MCNAIR, MCLEMORE,
MIDDLEBROOKS & CO., LLP

CERTIFIED PUBLIC ACCOUNTANTS



RALPH S. McLEMORE, SR., CPA (1963-1977)

SIDNEY B. McNAIR, CPA (1954-1992)

---



|                                |  |                              
|------------------------------- |  | -----------------------------
|                                |  | RICHARD A. WHITTEN, JR., CPA 
|SIDNEY E. MIDDLEBROOKS, CPA, PC |  | ELIZABETH WARE HARDIN, CPA   
|RAY C. PEARSON, CPA             |  | CAROLINE E. GRIFFIN, CPA     
|J. RANDOLPH NICHOLS, CPA        |  | RONNIE K. GILBERT, CPA       
|WILLIAM H. EPPS, JR., CPA       |  | RON C. DOUTHIT, CPA          
|RAYMOND A. PIPPIN, JR., CPA     |  | CHELSEY P. CAWTHON, JR., CPA 
|JERRY A. WOLFE, CPA             |  | CHARLES A. FLETCHER, CPA     
|W. E. BARFIELD, JR., CPA        |  | MARJORIE HUCKABEE CARTER, CPA
|HOWARD S. HOLLEMAN, CPA         |  | BRYAN A. ISGETT, CPA         
|F. GAY McMICHAEL, CPA           |  | DAVID PASCHAL MUSE, JR., CPA 



March 10, 2005



REPORT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Stockholders

Security Bank Corporation



We have audited the accompanying consolidated balance sheets of Security Bank Corporation and Subsidiaries as of December 31, 2004 and 2003 and the
related consolidated statements of income, comprehensive income, changes in stockholders equity and cash flows for each of the years in the three-year period ended December 31, 2004. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



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



In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of Security Bank Corporation and Subsidiaries as of December 31, 2004 and 2003, and the results of its operations and its cash flows for each of the years
in the three-year period ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America.



We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Security
Bank Corporation and Subsidiaries internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated March 10, 2005 expressed an unqualified opinion on managements assessment of internal control over financial reporting and an unqualified opinion on the effectiveness of internal control over
financial reporting.



McNAIR, McLEMORE, MIDDLEBROOKS & CO., LLP



---

389 Mulberry Street  Post Office Box One  Macon, GA 31202

Telephone (478) 746-6277  Facsimile (478) 743-6858

www.mmmcpa.com



1



---

MCNAIR, MCLEMORE,
MIDDLEBROOKS & CO., LLP

CERTIFIED PUBLIC ACCOUNTANTS



RALPH S. McLEMORE, SR., CPA (1963-1977)

SIDNEY B. McNAIR, CPA (1954-1992)

---



|                                |  |                              
|------------------------------- |  | -----------------------------
|                                |  | RICHARD A. WHITTEN, JR., CPA 
|SIDNEY E. MIDDLEBROOKS, CPA, PC |  | ELIZABETH WARE HARDIN, CPA   
|RAY C. PEARSON, CPA             |  | CAROLINE E. GRIFFIN, CPA     
|J. RANDOLPH NICHOLS, CPA        |  | RONNIE K. GILBERT, CPA       
|WILLIAM H. EPPS, JR., CPA       |  | RON C. DOUTHIT, CPA          
|RAYMOND A. PIPPIN, JR., CPA     |  | CHELSEY P. CAWTHON, JR., CPA 
|JERRY A. WOLFE, CPA             |  | CHARLES A. FLETCHER, CPA     
|W. E. BARFIELD, JR., CPA        |  | MARJORIE HUCKABEE CARTER, CPA
|HOWARD S. HOLLEMAN, CPA         |  | BRYAN A. ISGETT, CPA         
|F. GAY McMICHAEL, CPA           |  | DAVID PASCHAL MUSE, JR., CPA 



March 10, 2005



REPORT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors

Security Bank Corporation



We have audited managements assessment, included in the accompanying
managements report on internal controls, that Security Bank Corporation and Subsidiaries maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Security Bank Corporations management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on managements assessment and an opinion on the effectiveness of the Companys internal control over financial reporting based on
our audit.



We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal control and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.



A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the companys assets that could have a material effect on the financial statements.



2



---

Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may
deteriorate.



In our opinion, managements assessment that
Security Bank Corporation and Subsidiaries maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on criteria established in Internal ControlIntegrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, Security Bank Corporation and Subsidiaries maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2004, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.



We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated financial statements of Security Bank Corporation and Subsidiaries and our report dated March 10, 2005, expressed an unqualified opinion.



McNAIR, McLEMORE, MIDDLEBROOKS & CO., LLP



---

389 Mulberry Street  Post Office Box One  Macon, GA 31202

Telephone (478) 746-6277  Facsimile (478) 743-6858

www.mmmcpa.com



3



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

DECEMBER 31



|                                                                                                                |  |      |               |   |      |   |             |  
|--------------------------------------------------------------------------------------------------------------- |  | ---- | ------------- | - | ---- | - | ----------- | -
|ASSETS                                                                                                          |  |      |               |   |      |   |             |  
|                                                                                                                |  | 2004 |               |   | 2003 |  
|Cash and Cash Equivalents                                                                                       |  |      |               |   |      |   |             |  
|Cash and Due from Banks                                                                                         |  | $    | 26,862,022    |   |      | $ | 39,407,710  |  
|Federal Funds Sold                                                                                              |  |      | 17,484,000    |   |      |   | 10,487,000  |  
|                                                                                                                |  |      |               |   |      |   |             |  
|                                                                                                                |  |      | 44,346,022    |   |      |   | 49,894,710  |  
|                                                                                                                |  |      |               |   |      |   |             |  
|Interest-Bearing Deposits With Other Banks                                                                      |  |      | 2,857,573     |   |      |   | 531,628     |  
|                                                                                                                |  |      |               |   |      |   |             |  
|Investment Securities                                                                                           |  |      |               |   |      |   |             |  
|Available for Sale, At Fair Value                                                                               |  |      | 104,109,721   |   |      |   | 97,527,433  |  
|Held to Maturity, At Cost (Fair Value of $2,404,040 and $1,465,397 at December 31, 2004 and 2003, Respectively) |  |      | 2,383,985     |   |      |   | 1,392,111   |  
|                                                                                                                |  |      |               |   |      |   |             |  
|                                                                                                                |  |      | 106,493,706   |   |      |   | 98,919,544  |  
|                                                                                                                |  |      |               |   |      |   |             |  
|Federal Home Loan Bank Stock, at Cost                                                                           |  |      | 4,918,300     |   |      |   | 3,935,300   |  
|                                                                                                                |  |      |               |   |      |   |             |  
|Loans Held for Sale                                                                                             |  |      | 7,507,095     |   |      |   | 11,448,370  |  
|                                                                                                                |  |      |               |   |      |   |             |  
|Loans                                                                                                           |  |      | 846,818,162   |   |      |   | 698,453,785 |  
|Allowance for Loan Losses                                                                                       |  |      | (10,902,783   | ) |      |   | (9,407,421  | )
|Unearned Interest and Fees                                                                                      |  |      | (1,053,267    | ) |      |   | (771,305    | )
|                                                                                                                |  |      |               |   |      |   |             |  
|                                                                                                                |  |      | 834,862,112   |   |      |   | 688,275,059 |  
|                                                                                                                |  |      |               |   |      |   |             |  
|Premises and Equipment                                                                                          |  |      | 19,105,286    |   |      |   | 17,113,197  |  
|                                                                                                                |  |      |               |   |      |   |             |  
|Other Real Estate (Net of Allowance of $60,912 and $0 in 2004 and 2003, Respectively)                           |  |      | 1,991,176     |   |      |   | 4,006,321   |  
|                                                                                                                |  |      |               |   |      |   |             |  
|Goodwill                                                                                                        |  |      | 28,579,479    |   |      |   | 24,874,747  |  
|                                                                                                                |  |      |               |   |      |   |             |  
|Core Deposit Intangible (Net of Amortization of $271,006 and $99,844 in 2004 and 2003, Respectively)            |  |      | 584,803       |   |      |   | 755,965     |  
|                                                                                                                |  |      |               |   |      |   |             |  
|Other Assets                                                                                                    |  |      | 12,238,998    |   |      |   | 11,514,294  |  
|                                                                                                                |  |      |               |   |      |   |             |  
|Total Assets                                                                                                    |  | $    | 1,063,484,550 |   |      | $ | 911,269,135 |  
|                                                                                                                |  |      |               |   |      |   |             |  



The accompanying notes
are an integral part of these balance sheets.



4



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

DECEMBER 31



|                                                                                                                                                         |  |      |               |   |      |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------------- | - | ---- | - | ----------- | -
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                     |  |      |               |   |      |   |             |  
|                                                                                                                                                         |  | 2004 |               |   | 2003 |  
|Deposits                                                                                                                                                 |  |      |               |   |      |   |             |  
|Noninterest-Bearing                                                                                                                                      |  | $    | 119,501,571   |   |      | $ | 107,534,029 |  
|Interest-Bearing                                                                                                                                         |  |      | 723,056,181   |   |      |   | 635,766,627 |  
|                                                                                                                                                         |  |      |               |   |      |   |             |  
|                                                                                                                                                         |  |      | 842,557,752   |   |      |   | 743,300,656 |  
|                                                                                                                                                         |  |      |               |   |      |   |             |  
|Borrowed Money                                                                                                                                           |  |      |               |   |      |   |             |  
|Federal Funds Purchased and Securities Sold Under Agreement to Repurchase                                                                                |  |      | 21,811,465    |   |      |   | 8,349,952   |  
|Subordinated Debentures                                                                                                                                  |  |      | 18,557,000    |   |      |   | 18,557,000  |  
|Other Borrowed Money                                                                                                                                     |  |      | 67,135,516    |   |      |   | 59,078,505  |  
|                                                                                                                                                         |  |      |               |   |      |   |             |  
|                                                                                                                                                         |  |      | 107,503,981   |   |      |   | 85,985,457  |  
|                                                                                                                                                         |  |      |               |   |      |   |             |  
|Other Liabilities                                                                                                                                        |  |      | 6,751,835     |   |      |   | 6,174,294   |  
|                                                                                                                                                         |  |      |               |   |      |   |             |  
|Stockholders Equity                                                                                                                                     |  |      |               |   |      |   |             |  
|Common Stock, Par Value $1 per Share; Authorized 10,000,000 Shares, Issued 5,829,773 and 5,033,299 Shares as of December 31, 2004 and 2003,
Respectively |  |      | 5,829,773     |   |      |   | 5,033,299   |  
|Paid-In Capital                                                                                                                                          |  |      | 62,348,500    |   |      |   | 41,579,766  |  
|Retained Earnings                                                                                                                                        |  |      | 38,544,733    |   |      |   | 28,709,673  |  
|Restricted Stock  Unearned Compensation                                                                                                                 |  |      | (74,697       | ) |      |   | (104,037    | )
|Accumulated Other Comprehensive Income, Net of Tax                                                                                                       |  |      | 352,801       |   |      |   | 886,864     |  
|                                                                                                                                                         |  |      |               |   |      |   |             |  
|                                                                                                                                                         |  |      | 107,001,110   |   |      |   | 76,105,565  |  
|Treasury Stock (9,868 and 8,999 Shares in 2004 and 2003, Respectively), at Cost                                                                          |  |      | (330,128      | ) |      |   | (296,837    | )
|                                                                                                                                                         |  |      |               |   |      |   |             |  
|                                                                                                                                                         |  |      | 106,670,982   |   |      |   | 75,808,728  |  
|                                                                                                                                                         |  |      |               |   |      |   |             |  
|Total Liabilities and Stockholders Equity                                                                                                               |  | $    | 1,063,484,550 |   |      | $ | 911,269,135 |  
|                                                                                                                                                         |  |      |               |   |      |   |             |  



The accompanying notes
are an integral part of these balance sheets.



5



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31



|                                                    |  |      |            |      |   |            |  |   |            |  
|--------------------------------------------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ---------- | -
|                                                    |  | 2004 |            | 2003 |   | 2002       | 
|Interest Income                                     |  |      |            |      |   |            |  |   |            |  
|Loans, Including Fees                               |  | $    | 49,722,831 |      | $ | 39,938,820 |  | $ | 30,542,850 |  
|Federal Funds Sold                                  |  |      | 114,719    |      |   | 62,621     |  |   | 86,096     |  
|Deposits with Other Banks                           |  |      | 25,041     |      |   | 9,767      |  |   | 15,062     |  
|Investment Securities                               |  |      |            |      |   |            |  |   |            |  
|U. S. Treasury                                      |  |      | 39,773     |      |   | 78,845     |  |   | 120,852    |  
|U. S. Government Agencies                           |  |      | 3,160,028  |      |   | 2,032,397  |  |   | 1,550,635  |  
|State, County and Municipal                         |  |      | 710,653    |      |   | 586,218    |  |   | 409,268    |  
|Other Investments                                   |  |      | 153,294    |      |   | 186,020    |  |   | 195,196    |  
|                                                    |  |      |            |      |   |            |  |   |            |  
|                                                    |  |      | 53,926,339 |      |   | 42,894,688 |  |   | 32,919,959 |  
|                                                    |  |      |            |      |   |            |  |   |            |  
|Interest Expense                                    |  |      |            |      |   |            |  |   |            |  
|Deposits                                            |  |      | 11,701,538 |      |   | 10,319,415 |  |   | 9,840,396  |  
|Federal Funds Purchased                             |  |      | 144,625    |      |   | 104,731    |  |   | 73,083     |  
|Demand Notes Issued to the U.S. Treasury            |  |      | 8          |      |   | 3,662      |  |   | 7,190      |  
|Other Borrowed Money                                |  |      | 2,526,696  |      |   | 2,484,479  |  |   | 2,189,054  |  
|                                                    |  |      |            |      |   |            |  |   |            |  
|                                                    |  |      | 14,372,867 |      |   | 12,912,287 |  |   | 12,109,723 |  
|                                                    |  |      |            |      |   |            |  |   |            |  
|Net Interest Income                                 |  |      | 39,553,472 |      |   | 29,982,401 |  |   | 20,810,236 |  
|Provision for Loan Losses                           |  |      | 2,818,796  |      |   | 2,859,143  |  |   | 2,603,133  |  
|                                                    |  |      |            |      |   |            |  |   |            |  
|Net Interest Income After Provision for Loan Losses |  |      | 36,734,676 |      |   | 27,123,258 |  |   | 18,207,103 |  
|                                                    |  |      |            |      |   |            |  |   |            |  
|Noninterest Income                                  |  |      |            |      |   |            |  |   |            |  
|Service Charges on Deposits                         |  |      | 6,450,199  |      |   | 5,041,611  |  |   | 3,405,889  |  
|Other Service Charges, Commissions and Fees         |  |      | 3,306,114  |      |   | 2,934,877  |  |   | 971,273    |  
|Mortgage Banking Income                             |  |      | 4,930,747  |      |   | 9,211,326  |  |   | 8,587,702  |  
|Securities Gains                                    |  |      | 12,703     |      |   | 55,484     |  |   | 135,802    |  
|Other                                               |  |      | 132,943    |      |   | 59,976     |  |   | 44,628     |  
|                                                    |  |      |            |      |   |            |  |   |            |  
|                                                    |  |      | 14,832,706 |      |   | 17,303,274 |  |   | 13,145,294 |  
|                                                    |  |      |            |      |   |            |  |   |            |  
|Noninterest Expenses                                |  |      |            |      |   |            |  |   |            |  
|Salaries and Employee Benefits                      |  |      | 18,630,030 |      |   | 18,145,968 |  |   | 13,603,708 |  
|Occupancy and Equipment                             |  |      | 3,364,670  |      |   | 2,915,892  |  |   | 2,537,718  |  
|Loss (Gain) on Sale of Premises and Equipment       |  |      | 18,881     |      |   | 852        |  |   | (4,750     | )
|Office Supplies and Printing                        |  |      | 620,061    |      |   | 714,014    |  |   | 537,648    |  
|Telephone                                           |  |      | 407,532    |      |   | 584,302    |  |   | 600,575    |  
|Loss on Foreclosed Property                         |  |      | 160,218    |      |   | 538,956    |  |   | 615,496    |  
|Other                                               |  |      | 9,107,030  |      |   | 7,940,731  |  |   | 5,131,189  |  
|                                                    |  |      |            |      |   |            |  |   |            |  
|                                                    |  |      | 32,308,422 |      |   | 30,840,715 |  |   | 23,021,584 |  
|                                                    |  |      |            |      |   |            |  |   |            |  
|Income Before Income Taxes                          |  |      | 19,258,960 |      |   | 13,585,817 |  |   | 8,330,813  |  
|Income Taxes                                        |  |      | 6,940,241  |      |   | 4,938,447  |  |   | 3,065,059  |  
|                                                    |  |      |            |      |   |            |  |   |            |  
|Net Income                                          |  | $    | 12,318,719 |      | $ | 8,647,370  |  | $ | 5,265,754  |  
|                                                    |  |      |            |      |   |            |  |   |            |  
|Basic Earnings Per Share                            |  | $    | 2.21       |      | $ | 1.98       |  | $ | 1.55       |  
|                                                    |  |      |            |      |   |            |  |   |            |  
|Diluted Earnings Per Share                          |  | $    | 2.15       |      | $ | 1.92       |  | $ | 1.52       |  
|                                                    |  |      |            |      |   |            |  |   |            |  
|Weighted Average Shares Outstanding                 |  | $    | 5,578,186  |      | $ | 4,362,638  |  | $ | 3,389,610  |  
|                                                    |  |      |            |      |   |            |  |   |            |  



The accompanying notes
are an integral part of these statements.



