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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



Form 10-K



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

| | (Fee Required)
| | --------------



For the fiscal year ended December 31, 2004



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

| | (No Fee Required)
| | -----------------



For the transition period from                      to



Commission File No. 000-23261



SECURITY BANK CORPORATION

(Exact
Name of Registrant Specified in Its Charter)



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



(478) 722-6200

Issuers Telephone Number, Including Area Code



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



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



COMMON STOCK, $1.00 PAR VALUE

(Title of Class)



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



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



Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 126-2).    Yes   x    No ̈



State the aggregate market value of the voting stock held by nonaffiliates computed by reference to the price at which the
stock was sold, or the average bid and asked prices of such stock, as of June 30, 2004: $169,269,418 based on stock price of $34.60.



State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date: 5,820,343 shares of $1.00
par value common stock as of February 10, 2005.



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DOCUMENTS INCORPORATED BY REFERENCE



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



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Unless indicated otherwise, reference to we, us, our, SBKC or the Company refer to Security Bank
Corporation and its consolidated subsidiaries, Security Bank of Bibb County, Security Bank of Houston County and Security Bank of Jones County (collectively, the Banks).



Part I



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



General



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



We provide a wide variety of community banking services through 24 banking
and mortgage production offices, with a substantial portion of our business being drawn from Bibb, Houston and Jones Counties in the State of Georgia. At December 31, 2004, we had total assets of $1.06 billion, total deposits of $842.6 million and
total shareholders equity of $106.7 million.



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



| |  |  | Security Bank of Bibb County  A state-chartered bank with $601.8 million in assets that engages in the commercial banking business primarily in Bibb County, Georgia.
Security Bank of Bibb County commenced operations on November 4, 1988. The bank operates eight full-service banking offices and one limited-service office in Macon, Georgia, as well as one full-service banking office in Brunswick, Glynn County on
the southeastern coast of Georgia. Security Bank of Bibb County is also the direct parent company of Fairfield Financial Services, Inc., which is further described below.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Security Bank of Houston County  A state-chartered bank with $213.5 million in assets that engages in the commercial banking business primarily in Houston County,
Georgia. The bank operates one full-service banking office in Perry, Georgia and three full-service banking offices in Warner Robins, Georgia. Our ownership of Security Bank of Houston County is a result of our 1998 acquisition of Crossroads Bank of
Georgia.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Security Bank of Jones County  A state-chartered bank with $263.4 million in assets that engages in the commercial banking business primarily in Jones County, Georgia.
The bank operates one full-service banking office in Gray, Georgia. Our ownership of Security Bank of Jones County is a result of our 2003 acquisition of Bank of Gray.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



Fairfield Financial Services, Inc.    We also operate Fairfield Financial Services, Inc., a
subsidiary of Security Bank of Bibb County. Fairfield Financial is a traditional residential mortgage originator and interim real estate development lender with a number of production locations throughout Georgia, including offices in Macon, Butler,
Columbus, Gray, Warner Robins, Richmond Hill, Rincon, Fayetteville and St. Simons Island.



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Our 2000 acquisition of Fairfield has created tremendous synergies for our core banking business, due primarily to our ability to efficiently expand
Fairfield Financials presence into new market areas and build on its reputation and name recognition throughout the State of Georgia. During 2004, Fairfield Financial closed over $197.4 million in residential mortgages, making it one of the
largest residential mortgage originators in Middle Georgia. For the year ended December 31, 2004, Fairfield Financial posted approximately $2.8 million in net income. Approximately 31% of Fairfield Financials 2004 gross revenue was a product
of its traditional residential mortgage origination business, with the remaining 69% being derived from its interim real estate and real estate development lending activities. See Managements Discussion and Analysis of Financial
Condition and Results of Operations.



Our Market Area and Competitive
Position



Our primary market area is located in the
geographic center of the State of Georgia approximately 75 miles south of Atlanta and is primarily comprised of Bibb, Houston and Jones Counties. We refer to this market area as Middle Georgia, and we are the largest independent,
publicly traded bank holding company based in our primary market. Within this three-county area, we operate 13 of our 14 commercial banking offices. As a result, a majority of our revenue is derived from our business activities in and around these
counties.



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



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



In January 2003, we expanded our market presence by opening a de novo banking
office in the city of Brunswick, which is located on the southeastern coast of Georgia in Glynn County. This new banking office provides diversification outside of our Middle Georgia market and allows us to take advantage of opportunities presented
by the Glynn County area, which is situated midway between Savannah, Georgia and Jacksonville, Florida. We expect to open a second de novo branch in the Glynn County area within the next 12 months.



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



The deposit base for our core markets continues to expand. According to the FDIC, bank and thrift deposits in these markets grew from approximately $3.7 billion in June 2000 to more than $4.9 billion in June 2004, representing a 32.4%
increase during that period. At June 30, 2004, we controlled, through our subsidiary banks, approximately $801 million, or 16.2%, of this $4.9 billion deposit base; and, except for the Glynn County market, our subsidiary banks ranked first in market
share when compared against other independent community banks with branch locations in these designated markets. As a result, we believe we are the market leader among community banks based in Middle Georgia and continue to gain market share at the
expense of our super-regional and national competitors.



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Our Strategy



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



Positioning Ourselves as the Bank of Choice.    As a community banking organization operating autonomous community banks with
consolidated assets of $1.06 billion, we believe we are well-positioned to continue to draw business from smaller community bank competitors and from super-regional and national banking conglomerates that compete in our primary markets. Because of
our size and autonomous operations, we attract customers from other community banks that lack either the ability to adequately satisfy customer demand for banking convenience and product sophistication or the necessary capital levels needed to meet
the significant borrowing needs of their customers. We also attract customers from larger institutions due to our focus on customer service and our localized decision-making capabilities.



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



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



Our commitment to current technology has also allowed us to consistently lead our competition in offering new products and services to our retail and
small business customers. We were the first bank in Middle Georgia to offer imaged statements, and we have continued that leadership position with the first true free checking program and the first overdraft protection program in Middle Georgia. We
have recently extended these products into the small business segment and partnered them with an innovative unsecured small business line of credit. Additionally, our internet banking site is more extensive and user-friendly than many of our
competitors sites, allowing customers not only to access their account information and pay bills, but also to print copies of checks or other transaction documents from their personal computers at home. These products and services, combined
with our 14 branches across our primary market area, provide an impressive combination of service and convenience in Middle Georgia. This combination has accelerated growth in our market share, as evidenced by the increase in our customer base (net
of the Security Bank of Jones County acquisition) of over 16.6% in 2004.



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



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| | approval process and have developed a comprehensive risk management system for monitoring and measuring the adequacy of our allowance for loan losses and
anticipating net charge-offs.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Growth
Strategies.    Our experienced management team, competitive position and focus on relationship banking have enabled us to maintain solid, consistent growth over the last several years. We have achieved compounded annual
growth rates in total assets, loans and deposits in excess of 27% from December 31, 1998 to December 31, 2004. We have achieved this growth by expanding existing relationships, by increasing our market share and through expanding our market presence
by de novo branching and strategic acquisition. Specifically, our growth strategies are and continue to be:



| |  |  | Enhancing Existing Relationships.    We believe that our competitive position in the Middle Georgia market presents significant growth opportunities in
our primary market area, particularly in our ability to grow through our aggressive cross-selling efforts. As evidence of the effectiveness of our cross-sell programs and initiatives, our cross-sell ratio improved by approximately 9.5% during 2004.
We also plan to continue to increase business from existing customers by delivering exemplary customer service, developing new products and services and otherwise exploiting our competitive advantage in our various markets. For example, due in large
part to Fairfield Financials high-touch, rapid response business model, Fairfield Financial has been able to grow its managed interim lending portfolio to over $188 million in four years while maintaining outstanding credit
quality. Additionally, our senior loan officers have significant lending experience (in most cases over 20 years) in our markets and are well positioned to continue strong internal loan growth by meeting the borrowing needs of existing customers.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



| |  |  | The Interstate 75 and 85 corridors from Macon to Atlanta and from Atlanta to the Georgia-Tennessee and the Georgia-South Carolina state lines, outside of the I-285 perimeter
surrounding Atlanta;
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| |  |  | The Interstate 95 corridor of the Atlantic coastal area, ranging from Hilton Head Island, South Carolina to Jacksonville, Florida; and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



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



Competition



We believe competition in our market area is based on several factors, including price, convenience, breadth of product lines and customer service.
Although our larger competitors may enjoy a competitive advantage in terms of price and offer a wide variety of products and services, we believe our focus on responsive, quality



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service to our customers and our ability to offer a sophisticated array of products to customers provides us with a competitive advantage. We compete to a
lesser extent with small community banks on the terms described above, but believe our larger capital base and higher lending limits enable us to serve customers seeking to combine the personalized service typical of a community bank with the
lending capacity and product offerings typical of a larger bank.



According to FDIC deposit data as of June 30, 2004, in the combined markets of Bibb, Jones and Houston Counties, our three core counties of operation, bank and thrift deposits totaled approximately $3.8 billion. Approximately 63.2% of this
deposit base was controlled by super-regional and national institutions, including BB&T, Bank of America, SunTrust Bank, Colonial Bank and CB&T Bank of Middle Georgia (Synovus). Despite the considerable resources that these competitors
possess, we have achieved a significant market share in each of these counties. Specifically, as of June 30, 2004, we controlled 20.8% of the combined deposit base for these three counties, which ranked us first in overall market share and first in
market share and asset base of any community bank based in these counties. Our expanded banking presence in Glynn County is still in its initial stages of development. Nevertheless, we anticipate that similar competitive advantages enjoyed by us in
our core markets, namely our ability to attract customers away from small community banks and super-regional and national competitors due to our overall borrowing capacity and level of customer service, will allow us to make substantial headway in
gaining market share in Glynn County. See GeneralOur Subsidiary Banks for additional information regarding our market share and Our StrategiesGrowth Strategies for additional information regarding our efforts to
increase market share.



