. We use the same credit policies in making commitments to extend credit as we do for on-balance-sheet instruments.
Collateral held for commitments to extend credit varies but may include accounts receivable, inventory, property, plant, equipment, and income-producing commercial properties.



The following table summarizes our off-balance-sheet financial instruments whose contract amounts represented credit risk as
of December 31, 2005:



|                                          |  |   |            
|----------------------------------------- |  | - | -----------
|Standby and performance letters of credit |  | $ | 13,977,000 
|Unfulfilled loan commitments              |  | $ | 393,805,000



No losses are
anticipated as a result of the commitments and we do not feel that they are reasonably likely to have a material effect on our consolidated financial condition.



After the initial commitment to extend credit has been made, we may receive a letter of credit fee or loan origination fee, but do not typically
receive any further revenues or incur any additional expenses on the unfulfilled commitments.



Inflation



Inflation
impacts our financial condition and operating results. However, because most of the assets of the bank subsidiaries are monetary in nature, the effect is less significant compared to other commercial or industrial companies with heavy investments in
inventories and fixed assets. Inflation influences the growth of total banking assets, which in turn produces a need for an increased equity capital base to support growing banks. Inflation also influences interest rates and tends to raise the
general level of salaries, operating costs and purchased services. Our mortgage division is particularly impacted by swings in the interest rate cycle. We have not attempted to measure the effect of inflation on various types of income and expense
due to difficulties in quantifying the impact. Managements awareness of inflationary effects has led to various operational strategies to cope with its impact. We engage in various asset/liability management strategies to control interest rate
sensitivity and minimize exposure to interest rate risk. Prices for banking products and services are continually reviewed in relation to current costs, and overhead cost cutting is an ongoing task.



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##### Table of Contents

|Item 7A | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------



The information required by this Item is located in Item 7 under the heading Interest Rate Risk Management beginning on Page 46.



|Item 8 | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------ | -------------------------------------------



The following consolidated financial statements of the Registrant and its subsidiaries are included on Exhibit 13 of this Annual Report on Form 10-K:



|                                                                                             |  | 
|-------------------------------------------------------------------------------------------- |  | 
|Consolidated Balance Sheets - December 31, 2005 and 2004                                     |  | 
|                                                                                             | 
|Consolidated Statements of IncomeYears Ended December 31, 2005, 2004 and 2003               |  | 
|                                                                                             | 
|Consolidated Statements of Comprehensive IncomeYears Ended December 31, 2005, 2004 and 2003 |  | 
|                                                                                             | 
|Consolidated Statements of Stockholders EquityYears Ended December 31, 2005, 2004 and 2003 |  | 
|                                                                                             | 
|Consolidated Statements of Cash FlowsYears Ended December 31, 2005, 2004 and 2003           |  | 
|                                                                                             | 
|Notes to Consolidated Financial Statements                                                   |  | 



|Item 9 | CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|------ | -----------------------------------------------------------------------------------



Not applicable.



|Item 9A | CONTROLS AND PROCEDURES
|------- | -----------------------



Evaluation of Disclosure Controls and Procedures



As of the end of the period covered by this report, the Companys Chief Executive Officer and the Chief Financial and Accounting Officer evaluated
the effectiveness of the Companys disclosure controls and procedures in accordance with Rule 13a-15 under the Exchange Act. Based on their evaluation, the Chief Executive Officer and the Chief Financial and Accounting Officer concluded that
the Companys disclosure controls and procedures are effective.



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##### Table of Contents

MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING



The management of Security Bank Corporation (SBKC) is responsible for
establishing and maintaining adequate internal control over financial reporting; SBKCs internal control system was designed to provide reasonable assurance to the companys management and board of directors regarding the preparation and
fair presentation of published financial statements.



All
internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.