6



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31



|                                                     |  |      |            |   |      |   |           |      |  |   |           |  
|---------------------------------------------------- |  | ---- | ---------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                                     |  | 2004 |            |   | 2003 |   |           | 2002 | 
|Net Income                                           |  | $    | 12,318,719 |   |      | $ | 8,647,370 |      |  | $ | 5,265,754 |  
|                                                     |  |      |            |   |      |   |           |      |  |   |           |  
|Other Comprehensive Income, Net of Tax               |  |      |            |   |      |   |           |      |  |   |           |  
|Gains (Losses) on Securities Arising During the Year |  |      | (525,679   | ) |      |   | 35,604    |      |  |   | 371,829   |  
|Reclassification Adjustment                          |  |      | (8,384     | ) |      |   | (36,619   | )    |  |   | (89,629   | )
|                                                     |  |      |            |   |      |   |           |      |  |   |           |  
|Unrealized Gains (Losses) on Securities              |  |      | (534,063   | ) |      |   | (1,015    | )    |  |   | 282,200   |  
|                                                     |  |      |            |   |      |   |           |      |  |   |           |  
|Comprehensive Income                                 |  | $    | 11,784,656 |   |      | $ | 8,646,355 |      |  | $ | 5,547,954 |  
|                                                     |  |      |            |   |      |   |           |      |  |   |           |  



The accompanying notes
are an integral part of these statements.



7



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

FOR THE YEARS ENDED DECEMBER 31,
2004, 2003 AND 2002



|                                                                                 |  |           |   |  |             |           |   |                |   |            |                  |  |   |                                      |   |  |                                            |          |   |               |   |          |       |  |   |          |   |  |   |             |  
|-------------------------------------------------------------------------------- |  | --------- | - |  | ----------- | --------- | - | -------------- | - | ---------- | ---------------- |  | - | ------------------------------------ | - |  | ------------------------------------------ | -------- | - | ------------- | - | -------- | ----- |  | - | -------- | - |  | - | ----------- | -
|                                                                                 |  | Shares    |   |  | CommonStock |           |   | Paid-InCapital |   |            | RetainedEarnings |  |   | RestrictedStock-UnearnedCompensation |   |  | AccumulatedOtherComprehensiveIncome (Loss) |          |   | TreasuryStock |   |          | Total | 
|Balance, December 31, 2001                                                       |  | 3,372,969 |   |  | $           | 3,372,969 |   |                | $ | 12,967,398 |                  |  | $ | 17,831,346                           |   |  | $                                          |         |   |               | $ | 605,679  |       |  | $ |         |   |  | $ | 34,777,392  |  
|Shares Issued in Connection with Contingent Payments                             |  | 15,098    |   |  |             | 15,098    |   |                |   | 219,824    |                  |  |   |                                      |   |  |                                            |          |   |               |   |          |       |  |   |          |   |  |   | 234,922     |  
|Stock Options Exercised                                                          |  | 10,250    |   |  |             | 10,250    |   |                |   | 120,000    |                  |  |   |                                      |   |  |                                            |          |   |               |   |          |       |  |   |          |   |  |   | 130,250     |  
|Stock Based Compensation Awards                                                  |  |           |   |  |             |           |   |                |   | 45,373     |                  |  |   |                                      |   |  |                                            |          |   |               |   |          |       |  |   |          |   |  |   | 45,373      |  
|Unrealized Gain on Securities Available for Sale, Net of Tax of $145,376         |  |           |   |  |             |           |   |                |   |            |                  |  |   |                                      |   |  |                                            |          |   |               |   | 282,200  |       |  |   |          |   |  |   | 282,200     |  
|Cash Dividends                                                                   |  |           |   |  |             |           |   |                |   |            |                  |  |   | (1,187,668                           | ) |  |                                            |          |   |               |   |          |       |  |   |          |   |  |   | (1,187,668  | )
|Net Income                                                                       |  |           |   |  |             |           |   |                |   |            |                  |  |   | 5,265,754                            |   |  |                                            |          |   |               |   |          |       |  |   |          |   |  |   | 5,265,754   |  
|                                                                                 |  |           |   |  |             |           |   |                |   |            |                  |  |   |                                      |   |  |                                            |          |   |               |   |          |       |  |   |          |   |  |   |             |  
|Balance, December 31, 2002                                                       |  | 3,398,317 |   |  |             | 3,398,317 |   |                |   | 13,352,595 |                  |  |   | 21,909,432                           |   |  |                                            |         |   |               |   | 887,879  |       |  |   |         |   |  |   | 39,548,223  |  
|Shares Issued in Connection with Contingent Payments                             |  | 32,417    |   |  |             | 32,417    |   |                |   | 817,850    |                  |  |   |                                      |   |  |                                            |          |   |               |   |          |       |  |   |          |   |  |   | 850,267     |  
|Stock Options Exercised                                                          |  | 26,565    |   |  |             | 26,565    |   |                |   | 413,619    |                  |  |   |                                      |   |  |                                            |          |   |               |   |          |       |  |   |          |   |  |   | 440,184     |  
|Issuance of Restricted Stock                                                     |  | 5,000     |   |  |             | 5,000     |   |                |   | 125,050    |                  |  |   |                                      |   |  |                                            | (130,050 | ) |               |   |          |       |  |   |          |   |  |   |            |  
|Amortization of Unearned Compensation                                            |  |           |   |  |             |           |   |                |   |            |                  |  |   |                                      |   |  |                                            | 26,013   |   |               |   |          |       |  |   |          |   |  |   | 26,013      |  
|Cashless Exercise of Stock Options                                               |  |           |   |  |             |           |   |                |   |            |                  |  |   |                                      |   |  |                                            |          |   |               |   |          |       |  |   | (296,837 | ) |  |   | (296,837    | )
|Common Stock Issued in Acquisition                                               |  | 1,571,000 |   |  |             | 1,571,000 |   |                |   | 26,870,652 |                  |  |   |                                      |   |  |                                            |          |   |               |   |          |       |  |   |          |   |  |   | 28,441,652  |  
|Unrealized Loss on Securities Available for Sale, Net of Tax Benefit of $523     |  |           |   |  |             |           |   |                |   |            |                  |  |   |                                      |   |  |                                            |          |   |               |   | (1,015   | )     |  |   |          |   |  |   | (1,015      | )
|Cash Dividends                                                                   |  |           |   |  |             |           |   |                |   |            |                  |  |   | (1,847,129                           | ) |  |                                            |          |   |               |   |          |       |  |   |          |   |  |   | (1,847,129  | )
|Net Income                                                                       |  |           |   |  |             |           |   |                |   |            |                  |  |   | 8,647,370                            |   |  |                                            |          |   |               |   |          |       |  |   |          |   |  |   | 8,647,370   |  
|                                                                                 |  |           |   |  |             |           |   |                |   |            |                  |  |   |                                      |   |  |                                            |          |   |               |   |          |       |  |   |          |   |  |   |             |  
|Balance, December 31, 2003                                                       |  | 5,033,299 |   |  |             | 5,033,299 |   |                |   | 41,579,766 |                  |  |   | 28,709,673                           |   |  |                                            | (104,037 | ) |               |   | 886,864  |       |  |   | (296,837 | ) |  |   | 75,808,728  |  
|Shares Issued in Connection with Contingent Payments                             |  | 55,775    |   |  |             | 55,775    |   |                |   | 1,632,425  |                  |  |   |                                      |   |  |                                            |          |   |               |   |          |       |  |   |          |   |  |   | 1,688,200   |  
|Stock Options Exercised                                                          |  | 62,017    |   |  |             | 62,017    |   |                |   | 584,235    |                  |  |   |                                      |   |  |                                            |          |   |               |   |          |       |  |   |          |   |  |   | 646,252     |  
|Stock Based Compensation Awards                                                  |  |           |   |  |             |           |   |                |   | 313,730    |                  |  |   |                                      |   |  |                                            |          |   |               |   |          |       |  |   |          |   |  |   | 313,730     |  
|Canceled Restricted Stock                                                        |  | (160      | ) |  |             | (160      | ) |                |   | (4,002     | )                |  |   |                                      |   |  |                                            | 4,162    |   |               |   |          |       |  |   |          |   |  |   |            |  
|Amortization of Unearned Compensation                                            |  |           |   |  |             |           |   |                |   |            |                  |  |   |                                      |   |  |                                            | 25,178   |   |               |   |          |       |  |   |          |   |  |   | 25,178      |  
|Cashless Exercise of Stock Options                                               |  |           |   |  |             |           |   |                |   |            |                  |  |   |                                      |   |  |                                            |          |   |               |   |          |       |  |   | (33,291  | ) |  |   | (33,291     | )
|Shares Issued in Connection with Stock Offering                                  |  | 676,200   |   |  |             | 676,200   |   |                |   | 18,165,224 |                  |  |   |                                      |   |  |                                            |          |   |               |   |          |       |  |   |          |   |  |   | 18,841,424  |  
|Shares Issued in Connection with Employee Stock Purchase Plan                    |  | 2,642     |   |  |             | 2,642     |   |                |   | 77,122     |                  |  |   |                                      |   |  |                                            |          |   |               |   |          |       |  |   |          |   |  |   | 79,764      |  
|Unrealized Loss on Securities Available for Sale, Net of Tax Benefit of $313,893 |  |           |   |  |             |           |   |                |   |            |                  |  |   |                                      |   |  |                                            |          |   |               |   | (534,063 | )     |  |   |          |   |  |   | (534,063    | )
|Cash Dividends                                                                   |  |           |   |  |             |           |   |                |   |            |                  |  |   | (2,483,659                           | ) |  |                                            |          |   |               |   |          |       |  |   |          |   |  |   | (2,483,659  | )
|Net Income                                                                       |  |           |   |  |             |           |   |                |   |            |                  |  |   | 12,318,719                           |   |  |                                            |          |   |               |   |          |       |  |   |          |   |  |   | 12,318,719  |  
|                                                                                 |  |           |   |  |             |           |   |                |   |            |                  |  |   |                                      |   |  |                                            |          |   |               |   |          |       |  |   |          |   |  |   |             |  
|Balance, December 31, 2004                                                       |  | 5,829,773 |   |  | $           | 5,829,773 |   |                | $ | 62,348,500 |                  |  | $ | 38,544,733                           |   |  | $                                          | (74,697  | ) |               | $ | 352,801  |       |  | $ | (330,128 | ) |  | $ | 106,670,982 |  
|                                                                                 |  |           |   |  |             |           |   |                |   |            |                  |  |   |                                      |   |  |                                            |          |   |               |   |          |       |  |   |          |   |  |   |             |  



8



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SECURITY BANK CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31