Lending Services



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



| |  |  | Real Estate-Construction.    Our construction loan portfolio consists of loans for non-agricultural, residential and commercial construction and land
development projects. The majority of loans made to residential builders are made against presales wherein the purchaser has already been pre-qualified for a permanent loan. At December 31, 2004, speculative residential construction loans amounted
to $20.0 million or approximately 2.3% of our loan portfolio. Commercial construction loans for residential or retail properties are typically backed by pre-lease and/or pre-sale requirements prior to loan funding. Also all contractor customers
(residential or commercial) are required to meet stringent underwriting standards that focus on: experience, years of successful operation, high personal credit scores and significant unencumbered personal and corporate liquidity. Loans are made
within regulatory loan-to-value guidelines with additional collateral occasionally required as necessary to protect our interests. Progress reports are maintained on each loan and appropriate progress is required prior to funding. As of December 31,
2004, these loans represented approximately 41.0% of our portfolio.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Real Estate-Mortgage.    Our residential mortgage loans consists of two types of loansresidential loans to individuals intended for resale and
residential loans to individuals intended to be held in our loan portfolio. These loans are generally made on the basis of the borrowers ability to repay the loan from his or her employment and other income and are secured by residential real
estate, the value of which is reasonably ascertainable. Other real estate mortgage loans may includes loans where the primary reasons for the loans are for commercial, financial or agricultural purposes or loans made to individuals for personal,
family or household purposes but are secured by real estate. As of December 31, 2004, these loans represented approximately 43.9% of our portfolio.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Commercial, financial and agricultural.    We make commercial loans to qualified businesses in our market area. This portion of our
portfolio consists primarily of commercial and industrial loans for the financing of accounts receivable, inventory, property, plant and equipment. Because we make these loans based on the borrowers demonstrated ability to repay out of cash
flow from his or her business, and because we know the customers to whom these loans are made, we consider these loans to be of very high quality. Although large loans of this nature might otherwise be assumed to carry additional
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | risk, our loans are typically well-collateralized and our exposure to any one borrower is limited because we focus on overall relationships. Under our risk
rating system, credit grades with higher intrinsic risk profiles limit the amount that can be loaned into any one borrowing relationship, thereby limiting our exposure to riskier credits and applying larger loan loss allocations to the credit. As of
December 31, 2004, these loans represented approximately 10.5% of our portfolio.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Loans to individuals.    This portfolio consists principally of installment loans to individuals for personal, family and household purposes. These loans
entail a high degree of risk due to the typically highly depreciable nature of any underlying collateral and collectibility risks resulting from the borrowers insolvency or bankruptcy. To mitigate this risk, we perform a thorough credit and
financial analysis of the borrower and seek adequate collateral for the loan. As of December 31, 2004, these loans represented approximately 4.7% of our portfolio.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



We originate loans with a variety of terms, including fixed and floating or variable rates, and a variety of maturities. Although we offer a
variety of types of loans, we emphasize the use of real estate as collateral. As of December 31, 2004, approximately 85% of our loan portfolio, regardless of type, were secured by real estate. Although our banks generally lend to clients located in
their market areas, our Fairfield Financial subsidiary is more geographically diversified, with approximately 90% of its portfolio consisting of loans in areas of Georgia outside the Middle Georgia market and in northeastern Florida. This provides
us with some diversification of risk, but may also increase our risk since these loans are being made outside of our local market and local relationships.



Our loan portfolio constitutes our largest interest-earning asset. To analyze prospective loans, management reviews our credit quality and interest rate
pricing guidelines to determine whether to extend a loan and the appropriate rate of interest for each loan. At December 31, 2003 and 2004, loans and loans held for sale, net of unearned income, of $709.1 million and $853.3 million, respectively,
amounted to 77.8% and 80.2% of total assets, and 95.5% and 101.3% of deposits. Loans amounted to 89.9% of all funding sources from interest-bearing liabilities at December 31, 2004 and 85.6% at December 31, 2003. Our loan portfolio grew by 20.3%
from December 31, 2003 to December 31, 2004. Loan yields were 6.36% for 2004, compared to 6.61% for 2003 and 7.11% for 2002. Our reserve for loan losses as a percentage of outstanding loans and loans held for sale amounted to 1.28% at December 31,
2004, compared to 1.33% and 1.16% at December 31, 2003 and 2002.



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



LOANS BY TYPE



(In Thousands)



|                                              |  |              |         |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   
|--------------------------------------------- |  | ------------ | ------- | -- | ---- | - | ------- | ---- |  | - | ------- | -- |  | ---- | ------- | -- |  | - | ------- | --
|                                              |  | December 31, |        
|                                              |  | 2004         |         |    | 2003 |   |         | 2002 |  |   | 2001    |    |  | 2000 |        
|Commercial                                    |  | $            | 86,575  |    |      | $ | 62,618  |      |  | $ | 42,613  |    |  | $    | 42,086  |    |  | $ | 42,305  |   
|Financial                                     |  |              | 0       |    |      |   | 0       |      |  |   | 20      |    |  |      | 26      |    |  |   | 29      |   
|Agricultural                                  |  |              | 3,179   |    |      |   | 1,359   |      |  |   | 1,449   |    |  |      | 1,990   |    |  |   | 2,471   |   
|Real Estate - Construction                    |  |              | 350,150 |    |      |   | 267,201 |      |  |   | 182,948 |    |  |      | 134,940 |    |  |   | 62,328  |   
|Real Estate - Mortgage                        |  |              |         |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   
|Mortgage Loans Held for Sale                  |  |              | 7,507   |    |      |   | 11,448  |      |  |   | 35,955  |    |  |      | 40,764  |    |  |   | 13,215  |   
|Other Mortgage:                               |  |              |         |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   
|Loans Secured by Farm Residential             |  |              | 3,879   |    |      |   | 3,804   |      |  |   | 3,271   |    |  |      | 2,531   |    |  |   | 1,827   |   
|Secured by 1-4 Family Residential Properties  |  |              | 128,770 |    |      |   | 107,424 |      |  |   | 55,361  |    |  |      | 49,050  |    |  |   | 66,257  |   
|Secured by Multifamily Residential Properties |  |              | 13,660  |    |      |   | 6,036   |      |  |   | 1,149   |    |  |      | 786     |    |  |   | 657     |   
|Secured by Nonfarm Nonresidential Properties  |  |              | 220,593 |    |      |   | 213,799 |      |  |   | 132,635 |    |  |      | 127,067 |    |  |   | 107,731 |   
|Loans to Individuals                          |  |              | 40,012  |    |      |   | 36,212  |      |  |   | 19,421  |    |  |      | 20,241  |    |  |   | 21,831  |   
|                                              |  |              |         |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   
|Total Loans                                   |  | $            | 854,325 |    |      | $ | 709,901 |      |  | $ | 474,822 |    |  | $    | 419,481 |    |  | $ | 318,651 |   
|Unearned Income                               |  |              | (1,053  | )  |      |   | (771    | )    |  |   | (421    | )  |  |      | (175    | )  |  |   | (172    | ) 
|                                              |  |              |         |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   
|Total Net Loans                               |  | $            | 853,272 |    |      | $ | 709,130 |      |  | $ | 474,401 |    |  | $    | 419,306 |    |  | $ | 318,479 |   
|                                              |  |              |         |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   
|Percentage of Total Portfolio                 |  |              |         |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   
|Commercial                                    |  |              | 10.15   | %  |      |   | 8.83    | %    |  |   | 8.98    | %  |  |      | 10.04   | %  |  |   | 13.28   | % 
|Financial                                     |  |              | 0.00    | %  |      |   | 0.00    | %    |  |   | 0.00    | %  |  |      | 0.01    | %  |  |   | 0.01    | % 
|Agricultural                                  |  |              | 0.37    | %  |      |   | 0.19    | %    |  |   | 0.31    | %  |  |      | 0.47    | %  |  |   | 0.78    | % 
|Real Estate - Construction                    |  |              | 41.04   | %  |      |   | 37.68   | %    |  |   | 38.56   | %  |  |      | 32.18   | %  |  |   | 19.57   | % 
|Real Estate - Mortgage                        |  |              |         |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   
|Mortgage Loans Held for Sale                  |  |              | 0.88    | %  |      |   | 1.61    | %    |  |   | 7.58    | %  |  |      | 9.72    | %  |  |   | 4.15    | % 
|Other Mortgage:                               |  |              |         |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   
|Loans Secured by Farm Residential             |  |              | 0.45    | %  |      |   | 0.54    | %    |  |   | 0.69    | %  |  |      | 0.60    | %  |  |   | 0.57    | % 
|Secured by 1-4 Family Residential Properties  |  |              | 15.09   | %  |      |   | 15.15   | %    |  |   | 11.67   | %  |  |      | 11.70   | %  |  |   | 20.80   | % 
|Secured by Multifamily Residential Properties |  |              | 1.60    | %  |      |   | 0.85    | %    |  |   | 0.24    | %  |  |      | 0.19    | %  |  |   | 0.21    | % 
|Secured by Nonfarm Nonresidential Properties  |  |              | 25.85   | %  |      |   | 30.15   | %    |  |   | 27.96   | %  |  |      | 30.30   | %  |  |   | 33.83   | % 
|Loans to Individuals                          |  |              | 4.69    | %  |      |   | 5.11    | %    |  |   | 4.09    | %  |  |      | 4.83    | %  |  |   | 6.85    | % 
|                                              |  |              |         |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   
|Total Loans                                   |  |              | 100.12  | %  |      |   | 100.11  | %    |  |   | 100.08  | %  |  |      | 100.04  | %  |  |   | 100.05  | % 
|Unearned Income                               |  |              | (0.12   | )% |      |   | (0.11   | )%   |  |   | (0.08   | )% |  |      | (0.04   | )% |  |   | (0.05   | )%
|                                              |  |              |         |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   
|Total Net Loans                               |  |              | 100.00  | %  |      |   | 100.00  | %    |  |   | 100.00  | %  |  |      | 100.00  | %  |  |   | 100.00  | % 
|                                              |  |              |         |    |      |   |         |      |  |   |         |    |  |      |         |    |  |   |         |   



9



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The largest components of our loan portfolio are the real estate construction loans and the other
mortgages secured by nonfarm, nonresidential properties. Real estate construction loans, which constituted 41.0% of the loans outstanding at December 31, 2004, are loans secured by real estate made to finance land development and residential and
commercial construction.



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



Lending limits vary based on the type of loan and nature of the borrower. In general, however, we are able to loan to any one borrower a maximum amount
equal to either 15% of total risk-based capital, or 25% of total risk-based capital if the amount that exceeds 15% is fully secured. As of December 31, 2004, our combined legal lending limit was approximately $13.4 million (unsecured) plus an
additional $22.3 million (secured), or a total of approximately $89.3 million, for loans that meet federal and/or state collateral guidelines. Regardless of the legal lending limit, our internal guidelines limit the amount available to be loaned to
any one borrowing relationship. We adjust the maximum amount available to any one borrower or relationship in accordance with an assigned credit grade. Every loan of material size is assigned a credit grade either by our credit administration
department or by the appropriate approval committee, with grades denoting more credit risk receiving a lower in-house maximum. As a result, our exposure to loans with more risk should be limited by the credit grades assigned to those loans. These
credit grades are reviewed regularly by bank management, regulatory authorities and our external loan review vendor for appropriateness and applicability.