SBKC management assessed the effectiveness of the
companys internal control over financial reporting as of December 31, 2005. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal
ControlIntegrated Framework. The scope of our assessment with respect to the year ended December 31, 2005 included all of our operations other than those that we acquired in the May 31 and December 31 acquisitions of
substantially all of the assets and liabilities of SouthBank and Rivoli BanCorp, Inc. (which we refer to as the the acquisitions), respectively. Because we acquired these operations during the fiscal year, we excluded these operations
from our assessment with respect to the year ended December 31, 2005. The following consolidated totals include these entities whose internal controls have not been assessed: total assets as of December 31, 2005 and total revenues for the
year ended December 31, 2005 were $420 million and $7 million, respectively. SEC rules require that we include in our assessment of the internal control over financial reporting of the acquired entities operations within one
year after the date of the acquisitions. Based on our assessment, excluding the operations discussed above, management believes that the Company maintained effective internal control over financial reporting as of December 31, 2005.



SBKCs independent auditors have issued an
attestation report on our assessment of the companys internal control over financial reporting. This report appears in Item 8.



|Item 9B | OTHER INFORMATION
|------- | -----------------



None.



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##### Table of Contents

Part III



|Item 10 | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
|------- | --------------------------------------------------



Code of Ethics



The Company has adopted a code of ethics that applies to its principal executive officer and principal financial and accounting officer.



The Security Bank Corporation Code of Ethics is available on the
Companys website at www.securitybank.net.



The
remaining information required by this Item is incorporated by reference to the Companys definitive Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal
year covered by this Annual Report.



|Item 11 | EXECUTIVE COMPENSATION
|------- | ----------------------



The information required by this Item is incorporated by reference to the Companys definitive Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report.



|Item 12 | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|------- | ----------------------------------------------------------------------------------------------



Equity Compensation Plan Information



|                                                           |  |                                                                                                 |  |                                                                                 |       |                                                                                                                                                 |        
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------- | ----- | ----------------------------------------------------------------------------------------------------------------------------------------------- | -------
|Plan Category                                              |  | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) |  | Weighted-average
exercise price of outstanding options, warrants and rights (b) |       | Number of securities remaining available for future issuance under equity compensation plans (excluding
securities reflected in column (a)) (c)
|                                                           |  |                                                                                                 | 
|Equity compensation plans approved by security
holders     |  |                                                                                                 |  |                                                                                 |       |                                                                                                                                                 |        
|                                                           |  |                                                                                                 | 
|(i) 1999 Incentive Stock Option Plan                       |  | 121,000                                                                                         |  | $                                                                               | 8.41  |                                                                                                                                                 | -0-    
|                                                           |  |                                                                                                 | 
|(ii) 2002 Incentive Stock Option Plan                      |  | 224,000                                                                                         |  | $                                                                               | 10.10 |                                                                                                                                                 | 275,500
|                                                           |  |                                                                                                 | 
|(iii) 2004 Incentive Stock Option Plan                     |  | 451,000                                                                                         |  | $                                                                               | 15.87 |                                                                                                                                                 | 149,000
|                                                           |  |                                                                                                 | 
|Equity compensation plans not approved by security
holders |  |                                                                                                 |  |                                                                                 |       |                                                                                                                                                 |        
|                                                           |  |                                                                                                 | 
|(i) 2003 Restricted Stock Bonus Plan                       |  | 19,176                                                                                          |  |                                                                                 | -0-   |                                                                                                                                                 | -0-    
|                                                           |  |                                                                                                 | 
|Total                                                      |  | 815,176                                                                                         |  | $                                                                               | 13.11 |                                                                                                                                                 | 424,500

---

|* | Figures above are as of December 31, 2005.
|- | ------------------------------------------



The remaining information required by this Item is incorporated by reference to the Companys definitive Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report.



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##### Table of Contents

|Item 13 | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
|------- | ----------------------------------------------



The information required by this Item is incorporated by reference to the Companys definitive Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report.



|Item 14 | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|------- | --------------------------------------



The information required by this Item is incorporated by reference to the Companys definitive Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A within 120 days after the end of the fiscal year covered by this Annual Report.