|                                                                                                              |  |      |              |   |      |   |              |      |  |   |              |  
|------------------------------------------------------------------------------------------------------------- |  | ---- | ------------ | - | ---- | - | ------------ | ---- |  | - | ------------ | -
|                                                                                                              |  | 2004 |              |   | 2003 |   |              | 2002 | 
|Cash Flows from Operating Activities                                                                          |  |      |              |   |      |   |              |      |  |   |              |  
|Net Income                                                                                                    |  | $    | 12,318,719   |   |      | $ | 8,647,370    |      |  | $ | 5,265,754    |  
|Adjustments to Reconcile Net Income to Net Cash Provided from Operating Activities Expensing of Stock Options |  |      | 313,730      |   |      |   |             |      |  |   | 45,373       |  
|Depreciation                                                                                                  |  |      | 1,421,692    |   |      |   | 1,330,332    |      |  |   | 1,083,915    |  
|Amortization and Accretion                                                                                    |  |      | 1,201,683    |   |      |   | 465,447      |      |  |   | 470,361      |  
|Provision for Loan Losses                                                                                     |  |      | 2,818,796    |   |      |   | 2,859,143    |      |  |   | 2,603,133    |  
|Deferred Income Taxes                                                                                         |  |      | (58,245      | ) |      |   | 179,350      |      |  |   | (456,647     | )
|Securities Gains                                                                                              |  |      | (12,703      | ) |      |   | (55,484      | )    |  |   | (135,802     | )
|Loss on Sale of Other Real Estate                                                                             |  |      | 102,334      |   |      |   | 538,956      |      |  |   | 200,393      |  
|Unrealized Loss on Other Real Estate                                                                          |  |      | 60,912       |   |      |   |             |      |  |   | 415,103      |  
|(Gain) Loss on Sale of Premises and Equipment                                                                 |  |      | 18,881       |   |      |   | 852          |      |  |   | (4,750       | )
|(Gain) Loss on Sale of Loans                                                                                  |  |      | (38,931      | ) |      |   | 70,979       |      |  |   | 32,135       |  
|Change In                                                                                                     |  |      |              |   |      |   |              |      |  |   |              |  
|Loans Held for Sale                                                                                           |  |      | 3,941,275    |   |      |   | 24,506,245   |      |  |   | 4,809,517    |  
|Interest Receivable                                                                                           |  |      | (975,081     | ) |      |   | (315,384     | )    |  |   | 66,417       |  
|Prepaid Expenses                                                                                              |  |      | (80,386      | ) |      |   | (41,381      | )    |  |   | (262,425     | )
|Interest Payable                                                                                              |  |      | 1,169,702    |   |      |   | (714,296     | )    |  |   | (941,126     | )
|Accrued Expenses and Accounts Payable                                                                         |  |      | 1,110,193    |   |      |   | 336,294      |      |  |   | 461,257      |  
|Other                                                                                                         |  |      | (1,389,729   | ) |      |   | 1,054,083    |      |  |   | (285,394     | )
|                                                                                                              |  |      |              |   |      |   |              |      |  |   |              |  
|                                                                                                              |  |      | 21,922,842   |   |      |   | 38,862,506   |      |  |   | 13,367,214   |  
|                                                                                                              |  |      |              |   |      |   |              |      |  |   |              |  
|Cash Flows from Investing Activities                                                                          |  |      |              |   |      |   |              |      |  |   |              |  
|Interest-Bearing Deposits with Other Banks                                                                    |  |      | (2,325,945   | ) |      |   | (137,083     | )    |  |   | 298,370      |  
|Cash Received in Business Acquisition, Net                                                                    |  |      |             |   |      |   | 2,279,981    |      |  |   |             |  
|Purchase of Investment Securities Available for Sale                                                          |  |      | (47,018,829  | ) |      |   | (36,395,866  | )    |  |   | (16,098,920  | )
|Purchase of Investment Securities Held to Maturity                                                            |  |      | (998,444     | ) |      |   | (7,998,533   | )    |  |   | (12,693,271  | )
|Proceeds from Disposition of Investment Securities                                                            |  |      |              |   |      |   |              |      |  |   |              |  
|Available for Sale                                                                                            |  |      | 39,208,727   |   |      |   | 16,384,787   |      |  |   | 16,228,118   |  
|Held to Maturity                                                                                              |  |      | 5,000        |   |      |   | 48,918,238   |      |  |   | 10,093,000   |  
|Purchase of Federal Home Loan Bank Stock, Net                                                                 |  |      | (983,000     | ) |      |   | 461,900      |      |  |   | (80,800      | )
|Loans to Customers, Net                                                                                       |  |      | (152,521,398 | ) |      |   | (123,223,359 | )    |  |   | (61,726,910  | )
|Purchase of Software                                                                                          |  |      | (103,779     | ) |      |   | (530,960     | )    |  |   | (819,997     | )
|Purchase of Premises and Equipment, Net of Premises and Equipment Received in Business Acquisition            |  |      | (3,454,896   | ) |      |   | (1,646,928   | )    |  |   | (2,704,286   | )
|Proceeds from Disposal of Premises and Equipment                                                              |  |      | 4,567        |   |      |   | 2,200        |      |  |   | 22,944       |  
|Other Real Estate                                                                                             |  |      | 4,225,228    |   |      |   | 2,735,718    |      |  |   | 371,771      |  
|Debt Collections on Other Real Estate                                                                         |  |      |             |   |      |   |             |      |  |   | 325,642      |  
|Goodwill Resulting from Contingent Payments                                                                   |  |      | (2,016,532   | ) |      |   | (1,160,456   | )    |  |   | (816,698     | )
|Investment in Statutory Trust                                                                                 |  |      |             |   |      |   |             |      |  |   | (557,000     | )
|                                                                                                              |  |      |              |   |      |   |              |      |  |   |              |  
|                                                                                                              |  |      | (165,979,301 | ) |      |   | (100,310,361 | )    |  |   | (68,158,037  | )
|                                                                                                              |  |      |              |   |      |   |              |      |  |   |              |  
|Cash Flows from Financing Activities                                                                          |  |      |              |   |      |   |              |      |  |   |              |  
|Interest-Bearing Customer Deposits                                                                            |  |      | 87,971,215   |   |      |   | 73,933,950   |      |  |   | 61,637,748   |  
|Noninterest-Bearing Customer Deposits                                                                         |  |      | 11,967,542   |   |      |   | 16,169,512   |      |  |   | 3,930,116    |  
|Demand Note to the U.S. Treasury                                                                              |  |      |             |   |      |   | (1,274,176   | )    |  |   | 1,027,403    |  
|Dividends Paid                                                                                                |  |      | (2,483,659   | ) |      |   | (1,847,129   | )    |  |   | (1,187,668   | )
|Federal Funds Purchased                                                                                       |  |      | 13,461,513   |   |      |   | (3,628,248   | )    |  |   | (1,265,008   | )
|Proceeds from Other Borrowed Money                                                                            |  |      | 122,200,000  |   |      |   | 472,650,000  |      |  |   | 320,896,509  |  
|Repayments on Other Borrowed Money                                                                            |  |      | (114,142,989 | ) |      |   | (478,071,901 | )    |  |   | (333,294,300 | )
|Obligation Under Capital Lease                                                                                |  |      |             |   |      |   |             |      |  |   | (29,998      | )
|Proceeds from Issuance of Subordinated Debentures                                                             |  |      |             |   |      |   |             |      |  |   | 18,557,000   |  
|Issuance of Common Stock                                                                                      |  |      | 19,534,149   |   |      |   | 143,284      |      |  |   | 130,250      |  
|                                                                                                              |  |      |              |   |      |   |              |      |  |   |              |  
|                                                                                                              |  |      | 138,507,771  |   |      |   | 78,075,292   |      |  |   | 70,402,052   |  
|                                                                                                              |  |      |              |   |      |   |              |      |  |   |              |  
|Net Increase (Decrease) in Cash and Cash Equivalents                                                          |  |      | (5,548,688   | ) |      |   | 16,627,437   |      |  |   | 15,611,229   |  
|Cash and Cash Equivalents, Beginning                                                                          |  |      | 49,894,710   |   |      |   | 33,267,273   |      |  |   | 17,656,044   |  
|                                                                                                              |  |      |              |   |      |   |              |      |  |   |              |  
|Cash and Cash Equivalents, Ending                                                                             |  | $    | 44,346,022   |   |      | $ | 49,894,710   |      |  | $ | 33,267,273   |  
|                                                                                                              |  |      |              |   |      |   |              |      |  |   |              |  



The accompanying notes
are an integral part of these statements.



9



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SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(1) Summary of Significant Accounting Policies



Principles
of Consolidation



The consolidated financial statements
include the accounts of Security Bank Corporation (the Company) and its wholly-owned subsidiaries which are: Security Bank of Bibb County (which includes its wholly-owned subsidiary, Fairfield Financial Services, Inc.) located in Macon, Georgia;
Security Bank of Houston County located in Perry, Georgia; and Security Bank of Jones County (formerly Bank of Gray) located in Gray, Georgia (the Banks). All significant intercompany accounts have been eliminated. The accounting and reporting
policies of Security Bank Corporation and Subsidiaries (SBKC) conform to generally accepted accounting principles and practices utilized in the commercial banking industry.



Nature of Operations



The Banks provide a full range of retail and commercial banking services for consumers and small to medium size businesses primarily in central Georgia.
Lending and investing activities are funded primarily by deposits gathered through its retail branch office network.



Use of Estimates



In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities
as of the balance sheet date and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the
determination of the allowance for loan losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans and the valuation of deferred tax assets.



Reclassifications



In certain instances, amounts reported in prior years consolidated financial statements have been reclassified to conform to statement presentations
selected for 2004. Such reclassifications had no effect on previously reported stockholders equity or net income.



Concentrations of Credit Risk



Lending is concentrated in mortgage, commercial and consumer loans to local borrowers. The Banks have a high concentration of real estate loans; however,
these loans are well collateralized and, in managements opinion, do not pose an unacceptable level of credit risk. In addition, the balance of the loan portfolio is sufficiently diversified to avoid significant concentration of credit risk.
Although the Banks have a diversified loan portfolio, a substantial portion of borrowers ability to honor their contracts is dependent upon the viability of the real estate economic sector.



The success of SBKC is dependent, to a certain extent, upon the economic
conditions in the geographic markets it serves. No assurance can be given that the current economic conditions will continue. Adverse changes in the economic conditions in these geographic markets would likely have a material adverse effect on the
Companys results of operations and financial condition. The operating results of SBKC depend primarily on its net interest income. Accordingly, operations are subject to risks and uncertainties surrounding the exposure to changes in the
interest rate environment.



10



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SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Accounting Policies



The accounting and reporting policies of Security Bank Corporation and its subsidiaries are in accordance with accounting principles generally accepted
and conform to general practices within the banking industry. The significant accounting policies followed by SBKC and the methods of applying those policies are summarized hereafter.



Investment Securities



Investment securities are recorded under Statement of Financial Accounting Standards (SFAS) No. 115, whereby the Banks classify their securities as
trading, available for sale or held to maturity. Securities that are held principally for resale in the near term are classified as trading. Trading securities are carried at fair value, with realized and unrealized gains and losses included in
noninterest income. Securities acquired with both the intent and ability to be held to maturity are classified as held to maturity and reported at amortized cost. All other securities not classified as trading or held to maturity are considered
available for sale.



Securities available for sale are reported
at estimated fair value. 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 stockholders equity. Declines
in the fair value of held-to-maturity and availablefor-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management
considers (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the Company to retain its investment in the issuer
for a period of time sufficient to allow for any anticipated recovery in fair value. Gains and losses from sales of securities available for sale are computed using the specific identification method. This caption includes securities, which may be
sold to meet liquidity needs arising from unanticipated deposit and loan fluctuations, changes in regulatory capital requirements, or unforeseen changes in market conditions.



Federal Home Loan Bank Stock



Investment in stock of a Federal Home Loan Bank (FHLB) is required for every federally insured institution that utilizes its services. FHLB stock is
considered restricted, as defined in SFAS No. 115; accordingly, the provisions of SFAS No. 115 are not applicable to this investment. The FHLB stock is reported in the financial statements at cost. Dividend income is recognized when earned.



Loans Held for Sale



Loans held for sale are reported at the lower of cost or market value on an
aggregate loan portfolio basis. Gains or losses realized on the sales of loans are recognized at the time of sale and are determined by the difference between the net sales proceeds and the carrying value of the loans sold. Gains and losses on sales
of loans are included in noninterest income.



Loans



Loans that the Company has the ability and intent to hold for the
foreseeable future or until maturity are recorded at their principal amount outstanding, net of unearned interest and fees. Interest income on loans is recognized using the effective interest method.



When management believes there is sufficient doubt as to the collectibility
of principal or interest on any loan, or generally when loans are 90 days or more past due, the accrual of applicable interest is discontinued and



11



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SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



the loan is designated as nonaccrual, unless the loan is well secured and in the process of collection. Interest payments received on nonaccrual loans are
either applied against principal or reported as income, according to managements judgment as to the collectibility of principal. Loans are returned to an accrual status when factors indicating doubtful collectibility on a timely basis no
longer exist.



Allowance for Loan Losses



The allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the
allowance.



The allowance for loan losses is evaluated on a
regular basis by management and is based upon managements periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrowers
ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revisions as more information becomes
available.



The allowance consists of specific, general and
unallocated components. The specific component relates to loans that are classified as either doubtful, substandard or special mention. For such loans that are also classified as impaired, an allowance is established when the discounted cash flows
(or collateral value or observable market price) of the impaired loan is lower than the carrying value of that loan. The general component covers nonclassified loans and is based on historical loss experience adjusted for qualitative factors. An
unallocated component is maintained to cover uncertainties that could affect managements estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in
the methodologies for estimating specific and general losses in the portfolio.



A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Factors considered by management in determining impairment include payment status, collateral value and the probability of collecting scheduled principal and interest payments when due. Loans that experience
insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrowers prior payment record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a
loan-by-loan basis for commercial and construction loans by either the present value of expected future cash flows discounted at the loans effective interest rate, the loans obtainable market price or the fair value of the collateral if
the loan is collateral dependent.



Large groups of smaller
balance homogenous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for payment disclosures, unless such loans are the subject of a restricting
agreement.



Premises and Equipment



Premises and equipment are recorded at acquisition cost net of accumulated
depreciation.



12



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Depreciation is charged to operations over the estimated useful lives of the assets. The estimated
useful lives and methods of depreciation are as follows:



|                        |  |               |  |               |  | 
|----------------------- |  | ------------- |  | ------------- |  | 
|Description             |  | Life in Years |  | Method       
|Banking Premises        |  | 39            |  | Straight-Line
|Furniture and Equipment |  | 5-25          |  | Straight-Line



Expenditures for major
renewals and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. When property and equipment are retired or sold, the cost and accumulated depreciation are removed from the respective accounts and any gain or
loss is reflected in other income or expense.



Income Taxes



The provision for income taxes is based upon income for
financial statement purposes, adjusted for nontaxable income and nondeductible expenses. Deferred income taxes have been provided when different accounting methods have been used in determining income for income tax purposes and for financial
reporting purposes. Deferred tax assets and liabilities are recognized based on future tax consequences attributable to differences arising from the financial statement carrying values of assets and liabilities and their tax bases. The differences
relate primarily to depreciable assets (use of different depreciation methods for financial statement and income tax purposes) and allowance for loan losses (use of the allowance method for financial statement purposes and the direct write-off
method for tax purposes). In the event of changes in the tax laws, deferred tax assets and liabilities are adjusted in the period of the enactment of those changes, with the effects included in the income tax provision. The Company and its
subsidiaries file a consolidated federal income tax return. Each subsidiary pays its proportional share of federal income taxes to the Company based on its taxable income.



Comprehensive Income



Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Certain changes in assets and
liabilities, such as unrealized gains and losses on securities available for sale, represent equity changes from economic events of the period other than transactions with owners and are not reported in the consolidated statements of income but as a
separate component of the equity section of the consolidated balance sheets. Such items are considered components of other comprehensive income. SFAS No. 130, Reporting Comprehensive Income, requires the presentation in the consolidated
financial statements of net income and all items of other comprehensive income as total comprehensive income.



Other Real Estate



Other real estate generally represents real estate acquired through foreclosure and is initially recorded at the lower of cost or estimated market value at the date of acquisition. An allowance for estimated losses is recorded when a
subsequent decline in value occurs.



Off-Balance Sheet Credit Related
Financial Instruments



In the ordinary course of business,
the Company has entered into commitments to extend credit, commercial letters of credit and standby letters of credit. Such financial instruments are recorded when they are funded.



Statement of Cash Flows



For purposes of reporting cash flows, cash and cash equivalents include cash on hand, cash items, noninterest-bearing amounts due from banks and federal
funds sold.



13



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SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Transfers of Financial Assets



Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over
transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the
transferred assets and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.



Changes in Accounting Principles and Effects of New Accounting Pronouncements



Emerging Issues Task Force Issue No. 03-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments, (EITF 03-1) was issued in late 2003 with an effective date of March 31, 2004. EITF 03-1 provides guidance for determining the meaning of other-than-temporarily
impaired and its application to certain debt and equity securities within the scope of SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, and investments accounted for under the cost method. The guidance
requires that investments which have declined in value due to credit concerns or solely due to changes in interest rates must be recorded as other-than-temporarily impaired unless the Company can assert and demonstrate its intention to hold the
security for a period of time sufficient to allow for a recovery of fair value up to or beyond the cost of the investment which might mean maturity. This issue also requires disclosures assessing the ability and intent to hold investments in
instances in which an investor determines that an investment with a fair value less than cost is not other-than-temporarily impaired.



On September 30, 2004, the FASB delayed indefinitely the effective date for the measurement and recognition guidance contained in EITF 03-1. This delay
does not suspend the requirement to recognize other-than-temporary impairments as required by existing authoritative literature or to disclose certain information on impaired investments. The application of the guidance originally included in EITF
03-1 would not have had a material effect on the Banks financial condition or results of operations.



On December 16, 2004, the FASB issued SFAS No. 123R, Share-Based Payment, which is an Amendment of FASB Statement Nos. 123 and 95. SFAS No. 123R
changes, among other things, the manner in which share-based compensation, such as stock options, will be accounted for by both public and nonpublic companies, and will be effective as of the beginning of the first interim or annual reporting period
that begins after June 15, 2005. For public companies, the cost of employee services received in exchange for equity instruments including options and restricted stock awards generally will be measured at fair value at the grant date. The grant date
fair value will be estimated using option-pricing models adjusted for the unique characteristics of those options and instruments, unless observable market prices for the same or similar options are available. The cost will be recognized over the
requisite service period, often the vesting period, and will be remeasured subsequently at each reporting date through settlement date.