Underwriting.    Collectively, our chief operating officer and our subsidiary bank presidents, who also act as our primary
local lending officers, have over 120 years of lending experience. This experienced loan team has developed stringent credit underwriting and monitoring guidelines/policies while simultaneously delivering strong growth in our loan portfolio. We
stress individual accountability to our loan officers, basing a portion of their compensation on the performance of the loans they approve. We employ a prudent credit approval process and have developed a comprehensive risk-management system for
monitoring and measuring the adequacy of our allowance for loan losses and anticipating net charge-offs.



Other Products and Services



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



We are committed to modifying existing, or
developing new, products and services that are responsive to the banking demands of our customers. For example, under a possible changing interest rate environment, we anticipate that the market demand for mortgage refinancing will likely be lower
in 2005. We also project, however, that Fairfield Financials interim lending division will experience increased activity. Accordingly, we are addressing necessary changes in, or additions to, Fairfield Financials mortgage origination and
interim lending products and services in order to continue to position ourselves appropriately to respond to potential shifts in the marketplace.



Employees



As of December 31, 2004, the Company had 311 employees on a full-time equivalent basis. SBKC considers its relationship with its employees to be
excellent.



10



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Supervision and Regulation



Bank Holding Company Regulation



General



We are a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended (BHCA). As a bank holding company registered with the Federal Reserve under the BHCA and the Georgia
Department of Banking and Finance (the Georgia Department) under the Financial Institutions Code of Georgia, we are subject to supervision, examination, and reporting by the Federal Reserve and the Georgia Department. Our activities are
limited to banking, managing or controlling banks, furnishing services to or performing services for its subsidiaries, or engaging in any other activity that the Federal Reserve determines to be so closely related to banking, or managing or
controlling banks, as to be a proper incident to these activities.



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



Activity Limitations



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



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



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



Similar requirements are imposed by the Georgia Department.



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



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



In November 1999, Congress enacted the Gramm-Leach-Bliley Act, which made substantial revisions to the statutory restrictions separating banking
activities from other financial activities. Under the Gramm-Leach-Bliley Act, bank holding companies that are well-capitalized and well-managed and meet other conditions can elect to become financial holding companies. As financial
holding companies, they and their subsidiaries are permitted to acquire or engage in activities that were not previously allowed bank holding companies such as insurance underwriting, securities underwriting and distribution, travel agency
activities, broad insurance agency activities, merchant banking, and other activities that the Federal Reserve determines to be financial in nature or complementary to these activities. Financial holding companies continue to be subject to the
overall oversight and supervision of the Federal Reserve, but the Gramm-Leach-Bliley Act applies the concept of functional regulation to the activities conducted by subsidiaries. For example, insurance activities would be subject to supervision and
regulation by state insurance authorities. While we have not elected to become a financial holding company in order to exercise the broader activity powers provided by the Gramm-Leach-Bliley Act, we may elect to do so in the future.



11



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Limitations on Acquisitions of Bank Holding Companies



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



Source of Financial Strength



Federal Reserve policy requires a bank holding company to act as a source of financial strength and to take measures to preserve and protect bank
subsidiaries in situations where additional investments in a troubled bank may not otherwise be warranted. In addition, if a bank holding company has more than one bank or thrift subsidiary, each of the bank holding companys subsidiary
depository institutions are responsible for any losses to the FDIC as a result of an affiliated depository institutions failure. As a result, a bank holding company may be required to loan money to its subsidiaries in the form of capital notes
or other instruments that qualify as capital of the subsidiary bank under regulatory rules. However, any loans from the bank holding company to those subsidiary banks will likely be unsecured and subordinated to that banks depositors and
perhaps to other creditors of that bank.



Bank Regulation



General



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



Transactions With Affiliates and Insiders



The
Company is a legal entity separate and distinct from the Banks. Various legal limitations restrict the Banks from lending or otherwise supplying funds to the Company and other non-bank subsidiaries of the Company, all of which are deemed to be
affiliates of the Banks for the purposes of these restrictions. The Company and the Banks are subject to Section 23A of the Federal Reserve Act. Section 23A defines covered transactions, which include extensions of credit,
and limits a banks covered transactions with any affiliate to 10% of such banks capital and surplus and with all affiliates to 20% of such banks capital and surplus. All covered and exempt transactions between a bank and its
affiliates must be on terms and conditions consistent with safe and sound banking practices, and banks and their subsidiaries are prohibited from purchasing low-quality assets from the banks affiliates. Finally, Section 23A requires that all
of a banks extensions of credit to an affiliate be appropriately secured by acceptable collateral, generally United States government or agency securities. The Company and the Banks are also subject to Section 23B of the Federal Reserve Act,
which generally limits covered and other transactions between a bank and its affiliates to terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the bank as prevailing at the time for
transactions with unaffiliated companies.



12



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Dividends



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



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



Mortgage Banking Regulation



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



Enforcement Policies and Actions



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



Capital Regulations



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



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



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



13



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



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



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



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



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



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



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



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



At December 31, 2004, the Company exceeded the minimum Tier 1, risk-based and leverage ratios and qualified as
well-capitalized under current Federal Reserve Board criteria. As of December 31, 2004, we had Tier 1 Capital and Total Capital of approximately 10.27% and 11.40%, respectively, of risk-weighted assets. As of December 31, 2004, we had a
leverage ratio of Tier 1 Capital to total average assets of approximately 9.58%.



The guidelines also provide that institutions experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without
significant reliance on intangible assets. Higher capital may be required in individual cases, depending upon a bank or bank holding companys risk profile. All bank holding companies and banks are expected to hold capital commensurate with the
level and nature of their risks, including the volume and severity of their problem loans. Lastly, the Federal Reserves guidelines indicate that the Federal Reserve will continue to consider a Tangible Tier 1 Leverage Ratio,
calculated by deducting all intangibles, in evaluating proposals for expansion or new activity.



14



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FDIC Insurance Assessments



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



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



The deposit insurance assessment rates currently range from zero basis points
on deposits (for a financial institution in the highest category) to 27 basis points on deposits (for an institution in the lowest category), but may rate as high as 31 basis points. In addition, the FDIC collects The Financing Corporation
(FICO) deposit assessments on assessable deposits at the same rate. FICO assessments are set quarterly, and in 2004 ranged from 1.46 to 1.54 basis points. The FICO assessment rate for the Banks for the first quarter of 2005 is 1.44 basis
points of assessable deposits.



Community Reinvestment Act



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



Current CRA regulations rate institutions based on their actual performance in meeting community credit needs. Following its most recent CRA examination on August 1, 2001, the Bank received a satisfactory rating.



Consumer Regulations



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



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



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



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



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



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



15



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



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



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



Fiscal and Monetary Policy



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



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



Anti-Terrorism Legislation



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



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



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



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



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



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



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



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



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



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



16



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



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



The Banks (or Our subsidiary banks) owned fourteen full-service banking locations and one limited-service banking location, one stand alone
ATM machine and night depository and Security Bank of Bibb Countys operations center, which houses its in-house data processing facility and operational support functions as of December 31, 2004. Fairfield Financial Services, Inc., a
subsidiary of Security Bank of Bibb County, leases a number of mortgage production offices throughout Georgia and the Southeast. The net book value of all facilities including furniture, fixtures and equipment totaled $19,105,286 as of December 31,
2004. Management considers that its properties are well maintained.



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



The Company and its subsidiaries may become parties to various legal proceedings arising from the normal course of business. As of December 31, 2004,
there are no material pending legal proceedings to which SBKC or its subsidiaries are a party or of which any of its property is the subject.



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



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



17



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Part II



|Item 5 | MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
|------ | --------------------------------------------------------



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



|                             |  |      |       |     |   |       |  |                    |       |  |   |     
|---------------------------- |  | ---- | ----- | --- | - | ----- |  | ------------------ | ----- |  | - | ----
|Year Ended December 31, 2004 |  | High |       | Low |   | Close |  | Dividend Per Share
|Fourth Quarter               |  | $    | 43.30 |     | $ | 33.95 |  | $                  | 40.00 |  | $ | 0.11
|                             |  |      |       |    
|Third Quarter                |  | $    | 36.00 |     | $ | 31.24 |  | $                  | 35.00 |  | $ | 0.11
|                             |  |      |       |    
|Second Quarter               |  | $    | 35.54 |     | $ | 28.68 |  | $                  | 34.60 |  | $ | 0.11
|                             |  |      |       |    
|First Quarter                |  | $    | 32.01 |     | $ | 29.06 |  | $                  | 30.00 |  | $ | 0.11
|                             |  |      |       |    
|Year Ended December 31, 2003 |  | High |       | Low |   | Close |  | Dividend Per Share
|Fourth Quarter               |  | $    | 34.00 |     | $ | 29.50 |  | $                  | 31.51 |  | $ | 0.10
|                             |  |      |       |    
|Third Quarter                |  | $    | 35.99 |     | $ | 28.90 |  | $                  | 29.50 |  | $ | 0.10
|                             |  |      |       |    
|Second Quarter               |  | $    | 36.18 |     | $ | 27.10 |  | $                  | 34.63 |  | $ | 0.10
|                             |  |      |       |    
|First Quarter                |  | $    | 29.00 |     | $ | 24.25 |  | $                  | 28.54 |  | $ | 0.10



As of February 10,
2005 the Company had approximately 721 shareholders of record plus approximately 978 shareholders listed in street name.