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##### Table of Contents

Part IV



|Item 15 | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|------- | ------------------------------------------



(a) The following documents are filed as part of this report:



| | (1) | Financial Statements
| | --- | --------------------



| | (2) | Financial Statement Schedules:
| | --- | ------------------------------



All schedules are omitted as the required information is inapplicable or the information is presented in the financial statements or the related notes.



| | (3) | A list of the exhibits required by Item 601 of Regulation S-K to be filed as a part of this report is shown on the Exhibit Index filed herewith.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

SIGNATURES



Pursuant to the
requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



SECURITY BANK CORPORATION/s/    H. AVERETT WALKERH. AVERETT WALKERPresident/Director/Chief Executive OfficerDate: March 16, 2006




Pursuant to the
requirements of the Securities Exchange Act of 1934, as amended, this Annual Report on Form 10-K has been signed by the following persons on behalf of the registrant and in the capacities on March 16, 2006:



|                                                                    |  |  |  | 
|------------------------------------------------------------------- |  |  |  | 
|                                                                    |  | 
|/S/    H. AVERETT
WALKERH. AVERETT WALKER,
Director                 |  |  |  | 
|                                                                    |  | 
|/S/    EDWARD M. BECKHAM,
IIEDWARD M. BECKHAM, II,
Director         |  |  |  | 
|                                                                    |  | 
|/S/    ALFORD C.
BRIDGESALFORD C. BRIDGES,
Director                 |  |  |  | 
|                                                                    |  | 
|/S/    FRANK H. CHILDS,
JRFRANK H. CHILDS, JR.,
Director            |  |  |  | 
|                                                                    |  | 
|/S/    THAD G. CHILDS,
JR.THAD G. CHILDS, JR.,
Director             |  |  |  | 
|                                                                    |  | 
|/S/    BENJAMIN W. GRIFFITH,
IIIBENJAMIN W. GRIFFITH, III,
Director |  |  |  | 
|                                                                    |  | 
|/S/    RUTHIE G.
MCMICHAELRUTHIE G.
McMICHAEL, Director             |  |  |  | 
|                                                                    |  | 
|/S/    ROBERT T.
MULLISROBERT T. MULLIS,
Director                   |  |  |  | 
|                                                                    |  | 
|/S/    BEN G.
PORTERBEN G. PORTER,
Director                         |  |  |  | 
|                                                                    |  | 
|/S/    JOHN W.
RAMSEYJOHN W. RAMSEY,
Director                       |  |  |  | 
|                                                                    |  | 
|/S/    T. KEVIN
REECET. KEVIN REECE,
Director                       |  |  |  | 
|                                                                    |  | 
|/S/    ROBERT M.
STALNAKERROBERT M. STALNAKER,
Director             |  |  |  | 



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##### Table of Contents

|                                                              |  |  |  | 
|------------------------------------------------------------- |  |  |  | 
|                                                              |  | 
|/S/    H. CULLEN TALTON,
JR.H. CULLEN TALTON, JR.,
Director   |  |  |  | 
|                                                              |  | 
|/S/    JOE E. TIMBERLAKE,
IIIJOE E. TIMBERLAKE, III,
Director |  |  |  | 
|                                                              |  | 
|/S/    LARRY C.
WALKERLARRY C. WALKER,
Director               |  |  |  | 
|                                                              |  | 
|/S/    RICHARD W.
WHITERICHARD W. WHITE,
Director             |  |  |  | 
|                                                              |  | 
|/S/    RICHARD A. COLLINSWORTHRICHARD A. COLLINSWORTH         |  |  |  | 
|Executive Vice President                                      |  |  |  | 
|                                                              |  | 
|/S/    JAMES R.
MCLEMOREJAMES R.
McLEMORE                     |  |  |  | 
|Chief Financial and Accounting Officer                        |  |  |  | 
|                                                              |  | 
|/S/    LINDA L.
CASSIDYLINDA L.
CASSIDY                       |  |  |  | 
|Secretary                                                     |  |  |  | 



|     |  |                                    |  | 
|---- |  | ---------------------------------- |  | 
|     |  |                                   
|*By: |  | /s/    H. AVERETT WALKER           |  | 
|     |  | H. Averett Walker Attorney-in-fact |  | 