The changes in accounting will replace existing requirements under SFAS No. 123, Accounting for Stock-Based Compensation, and will eliminate the
ability to account for share-based compensation transactions using APB Opinion No. 25, Accounting for Stock Issued to Employees, which does not require companies to expense options if the exercise price is equal to the trading price at the
date of grant. The accounting for similar transactions involving parties other than employees or the accounting for employee stock ownership plans that are subject to American Institute of Certified Public Accountants (AICPA) Statement of Position
93-6, Employers Accounting for Employee Stock Ownership Plans, would remain unchanged.



Segment Reporting



Reportable segments are business units, which offer different products and services and require different management and marketing strategies. Management of Security Bank Corporation considers that all banking



14



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SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



operations are essentially similar within each of its subsidiaries and that there are no reportable operating segments. However, fee income from mortgage
loans originated and sold to investors included in consolidated noninterest income for the years ended December 31, 2004 and 2003 was $4,930,747 and $9,211,326, respectively. Such income may fluctuate significantly with increases or decreases in
mortgage rates.



(2) Cash and Balances Due from Depository
Institutions



Components of cash and balances due from
depository institutions are as follows as of December 31:



|                                              |  |      |            |      |   |           
|--------------------------------------------- |  | ---- | ---------- | ---- | - | ----------
|                                              |  | 2004 |            | 2003
|Cash on Hand and Cash Items                   |  | $    | 5,878,750  |      | $ | 4,535,839 
|Noninterest-Bearing Deposits with Other Banks |  |      | 20,983,272 |      |   | 34,871,871
|                                              |  |      |            |      |   |           
|                                              |  | $    | 26,862,022 |      | $ | 39,407,710
|                                              |  |      |            |      |   |           



As of December 31,
2004, the Banks had required deposits of approximately $6,430,000 with the Federal Reserve.



(3) Investment Securities



Investment securities as of December 31, 2004 are summarized as follows:



|                              |  |                |             |                        |   |                       |  |   |            |   |  |   |            
|----------------------------- |  | -------------- | ----------- | ---------------------- | - | --------------------- |  | - | ---------- | - |  | - | -----------
|                              |  | Amortized Cost |             | Gross Unrealized Gains |   | GrossUnrealizedLosses |  |   | Fair Value
|Securities Available for Sale |  |                |             |                        |   |                       |  |   |            |   |  |   |            
|U.S. Treasury                 |  | $              | 807,645     |                        | $ | 7,305                 |  | $ |           |   |  | $ | 814,950    
|U.S. Government Agencies      |  |                |             |                        |   |                       |  |   |            |   |  |   |            
|Mortgage Backed               |  |                | 62,635,702  |                        |   | 398,985               |  |   | (411,359   | ) |  |   | 62,623,328 
|Other                         |  |                | 24,909,011  |                        |   | 72,346                |  |   | (185,582   | ) |  |   | 24,795,775 
|State, County and Municipal   |  |                | 14,549,579  |                        |   | 691,687               |  |   | (36,212    | ) |  |   | 15,205,054 
|Marketable Equity Securities  |  |                | 670,614     |                        |   |                      |  |   |           |   |  |   | 670,614    
|                              |  |                |             |                        |   |                       |  |   |            |   |  |   |            
|                              |  | $              | 103,572,551 |                        | $ | 1,170,323             |  | $ | (633,153   | ) |  | $ | 104,109,721
|                              |  |                |             |                        |   |                       |  |   |            |   |  |   |            
|Securities Held to Maturity   |  |                |             |                        |   |                       |  |   |            |   |  |   |            
|U.S. Government Agencies      |  |                |             |                        |   |                       |  |   |            |   |  |   |            
|Other                         |  | $              | 998,500     |                        | $ |                      |  | $ | (56        | ) |  | $ | 998,444    
|State, County and Municipal   |  |                | 1,385,485   |                        |   | 20,111                |  |   |           |   |  |   | 1,405,596  
|                              |  |                |             |                        |   |                       |  |   |            |   |  |   |            
|                              |  | $              | 2,383,985   |                        | $ | 20,111                |  | $ | (56        | ) |  | $ | 2,404,040  
|                              |  |                |             |                        |   |                       |  |   |            |   |  |   |            



The amortized cost and
fair value of investment securities as of December 31, 2004, by contractual maturity, are presented hereafter. Expected maturities will differ from contractual maturities because issuers have the right to call or prepay obligations with or without
call or prepayment penalties.



15



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                       |  |                    |             |                  |   |                |  |            |           |  |   |          
|-------------------------------------- |  | ------------------ | ----------- | ---------------- | - | -------------- |  | ---------- | --------- |  | - | ---------
|                                       |  | Securities        
|                                       |  | Available for Sale |             | Held to Maturity
|                                       |  | Amortized Cost     |             | Fair Value       |   | Amortized Cost |  | Fair Value
|Due in One Year or Less                |  | $                  | 3,695,446   |                  | $ | 3,742,242      |  | $          | 2,034,084 |  | $ | 2,040,036
|Due After One Year Through Five Years  |  |                    | 18,606,816  |                  |   | 18,759,348     |  |            | 349,901   |  |   | 364,004  
|Due After Five Years Through Ten Years |  |                    | 16,809,338  |                  |   | 17,074,600     |  |            |          |  |   |         
|Due After Ten Years                    |  |                    | 1,154,635   |                  |   | 1,239,589      |  |            |          |  |   |         
|                                       |  |                    |             |                  |   |                |  |            |           |  |   |          
|                                       |  |                    | 40,266,235  |                  |   | 40,815,779     |  |            | 2,383,985 |  |   | 2,404,040
|                                       |  |                    |             |                  |   |                |  |            |           |  |   |          
|Mortgage Backed Securities             |  |                    | 62,635,702  |                  |   | 62,623,328     |  |            |          |  |   |         
|Marketable Equity Securities           |  |                    | 670,614     |                  |   | 670,614        |  |            |          |  |   |         
|                                       |  |                    |             |                  |   |                |  |            |           |  |   |          
|                                       |  |                    | 63,306,316  |                  |   | 63,293,942     |  |            |          |  |   |         
|                                       |  |                    |             |                  |   |                |  |            |           |  |   |          
|                                       |  | $                  | 103,572,551 |                  | $ | 104,109,721    |  | $          | 2,383,985 |  | $ | 2,404,040
|                                       |  |                    |             |                  |   |                |  |            |           |  |   |          



Investment securities
as of December 31, 2003 are summarized as follows:



|                              |  |                |            |                        |   |                       |  |   |            |   |  |   |           
|----------------------------- |  | -------------- | ---------- | ---------------------- | - | --------------------- |  | - | ---------- | - |  | - | ----------
|                              |  | Amortized Cost |            | Gross Unrealized Gains |   | GrossUnrealizedLosses |  |   | Fair Value
|Securities Available for Sale |  |                |            |                        |   |                       |  |   |            |   |  |   |           
|U.S. Treasury                 |  | $              | 819,143    |                        | $ | 39,422                |  | $ |           |   |  | $ | 858,565   
|U.S. Government Agencies      |  |                |            |                        |   |                       |  |   |            |   |  |   |           
|Mortgage Backed               |  |                | 47,770,045 |                        |   | 467,496               |  |   | (185,137   | ) |  |   | 48,052,404
|Other                         |  |                | 32,413,014 |                        |   | 341,211               |  |   | (121,392   | ) |  |   | 32,632,833
|State, County and Municipal   |  |                | 15,173,287 |                        |   | 810,344               |  |   |           |   |  |   | 15,983,631
|                              |  |                |            |                        |   |                       |  |   |            |   |  |   |           
|                              |  | $              | 96,175,489 |                        | $ | 1,658,473             |  | $ | (306,529   | ) |  | $ | 97,527,433
|                              |  |                |            |                        |   |                       |  |   |            |   |  |   |           
|Securities Held to Maturity   |  |                |            |                        |   |                       |  |   |            |   |  |   |           
|State, County and Municipal   |  | $              | 1,392,111  |                        | $ | 73,286                |  | $ |           |   |  | $ | 1,465,397 
|                              |  |                |            |                        |   |                       |  |   |            |   |  |   |           



Proceeds from sales of
investments in debt securities were $0 in 2004 and 2003, and $3,057,898 in 2002. Gross realized gains on the disposition of investments totaled $12,703, $84,836 and $135,802 in 2004, 2003 and 2002, respectively. Gross realized losses on the
disposition of investments totaled $0, $29,352 and $0 in 2004, 2003 and 2002, respectively.



Investment securities having a carrying value approximating $76,339,000 and $53,963,000 as of December 31, 2004 and 2003, respectively, were pledged to secure public deposits and for other purposes.



16



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Information pertaining to securities with gross unrealized losses at December 31, 2004, aggregated by
investment category and length of time that individual securities have been in a continuous loss position, follows:



|                            |  |                     |            |                       |                      |          |            |       |                       |           |  |            |          |                       |  |   |            |  |   |          |  
|--------------------------- |  | ------------------- | ---------- | --------------------- | -------------------- | -------- | ---------- | ----- | --------------------- | --------- |  | ---------- | -------- | --------------------- |  | - | ---------- |  | - | -------- | -
|                            |  | Less Than 12 Months |            |                       | 12 Months or Greater |          |            | Total |                      
|                            |  | Fair Value          |            | GrossUnrealizedLosses |                      |          | Fair Value |       | GrossUnrealizedLosses |           |  | Fair Value |          | GrossUnrealizedLosses | 
|December 31, 2004           |  |                     |            |                       |                      |          |            |       |                       |           |  |            |          |                       |  |   |            |  |   |          |  
|Available for Sale          |  |                     |            |                       |                      |          |            |       |                       |           |  |            |          |                       |  |   |            |  |   |          |  
|U.S. Government Agencies    |  |                     |            |                       |                      |          |            |       |                       |           |  |            |          |                       |  |   |            |  |   |          |  
|Mortgage Backed             |  | $                   | 32,763,566 |                       | $                    | (299,889 | )          |       | $                     | 6,375,003 |  | $          | (111,470 | )                     |  | $ | 39,138,569 |  | $ | (411,359 | )
|Other                       |  |                     | 19,215,944 |                       |                      | (185,582 | )          |       |                       |          |  |            |         |                       |  |   | 19,215,944 |  |   | (185,582 | )
|State, County and Municipal |  |                     | 1,269,712  |                       |                      | (36,212  | )          |       |                       |          |  |            |         |                       |  |   | 1,269,712  |  |   | (36,212  | )
|                            |  |                     |            |                       |                      |          |            |       |                       |           |  |            |          |                       |  |   |            |  |   |          |  
|                            |  | $                   | 53,249,222 |                       | $                    | (521,683 | )          |       | $                     | 6,375,003 |  | $          | (111,470 | )                     |  | $ | 59,624,225 |  | $ | (633,153 | )
|                            |  |                     |            |                       |                      |          |            |       |                       |           |  |            |          |                       |  |   |            |  |   |          |  
|Held to Maturity            |  |                     |            |                       |                      |          |            |       |                       |           |  |            |          |                       |  |   |            |  |   |          |  
|U.S. Government Agencies    |  |                     |            |                       |                      |          |            |       |                       |           |  |            |          |                       |  |   |            |  |   |          |  
|Other                       |  | $                   | 998,444    |                       | $                    | (56      | )          |       | $                     |          |  | $          |         |                       |  | $ | 998,444    |  | $ | (56      | )
|                            |  |                     |            |                       |                      |          |            |       |                       |           |  |            |          |                       |  |   |            |  |   |          |  



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



At December 31, 2004, the debt securities with
unrealized losses have depreciated 1.05 percent from the Companys amortized cost basis. These securities are guaranteed by either U.S. Government or other governments. These unrealized losses relate principally to current interest rates for
similar types of securities. In analyzing an issuers financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred and the
results of reviews of the issuers financial condition. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified as available for sale, no declines are deemed to be other than temporary.



(4) Loans



The composition of loans as of December 31 are:



|                                                                           |  |      |             |      |   |            
|-------------------------------------------------------------------------- |  | ---- | ----------- | ---- | - | -----------
|                                                                           |  | 2004 |             | 2003
|Loans Secured by Real Estate                                               |  |      |             |      |   |            
|Construction and Land Development                                          |  | $    | 350,150,433 |      | $ | 267,201,153
|Secured by Farmland (Including Farm Residential and Other Improvements)    |  |      | 3,878,857   |      |   | 3,804,257  
|Secured by 1-4 Family Residential Properties                               |  |      | 128,770,120 |      |   | 107,423,377
|Secured by Multifamily (5 or More) Residential Properties                  |  |      | 13,660,188  |      |   | 6,036,427  
|Secured by Nonfarm Nonresidential Properties                               |  |      | 220,592,590 |      |   | 213,799,168
|Commercial and Industrial Loans (U.S. Addressees)                          |  |      | 86,574,737  |      |   | 62,618,071 
|Agricultural Loans                                                         |  |      | 3,179,264   |      |   | 1,359,105  
|Loans to Individuals for Household, Family and Other Personal Expenditures |  |      |             |      |   |            
|Credit Cards and Related Plans                                             |  |      | 430,541     |      |   | 734,628    
|Other                                                                      |  |      | 39,581,432  |      |   | 35,477,599 
|                                                                           |  |      |             |      |   |            
|                                                                           |  | $    | 846,818,162 |      | $ | 698,453,785
|                                                                           |  |      |             |      |   |            



17



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Loans by interest rate type are:



|              |  |      |             |      |   |            
|------------- |  | ---- | ----------- | ---- | - | -----------
|              |  | 2004 |             | 2003
|Fixed Rate    |  | $    | 457,456,311 |      | $ | 401,022,245
|Variable Rate |  |      | 389,361,851 |      |   | 297,431,540
|              |  |      |             |      |   |            
|              |  | $    | 846,818,162 |      | $ | 698,453,785
|              |  |      |             |      |   |            



Nonaccrual loans are
loans for which principal and interest are doubtful of collection in accordance with original loan terms and for which accruals of interest have been discontinued due to payment delinquency. Nonaccrual loans totaled $6,213,933 and $4,153,659 as of
December 31, 2004 and 2003, respectively, and the total recorded investment in loans past due 90 days or more and still accruing interest totaled approximately $0 and $27,000, respectively. Foregone interest on nonaccrual loans approximated $326,900
in 2004, $311,000 in 2003 and $379,400 in 2002.