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



18



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



Our selected consolidated financial data presented below as of and for the years ended December 31, 1999 through December 31, 2004 is derived from our
audited consolidated financial statements, which are included elsewhere in this report. In the opinion of management, all adjustments (consisting only of normal recurring accruals) that are necessary for a fair presentation for such periods or dates
have been made.



|                                                                        |  |                                                  |           |   |      |   |           |      |  |   |           |   |  |      |           |   |      |   |           |   |  |   |           |  
|----------------------------------------------------------------------- |  | ------------------------------------------------ | --------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - | ---- | - | --------- | - |  | - | --------- | -
|                                                                        |  | At or For the Year Ended December 31,            |          
|                                                                        |  | 2004                                             |           |   | 2003 |   |           | 2002 |  |   | 2001      |   |  | 2000 |           |   | 1999 |  
|                                                                        |  | (Dollars in thousands, except per share amounts) |          
|Selected Balance Sheet Data:                                            |  |                                                  |           |   |      |   |           |      |  |   |           |   |  |      |           |   |      |   |           |   |  |   |           |  
|Assets                                                                  |  | $                                                | 1,063,485 |   |      | $ | 911,268   |      |  | $ | 581,319   |   |  | $    | 504,762   |   |      | $ | 410,230   |   |  | $ | 283,483   |  
|Investment securities                                                   |  |                                                  | 111,412   |   |      |   | 102,856   |      |  |   | 53,905    |   |  |      | 51,041    |   |      |   | 51,498    |   |  |   | 45,087    |  
|Loans receivable (net of unearned income)                               |  |                                                  | 853,292   |   |      |   | 709,130   |      |  |   | 474,401   |   |  |      | 419,306   |   |      |   | 318,479   |   |  |   | 207,429   |  
|Allowance for loan losses                                               |  |                                                  | 10,903    |   |      |   | 9,407     |      |  |   | 5,480     |   |  |      | 4,099     |   |      |   | 3,003     |   |  |   | 2,327     |  
|Goodwill and other intangible assets, net                               |  |                                                  | 29,164    |   |      |   | 25,631    |      |  |   | 1,900     |   |  |      | 848       |   |      |   | 0         |   |  |   | 0         |  
|Deposits                                                                |  |                                                  | 842,558   |   |      |   | 743,301   |      |  |   | 440,595   |   |  |      | 375,065   |   |      |   | 311,577   |   |  |   | 237,418   |  
|Borrowings and securities sold under agreements to repurchase           |  |                                                  | 88,947    |   |      |   | 67,428    |      |  |   | 77,753    |   |  |      | 90,418    |   |      |   | 64,057    |   |  |   | 15,824    |  
|Subordinated debentures                                                 |  |                                                  | 18,557    |   |      |   | 18,557    |      |  |   | 18,557    |   |  |      | 0         |   |      |   | 0         |   |  |   | 0         |  
|Shareholders equity                                                    |  |                                                  | 106,671   |   |      |   | 75,809    |      |  |   | 39,548    |   |  |      | 34,777    |   |      |   | 31,071    |   |  |   | 27,472    |  
|                                                                        |  |                                                  |           |   |      |  
|Selected Results of Operations Data:                                    |  |                                                  |           |   |      |   |           |      |  |   |           |   |  |      |           |   |      |   |           |   |  |   |           |  
|Interest income                                                         |  |                                                  | 53,926    |   |      |   | 42,894    |      |  |   | 32,920    |   |  |      | 33,608    |   |      |   | 27,035    |   |  |   | 20,402    |  
|Interest expense                                                        |  |                                                  | 14,373    |   |      |   | 12,912    |      |  |   | 12,110    |   |  |      | 16,586    |   |      |   | 13,106    |   |  |   | 8,427     |  
|Net interest income                                                     |  |                                                  | 39,553    |   |      |   | 29,982    |      |  |   | 20,810    |   |  |      | 17,022    |   |      |   | 13,929    |   |  |   | 11,975    |  
|Provision for loan losses                                               |  |                                                  | 2,819     |   |      |   | 2,859     |      |  |   | 2,603     |   |  |      | 1,912     |   |      |   | 1,292     |   |  |   | 736       |  
|Net interest income after provision for loan losses                     |  |                                                  | 36,734    |   |      |   | 27,123    |      |  |   | 18,207    |   |  |      | 15,110    |   |      |   | 12,637    |   |  |   | 11,239    |  
|Other income                                                            |  |                                                  | 14,833    |   |      |   | 17,303    |      |  |   | 13,146    |   |  |      | 11,147    |   |      |   | 5,354     |   |  |   | 3,072     |  
|Other expenses                                                          |  |                                                  | 32,308    |   |      |   | 30,841    |      |  |   | 23,022    |   |  |      | 19,397    |   |      |   | 12,655    |   |  |   | 9,537     |  
|Income before income taxes                                              |  |                                                  | 19,259    |   |      |   | 13,585    |      |  |   | 8,331     |   |  |      | 6,860     |   |      |   | 5,336     |   |  |   | 4,774     |  
|Income taxes                                                            |  |                                                  | 6,940     |   |      |   | 4,938     |      |  |   | 3,065     |   |  |      | 2,518     |   |      |   | 1,857     |   |  |   | 1,529     |  
|Net income (1)                                                          |  |                                                  | 12,319    |   |      |   | 8,647     |      |  |   | 5,266     |   |  |      | 4,342     |   |      |   | 3,479     |   |  |   | 3,245     |  
|                                                                        |  |                                                  |           |   |      |  
|Per Share Data:                                                         |  |                                                  |           |   |      |   |           |      |  |   |           |   |  |      |           |   |      |   |           |   |  |   |           |  
|Earnings:                                                               |  |                                                  |           |   |      |   |           |      |  |   |           |   |  |      |           |   |      |   |           |   |  |   |           |  
|Basic (1)                                                               |  |                                                  | 2.21      |   |      |   | 1.98      |      |  |   | 1.55      |   |  |      | 1.29      |   |      |   | 1.04      |   |  |   | 0.97      |  
|Diluted (1)                                                             |  |                                                  | 2.15      |   |      |   | 1.92      |      |  |   | 1.52      |   |  |      | 1.29      |   |      |   | 1.03      |   |  |   | 0.96      |  
|Book value                                                              |  |                                                  | 18.30     |   |      |   | 15.09     |      |  |   | 11.64     |   |  |      | 10.31     |   |      |   | 9.21      |   |  |   | 8.22      |  
|Tangible book value                                                     |  |                                                  | 13.33     |   |      |   | 10.00     |      |  |   | 11.08     |   |  |      | 10.06     |   |      |   | 9.21      |   |  |   | 8.22      |  
|Weighted average shares outstanding:                                    |  |                                                  |           |   |      |   |           |      |  |   |           |   |  |      |           |   |      |   |           |   |  |   |           |  
|Basic                                                                   |  |                                                  | 5,578,186 |   |      |   | 4,362,638 |      |  |   | 3,389,610 |   |  |      | 3,372,969 |   |      |   | 3,354,145 |   |  |   | 3,340,624 |  
|Diluted                                                                 |  |                                                  | 5,741,415 |   |      |   | 4,496,916 |      |  |   | 3,456,246 |   |  |      | 3,376,051 |   |      |   | 3,368,777 |   |  |   | 3,390,791 |  
|                                                                        |  |                                                  |           |   |      |  
|Performance Ratios:                                                     |  |                                                  |           |   |      |   |           |      |  |   |           |   |  |      |           |   |      |   |           |   |  |   |           |  
|Return on average assets (1)                                            |  |                                                  | 1.27      | % |      |   | 1.16      | %    |  |   | 1.03      | % |  |      | 1.00      | % |      |   | 1.09      | % |  |   | 1.27      | %
|Return on average equity (1)                                            |  |                                                  | 13.04     | % |      |   | 14.27     | %    |  |   | 14.11     | % |  |      | 13.05     | % |      |   | 12.01     | % |  |   | 12.08     | %
|Net interest margin (2) (7)                                             |  |                                                  | 4.45      | % |      |   | 4.40      | %    |  |   | 4.38      | % |  |      | 4.24      | % |      |   | 4.78      | % |  |   | 5.21      | %
|Interest rate spread (3) (7)                                            |  |                                                  | 4.18      | % |      |   | 4.12      | %    |  |   | 3.96      | % |  |      | 3.48      | % |      |   | 3.83      | % |  |   | 4.30      | %
|Efficiency ratio (4) (7)                                                |  |                                                  | 58.98     | % |      |   | 64.85     | %    |  |   | 67.38     | % |  |      | 68.38     | % |      |   | 64.82     | % |  |   | 62.55     | %
|Average interest-earning assets to average interest-bearing liabilities |  |                                                  | 117.08    | % |      |   | 114.70    | %    |  |   | 116.92    | % |  |      | 118.61    | % |      |   | 121.00    | % |  |   | 125.22    | %
|Average loans to average deposits                                       |  |                                                  | 100.21    | % |      |   | 103.09    | %    |  |   | 108.30    | % |  |      | 107.47    | % |      |   | 96.03     | % |  |   | 88.29     | %



19



---

|                                                             |  |                                                  |   |  |        |   |  |        |   |  |        |   |  |        |   |  |        |  
|------------------------------------------------------------ |  | ------------------------------------------------ | - |  | ------ | - |  | ------ | - |  | ------ | - |  | ------ | - |  | ------ | -
|                                                             |  | At or For the Year Ended December 31,            |  
|                                                             |  | 2004                                             |   |  | 2003   |   |  | 2002   |   |  | 2001   |   |  | 2000   |   |  | 1999   |  
|                                                             |  | (Dollars in thousands, except per share amounts) |  
|Asset Quality Ratios:                                        |  |                                                  |   |  |        |   |  |        |   |  |        |   |  |        |   |  |        |  
|Nonperforming loans to net loans (5)                         |  | 0.73                                             | % |  | 0.59   | % |  | 0.92   | % |  | 0.82   | % |  | 0.59   | % |  | 0.63   | %
|Nonperforming assets to total assets (6)                     |  | 0.77                                             | % |  | 0.90   | % |  | 1.08   | % |  | 1.22   | % |  | 0.54   | % |  | 0.50   | %
|Net charge-offs to average total loans                       |  | 0.17                                             | % |  | 0.32   | % |  | 0.28   | % |  | 0.23   | % |  | 0.25   | % |  | 0.25   | %
|Total allowance for loan losses to total nonperforming loans |  | 175.46                                           | % |  | 224.99 | % |  | 125.75 | % |  | 119.57 | % |  | 158.97 | % |  | 178.18 | %
|Total allowance for loan losses to total loans receivable    |  | 1.28                                             | % |  | 1.33   | % |  | 1.16   | % |  | 0.98   | % |  | 0.94   | % |  | 1.12   | %
|                                                             |  |                                                  |   |  |        |  
|Capital Ratios:                                              |  |                                                  |   |  |        |   |  |        |   |  |        |   |  |        |   |  |        |  
|Average equity to average assets                             |  | 9.72                                             | % |  | 8.11   | % |  | 7.27   | % |  | 7.63   | % |  | 9.06   | % |  | 10.52  | %
|Average tangible equity to average tangible assets           |  | 6.98                                             | % |  | 6.37   | % |  | 6.96   | % |  | 7.44   | % |  | 8.95   | % |  | 10.52  | %
|Leverage ratio                                               |  | 9.58                                             | % |  | 7.85   | % |  | 8.94   | % |  | 7.66   | % |  | 9.39   | % |  | 10.84  | %
|Tier 1 risk-based capital ratio                              |  | 10.27                                            | % |  | 8.93   | % |  | 10.25  | % |  | 8.02   | % |  | 8.86   | % |  | 12.30  | %
|Total risk-based capital ratio                               |  | 11.40                                            | % |  | 10.33  | % |  | 12.60  | % |  | 9.00   | % |  | 9.75   | % |  | 13.32  | %

---

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

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

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

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

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

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

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



20



---

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



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



Overview



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



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



Economic conditions, competition and federal monetary and fiscal policies also affect financial institutions. For example, 2004 was characterized by several increases in the Federal Reserves target federal funds rate in the second
half of the year to reduce inflationary pressures and, therefore, sustain the pace of economic growth. Lending activities are also influenced by regional and local economic factors, such as housing supply and demand, competition among lenders,
customer preferences and levels of personal income and savings in our primary market area.