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EXHIBIT INDEX



|            |  |                                                                                                                                                                                                                                                                                           
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                               
|            | 
|3.1         |  | Articles of Incorporation of Security Bank Corporation, as amended (incorporated by reference to Exhibit 3.1 to Securitys registration statement on Form S-4 (File No. 333-128767) filed
with the commission on October 4, 2005).                                                        
|            | 
|3.2         |  | Bylaws of Security Bank Corporation (Incorporated by reference to Exhibit 3.2 to Securitys Registration Statement on Form S-4 (File No. 333-49977) filed with the Commission on
April 13, 1998).                                                                                         
|            | 
|4.1         |  | See Exhibits 3.1, and 3.2 for provisions of Articles of Incorporation and Bylaws, as amended, which define the rights of its shareholders.                                                                                                                                                
|            | 
|4.2         |  | Form of Stock Certificate (incorporated herein by reference as Exhibit 4.1 to the registrants Registration Statement on Form S-4 (File No. 333-49977) filed with the Commission on
April 13, 1998).                                                                                      
|            | 
|10.1        |  | 1996 Incentive Stock Option Plan (incorporated by reference as Exhibit 10(c) to the registrants Form SB-2 (File No. 333-11371) filed with the Commission on September 4,
1996).                                                                                                          
|            | 
|10.2        |  | 1999 Incentive Stock Option Plan (incorporated by reference as Appendix to the registrants definitive proxy statement (File No. 000-23261) filed on March 30,
1999).                                                                                                                     
|            | 
|10.3        |  | 2002 Incentive Stock Option Plan (incorporated by reference as Appendix A to the registrants definitive proxy statement (File No. 000-23261) filed on March 15,
2002).                                                                                                                   
|            | 
|10.4        |  | Employment Agreement with H. Averett Walker dated January 1, 2002 (incorporated herein by reference as Exhibit 10.4 to SBKCs Registration Statement on Form S-4 (File No.
333-103554) filed with the Commission on March 3, 2003).                                                       
|            | 
|10.5        |  | Employment Agreement with Richard A. Collinsworth dated January 1, 2002 (incorporated herein by reference as Exhibit 10.5 to SBKCs Registration Statement on Form S-4 (File No.
333-103554) filed with the Commission on March 3, 2003).                                                 
|            | 
|10.6        |  | Employment Agreement with James R. McLemore dated December 1, 2002 (incorporated herein by reference as Exhibit 10.6 to SBKCs Registration Statement on Form S-4 (File No.
333-103554) filed with the Commission on March 3, 2003).                                                      
|            | 
|10.7        |  | Asset Purchase Agreement (Fairfield Financial) (incorporated by reference as Exhibit 2 to registrants Form 10-Q (Commission File No. 000-23261) filed on August 10,
2000).                                                                                                               
|            | 
|10.8        |  | Employment Agreement between Security Bank Corporation, Security Interim Bank and Thad G. Childs, Jr. dated May 30, 2003 (incorporated herein by reference as Exhibit 10.7 to SBKCs
Registration Statement on Form S-4 (File No. 333-103554) filed with the Commission on March 3, 2003).
|            | 
|10.9        |  | 2003 Restricted Stock Bonus Plan (incorporated by reference to the registrants Registration Statement on Form S-8 (File No. 333-116592) filed with the Commission on June 17,
2004).                                                                                                     
|            | 
|10.10       |  | 2004 Omnibus Stock Ownership and Long Term Incentive Plan (incorporated by reference as Appendix B to the registrants definitive proxy statement (File No. 000-23261) filed on April
29, 2004).                                                                                          
|            | 
|10.11       |  | 2004 Employee Stock Purchase Plan (incorporated by reference as Appendix D to the registrants definitive proxy statement (File No. 000-23261) filed on April 29, 2004).                                                                                                                  
|            | 
|11          |  | Statement of Computation of Earnings Per Share.                                                                                                                                                                                                                                           
|            | 
|13          |  | Consolidated Financial Statements of Security Bank Corporation as of December 31, 2005 and 2004.                                                                                                                                                                                          
|            | 
|21          |  | Schedule of Subsidiaries of Registrant.                                                                                                                                                                                                                                                   
|            | 
|23          |  | Consent of McNair, McLemore, Middlebrooks & Co., LLP.                                                                                                                                                                                                                                     
|            | 
|24          |  | Power of Attorney relating to this Form 10-K is set forth on the signature page of this Form 10-K.                                                                                                                                                                                        
|            | 
|31.1        |  | Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                     
|            | 
|31.2        |  | Certificate of the Chief Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                      
|            | 
|32.1        |  | Certificate of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.