Impaired loans
included in total loans above as of December 31 are summarized as follows:



|                                   |  |      |           |   |      |   |           |  
|---------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                   |  | 2004 |           |   | 2003 |  
|Total Investment in Impaired Loans |  | $    | 3,267,684 |   |      | $ | 1,171,065 |  
|Allowance for Impaired Loan Losses |  |      | (907,842  | ) |      |   | (440,392  | )
|                                   |  |      |           |   |      |   |           |  
|Net Investment                     |  | $    | 2,359,842 |   |      | $ | 730,673   |  
|                                   |  |      |           |   |      |   |           |  
|Average Investment                 |  | $    | 2,219,375 |   |      | $ | 1,152,323 |  
|                                   |  |      |           |   |      |   |           |  
|Income Recognized During the Year  |  | $    | 142,938   |   |      | $ |          |  
|                                   |  |      |           |   |      |   |           |  
|Income Collected During the Year   |  | $    | 138,408   |   |      | $ |          |  
|                                   |  |      |           |   |      |   |           |  



(5) Allowance for Loan Losses



Transactions in the allowance for loan losses are
summarized below for the years ended December 31:



|                                        |  |      |            |   |      |   |            |      |  |   |            |  
|--------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                        |  | 2004 |            |   | 2003 |   |            | 2002 | 
|Balance, Beginning                      |  | $    | 9,407,421  |   |      | $ | 5,479,508  |      |  | $ | 4,098,740  |  
|Provision Charged to Operating Expenses |  |      | 2,818,796  |   |      |   | 2,859,143  |      |  |   | 2,603,133  |  
|Loans Charged Off                       |  |      | (2,050,588 | ) |      |   | (2,255,481 | )    |  |   | (1,447,079 | )
|Loan Recoveries                         |  |      | 727,154    |   |      |   | 435,529    |      |  |   | 224,714    |  
|Business Combination, Bank of Gray      |  |      |           |   |      |   | 2,888,722  |      |  |   |           |  
|                                        |  |      |            |   |      |   |            |      |  |   |            |  
|Balance, Ending                         |  | $    | 10,902,783 |   |      | $ | 9,407,421  |      |  | $ | 5,479,508  |  
|                                        |  |      |            |   |      |   |            |      |  |   |            |  



(6) Derivative Financial
Instruments



On July 1, 2003, the Company adopted SFAS No.
149, Amendment of Statements No. 133 on Derivative Instruments and Hedging Activities. This statement requires that all derivatives be recognized as assets or liabilities in the balance sheet and measured at fair value. Loan commitments
related to the origination or acquisition of mortgage loans that will be held for sale must be accounted for as derivative instruments.



The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (rate lock commitments). Rate
lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. Accordingly, such commitments, along with related fees received from potential



18



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



borrowers, are to be recorded at fair value in derivative assets or liabilities, with changes in fair value recorded in the net gain or loss on sale of
mortgage loans. Fair value is based on fees currently charged to enter into similar agreements, and for fixed-rate commitments also considers the difference between current levels of interest rates and the committed rates. The Company has not
recorded rate lock commitments as derivative assets or liabilities as of December 31, 2004 as the effects did not have a material effect upon the consolidated financial statements.



(7) Premises and Equipment



Premises and equipment are comprised of the following as of December 31:



|                                  |  |      |            |   |      |   |            |  
|--------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                  |  | 2004 |            |   | 2003 |  
|Land                              |  | $    | 4,890,208  |   |      | $ | 4,692,763  |  
|Building                          |  |      | 11,762,623 |   |      |   | 10,404,726 |  
|Leasehold Improvements            |  |      | 1,150,829  |   |      |   | 1,078,288  |  
|Furniture, Fixtures and Equipment |  |      | 9,591,257  |   |      |   | 8,872,334  |  
|Construction in Progress          |  |      | 442,275    |   |      |   | 338,344    |  
|                                  |  |      |            |   |      |   |            |  
|                                  |  |      | 27,837,192 |   |      |   | 25,386,455 |  
|Accumulated Depreciation          |  |      | (8,731,906 | ) |      |   | (8,273,258 | )
|                                  |  |      |            |   |      |   |            |  
|                                  |  | $    | 19,105,286 |   |      | $ | 17,113,197 |  
|                                  |  |      |            |   |      |   |            |  



Depreciation charged
to operations totaled $1,421,692 in 2004, $1,330,332 in 2003 and $1,083,915 in 2002.



Certain bank facilities are leased under various operating leases. Rental expense was $421,900 in 2004, $340,000 in 2003 and $398,900 in 2002.



Future minimum rental commitments under noncancelable leases are:



|           |  |        |          
|---------- |  | ------ | ---------
|Year       |  | Amount
|2005       |  | $      | 288,946  
|2006       |  |        | 254,784  
|2007       |  |        | 210,334  
|2008       |  |        | 189,324  
|2009       |  |        | 108,983  
|Thereafter |  |        | 152,629  
|           |  |        |          
|           |  | $      | 1,205,000
|           |  |        |          



(8) Income Taxes



The components of income tax expense for the years ended December 31 are as
follows:



|                                   |  |      |           |   |      |   |           |  |   |           |  
|---------------------------------- |  | ---- | --------- | - | ---- | - | --------- |  | - | --------- | -
|                                   |  | 2004 |           |   | 2003 |   | 2002      | 
|Current Federal Expense            |  | $    | 6,288,118 |   |      | $ | 4,092,823 |  | $ | 3,102,923 |  
|Deferred Federal Expense (Benefit) |  |      | (58,245   | ) |      |   | 179,350   |  |   | (456,647  | )
|                                   |  |      |           |   |      |   |           |  |   |           |  
|                                   |  |      | 6,229,873 |   |      |   | 4,272,173 |  |   | 2,646,276 |  
|Current State Tax Expense          |  |      | 710,368   |   |      |   | 666,274   |  |   | 418,783   |  
|                                   |  |      |           |   |      |   |           |  |   |           |  
|                                   |  | $    | 6,940,241 |   |      | $ | 4,938,447 |  | $ | 3,065,059 |  
|                                   |  |      |           |   |      |   |           |  |   |           |  



19



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SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Federal income tax expense of $6,229,873 in 2004, $4,272,173 in 2003 and $2,646,276 in 2002 is less
than the income taxes computed by applying the federal statutory rate of 34 percent to income before income taxes. The reasons for the differences are presented hereafter:



|                                     |  |      |           |   |      |   |           |      |  |   |           |  
|------------------------------------ |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                     |  | 2004 |           |   | 2003 |   |           | 2002 | 
|Statutory Federal Income Taxes       |  | $    | 6,548,047 |   |      | $ | 4,619,178 |      |  | $ | 2,832,476 |  
|Tax-Exempt Interest                  |  |      | (268,631  | ) |      |   | (229,330  | )    |  |   | (124,833  | )
|Interest Expense Disallowance        |  |      | 13,290    |   |      |   | 11,430    |      |  |   | 8,171     |  
|Premiums on Officers Life Insurance |  |      | (8,336    | ) |      |   | (7,638    | )    |  |   | 898       |  
|Meal and Entertainment Disallowance  |  |      | 24,901    |   |      |   | 22,733    |      |  |   | 18,576    |  
|Other                                |  |      | (79,398   | ) |      |   | (144,200  | )    |  |   | (89,012   | )
|                                     |  |      |           |   |      |   |           |      |  |   |           |  
|Actual Federal Income Taxes          |  | $    | 6,229,873 |   |      | $ | 4,272,173 |      |  | $ | 2,646,276 |  
|                                     |  |      |           |   |      |   |           |      |  |   |           |  



The components of the
net deferred tax asset included in other assets in the accompanying consolidated balance sheets as of December 31 are as follows:



|                                                      |  |      |            |   |      |   |           |  
|----------------------------------------------------- |  | ---- | ---------- | - | ---- | - | --------- | -
|                                                      |  | 2004 |            |   | 2003 |  
|Deferred Tax Assets                                   |  |      |            |   |      |   |           |  
|Allowance for Loan Losses                             |  | $    | 3,623,238  |   |      | $ | 3,036,613 |  
|Georgia Occupation and License Tax Credits            |  |      | 53,581     |   |      |   | 53,581    |  
|Other Real Estate Owned                               |  |      | 22,359     |   |      |   | 1,649     |  
|Deferred Compensation                                 |  |      | 283,343    |   |      |   | 259,827   |  
|Other                                                 |  |      | 23,989     |   |      |   | 15,427    |  
|Valuation Allowance for Deferred Tax Assets           |  |      | (23,286    | ) |      |   | (23,286   | )
|                                                      |  |      |            |   |      |   |           |  
|                                                      |  |      | 3,983,224  |   |      |   | 3,343,811 |  
|                                                      |  |      |            |   |      |   |           |  
|Deferred Tax Liabilities                              |  |      |            |   |      |   |           |  
|Premises and Equipment                                |  |      | (881,607   | ) |      |   | (611,697  | )
|Securities Accretion                                  |  |      | (35,687    | ) |      |   | (112,050  | )
|Goodwill                                              |  |      | (311,417   | ) |      |   |          |  
|Other                                                 |  |      | (333,614   | ) |      |   | (257,409  | )
|                                                      |  |      |            |   |      |   |           |  
|                                                      |  |      | (1,562,325 | ) |      |   | (981,156  | )
|                                                      |  |      |            |   |      |   |           |  
|                                                      |  |      | 2,420,899  |   |      |   | 2,362,655 |  
|Deferred Tax Liability on Unrealized Securities Gains |  |      | (184,367   | ) |      |   | (465,080  | )
|                                                      |  |      |            |   |      |   |           |  
|Net Deferred Tax Asset                                |  | $    | 2,236,532  |   |      | $ | 1,897,575 |  
|                                                      |  |      |            |   |      |   |           |  



(9) Deposits



The aggregate amount of overdrawn deposit accounts reclassified as loan
balances totaled $650,398 and $509,430 as of December 31, 2004 and 2003, respectively.



20



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SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Components of interest-bearing deposits as of December 31 are as follows:



|                        |  |      |             |      |   |            
|----------------------- |  | ---- | ----------- | ---- | - | -----------
|                        |  | 2004 |             | 2003
|Interest-Bearing Demand |  | $    | 182,168,313 |      | $ | 164,313,957
|Savings                 |  |      | 20,037,549  |      |   | 16,975,352 
|Time, $100,000 and Over |  |      | 233,515,921 |      |   | 164,883,791
|Other Time              |  |      | 287,334,398 |      |   | 289,593,527
|                        |  |      |             |      |   |            
|                        |  | $    | 723,056,181 |      | $ | 635,766,627
|                        |  |      |             |      |   |            



The aggregate amount
of short-term jumbo certificates of deposit, each with a minimum denomination of $100,000, approximated $198,334,000 and $132,747,000 on December 31, 2004 and 2003, respectively.



As of December 31, 2004, the scheduled maturities of certificates of deposit are as follows:



|                    |  |        |            
|------------------- |  | ------ | -----------
|Year                |  | Amount
|2005                |  | $      | 422,799,904
|2006                |  |        | 82,100,838 
|2007                |  |        | 11,780,351 
|2008                |  |        | 2,290,150  
|2009 and Thereafter |  |        | 1,879,076  
|                    |  |        |            
|                    |  | $      | 520,850,319
|                    |  |        |            



Brokered deposits are
third-party time deposits placed by or through the assistance of a deposit broker. As of December 31, 2004 and 2003, the Company had $125,387,000 and $70,501,000, respectively, in brokered deposits. The brokered deposits, which are included in Time,
$100,000 and Over, were issued at a weighted average rate of 2.48 percent and mature at various times through 2006.



(10) Federal Funds Purchased and Securities Sold Under Agreement to Repurchase



Securities sold under agreement to repurchase mature daily. Mortgage backed securities sold under repurchase agreements are
held and segregated by the investment safekeeping agent. Investments are identified as subject to the repurchase agreement and may be substituted by the Banks, subject to agreement by the buyer.



Information concerning securities sold under agreements to repurchase is
summarized as follows:



|                                          |  |      |           |   |      |   |           |  
|----------------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                          |  | 2004 |           |   | 2003 |  
|Average Balance During the Year           |  | $    | 5,602,782 |   |      | $ | 5,203,884 |  
|Average Interest Rate During the Year     |  |      | 1.04      | % |      |   | .81       | %
|Maximum Month-End Balance During the Year |  | $    | 6,785,834 |   |      | $ | 5,990,273 |  



Mortgage backed
securities underlying the agreements as of December 31 are:



|                     |  |      |           |      |   |          
|-------------------- |  | ---- | --------- | ---- | - | ---------
|                     |  | 2004 |           | 2003
|Carrying Value       |  | $    | 6,416,855 |      | $ | 4,861,108
|Estimated Fair Value |  |      | 6,428,679 |      |   | 4,889,111



21



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SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(11) Other Borrowed Money



Other borrowed money is comprised of the following as of December 31:



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      |            |      |   |           
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ---------- | ---- | - | ----------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | 2004 |            | 2003
|Advances under the Blanket Agreement for Advances and Security Agreement with the Federal Home Loan Bank (FHLB) have maturities in varying amounts through March 23, 2011 and interest rates
ranging from 1.54 percent to 4.55 percent. Residential first mortgage loans, commercial real estate loans and investment securities are pledged as collateral for the FHLB advances. At December 31, 2004, the Company had credit availability totaling
$176,144,000. Lending collateral value was $85,794,657, of which $19,794,657 was available. |  | $    | 66,000,000 |      | $ | 51,091,505
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |     
|Advances under the Warehouse Line with the FHLB mature January 24, 2005 and have an interest rate of 2.94 percent. Loans held for sale are pledged as collateral for the Warehouse Line. At
December 31, 2004, the Company had credit availability totaling $60,000,000, lending collateral value was $4,587,507, of which $3,451,991 was available.                                                                                                                                                                                             |  |      | 1,135,516  |      |   | 1,487,000 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |     
|Advances under the line of credit with The Bankers Bank mature March 21, 2015 with interest rates on $14 million at prime minus 100 basis points and $3 million at prime minus 50 basis points.
All shares of stock owned by the Company in Security Bank of Bibb County and Security Bank of Houston County are pledged as collateral on the line of credit. The Company had available line of credit totaling $17,000,000.                                                                                                                     |  |      |           |      |   | 6,500,000 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      |            |      |   |           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  | $    | 67,135,516 |      | $ | 59,078,505
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |  |      |            |      |   |           



Maturities of borrowed
money for each of the next five years and thereafter are as follows:



|           |  |        |           
|---------- |  | ------ | ----------
|Year       |  | Amount
|2005       |  | $      | 28,285,516
|2006       |  |        | 28,850,000
|2007       |  |        |          
|2008       |  |        |          
|2009       |  |        |          
|Thereafter |  |        | 10,000,000
|           |  |        |           
|           |  | $      | 67,135,516
|           |  |        |           



(12) Subordinated Debentures (Trust
Preferred Securities)



During the fourth quarter of 2002,
the Company formed a subsidiary whose sole purpose was to issue $18,000,000 in Trust Preferred Securities through a pool sponsored by FTN Financial Capital Markets. The Trust Preferred Securities have a maturity of 30 years and are redeemable after
five years with certain exceptions. At December 31, 2004, the floating-rate securities had a 5.20 percent interest rate, which will reset quarterly at the three-month LIBOR rate plus 3.25 percent. The Trust Preferred Securities are recorded as
subordinated debentures on the consolidated balance sheets, but, subject to certain limitations, qualify as Tier 1 capital for regulatory capital purposes. The proceeds from the offering were used to retire holding company debt and to fund the
acquisition of the Bank of Gray (see Note 23).



22



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



On December 31, 2003, the Company retroactively implemented FASB Interpretation No. 46R,
Consolidation of Variable Interest Entities, an interpretation of ARB No. 51, resulting in the deconsolidation of Security Bank Statutory Trust I. The implementation of this interpretation resulted in SBKCs $557,000 investment in the
common equity of the trust being included in the consolidated balance sheets as other assets and the interest income and interest expense received from and paid to the trust, respectively, being included in the consolidated statements of income as
interest income and interest expense. The increase to other interest income and interest expense totaled $26,635 and $25,700 for the years ended December 31, 2004 and 2003, respectively.



(13) 401(k) Savings and Profit Sharing Plan



The Company sponsors a 401(k) Savings Incentive and Profit Sharing Plan. Employees become eligible after having completed one year of service and
attaining the age of 21. Employer contributions to the plan include a discretionary matching contribution based on the salary reduction elected by the individual employees and a discretionary amount allocated based on compensation received by
eligible participants. Expense under the plan was $806,718 in 2004, $846,234 in 2003 and $647,723 in 2002.