Our balanced growth continued during 2004, with increases in assets, deposits, shareholders equity, earnings per share and returns on average assets and equity. The following chart shows our growth in these
areas from December 31, 2003 to December 31, 2004:



|                           |  |                                                 |         |   |                  |   |       |                 |  |      |  
|-------------------------- |  | ----------------------------------------------- | ------- | - | ---------------- | - | ----- | --------------- |  | ---- | -
|                           |  | December 31,2004                                |         |   | December 31,2003 |   |       | PercentIncrease | 
|                           |  | (Dollars in millions, except per share amounts) |        
|Diluted earnings per share |  | $                                               | 2.15    |   |                  | $ | 1.92  |                 |  | 12.0 | %
|Total assets               |  | $                                               | 1,063.5 |   |                  | $ | 911.3 |                 |  | 16.7 | %
|Loans                      |  | $                                               | 853.3   |   |                  | $ | 709.1 |                 |  | 20.3 | %
|Investment securities      |  | $                                               | 111.4   |   |                  | $ | 102.8 |                 |  | 8.4  | %
|Deposits                   |  | $                                               | 842.6   |   |                  | $ | 743.3 |                 |  | 13.4 | %
|Shareholders equity       |  | $                                               | 106.7   |   |                  | $ | 75.8  |                 |  | 40.8 | %
|Return on average assets   |  |                                                 | 1.27    | % |                  |   | 1.16  | %               |  | 9.5  | %
|Return on average equity   |  |                                                 | 13.04   | % |                  |   | 14.27 | %               |  | -8.6 | %



An increase in loan
volume of $144.2 million in loans as a result of strong loan demand in a low interest rate environment was the primary contributor to an increase in net income to $12.3 million for 2004.



The increase in deposits of $99.3 million resulted from marketing efforts aimed at increasing local low-cost deposits and
funding requirements driven by our loan growth. We sometimes met these funding needs with out- of-market deposits, which often carried a lower cost than local market deposits as a result of competitive pricing within our markets.



21



---

Our investment portfolio increased $8.6 million during 2004, primarily in order to provide on-balance
sheet liquidity in support of strong loan demand. The overall level of investment securities declined to 10.5% of assets at the end of 2004, as compared to 11.3% of assets at the end of 2003.



Fairfield Financial closed over $197 million in residential mortgage
loans during 2004 and posted approximately $2.8 million in net income. Approximately 31% of its 2004 gross revenue was a product of its traditional residential mortgage origination business, with the remaining 69% being derived from
its interim real estate and real estate development lending activities.



22



---

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



SELECTED FIVE YEAR FINANCIAL DATA



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



|                                 |  |                          |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|-------------------------------- |  | ------------------------ | --------- | - | ---- | - | --------- | ---- |  | - | --------- | - |  | ---- | --------- | - |  | - | --------- | -
|                                 |  | Years Ended December 31, |          
|                                 |  | 2004                     |           |   | 2003 |   |           | 2002 |  |   | 2001      |   |  | 2000 |          
|INCOME STATEMENT:                |  |                          |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Interest Income                  |  | $                        | 53,926    |   |      | $ | 42,894    |      |  | $ | 32,920    |   |  | $    | 33,608    |   |  | $ | 27,035    |  
|Interest Expense                 |  |                          | 14,373    |   |      |   | 12,912    |      |  |   | 12,110    |   |  |      | 16,586    |   |  |   | 13,106    |  
|                                 |  |                          |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net Interest Income              |  |                          | 39,553    |   |      |   | 29,982    |      |  |   | 20,810    |   |  |      | 17,022    |   |  |   | 13,929    |  
|Provision for Loan Losses        |  |                          | 2,819     |   |      |   | 2,859     |      |  |   | 2,603     |   |  |      | 1,912     |   |  |   | 1,292     |  
|Other Income                     |  |                          | 14,833    |   |      |   | 17,303    |      |  |   | 13,146    |   |  |      | 11,147    |   |  |   | 5,354     |  
|Other Expense                    |  |                          | 32,308    |   |      |   | 30,841    |      |  |   | 23,022    |   |  |      | 19,397    |   |  |   | 12,655    |  
|                                 |  |                          |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Income Before Tax                |  |                          | 19,259    |   |      |   | 13,585    |      |  |   | 8,331     |   |  |      | 6,860     |   |  |   | 5,336     |  
|Income Taxes                     |  |                          | 6,940     |   |      |   | 4,938     |      |  |   | 3,065     |   |  |      | 2,518     |   |  |   | 1,857     |  
|                                 |  |                          |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Net Income                       |  | $                        | 12,319    |   |      | $ | 8,647     |      |  | $ | 5,266     |   |  | $    | 4,342     |   |  | $ | 3,479     |  
|                                 |  |                          |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|                                 |  |                          |           |   |     
|PER SHARE:                       |  |                          |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Earnings Per Common Share:       |  |                          |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Basic                            |  | $                        | 2.21      |   |      | $ | 1.98      |      |  | $ | 1.55      |   |  | $    | 1.29      |   |  | $ | 1.04      |  
|Diluted                          |  |                          | 2.15      |   |      |   | 1.92      |      |  |   | 1.52      |   |  |      | 1.29      |   |  |   | 1.03      |  
|Cash Dividends Paid              |  |                          | 0.44      |   |      |   | 0.40      |      |  |   | 0.35      |   |  |      | 0.31      |   |  |   | 0.28      |  
|Weighted Average Shares          |  |                          | 5,578,186 |   |      |   | 4,362,638 |      |  |   | 3,389,610 |   |  |      | 3,372,969 |   |  |   | 3,354,145 |  
|                                 |  |                          |           |   |     
|RATIOS:                          |  |                          |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Return on Average Assets         |  |                          | 1.27      | % |      |   | 1.16      | %    |  |   | 1.03      | % |  |      | 1.00      | % |  |   | 1.09      | %
|Return on Average Equity         |  |                          | 13.04     | % |      |   | 14.27     | %    |  |   | 14.11     | % |  |      | 13.05     | % |  |   | 12.01     | %
|Dividend Payout Ratio            |  |                          | 19.91     | % |      |   | 20.20     | %    |  |   | 22.58     | % |  |      | 24.03     | % |  |   | 26.92     | %
|Average Equity to Average Assets |  |                          | 9.72      | % |      |   | 8.12      | %    |  |   | 7.27      | % |  |      | 7.63      | % |  |   | 9.06      | %
|Net Interest Margin              |  |                          | 4.45      | % |      |   | 4.40      | %    |  |   | 4.38      | % |  |      | 4.24      | % |  |   | 4.78      | %
|                                 |  |                          |           |   |     
|BALANCE SHEET:                   |  |                          |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|(At end of period)               |  |                          |           |   |      |   |           |      |  |   |           |   |  |      |           |   |  |   |           |  
|Assets                           |  | $                        | 1,063,485 |   |      | $ | 911,268   |      |  | $ | 581,319   |   |  | $    | 504,762   |   |  | $ | 410,230   |  
|Investment Securities (a)        |  |                          | 111,412   |   |      |   | 102,856   |      |  |   | 53,905    |   |  |      | 51,041    |   |  |   | 51,498    |  
|Loans Held for Sale              |  |                          | 7,507     |   |      |   | 11,448    |      |  |   | 35,955    |   |  |      | 40,764    |   |  |   | 13,215    |  
|Loans, Net of Unearned Income    |  |                          | 845,765   |   |      |   | 697,682   |      |  |   | 438,446   |   |  |      | 378,542   |   |  |   | 305,264   |  
|Reserve for Loan Losses          |  |                          | 10,903    |   |      |   | 9,407     |      |  |   | 5,480     |   |  |      | 4,099     |   |  |   | 3,003     |  
|Deposits                         |  |                          | 842,558   |   |      |   | 743,301   |      |  |   | 440,595   |   |  |      | 375,065   |   |  |   | 311,577   |  
|Borrowed Funds                   |  |                          | 107,504   |   |      |   | 85,986    |      |  |   | 96,310    |   |  |      | 90,418    |   |  |   | 64,057    |  
|Stockholders Equity             |  |                          | 106,671   |   |      |   | 75,809    |      |  |   | 39,548    |   |  |      | 34,777    |   |  |   | 31,071    |  
|Shares Outstanding               |  |                          | 5,819,905 |   |      |   | 5,024,300 |      |  |   | 3,398,317 |   |  |      | 3,372,969 |   |  |   | 3,372,969 |  

---

|(a) | Investment Securities include FHLB Stock (in thousands): 2004 - $4,918; 2003 - $3,935; 2002 - $3,614; 2001 - $3,533; and 2000 - $2,464.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------



23



---

Critical Accounting Policies



The accounting principles we follow and our methods of applying these principles conform with accounting principles
generally accepted in the United States and with general practices within the banking industry. In connection with the application of those principles, we have made judgments and estimates which, in the case of the determination of our allowance for
loan losses (ALL), goodwill and stock-based compensation have been critical to the determination of our financial position and results of operations.



Allowance for Loan Losses (ALL)



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



We establish the allocated amount separately for three tiers:



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



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



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



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



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



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



In assessing the adequacy of the ALL, we also rely on an ongoing independent loan review process. We undertake this process both to ascertain whether
there are loans in the portfolio whose credit quality has weakened over time and to assist in our overall evaluation of the risk characteristics of the entire loan portfolio. Our loan review process includes the judgment of management, the input of
our independent loan reviewer, who is not an employee of ours, and reviews that may have been conducted by bank regulatory agencies as part of their usual examination process.