Security Bank of Jones County maintained its own 401(k) retirement plan for its employees through December 31, 2003. Employees are eligible to participate
after one year of service and attaining the age of 21. Employees may elect to defer up to 10 percent of their total compensation. At the discretion of the board of directors, the Bank may make matching contributions in an amount to be determined by
the board. The Banks board of directors voted to match 80 percent of the employees contributions up to a maximum of 6 percent of total compensation for the year 2003. Contributions for the seven-month period ended December 31, 2003 were
$29,847. The employees of the Bank participated in the Companys 401(k) Savings Incentive and Profit Sharing Plan during 2004.



(14) Commitments and Contingencies



Credit-Related Financial Instruments. The Company is a party to credit related financial instruments with off-balance sheet risk in the normal
course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and commercial letters of credit. Such commitments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets.



The Companys exposure to credit loss is represented by the contractual amount of these commitments. The Company follows the same credit policies in
making commitments as it does for on-balance sheet instruments.



At December 31, 2004 and 2003, the following financial instruments were outstanding whose approximate contract amounts represent credit risk:



|                              |  |                 |             |      |   |            
|----------------------------- |  | --------------- | ----------- | ---- | - | -----------
|                              |  | Contract Amount
|                              |  | 2004            |             | 2003
|Loan Commitments              |  | $               | 233,136,000 |      | $ | 150,796,000
|Standby Letters of Credit     |  |                 | 2,266,000   |      |   | 3,243,000  
|Performance Letters of Credit |  |                 | 7,672,000   |      |   | 4,834,000  



Commitments to extend
credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The
commitments for equity lines of credit may expire without being



23



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed
necessary by the Company, is based on managements credit evaluation of the customer.



Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection agreements are commitments for possible future extensions of credit to existing customers. These lines of credit
are uncollateralized and usually do not contain a specified maturity date and may not be drawn upon to the total extent to which the Company is committed.



Standby and performance letters of credit are conditional lending commitments issued by the Company to guarantee the performance of a customer to a third
party. Those letters of credit are primarily issued to support public and private borrowing arrangements. Essentially all letters of credit issued have expiration dates within one year. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to customers.



Legal Contingencies. In the ordinary course of business, there are various legal proceedings pending against SBKC. The aggregate liabilities, if any, arising from such proceedings would not, in the opinion of
management, have a material adverse effect on SBKCs consolidated financial position.



(15) Stock Option Plans



During 1996, the board of directors of Security Bank Corporation adopted the 1996 incentive stock option plan, which authorizes 81,250 shares to be granted to certain officers and key employees. In May 1996, the board of directors granted
key officers the right to purchase 81,250 shares of common stock at the price of $9.00, as adjusted for stock splits, representing the market value of the stock at the date of the option grant. Option holders may exercise in accordance with a
vesting schedule beginning with 20 percent the first year and increasing 20 percent for each year thereafter such that 100 percent of granted options may be exercised by the end of the fifth year. As of December 31, 2004, all options under this plan
have been exercised.



In 1999, the board of directors of
Security Bank Corporation adopted another incentive stock option plan which authorizes 125,000 shares to be granted to certain officers and key employees. Those officers and key employees are granted the right to purchase shares of common stock at a
price representing the market value of the stock at the date of the option grant. In May 1999, 73,500 options were granted at the price of $18.50 per share and an additional 10,000 options were granted at $17.94 per share in September 1999. An
additional 25,500 options were granted at $13.00 per share in August 2000 under this same plan. The terms of the 1999 incentive stock option plan are essentially the same as the 1996 incentive stock option plan.



During the first quarter of 2002, the board of directors of Security Bank
Corporation adopted a performance based incentive stock option plan. Under this plan, 105,000 options were granted in May 2002 at $19.51 per share, 7,500 were granted at $22.80 in November 2002, 5,000 options were granted at $23.50 in December 2002,
and an additional 3,500 options were granted at $33.00 in August 2003. The nonforfeitable provisions for these options are two-tiered. Options in the first tier are nonforfeitable over three years based on a 12 percent increase in earnings per share
over the base year diluted earnings per share of $1.03 each year. If the maximum diluted earnings per share of $1.45 is reached during the three-year period, the nonforfeitable shares are doubled. Under the second tier, additional shares shall
become nonforfeitable for two executive officers based on the same requirements except the diluted earnings per share must increase 15 percent a year to a maximum of $1.57 during the three-year period. The first year of nonforfeiture for this plan
is based on the Companys performance for 2002. One-third of the nonforfeitable options vest on each anniversary of the stock option agreements.



24



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



During the second quarter of 2004, the board of directors of Security Bank Corporation adopted
another performance based incentive stock option plan, which calls for adjustments to earnings per share based on the impact of the 2004 common stock offering. Under this plan, 218,000 options were granted in May 2004 at $31.43 per share. The
nonforfeitable provisions for these options are two-tiered. Options in the first tier are nonforfeitable over three years based on a 12 percent increase in adjusted earnings per share over the base year diluted earnings of $1.92. If the maximum
adjusted diluted earnings per share of $2.70 is reached during the three-year period, the nonforfeitable shares are doubled. Under the second tier, additional shares shall become nonforfeitable for three executive officers based on the same
requirements except the adjusted diluted earnings per share must increase 15 percent a year to a maximum of $2.92 during the three-year period. The first year of nonforfeiture for this plan is based on the Companys performance of 2004.
One-third of the nonforfeitable options vest on each anniversary of the stock option agreements.



A summary of option transactions follows:



|                                            |  |                                      |        
|------------------------------------------- |  | ------------------------------------ | -------
|                                            |  | Shares Under Incentive Stock Options
|Outstanding, December 31, 2003              |  | $                                    | 247,185
|Granted                                     |  |                                      | 218,000
|Canceled                                    |  |                                      | 2,668  
|Exercised                                   |  |                                      | 62,017 
|                                            |  |                                      |        
|Outstanding, December 31, 2004              |  | $                                    | 400,500
|                                            |  |                                      |        
|Eligible to be Exercised, December 31, 2004 |  | $                                    | 87,544 
|                                            |  |                                      |        



(16) Interest Income and Expense



Interest income of $722,104, $607,647 and $382,687 from
state, county and municipal bonds was exempt from regular income taxes in 2004, 2003 and 2002, respectively.



Interest on deposits includes interest expense on time certificates of $100,000 or more totaling $4,363,314, $2,683,113, and $3,201,101 for the years
ended December 31, 2004, 2003 and 2002, respectively.



(17) Supplemental
Cash Flow Information



Cash payments for the following
were made during the years ended December 31:



|                 |  |      |            |      |   |            |  |   |           
|---------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ----------
|                 |  | 2004 |            | 2003 |   | 2002      
|Interest Expense |  | $    | 15,016,129 |      | $ | 13,626,583 |  | $ | 13,050,849
|                 |  |      |            |      |   |            |  |   |           
|Income Taxes     |  | $    | 6,806,700  |      | $ | 4,636,400  |  | $ | 4,008,615 
|                 |  |      |            |      |   |            |  |   |           



25



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Noncash investing activities for the years ended December 31 are as follows:



|                                                  |  |      |           |      |   |             |      |  |   |           |  
|------------------------------------------------- |  | ---- | --------- | ---- | - | ----------- | ---- |  | - | --------- | -
|                                                  |  | 2004 |           | 2003 |   |             | 2002 | 
|Acquisitions of Real Estate Through Foreclosure   |  | $    | 2,373,329 |      | $ | 4,948,635   |      |  | $ | 526,496   |  
|                                                  |  |      |           |      |   |             |      |  |   |           |  
|Acquisition, Net of Cash Acquired                 |  |      |           |      |   |             |      |  |   |           |  
|Common Stock Issued                               |  | $    |          |      | $ | 29,361,990  |      |  | $ |          |  
|Cash Received, Less Cash Paid                     |  |      |          |      |   | (2,279,981  | )    |  |   |          |  
|Liabilities Assumed                               |  |      |          |      |   | 214,487,707 |      |  |   |          |  
|                                                  |  |      |           |      |   |             |      |  |   |           |  
|Fair Value of Assets Acquired, Including Goodwill |  | $    |          |      | $ | 241,569,716 |      |  | $ |          |  
|                                                  |  |      |           |      |   |             |      |  |   |           |  
|Goodwill Resulting from Contingent Payment        |  |      |           |      |   |             |      |  |   |           |  
|Common Stock Issued                               |  | $    | 1,688,199 |      | $ | 850,267     |      |  | $ | 234,922   |  
|Cash Paid                                         |  |      | 2,016,533 |      |   | 1,160,456   |      |  |   | 816,698   |  
|                                                  |  |      |           |      |   |             |      |  |   |           |  
|Total Goodwill                                    |  | $    | 3,704,732 |      | $ | 2,010,723   |      |  | $ | 1,051,620 |  
|                                                  |  |      |           |      |   |             |      |  |   |           |  
|Unrealized (Gain) Loss on Investment Securities   |  | $    | 814,777   |      | $ | 1,409,233   |      |  | $ | (427,577  | )
|                                                  |  |      |           |      |   |             |      |  |   |           |  



(18) Earnings Per Share



SFAS No. 128 establishes standards for computing and
presenting basic and diluted earnings per share. Basic earnings per share is calculated and presented based on income available to common stockholders divided by the weighted average number of shares outstanding during the reporting periods. Diluted
earnings per share reflects the potential dilution of restricted stock and stock options. The following presents earnings per share for the years ended December 31, 2004, 2003 and 2002 under the requirements of Statement 128:



|                                                                                         |  |                  |            |                           |           |     |   |     
|---------------------------------------------------------------------------------------- |  | ---------------- | ---------- | ------------------------- | --------- | --- | - | ----
|                                                                                         |  | Income Numerator |            | Common Shares Denominator |           | EPS
|December 31, 2004                                                                        |  |                  |            |                           |           |     |   |     
|Basic EPS                                                                                |  |                  |            |                           |           |     |   |     
|Income Available to Common Stockholders                                                  |  | $                | 12,318,719 |                           | 5,578,186 |     | $ | 2.21
|                                                                                         |  |                  |            |                           |           |     |   |     
|Dilutive Effect of Potential Common Stock                                                |  |                  |            |                           |           |     |   |     
|Stock Options and Restricted Stock                                                       |  |                  |            |                           | 163,229   |     |   |     
|                                                                                         |  |                  |            |                           |           |     |   |     
|Diluted EPS                                                                              |  |                  |            |                           |           |     |   |     
|Income Available to Common Stockholders After Assumed Conversions of Dilutive Securities |  | $                | 12,318,719 |                           | 5,741,415 |     | $ | 2.15
|                                                                                         |  |                  |            |                           |           |     |   |     
|December 31, 2003                                                                        |  |                  |            |                           |           |     |   |     
|Basic EPS                                                                                |  |                  |            |                           |           |     |   |     
|Income Available to Common Stockholders                                                  |  | $                | 8,647,370  |                           | 4,362,638 |     | $ | 1.98
|                                                                                         |  |                  |            |                           |           |     |   |     
|Dilutive Effect of Potential Common Stock                                                |  |                  |            |                           |           |     |   |     
|Stock Options                                                                            |  |                  |            |                           | 134,283   |     |   |     
|                                                                                         |  |                  |            |                           |           |     |   |     
|Diluted EPS                                                                              |  |                  |            |                           |           |     |   |     
|Income Available to Common Stockholders After Assumed Conversions of Dilutive Securities |  | $                | 8,647,370  |                           | 4,496,921 |     | $ | 1.92
|                                                                                         |  |                  |            |                           |           |     |   |     
|December 31, 2002                                                                        |  |                  |            |                           |           |     |   |     
|Basic EPS                                                                                |  |                  |            |                           |           |     |   |     
|Income Available to Common Stockholders                                                  |  | $                | 5,265,754  |                           | 3,389,610 |     | $ | 1.55
|                                                                                         |  |                  |            |                           |           |     |   |     
|Dilutive Effect of Potential Common Stock                                                |  |                  |            |                           |           |     |   |     
|Stock Options                                                                            |  |                  |            |                           | 66,636    |     |   |     
|                                                                                         |  |                  |            |                           |           |     |   |     
|Diluted EPS                                                                              |  |                  |            |                           |           |     |   |     
|Income Available to Common Stockholders After Assumed Conversions of Dilutive Securities |  | $                | 5,265,754  |                           | 3,456,246 |     | $ | 1.52
|                                                                                         |  |                  |            |                           |           |     |   |     



26



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Effective January 1, 2002, the Company adopted the fair value method of recording stock-based
compensation contained in SFAS No. 123, Accounting for Stock-Based Compensation, which is considered the preferable accounting method for stock-based employee compensation. Historically the Company had applied the intrinsic value method
permitted under SFAS No. 123, as defined in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for stock-based compensation plans. Accordingly, no compensation expense has been recognized for
the Companys stock option plans prior to January 1, 2002. In adopting SFAS 123, the Company is allowed to choose from three alternative transition methods. The Company elected to apply SFAS 123 prospectively to all new awards. Accordingly,
stock option expense totaling $45,373 as of December 31, 2002 and $313,730 as of December 31, 2004 was recorded to Salaries and Employee Benefits. Stock-based compensation awards granted in previous years will continue to be accounted for under
Opinion 25. If compensation expense for these awards were determined on the basis of SFAS 123, net income and earnings per share would have been reduced as shown in the proforma information presented hereafter.



|                           |  |      |            |      |   |           |  |   |          
|-------------------------- |  | ---- | ---------- | ---- | - | --------- |  | - | ---------
|                           |  | 2004 |            | 2003 |   | 2002     
|Net Income                 |  |      |            |      |   |           |  |   |          
|As Reported                |  | $    | 12,318,719 |      | $ | 8,647,370 |  | $ | 5,265,754
|                           |  |      |            |      |   |           |  |   |          
|Proforma                   |  | $    | 12,262,683 |      | $ | 8,592,324 |  | $ | 5,159,856
|                           |  |      |            |      |   |           |  |   |          
|Basic Earnings Per Share   |  |      |            |      |   |           |  |   |          
|As Reported                |  | $    | 2.21       |      | $ | 1.98      |  | $ | 1.55     
|                           |  |      |            |      |   |           |  |   |          
|Proforma                   |  | $    | 2.20       |      | $ | 1.97      |  | $ | 1.52     
|                           |  |      |            |      |   |           |  |   |          
|Diluted Earnings Per Share |  |      |            |      |   |           |  |   |          
|As Reported                |  | $    | 2.15       |      | $ | 1.92      |  | $ | 1.52     
|                           |  |      |            |      |   |           |  |   |          
|Proforma                   |  | $    | 2.14       |      | $ | 1.91      |  | $ | 1.49     
|                           |  |      |            |      |   |           |  |   |          



Proforma information
includes only the effects of incentive stock option awards which were granted in May 1996, May 1999, September 1999 and August 2000.



Proforma information is based on utilization of the Black-Scholes option pricing model to estimate the fair value of the options at the grant date.
Significant assumptions used are:



|                                                      |  |         |   |  |         |   |  |         |  
|----------------------------------------------------- |  | ------- | - |  | ------- | - |  | ------- | -
|                                                      |  | 1999    |   |  | 1996    |  
|                                                      |  | 2000    |   |  | 1999    |   |  | 1996    |  
|Under Incentive Stock Option Plans Established In     |  |         |   |  |         |   |  |         |  
|Year Granted                                          |  |         |   |  |         |   |  |         |  
|Expected Annual Dividends (As Percent of Stock Price) |  | 2.12    | % |  | 1.63    | % |  | 2.11    | %
|Discount Rate-Bond Equivalent Yield                   |  | 5.44    | % |  | 6.48    | % |  | 6.34    | %
|Expected Life                                         |  | 5 Years |   |  | 5 Years |   |  | 5 Years |  
|Expected Cumulative Volatility                        |  | 29.38   | % |  | 70.95   | % |  | 86.58   | %



(19) Related Party Transactions



The aggregate balance of direct and indirect loans to
directors, executive officers or principal holders of equity securities of the Company was $35,340,799 as of December 31, 2004 and $28,749,881 as of December 31, 2003. All such loans were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than a normal risk of collectibility. A summary of activity of related party loans is presented hereafter.



27



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                   |  |      |             |   |      |   |             |  
|---------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                   |  | 2004 |             |   | 2003 |  
|Balance, Beginning                 |  | $    | 28,749,881  |   |      | $ | 21,441,430  |  
|New Loans                          |  |      | 41,978,560  |   |      |   | 46,134,941  |  
|Repayments                         |  |      | (35,387,642 | ) |      |   | (40,033,928 | )
|Business Combination, Bank of Gray |  |      |            |   |      |   | 1,207,438   |  
|                                   |  |      |             |   |      |   |             |  
|Balance, Ending                    |  | $    | 35,340,799  |   |      | $ | 28,749,881  |  
|                                   |  |      |             |   |      |   |             |  



Deposits from related
parties held by the Company at December 31, 2004 and 2003 totaled $23,386,000 and $19,881,000, respectively.



Fairfield Financial Services, Inc. originated $1,737,427 in mortgage loans to related parties during 2004. The loans were then sold to a third-party
investor before the 2004 year-end.



During 2001, Security Bank
of Bibb County purchased land for $736,000 from one director to build the new corporate center. The board of directors unanimously approved the purchase, with the one director involved in the transaction abstaining.



As a result of the purchase of assets of Group Financial Southeast in 2001,
Fairfield Financial Services, Inc. leases office space from a director. Payments made under the lease agreements totaled $76,800 and $76,950 as of December 31, 2004 and 2003, respectively.



28



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(20) Financial Information of Security Bank Corporation (Parent Only)



The parent companys balance sheets as of December 31, 2004 and 2003
and the related statements of income and comprehensive income and cash flows for the years then ended are as follows:



SECURITY BANK CORPORATION (PARENT ONLY)



BALANCE SHEETS

DECEMBER 31



ASSETS



|                                      |  |      |             |      |   |            
|------------------------------------- |  | ---- | ----------- | ---- | - | -----------
|                                      |  | 2004 |             | 2003
|Cash                                  |  | $    | 420,018     |      | $ | 1,122,293  
|Securities                            |  |      | 670,614     |      |   |           
|Bank Premises and Equipment, Net      |  |      | 294,037     |      |   | 153,754    
|Investment in Subsidiaries, at Equity |  |      | 124,046,071 |      |   | 99,776,489 
|Prepaids                              |  |      | 159,385     |      |   | 51,888     
|Trust Preferred Placement Fee, Net    |  |      | 418,750     |      |   | 433,750    
|Income Tax Benefit                    |  |      | 35,099      |      |   |           
|Other                                 |  |      | 38,401      |      |   | 32,591     
|                                      |  |      |             |      |   |            
|Total Assets                          |  | $    | 126,082,375 |      | $ | 101,570,765
|                                      |  |      |             |      |   |            



LIABILITIES AND
STOCKHOLDERS EQUITY



|                                                                                                                                                                         |  |      |             |   |      |   |             |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                                                                                                                                                         |  | 2004 |             |   | 2003 |  
|Liabilities                                                                                                                                                              |  |      |             |   |      |   |             |  
|Income Tax Payable                                                                                                                                                       |  | $    |            |   |      | $ | 346,689     |  
|Other                                                                                                                                                                    |  |      | 854,393     |   |      |   | 358,348     |  
|                                                                                                                                                                         |  |      |             |   |      |   |             |  
|                                                                                                                                                                         |  |      | 854,393     |   |      |   | 705,037     |  
|                                                                                                                                                                         |  |      |             |   |      |   |             |  
|Other Borrowed Money                                                                                                                                                     |  |      |            |   |      |   | 6,500,000   |  
|                                                                                                                                                                         |  |      |             |   |      |   |             |  
|Subordinated Debt                                                                                                                                                        |  |      | 18,557,000  |   |      |   | 18,557,000  |  
|                                                                                                                                                                         |  |      |             |   |      |   |             |  
|Stockholders Equity                                                                                                                                                     |  |      |             |   |      |   |             |  
|Common Stock, Par Value $1 Per Share; Authorized 10,000,000 Shares, Issued and Outstanding 5,829,773 and 5,033,299 Shares as of December 31,
2004 and 2003, Respectively |  |      | 5,829,773   |   |      |   | 5,033,299   |  
|Paid-In Capital                                                                                                                                                          |  |      | 62,348,500  |   |      |   | 41,579,766  |  
|Retained Earnings                                                                                                                                                        |  |      | 38,544,733  |   |      |   | 28,709,673  |  
|Restricted Stock  Unearned Compensation                                                                                                                                 |  |      | (74,697     | ) |      |   | (104,037    | )
|Accumulated Other Comprehensive Income, Net of Tax                                                                                                                       |  |      | 352,801     |   |      |   | 886,864     |  
|                                                                                                                                                                         |  |      |             |   |      |   |             |  
|                                                                                                                                                                         |  |      | 107,001,110 |   |      |   | 76,105,565  |  
|Treasury Stock (9,868 and 8,999 Shares in 2004 and 2003, Respectively), at Cost                                                                                          |  |      | (330,128    | ) |      |   | (296,837    | )
|                                                                                                                                                                         |  |      |             |   |      |   |             |  
|                                                                                                                                                                         |  |      | 106,670,982 |   |      |   | 75,808,728  |  
|                                                                                                                                                                         |  |      |             |   |      |   |             |  
|Total Liabilities and Stockholders Equity                                                                                                                               |  | $    | 126,082,375 |   |      | $ | 101,570,765 |  
|                                                                                                                                                                         |  |      |             |   |      |   |             |  



29



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



SECURITY BANK CORPORATION (PARENT ONLY)



STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31



|                                                                                |  |      |            |   |      |   |           |      |  |   |            |  
|------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | --------- | ---- |  | - | ---------- | -
|                                                                                |  | 2004 |            |   | 2003 |   |           | 2002 | 
|Income                                                                          |  |      |            |   |      |   |           |      |  |   |            |  
|Dividends from Subsidiaries                                                     |  | $    | 1,476,635  |   |      | $ | 6,355,699 |      |  | $ | 427,254    |  
|Interest and Dividends                                                          |  |      | 806        |   |      |   |          |      |  |   |           |  
|Management Fees                                                                 |  |      | 1,184,980  |   |      |   |          |      |  |   |           |  
|                                                                                |  |      |            |   |      |   |           |      |  |   |            |  
|                                                                                |  |      | 2,662,421  |   |      |   | 6,355,699 |      |  |   | 427,254    |  
|                                                                                |  |      |            |   |      |   |           |      |  |   |            |  
|Expenses                                                                        |  |      |            |   |      |   |           |      |  |   |            |  
|Salaries and Employee Benefits                                                  |  |      | 2,713,166  |   |      |   | 944,668   |      |  |   | 599,991    |  
|Occupancy and Equipment                                                         |  |      | 38,848     |   |      |   | 34,553    |      |  |   | 18,894     |  
|Interest                                                                        |  |      | 979,289    |   |      |   | 913,572   |      |  |   | 310,204    |  
|Other                                                                           |  |      | 1,014,968  |   |      |   | 739,033   |      |  |   | 538,402    |  
|                                                                                |  |      |            |   |      |   |           |      |  |   |            |  
|                                                                                |  |      | 4,746,271  |   |      |   | 2,631,826 |      |  |   | 1,467,491  |  
|                                                                                |  |      |            |   |      |   |           |      |  |   |            |  
|Income (Loss) Before Taxes and Equity in Undistributed Earnings of Subsidiaries |  |      | (2,083,850 | ) |      |   | 3,723,873 |      |  |   | (1,040,237 | )
|Income Tax Benefit                                                              |  |      | 1,148,925  |   |      |   | 960,618   |      |  |   | 529,725    |  
|                                                                                |  |      |            |   |      |   |           |      |  |   |            |  
|Income (Loss) Before Equity in Undistributed Earnings of Subsidiaries           |  |      | (934,925   | ) |      |   | 4,684,491 |      |  |   | (510,512   | )
|Equity in Undistributed Earnings of Subsidiaries                                |  |      | 13,253,644 |   |      |   | 3,962,879 |      |  |   | 5,776,266  |  
|                                                                                |  |      |            |   |      |   |           |      |  |   |            |  
|Net Income                                                                      |  |      | 12,318,719 |   |      |   | 8,647,370 |      |  |   | 5,265,754  |  
|                                                                                |  |      |            |   |      |   |           |      |  |   |            |  
|Other Comprehensive Income, Net of Tax                                          |  |      |            |   |      |   |           |      |  |   |            |  
|Gains (Losses) on Securities Arising During the Year                            |  |      | (525,679   | ) |      |   | 35,604    |      |  |   | 371,829    |  
|Reclassification Adjustment                                                     |  |      | (8,384     | ) |      |   | (36,619   | )    |  |   | (89,629    | )
|                                                                                |  |      |            |   |      |   |           |      |  |   |            |  
|Unrealized Gains (Losses) on Securities                                         |  |      | (534,063   | ) |      |   | (1,015    | )    |  |   | 282,200    |  
|                                                                                |  |      |            |   |      |   |           |      |  |   |            |  
|Comprehensive Income                                                            |  | $    | 11,784,656 |   |      | $ | 8,646,355 |      |  | $ | 5,547,954  |  
|                                                                                |  |      |            |   |      |   |           |      |  |   |            |  



30



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



SECURITY BANK CORPORATION (PARENT ONLY)



STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31



|                                                                                        |  |      |             |   |      |   |             |      |  |   |            |  
|--------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ---------- | -
|                                                                                        |  | 2004 |             |   | 2003 |   |             | 2002 | 
|Cash Flows from Operating Activities                                                    |  |      |             |   |      |   |             |      |  |   |            |  
|Net Income                                                                              |  | $    | 12,318,719  |   |      | $ | 8,647,370   |      |  | $ | 5,265,754  |  
|Adjustments to Reconcile Net Income to Net Cash Provided (Used) by Operating Activities |  |      |             |   |      |   |             |      |  |   |            |  
|Deferred Income Taxes                                                                   |  |      | (7,181      | ) |      |   | 2,282       |      |  |   | 4,378      |  
|Depreciation                                                                            |  |      | 32,630      |   |      |   | 29,913      |      |  |   | 16,607     |  
|Amortization                                                                            |  |      | 40,178      |   |      |   | 41,013      |      |  |   |           |  
|Stock Option Expense                                                                    |  |      | 313,730     |   |      |   |            |      |  |   | 45,373     |  
|Equity in Undistributed Earnings of Subsidiaries                                        |  |      | (13,253,644 | ) |      |   | (3,962,879  | )    |  |   | (5,776,266 | )
|Increase (Decrease) in Other                                                            |  |      | (137,130    | ) |      |   | 399,108     |      |  |   | (337,002   | )
|                                                                                        |  |      |             |   |      |   |             |      |  |   |            |  
|                                                                                        |  |      | (692,698    | ) |      |   | 5,156,807   |      |  |   | (781,156   | )
|                                                                                        |  |      |             |   |      |   |             |      |  |   |            |  
|Cash Flows from Investing Activities                                                    |  |      |             |   |      |   |             |      |  |   |            |  
|Investment in Statutory Trust                                                           |  |      |            |   |      |   |            |      |  |   | (557,000   | )
|Capital Infusion in Subsidiaries                                                        |  |      | (11,550,000 | ) |      |   | (2,900,000  | )    |  |   | (3,000,000 | )
|Purchase of Premises and Equipment                                                      |  |      | (27,643     | ) |      |   | (5,322      | )    |  |   | (194,952   | )
|Purchase of Investments                                                                 |  |      | (670,614    | ) |      |   |            |      |  |   |           |  
|Payment for Purchase of Bank of Gray                                                    |  |      |            |   |      |   | (15,156,910 | )    |  |   |           |  
|                                                                                        |  |      |             |   |      |   |             |      |  |   |            |  
|                                                                                        |  |      | (12,248,257 | ) |      |   | (18,062,232 | )    |  |   | (3,751,952 | )
|                                                                                        |  |      |             |   |      |   |             |      |  |   |            |  
|Cash Flows from Financing Activities                                                    |  |      |             |   |      |   |             |      |  |   |            |  
|Dividends Paid                                                                          |  |      | (2,483,659  | ) |      |   | (1,847,129  | )    |  |   | (1,187,668 | )
|Issuance of Common Stock                                                                |  |      | 21,222,339  |   |      |   | 993,551     |      |  |   | 365,172    |  
|Note Payable                                                                            |  |      | (6,500,000  | ) |      |   | 6,500,000   |      |  |   | (5,999,694 | )
|Subordinated Debt                                                                       |  |      |            |   |      |   |            |      |  |   | 18,557,000 |  
|                                                                                        |  |      |             |   |      |   |             |      |  |   |            |  
|                                                                                        |  |      | 12,238,680  |   |      |   | 5,646,422   |      |  |   | 11,734,810 |  
|                                                                                        |  |      |             |   |      |   |             |      |  |   |            |  
|Net Increase (Decrease) in Cash                                                         |  |      | (702,275    | ) |      |   | (7,259,003  | )    |  |   | 7,201,702  |  
|Cash, Beginning                                                                         |  |      | 1,122,293   |   |      |   | 8,381,296   |      |  |   | 1,179,594  |  
|                                                                                        |  |      |             |   |      |   |             |      |  |   |            |  
|Cash, Ending                                                                            |  | $    | 420,018     |   |      | $ | 1,122,293   |      |  | $ | 8,381,296  |  
|                                                                                        |  |      |             |   |      |   |             |      |  |   |            |  





31



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(21) Fair Value of Financial Instruments



SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires disclosure of fair value information
about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practicable to estimate that value. The assumptions used in the estimation of the fair value of Security Bank Corporations financial
instruments are detailed below. Where quoted prices are not available, fair values are based on estimates using discounted cash flows and other valuation techniques. The use of discounted cash flows can be significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. The following disclosures should not be considered a surrogate of the liquidation value of the Company, but rather a good-faith estimate of the increase or decrease in value of
financial instruments held by the Company since purchase, origination or issuance.



Cash and Short-Term Investments - For cash, due from banks and federal funds sold, the carrying amount is a reasonable estimate of fair value.



Investment Securities Available for Sale - Fair values for investment securities are based on quoted market prices.



Loans - The fair value of fixed rate loans is estimated
by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings. For variable rate loans, the carrying amount is a reasonable estimate of fair value.



Loans Held for Sale- The fair value for loans held for sale is
determined on the basis of open commitments from independent buyers for committed loans.



Deposit Liabilities - The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date. The fair value of fixed maturity certificates
of deposit is estimated by discounting the future cash flows using the rates currently offered for deposits of similar remaining maturities.



Standby Letters of Credit - Because standby letters of credit are made using variable rates, the contract value is a reasonable estimate of fair
value.