24



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Stock-Based Compensation



In accordance with SFAS No. 148, Accounting for Stock-Based Compensation, management has elected to expense the fair value of stock options. We utilize
the Black-Scholes model in determining the fair value of the stock options. The model takes into account certain estimated factors such as the expected life of the stock option and the volatility of the stock. The expected life of the stock option
is a function of the vesting period of the grant, the average length of time similar grants have remained outstanding, and the expected volatility of the underlying stock. Volatility is a measure of the amount by which a price has fluctuated or is
expected to fluctuate during a period.



Goodwill



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



Results of
Operations For The Years Ended December 31, 2004, 2003 and 2002



Our net income was $12.3 million, $8.6 million, and $5.3 million, for the years 2004, 2003, and 2002, respectively. Our 2004 earnings were up by 42% over 2003, and the 2003 earnings showed a 64% increase over 2002. Diluted earnings per
share (EPS) amounted to $2.15 in 2004, $1.92 in 2003 and $1.52 in 2002. The $2.15 EPS in 2004 was up $0.23 per share over 2003 results for an increase of 12.0%. The $1.92 EPS in 2003 was up $0.40 per share over 2002 results for an
increase of 26.3%. Our return on average equity (ROE) of 13.04% in 2004 is a 123 basis-point decline over our 2003 ROE of 14.27%. The decline in the ROE in 2004 was primarily attributable to our common equity offering of approximately
$19 million in May 2004. The ROE for 2003 of 14.27% was a 16 basis point improvement over the ROE of 14.11% for 2002.



25



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



RECAP OF
CHANGES IN INCOME STATEMENT & KEY RATIOS



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



|                               |  |                          |           |   |      |   |           |                     |  |   |                     |    |  |        |    |  |                     |           |   |                     |   |           |    |  |        |   
|------------------------------ |  | ------------------------ | --------- | - | ---- | - | --------- | ------------------- |  | - | ------------------- | -- |  | ------ | -- |  | ------------------- | --------- | - | ------------------- | - | --------- | -- |  | ------ | --
|                               |  | Years Ended December 31, |          
|                               |  | 2004                     |           |   | 2003 |   |           | $ Change2004 vs2003 |  |   | % Change2004 vs2003 |    |  | 2002   |    |  | $ Change2003 vs2002 |           |   | % Change2003 vs2002 |  
|INCOME STATEMENT:              |  |                          |           |   |      |   |           |                     |  |   |                     |    |  |        |    |  |                     |           |   |                     |   |           |    |  |        |   
|Interest Income                |  | $                        | 53,926    |   |      | $ | 42,894    |                     |  | $ | 11,032              |    |  | 25.72  | %  |  | $                   | 32,920    |   |                     | $ | 9,974     |    |  | 30.30  | % 
|Interest Expense               |  |                          | 14,373    |   |      |   | 12,912    |                     |  |   | 1,461               |    |  | 11.32  | %  |  |                     | 12,110    |   |                     |   | 802       |    |  | 6.62   | % 
|                               |  |                          |           |   |      |   |           |                     |  |   |                     |    |  |        |    |  |                     |           |   |                     |   |           |    |  |        |   
|Net Interest Income            |  |                          | 39,553    |   |      |   | 29,982    |                     |  |   | 9,571               |    |  | 31.92  | %  |  |                     | 20,810    |   |                     |   | 9,172     |    |  | 44.07  | % 
|Provision for Loan Losses      |  |                          | 2,819     |   |      |   | 2,859     |                     |  |   | (40                 | )  |  | (1.40  | )% |  |                     | 2,603     |   |                     |   | 256       |    |  | 9.83   | % 
|Other Income                   |  |                          | 14,833    |   |      |   | 17,303    |                     |  |   | (2,470              | )  |  | (14.27 | )% |  |                     | 13,146    |   |                     |   | 4,157     |    |  | 31.62  | % 
|Other Expense                  |  |                          | 32,308    |   |      |   | 30,841    |                     |  |   | 1,467               |    |  | 4.76   | %  |  |                     | 23,022    |   |                     |   | 7,819     |    |  | 33.96  | % 
|                               |  |                          |           |   |      |   |           |                     |  |   |                     |    |  |        |    |  |                     |           |   |                     |   |           |    |  |        |   
|Income Before Tax              |  |                          | 19,259    |   |      |   | 13,585    |                     |  |   | 5,674               |    |  | 41.77  | %  |  |                     | 8,331     |   |                     |   | 5,254     |    |  | 63.07  | % 
|Income Taxes                   |  |                          | 6,940     |   |      |   | 4,938     |                     |  |   | 2,002               |    |  | 40.54  | %  |  |                     | 3,065     |   |                     |   | 1,873     |    |  | 61.11  | % 
|                               |  |                          |           |   |      |   |           |                     |  |   |                     |    |  |        |    |  |                     |           |   |                     |   |           |    |  |        |   
|Net Income                     |  | $                        | 12,319    |   |      | $ | 8,647     |                     |  | $ | 3,672               |    |  | 42.47  | %  |  | $                   | 5,266     |   |                     | $ | 3,381     |    |  | 64.20  | % 
|                               |  |                          |           |   |      |   |           |                     |  |   |                     |    |  |        |    |  |                     |           |   |                     |   |           |    |  |        |   
|                               |  |                          |           |   |      |   |          
|PER SHARE:                     |  |                          |           |   |      |   |           |                     |  |   |                     |    |  |        |    |  |                     |           |   |                     |   |           |    |  |        |   
|Earnings Per Common Share:     |  |                          |           |   |      |   |           |                     |  |   |                     |    |  |        |    |  |                     |           |   |                     |   |           |    |  |        |   
|Basic                          |  | $                        | 2.21      |   |      | $ | 1.98      |                     |  | $ | 0.23                |    |  | 11.62  | %  |  | $                   | 1.55      |   |                     | $ | 0.43      |    |  | 27.74  | % 
|Diluted                        |  |                          | 2.15      |   |      |   | 1.92      |                     |  |   | 0.23                |    |  | 11.98  | %  |  |                     | 1.52      |   |                     |   | 0.40      |    |  | 26.32  | % 
|Cash Dividends Paid            |  |                          | 0.44      |   |      |   | 0.40      |                     |  |   | 0.04                |    |  | 10.00  | %  |  |                     | 0.35      |   |                     |   | 0.05      |    |  | 14.29  | % 
|Weighted Avg. Shares(Basic)    |  |                          | 5,578,186 |   |      |   | 4,362,638 |                     |  |   | 1,215,548           |    |  | 27.86  | %  |  |                     | 3,389,610 |   |                     |   | 973,028   |    |  | 28.71  | % 
|Weighted Avg. Shares (Diluted) |  |                          | 5,741,415 |   |      |   | 4,496,916 |                     |  |   | 1,244,499           |    |  | 27.67  | %  |  |                     | 3,456,246 |   |                     |   | 1,040,670 |    |  | 30.11  | % 
|                               |  |                          |           |   |      |   |           |                     |  |   |                     |    |  |        |    |  |                     |           |   |                     |   |           |    |  |        |   
|                               |  |                          |           |   |      |   |          
|RATIOS:                        |  |                          |           |   |      |   |           |                     |  |   |                     |    |  |        |    |  |                     |           |   |                     |   |           |    |  |        |   
|Return on Average Assets       |  |                          | 1.27      | % |      |   | 1.16      | %                   |  |   | 0.11                | %  |  | 9.48   | %  |  |                     | 1.03      | % |                     |   | 0.13      | %  |  | 12.62  | % 
|Return on Average Equity       |  |                          | 13.04     | % |      |   | 14.27     | %                   |  |   | (1.23               | )% |  | (8.62  | )% |  |                     | 14.11     | % |                     |   | 0.16      | %  |  | 1.13   | % 
|Dividend Payout Ratio          |  |                          | 19.91     | % |      |   | 20.20     | %                   |  |   | (0.29               | )% |  | (1.44  | )% |  |                     | 22.58     | % |                     |   | (2.38     | )% |  | (10.54 | )%
|Avg Equity to Avg Assets       |  |                          | 9.72      | % |      |   | 8.12      | %                   |  |   | 1.60                | %  |  | 19.70  | %  |  |                     | 7.27      | % |                     |   | 0.85      | %  |  | 11.69  | % 
|Net Interest Margin            |  |                          | 4.45      | % |      |   | 4.40      | %                   |  |   | 0.05                | %  |  | 1.14   | %  |  |                     | 4.38      | % |                     |   | 0.02      | %  |  | 0.46   | % 



Net Interest Income



Net interest income (the difference between the interest earned on assets
and the interest paid on deposits and liabilities) is the principal source of our earnings. Our average net interest rate margin, on a taxable equivalent basis, was 4.45% in 2004, 4.40% in 2003, and 4.38% in 2002. Net interest income before tax
equivalency adjustments in 2004 amounted to $39.6 million, up 32% from $30.0 million in 2003. The 2003 net interest income was up 44% from $20.8 million posted in 2002.



26



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



NET INTEREST INCOME



(In Thousands)



|                              |  |                         |        |      |   |        |  |   |       
|----------------------------- |  | ----------------------- | ------ | ---- | - | ------ |  | - | ------
|                              |  | Years Ended December 31
|                              |  | 2004                    |        | 2003 |   | 2002  
|Interest Income               |  | $                       | 53,926 |      | $ | 42,895 |  | $ | 32,920
|Taxable Equivalent Adjustment |  |                         | 366    |      |   | 302    |  |   | 211   
|                              |  |                         |        |      |   |        |  |   |       
|Interest Income (1)           |  |                         | 54,292 |      |   | 43,197 |  |   | 33,131
|Interest Expense              |  |                         | 14,373 |      |   | 12,912 |  |   | 12,110
|                              |  |                         |        |      |   |        |  |   |       
|Net Interest Income (1)       |  | $                       | 39,919 |      | $ | 30,285 |  | $ | 21,021
|                              |  |                         |        |      |   |        |  |   |       



|                             |  |                                    |   |  |      |   |  |      |  
|---------------------------- |  | ---------------------------------- | - |  | ---- | - |  | ---- | -
|                             |  | Years Ended December 31            |  
|                             |  | 2004                               |   |  | 2003 |   |  | 2002 |  
|                             |  | (As a % of Average Earning Assets) |  
|Interest Income (1)          |  | 6.06                               | % |  | 6.27 | % |  | 6.91 | %
|Interest Expense             |  | 1.61                               | % |  | 1.87 | % |  | 2.53 | %
|                             |  |                                    |   |  |      |   |  |      |  
|Net Interest Rate Margin (1) |  | 4.45                               | % |  | 4.40 | % |  | 4.38 | %
|                             |  |                                    |   |  |      |   |  |      |  

---

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



|(2) | Average Earning Assets used in ratios as follows (in thousands): 2004-$896,582; 2003-$689,109; and 2002-$479,541.
|--- | -----------------------------------------------------------------------------------------------------------------



2004 compared to 2003:



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



The increase in both the net interest rate spread
and net interest rate margin in 2004 was primarily reflective of a 27 basis-point decline in the average cost of interest-bearing liabilities, while the yield on earning assets declined 21 basis points. Although the average cost of interest-bearing
demand deposits and money market accounts was virtually unchanged, we were able to significantly reduce the costs of time deposits as longer-term, higher rate time deposits matured in a lower rate environment and we were able to reprice the renewals
at lower rates. New time deposit money raised in the lower rate environment also reduced the weighted average cost of the total time deposit portfolio. Meanwhile, the loan portfolio yield declined 25 basis points as higher-yielding fixed rate loans
repriced at lower rates and variable rate loans with interest-rate floors did not participate fully in rate increases in the second half of 2004.



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



27



---

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



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



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



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



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



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



2003
compared to 2002:



Net Interest
Income.    Net interest income on a tax-equivalent basis for the year ended December 31, 2003 increased $9.2 million to $30.2 million from $21.0 million during the year ended December 31, 2002. This increase was attributable
to the increase of $10.1 million in interest income during the year ended December 31, 2003 compared to the year ended December 31, 2002. The net interest rate spread increased 16 basis points from 3.96% for the year ended December 31, 2002 to 4.12%
for the year ended December 31, 2003, and the net interest rate margin increased 2 basis points from 4.38% to 4.40% during the same period.



The increase in both the net interest rate spread and net interest rate margin reflected an 80 basis-point decline in the average cost of interest-bearing
liabilities as a result of a shift in the composition of interest-bearing liabilities. The shift occurred between borrowings, local CDs or wholesale CDs depending on the interest rate at the time of funding needs. Additionally, as a result of the
strategy we used to price borrowings, borrowing costs declined during the year ended December 31, 2003 compared to the year ended December 31, 2002 due to the average cost of borrowed funds declining 28 basis points during the period. During the
year ended December 31, 2003 compared to the year ended December 31, 2002, the average balance of deposits, including non-interest-bearing checking accounts, increased a total of $189.6 million. Of this increase, $67.5 million was attributable to
ongoing deposit marketing promotions to bring in low cost deposits, and $122.1 million was attributable to our acquisition of Security Bank of Jones County.



28



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Excluding the impact of our acquisition of Security Bank of Jones County, net interest income for the
year ended December 31, 2003 increased $3.3 million. This increase was attributable to a decline of $1.4 million in interest expense that was offset by an increase of $1.9 million in interest income during the year ended December 31, 2003
compared to the year ended December 31, 2002. The net interest rate spread increased 11 basis points from 3.96% for the year ended December 31, 2002 to 4.07% for the year ended December 31, 2003.



Interest Income.    Interest income on a
tax-equivalent basis was $43.2 million during the year ended December 31, 2003, an increase of $10.1 million from $33.1 million during the year ended December 31, 2002. Interest income on loans and investment securities increased $9.4 million and
$700,000, respectively, during the year ended December 31, 2003 compared to the year ended December 31, 2002.



The increase in interest income on loans during the year ended December 31, 2003 compared to the year ended December 31, 2002 was primarily attributable
to an increase in average balance of $174.8 million, of which $86.4 million was attributable to our acquisition of Security Bank of Jones County. Excluding the impact of the additional loans from Security Bank of Jones County, the existing loan
portfolio declined 66 basis points in average yield during the year ended December 31, 2003 as compared to the year ended December 31, 2002.



Interest income on investment securities increased $700,000 as a result of an increase of $34.0 million in average balance during the year ended December
31, 2003 compared to the year ended December 31, 2002, which was partially offset by a reduction of 155 basis points in the average yield on these securities during the same period.



Excluding the impact of our acquisition of Security Bank of Jones County, the investment securities decreased $5.8 million
in average balance during 2003. This decline was due to our general policy to emphasize growth in loans as its primary interest-earning asset, and de-emphasize its investment portfolios, while loan origination demand is strong. The decline in
average balance also reflects maturity and call activity experienced on these securities as a result of the lower interest rate environment during 2003. The decline in average yield reflects the decline in interest rates during 2003, as higher
coupon securities were called from the portfolio.



Overall, the
yield on interest-earning assets declined 64 basis points from 6.91% during the year ended December 31, 2002 to 6.27% during the year ended December 31, 2003.



Interest Expense.    Interest expense increased $0.8 million, to $12.9 million, during the year ended December 31,
2003, from $12.1 million during the year ended December 31, 2002. The increase in interest expense resulted primarily from an increase of $338,000 in interest expense on deposits. The average cost of interest-bearing deposits, the largest component
of interest expense, declined by 91 basis points and the average balance increased by $171.7 million, resulting in an increase in interest expense of $464,000 during the year ended December 31, 2003 compared to the year ended December 31, 2002.
Excluding the impact of the interest-bearing deposits resulting from our acquisition of Security Bank of Jones County, average balances increased $59.4 million and average yield declined 89 basis points resulting in a decrease of interest expense of
$1.8 million for the year ended December 31, 2003 compared to the year ended December 31, 2002. Of the $59.4 million increase in average balances, interest bearing accounts increased $10.8 million, money market accounts increased $11.8
million and savings accounts increased $1.6 million, all as a result of our increased marketing efforts to bring in low cost deposits. Brokered CDs increased $18.2 million, wholesale CDs increased $84.6 million, and traditional CDs decreased $68.5
million, which resulted from our shift to low cost, out of market deposits.



The increase in interest expense also resulted from a $500,000 increase in borrowed funds, which further resulted from increases of $19.0 million in the average balance of borrowed funds and 24 basis points in the
average cost of borrowed funds during the year ended December 31, 2003 compared to the year ended December 31, 2002. The increase in borrowed funds consists primarily of $18.6 million in subordinated debentures relating to our offering of trust
preferred securities.



29



---

Interest Rates and Interest Differential



The following tables set forth our average balance sheets, interest and yield information on a taxable equivalent basis for
the years ended December 31, 2004, 2003, and 2002.



AVERAGE BALANCE SHEETS,
INTEREST AND YIELDS



(Tax equivalent basis, in thousands)