32



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The carrying amount and estimated fair values of the Companys financial instruments as of
December 31 are as follows:



|                                         |  |                |         |                     |   |                |  |                     |         |  |   |        
|---------------------------------------- |  | -------------- | ------- | ------------------- | - | -------------- |  | ------------------- | ------- |  | - | -------
|                                         |  | 2004           |         | 2003               
|                                         |  | CarryingAmount |         | EstimatedFair Value |   | CarryingAmount |  | EstimatedFair Value
|                                         |  | (in Thousands)
|Assets                                   |  |                |         |                     |   |                |  |                     |         |  |   |        
|Cash and Short-Term Investments          |  | $              | 44,346  |                     | $ | 44,346         |  | $                   | 49,895  |  | $ | 49,895 
|Interest-Bearing Deposits                |  |                | 2,858   |                     |   | 2,858          |  |                     | 532     |  |   | 532    
|Investment Securities Available for Sale |  |                | 104,110 |                     |   | 104,110        |  |                     | 97,527  |  |   | 97,527 
|Investment Securities Held to Maturity   |  |                | 2,384   |                     |   | 2,404          |  |                     | 1,392   |  |   | 1,465  
|Federal Home Loan Bank Stock             |  |                | 4,918   |                     |   | 4,918          |  |                     | 3,935   |  |   | 3,935  
|Loans                                    |  |                | 846,818 |                     |   | 849,732        |  |                     | 698,454 |  |   | 705,950
|Loans Held for Sale                      |  |                | 7,507   |                     |   | 7,506          |  |                     | 11,448  |  |   | 11,455 
|                                         |  |                |         |                    
|Liabilities                              |  |                |         |                     |   |                |  |                     |         |  |   |        
|Deposits                                 |  |                | 842,558 |                     |   | 841,238        |  |                     | 743,301 |  |   | 745,553
|Borrowed Money                           |  |                | 88,947  |                     |   | 88,817         |  |                     | 67,428  |  |   | 68,404 
|Subordinated Debentures                  |  |                | 18,557  |                     |   | 18,557         |  |                     | 18,557  |  |   | 18,557 
|                                         |  |                |         |                    
|Unrecognized Financial Instruments       |  |                |         |                     |   |                |  |                     |         |  |   |        
|Standby Letters of Credit                |  |                |        |                     |   | 9,939          |  |                     |        |  |   | 7,970  
|Unfulfilled Loan Commitments             |  |                |        |                     |   | 233,136        |  |                     |        |  |   | 150,796



Fair value estimates
are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the entire
holdings of a particular financial instrument. Because no market exists for a significant portion of the Companys financial instruments, fair value estimates are based on many judgments. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.



Fair value estimates are based on existing on and off-balance sheet financial instruments without attempting to estimate the
value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Significant assets and liabilities that are not considered financial instruments include the mortgage banking operation,
brokerage network, deferred income taxes and premises and equipment. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered
in the estimates.



(22) Regulatory Capital Matters



The amount of dividends payable to the parent company from the subsidiary
banks is limited by various banking regulatory agencies. Upon approval by regulatory authorities, the bank may pay cash dividends to the parent company in excess of regulatory limitations.



The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the
Companys consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the



33



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SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Companys assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Companys capital
amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.



Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and Tier I
capital to risk-weighted assets, and of Tier I capital to average assets. The amounts and ratios as defined in regulations are presented hereafter. Management believes, as of December 31, 2004, the Company meets all capital adequacy requirements to
which it is subject and is classified as well capitalized under the regulatory framework for prompt corrective action. In the opinion of management, there are no conditions or events since prior notification of capital adequacy from the regulators
that have changed the institutions category.



|                                       |  |                |         |       |                             |   |        |                                                                 |        |  |      |        |  |       |        |  |       |  
|-------------------------------------- |  | -------------- | ------- | ----- | --------------------------- | - | ------ | --------------------------------------------------------------- | ------ |  | ---- | ------ |  | ----- | ------ |  | ----- | -
|                                       |  | Actual         |         |       | For CapitalAdequacyPurposes |   |        | To Be WellCapitalized UnderPrompt Corrective  Action Provisions |       
|                                       |  | Amount         |         | Ratio |                             |   | Amount |                                                                 | Ratio  |  |      | Amount |  | Ratio |       
|                                       |  | (In Thousands) |        
|As of December 31, 2004                |  |                |         |      
|Total Capital to Risk-Weighted Assets  |  |                |         |       |                             |   |        |                                                                 |        |  |      |        |  |       |        |  |       |  
|Consolidated                           |  | $              | 106,310 |       | 11.40                       | % |        | $                                                               | 74,583 |  | 8.00 | %      |  | $     | 93,229 |  | 10.00 | %
|Bibb                                   |  |                | 62,112  |       | 10.86                       |   |        |                                                                 | 45,762 |  | 8.00 |        |  |       | 57,203 |  | 10.00 |  
|Houston                                |  |                | 18,611  |       | 10.68                       |   |        |                                                                 | 13,943 |  | 8.00 |        |  |       | 17,429 |  | 10.00 |  
|Jones                                  |  |                | 24,408  |       | 13.33                       |   |        |                                                                 | 14,654 |  | 8.00 |        |  |       | 18,317 |  | 10.00 |  
|                                       |  |                |         |       |                             |  
|Tier I Capital to Risk-Weighted Assets |  |                |         |       |                             |   |        |                                                                 |        |  |      |        |  |       |        |  |       |  
|Consolidated                           |  |                | 95,736  |       | 10.27                       |   |        |                                                                 | 37,292 |  | 4.00 |        |  |       | 55,937 |  | 6.00  |  
|Bibb                                   |  |                | 55,928  |       | 9.78                        |   |        |                                                                 | 22,881 |  | 4.00 |        |  |       | 34,322 |  | 6.00  |  
|Houston                                |  |                | 16,518  |       | 9.48                        |   |        |                                                                 | 6,971  |  | 4.00 |        |  |       | 10,457 |  | 6.00  |  
|Jones                                  |  |                | 22,111  |       | 12.07                       |   |        |                                                                 | 7,327  |  | 4.00 |        |  |       | 10,990 |  | 6.00  |  
|                                       |  |                |         |       |                             |  
|Tier I Capital to Average Assets       |  |                |         |       |                             |   |        |                                                                 |        |  |      |        |  |       |        |  |       |  
|Consolidated                           |  |                | 95,736  |       | 9.58                        |   |        |                                                                 | 39,959 |  | 4.00 |        |  |       | 49,949 |  | 5.00  |  
|Bibb                                   |  |                | 55,928  |       | 10.04                       |   |        |                                                                 | 22,283 |  | 4.00 |        |  |       | 27,854 |  | 5.00  |  
|Houston                                |  |                | 16,518  |       | 8.28                        |   |        |                                                                 | 7,984  |  | 4.00 |        |  |       | 9,981  |  | 5.00  |  
|Jones                                  |  |                | 22,111  |       | 9.17                        |   |        |                                                                 | 9,646  |  | 4.00 |        |  |       | 12,058 |  | 5.00  |  
|                                       | 
|As of December 31, 2003                |  |                |         |      
|Total Capital to Risk-Weighted Assets  |  |                |         |       |                             |   |        |                                                                 |        |  |      |        |  |       |        |  |       |  
|Consolidated                           |  | $              | 76,908  |       | 10.33                       | % |        | $                                                               | 59,561 |  | 8.00 | %      |  | $     | 74,451 |  | 10.00 | %
|Bibb                                   |  |                | 46,200  |       | 10.46                       |   |        |                                                                 | 35,334 |  | 8.00 |        |  |       | 44,168 |  | 10.00 |  
|Houston                                |  |                | 15,383  |       | 10.47                       |   |        |                                                                 | 11,698 |  | 8.00 |        |  |       | 14,623 |  | 10.00 |  
|Jones                                  |  |                | 20,736  |       | 13.30                       |   |        |                                                                 | 12,473 |  | 8.00 |        |  |       | 15,591 |  | 10.00 |  
|                                       |  |                |         |       |                             |  
|Tier I Capital to Risk-Weighted Assets |  |                |         |       |                             |   |        |                                                                 |        |  |      |        |  |       |        |  |       |  
|Consolidated                           |  |                | 66,545  |       | 8.93                        |   |        |                                                                 | 29,807 |  | 4.00 |        |  |       | 44,711 |  | 6.00  |  
|Bibb                                   |  |                | 40,887  |       | 9.26                        |   |        |                                                                 | 17,667 |  | 4.00 |        |  |       | 26,501 |  | 6.00  |  
|Houston                                |  |                | 13,651  |       | 9.29                        |   |        |                                                                 | 5,849  |  | 4.00 |        |  |       | 8,774  |  | 6.00  |  
|Jones                                  |  |                | 18,782  |       | 12.05                       |   |        |                                                                 | 6,237  |  | 4.00 |        |  |       | 9,355  |  | 6.00  |  
|                                       |  |                |         |       |                             |  
|Tier I Capital to Average Assets       |  |                |         |       |                             |   |        |                                                                 |        |  |      |        |  |       |        |  |       |  
|Consolidated                           |  |                | 66,545  |       | 7.85                        |   |        |                                                                 | 33,908 |  | 4.00 |        |  |       | 42,385 |  | 5.00  |  
|Bibb                                   |  |                | 40,887  |       | 8.93                        |   |        |                                                                 | 18,312 |  | 4.00 |        |  |       | 22,890 |  | 5.00  |  
|Houston                                |  |                | 13,651  |       | 8.35                        |   |        |                                                                 | 6,539  |  | 4.00 |        |  |       | 8,174  |  | 5.00  |  
|Jones                                  |  |                | 18,782  |       | 8.28                        |   |        |                                                                 | 9,071  |  | 4.00 |        |  |       | 11,338 |  | 5.00  |  



34



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SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(23) Business Combinations



On July 31, 2000, Security Bank of Bibb County purchased the assets of Group Financial Southeast (dba Fairfield Financial)
in a business combination accounted for as a purchase. The assets were placed in a newly formed subsidiary of Security Bank of Bibb County incorporated as Fairfield Financial Services, Inc. Fairfield Financial is primarily engaged in residential
real estate mortgage lending in the state of Georgia. The results of operations of Fairfield Financial since the date of acquisition are included in the accompanying consolidated financial statements. The initial purchase price approximated $1.4
million, which consists of approximately $1.0 million in cash and 32,345 shares of Security Bank Corporation stock valued at $388,140 at closing. The initial cost of the acquisition exceeded the fair value of the assets of Fairfield Financial by
$988,000. The excess is recorded as goodwill and was amortized on the straight-line method over 10 years through December 31, 2001. As a result of the issuance of SFAS No. 142, the goodwill is no longer amortized but is reviewed annually for
impairment.



The Asset Purchase Agreement provides for
additional contingent payments of purchase price for years ending December 31, 2001 through 2005 based on the earnings of Fairfield Financial Services, Inc. The additional payments, if any, are to be payable in cash and stock. Cash payments for 2004
will equate to 30 percent of Fairfield Financial Services, Inc.s earnings for the year. Stock payments for 2004 will be based on 70 percent of 2004 earnings utilizing a specific formula for determining number of shares. The number of
shares issued during any year cannot exceed 75,000. The maximum number of shares under the agreement cannot exceed 300,000 for years 2002-2005. All additional payments of cash and stock will be charged to goodwill. If Fairfield Financial sustains
losses, no additional purchase price payments are due. The contingent payment due in 2005 as a result of 2004 earnings is a combination of cash and stock approximating $3,159,000.



On October 25, 2002, Security Bank Corporation executed a definitive agreement to acquire all outstanding shares of the Bank
of Gray located in Gray (Jones County), Georgia. The stockholders of the Bank of Gray received $15,000,000 in cash and 1,571,000 common shares of the Company in a business combination accounted for as a purchase. The merger was approved at the
Companys annual meeting on May 29, 2003 and closed on May 30, 2003. Results of operations for the Bank of Gray are included in the consolidated financial statements since that date. The acquisition was made for the purpose of increasing the
Companys market share in the Middle Georgia area.



The
excess of the purchase price over book value has been allocated to the fair value of premises and equipment, the fair value of deposits and core deposits intangibles in the amounts of $1,168,000, $2,044,983 and $855,809, respectively. During 2004,
$681,661 of the deposit premium was accreted to interest expense. The Company amortized $17,667 of the premises and equipment premium and $171,162 of the core deposit intangibles in 2004. Goodwill of $20,964,250 was recorded as a result of this
acquisition. The goodwill will not be deductible for tax purposes.



35



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SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Following is a condensed balance sheet showing fair values of the assets acquired and the liabilities
assumed as of the date of acquisition:



|                                           |  |   |              |  
|------------------------------------------ |  | - | ------------ | -
|Cash, Due from Bank and Federal Funds Sold |  | $ | 17,319,124   |  
|Investment Securities                      |  |   | 72,516,776   |  
|Loans, Net                                 |  |   | 139,530,148  |  
|Premises and Equipment                     |  |   | 3,699,770    |  
|Core Deposit Intangible                    |  |   | 855,809      |  
|Goodwill Arising in the Acquisition        |  |   | 20,964,250   |  
|Other Assets                               |  |   | 3,963,820    |  
|Deposits                                   |  |   | (212,999,994 | )
|Other Liabilities                          |  |   | (1,487,713   | )
|                                           |  |   |              |  
|                                           |  | $ | 44,361,990   |  
|                                           |  |   |              |  



Following are proforma
amounts assuming that the acquisition was made on January 1, 2003:



|                   |  |             |            |      |   |           
|------------------ |  | ----------- | ---------- | ---- | - | ----------
|                   |  | December 31
|                   |  | 2004        |            | 2003
|Interest Income    |  | $           | 53,926,339 |      | $ | 48,556,160
|Net Income         |  |             | 12,318,719 |      |   | 9,588,481 
|Earnings Per Share |  |             |            |      |   |           
|Basic              |  | $           | 2.21       |      | $ | 1.92      
|Diluted            |  |             | 2.15       |      |   | 1.87      



(24) Deferred Compensation Plan



Security Bank of Houston County maintains a deferred
compensation plan under which certain officers may elect to defer, until termination, retirement, death or unforeseeable emergency a portion of current compensation. The plan is created in accordance with Internal Revenue Code Section 457. Interest
is paid on such deferrals at a rate that is determined annually. The participants are general creditors of the Bank with respect to amounts deferred and interest additions. As of December 31, 2004, 2003 and 2002, the liability under this plan
totaled $199,047, $175,579 and $153,756, respectively. Provisions charged to operations totaled $23,468 in 2004 and $0 in 2003 and 2002.



Security Bank of Jones County maintains a deferred compensation plan covering certain members of management through individual deferred compensation
contracts. In accordance with the terms of the contracts, the Bank is committed to pay the individuals deferred compensation over a period of 15 years, beginning at age 65. In the event of the individuals death before age 65, a lump sum
payment is made to the individuals beneficiary within 60 days of the date of death.



The contracts were initially funded through the purchase of life insurance with immediate cash value vesting in the amount of $885,783, which is included in other assets. The cash value of the life insurance contracts
totaled $1,119,783 as of December 31, 2004.



Liabilities
accrued under the plan totaled $634,315 and $588,619 as of December 31, 2004 and 2003, respectively. Provisions charged to operations totaled $45,696 in 2004 and $96,234 in 2003. No benefits have been paid as of December 31, 2004.



36



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SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(25) Restricted Stock-Unearned Compensation



In 2003, the board of directors of Security Bank Corporation adopted a restricted stock grant plan which awards certain
executive officers common shares of the Company. The maximum number of shares which may be subject to restricted stock awards is 5,000. During 2003, all 5,000 shares were issued under this plan. The shares are recorded at fair market value (on the
date granted) as a separate component of stockholders equity. The cost of these shares is being amortized against earnings using the straight-line method over five years (the restriction period).



(26) Subsequent Events



On January 19, 2005, Security Bank Corporation announced the signing of a definitive agreement to acquire SouthBank, a
community bank located in Woodstock, Georgia. SouthBank, with approximately $113.7 million in total assets, $93.3 million in deposits and $13.8 million in stockholders equity as of December 31, 2004, operates as a full service banking office
and two loan production offices in the fast growing northern metro-Atlanta counties of Cherokee, Paulding and Forsyth.



The transaction is valued at approximately $32.2 million and is expected to be completed in the second quarter of 2005, subject to approval by SouthBank
stockholders and state and federal regulators.



37