|                                                       |  |                             |         |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|------------------------------------------------------ |  | --------------------------- | ------- | -------- | --------------------------- | ---------- | ---- | --------------------------- | -------------- | - | -------- |  | ---------- |  | ---- | -------------- |  | -------- | ------- | ---------- | ------ |  | ---- | -
|                                                       |  | Year EndedDecember 31, 2004 |         |          | Year EndedDecember 31, 2003 |            |      | Year EndedDecember 31, 2002 |               
|                                                       |  | AverageBalance              |         | Interest |                             | Yield/Rate |      |                             | AverageBalance |   | Interest |  | Yield/Rate |  |      | AverageBalance |  | Interest |         | Yield/Rate |       
|ASSETS:                                                |  |                             |         |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Loans, Net of Unearned Income: (a) (b)                 |  |                             |         |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Taxable                                                |  | $                           | 775,274 |          | 49,303                      |            | 6.36 | %                           |                | $ | 574,706  |  | 38,328     |  | 6.67 | %              |  | $        | 408,627 |            | 29,282 |  | 7.17 | %
|Tax Exempt (c)                                         |  |                             | 0       |          | 0                           |            | 0    |                             |                |   | 0        |  | 0          |  | 0    |                |  |          | 0       |            | 0      |  | 0    |  
|Loans Held for Sale                                    |  |                             | 6,955   |          | 419                         |            | 6.02 |                             |                |   | 29,518   |  | 1,611      |  | 5.46 |                |  |          | 20,857  |            | 1,261  |  | 6.04 |  
|                                                       |  |                             |         |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Net Loans                                              |  |                             | 782,229 |          | 49,722                      |            | 6.36 |                             |                |   | 604,224  |  | 39,939     |  | 6.61 |                |  |          | 429,484 |            | 30,543 |  | 7.11 |  
|                                                       |  |                             |         |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Investment Securities: (d)                             |  |                             |         |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Taxable                                                |  |                             | 88,247  |          | 3,352                       |            | 3.80 |                             |                |   | 65,001   |  | 2,296      |  | 3.53 |                |  |          | 35,605  |            | 1,867  |  | 5.24 |  
|Tax Exempt (c)                                         |  |                             | 16,206  |          | 1,077                       |            | 6.65 |                             |                |   | 13,341   |  | 888        |  | 6.66 |                |  |          | 8,703   |            | 620    |  | 7.13 |  
|                                                       |  |                             |         |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Total Investment Securities                            |  |                             | 104,453 |          | 4,429                       |            | 4.24 |                             |                |   | 78,342   |  | 3,184      |  | 4.06 |                |  |          | 44,308  |            | 2,487  |  | 5.61 |  
|                                                       |  |                             |         |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Interest Earning Deposits                              |  |                             | 1,539   |          | 25                          |            | 1.62 |                             |                |   | 1,115    |  | 10         |  | 0.90 |                |  |          | 630     |            | 15     |  | 2.39 |  
|                                                       |  |                             |         |          |                             |            |      |                             |               
|Federal Funds Sold                                     |  |                             | 8,361   |          | 115                         |            | 1.38 |                             |                |   | 5,428    |  | 64         |  | 1.18 |                |  |          | 5,119   |            | 86     |  | 1.68 |  
|                                                       |  |                             |         |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Total Interest Earning Assets                          |  |                             | 896,582 |          | 54,291                      |            | 6.06 |                             |                |   | 689,109  |  | 43,197     |  | 6.27 |                |  |          | 479,541 |            | 33,131 |  | 6.91 |  
|                                                       |  |                             |         |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Non-Earning Assets                                     |  |                             | 75,509  |          |                             |            |      |                             |                |   | 57,521   |  |            |  |      |                |  |          | 33,847  |            |        |  |      |  
|                                                       |  |                             |         |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|                                                       |  |                             |         |          |                             |            |      |                             |               
|Total Assets                                           |  | $                           | 972,091 |          |                             |            |      |                             |                | $ | 746,630  |  |            |  |      |                |  | $        | 513,388 |            |        |  |      |  
|                                                       |  |                             |         |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|                                                       |  |                             |        
|TABLE 3 - Continued                                    |  |                             |         |          |                             |            |      |                             |                |   |          | 
|                                                       |  | Year EndedDecember 31, 2004 |         |          | Year EndedDecember 31, 2003 |            |      | Year EndedDecember 31, 2002 |               
|                                                       |  | AverageBalance              |         | Interest |                             | Yield/Rate |      |                             | AverageBalance |   | Interest |  | Yield/Rate |  |      | AverageBalance |  | Interest |         | Yield/Rate |       
|LIABILITIES AND STOCKHOLDERS EQUITY:                  |  |                             |         |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Interest Bearing Demand Deposits                       |  | $                           | 81,385  |          | 383                         |            | 0.47 | %                           |                | $ | 58,498   |  | 263        |  | 0.45 | %              |  | $        | 37,606  |            | 252    |  | 0.67 | %
|Money Market Accounts                                  |  |                             | 85,886  |          | 865                         |            | 1.01 |                             |                |   | 71,802   |  | 743        |  | 1.03 |                |  |          | 43,270  |            | 676    |  | 1.56 |  
|Savings Deposits                                       |  |                             | 19,299  |          | 96                          |            | 0.50 |                             |                |   | 14,166   |  | 88         |  | 0.62 |                |  |          | 8,990   |            | 67     |  | 0.75 |  
|Time Deposits of $100,000 or More                      |  |                             | 195,300 |          | 3,679                       |            | 1.88 |                             |                |   | 117,634  |  | 2,683      |  | 2.28 |                |  |          | 83,860  |            | 3,154  |  | 3.76 |  
|Other Time Deposits                                    |  |                             | 293,039 |          | 6,679                       |            | 2.28 |                             |                |   | 243,554  |  | 6,527      |  | 2.68 |                |  |          | 160,267 |            | 5,691  |  | 3.55 |  
|                                                       |  |                             |         |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Total Interest Bearing Deposits                        |  |                             | 674,909 |          | 11,702                      |            | 1.73 |                             |                |   | 505,654  |  | 10,304     |  | 2.04 |                |  |          | 333,993 |            | 9,840  |  | 2.95 |  
|                                                       |  |                             |         |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Federal Funds Purchased and Repurchase Agreements Sold |  |                             | 10,871  |          | 145                         |            | 1.33 |                             |                |   | 10,272   |  | 105        |  | 1.02 |                |  |          | 10,724  |            | 161    |  | 1.5  |  
|Other Borrowed Money & FHLB                            |  |                             | 80,003  |          | 2,525                       |            | 3.16 |                             |                |   | 84,290   |  | 2,499      |  | 2.96 |                |  |          | 64,434  |            | 2,102  |  | 3.24 |  
|Demand Note U.S. Treasury                              |  |                             | 21      |          | 0                           |            | 0.00 |                             |                |   | 553      |  | 4          |  | 0.72 |                |  |          | 1,005   |            | 7      |  | 0.72 |  
|                                                       |  |                             |         |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Total Borrowed Funds                                   |  |                             | 90,895  |          | 2,670                       |            | 2.94 |                             |                |   | 95,115   |  | 2,608      |  | 2.74 |                |  |          | 76,163  |            | 2,270  |  | 2.98 |  
|                                                       |  |                             |         |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Total Interest Bearing Funding                         |  |                             | 765,804 |          | 14,372                      |            | 1.88 |                             |                |   | 600,769  |  | 12,912     |  | 2.15 |                |  |          | 410,156 |            | 12,110 |  | 2.95 |  
|                                                       |  |                             |         |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|                                                       |  |                             |         |          |                             |            |      |                             |               
|Non-Int. Bearing Demand Deposits                       |  |                             | 105,695 |          |                             |            |      |                             |                |   | 80,472   |  |            |  |      |                |  |          | 62,575  |            |        |  |      |  
|Other Liabilities                                      |  |                             | 6,139   |          |                             |            |      |                             |                |   | 4,808    |  |            |  |      |                |  |          | 3,339   |            |        |  |      |  
|Stockholders Equity                                   |  |                             | 94,453  |          |                             |            |      |                             |                |   | 60,581   |  |            |  |      |                |  |          | 37,318  |            |        |  |      |  
|                                                       |  |                             |         |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Total Liabilities & Stockholders Equity               |  | $                           | 972,091 |          |                             |            |      |                             |                | $ | 746,630  |  |            |  |      |                |  | $        | 513,388 |            |        |  |      |  
|                                                       |  |                             |         |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Interest Rate Spread                                   |  |                             |         |          |                             |            | 4.18 | %                           |                |   |          |  |            |  | 4.12 | %              |  |          |         |            |        |  | 3.96 | %
|                                                       |  |                             |         |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Net Interest Income                                    |  |                             |         |          | 39,919                      |            |      |                             |                |   |          |  | 30,285     |  |      |                |  |          |         |            | 21,021 |  |      |  
|                                                       |  |                             |         |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  
|Net Interest Margin                                    |  |                             |         |          |                             |            | 4.45 | %                           |                |   |          |  |            |  | 4.40 | %              |  |          |         |            |        |  | 4.38 | %
|                                                       |  |                             |         |          |                             |            |      |                             |                |   |          |  |            |  |      |                |  |          |         |            |        |  |      |  



30



---

---

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



|(a) | Interest income includes loan fees as follows (in thousands): 2004-$3,287; 2003-$2,586; and 2002-$1,506.
|--- | --------------------------------------------------------------------------------------------------------



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



|(c) | Reflects taxable equivalent adjustments using the statutory income tax rate of 34% in adjusting interest on tax exempt investment securities to a fully taxable basis. The taxable
equivalent adjustment included above amounts to $366 for 2004; $302 for 2003; and $211 for 2002. (in thousands)
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



The following table provides a detailed analysis of the changes in interest income and interest expense due to changes in rate and volume for the year
2004 compared to the year 2003 and for the year 2003 compared to the year 2002.



RATE / VOLUME ANALYSIS



(In thousands)



|                                                       |  |                                        |        |   |                                        |   |        |           |  |   |        |   |  |      |        |   |           |   |        |   |  |   |        |  
|------------------------------------------------------ |  | -------------------------------------- | ------ | - | -------------------------------------- | - | ------ | --------- |  | - | ------ | - |  | ---- | ------ | - | --------- | - | ------ | - |  | - | ------ | -
|                                                       |  | For the Years Ended December 31        |       
|                                                       |  | 2004 Compared to 2003Change Due To (a) |        |   | 2003 Compared to 2002Change Due To (a) |  
|                                                       |  | Volume                                 |        |   | Rate                                   |   |        | NetChange |  |   | Volume |   |  | Rate |        |   | NetChange |  
|INTEREST EARNED ON:                                    |  |                                        |        |   |                                        |   |        |           |  |   |        |   |  |      |        |   |           |   |        |   |  |   |        |  
|Taxable Loans, Net                                     |  | $                                      | 13,376 |   |                                        | $ | (2,401 | )         |  | $ | 10,975 |   |  | $    | 11,908 |   |           | $ | (2,862 | ) |  | $ | 9,046  |  
|Tax Exempt Loans (b)                                   |  |                                        | 0      |   |                                        |   | 0      |           |  |   | 0      |   |  |      | 0      |   |           |   | 0      |   |  |   | 0      |  
|Loans Held for Sale                                    |  |                                        | (1,231 | ) |                                        |   | 39     |           |  |   | (1,192 | ) |  |      | 523    |   |           |   | (173   | ) |  |   | 350    |  
|Taxable Investment Securities                          |  |                                        | 821    |   |                                        |   | 235    |           |  |   | 1,056  |   |  |      | 1,540  |   |           |   | (1,111 | ) |  |   | 429    |  
|Tax exempt Investment Securities (b)                   |  |                                        | 191    |   |                                        |   | (2     | )         |  |   | 189    |   |  |      | 331    |   |           |   | (63    | ) |  |   | 268    |  
|Interest Earning Deposits                              |  |                                        | 4      |   |                                        |   | 11     |           |  |   | 15     |   |  |      | 12     |   |           |   | (17    | ) |  |   | (5     | )
|Federal Funds Sold                                     |  |                                        | 35     |   |                                        |   | 16     |           |  |   | 51     |   |  |      | 5      |   |           |   | (27    | ) |  |   | (22    | )
|                                                       |  |                                        |        |   |                                        |   |        |           |  |   |        |   |  |      |        |   |           |   |        |   |  |   |        |  
|Total Interest Income                                  |  |                                        | 13,196 |   |                                        |   | (2,102 | )         |  |   | 11,094 |   |  |      | 14,319 |   |           |   | (4,253 | ) |  |   | 10,066 |  
|                                                       |  |                                        |        |   |                                        |   |        |           |  |   |        |   |  |      |        |   |           |   |        |   |  |   |        |  
|                                                       |  |                                        |        |   |                                        |  
|INTEREST PAID ON:                                      |  |                                        |        |   |                                        |   |        |           |  |   |        |   |  |      |        |   |           |   |        |   |  |   |        |  
|Interest Bearing Demand Deposits                       |  |                                        | 103    |   |                                        |   | 17     |           |  |   | 120    |   |  |      | 140    |   |           |   | (129   | ) |  |   | 11     |  
|Money Market Accounts                                  |  |                                        | 146    |   |                                        |   | (24    | )         |  |   | 122    |   |  |      | 445    |   |           |   | (378   | ) |  |   | 67     |  
|Savings Deposits                                       |  |                                        | 32     |   |                                        |   | (24    | )         |  |   | 8      |   |  |      | 39     |   |           |   | (18    | ) |  |   | 21     |  
|Time Deposits of $100,000 or More                      |  |                                        | 1,771  |   |                                        |   | (775   | )         |  |   | 996    |   |  |      | 1,270  |   |           |   | (1,741 | ) |  |   | (471   | )
|Other Time Deposits                                    |  |                                        | 1,326  |   |                                        |   | (1,174 | )         |  |   | 152    |   |  |      | 2,957  |   |           |   | (2,121 | ) |  |   | 836    |  
|Federal Funds Purchased and Repurchase Agreements Sold |  |                                        | 6      |   |                                        |   | 34     |           |  |   | 40     |   |  |      | (7     | ) |           |   | (49    | ) |  |   | (56    | )
|FHLB & Other Borrowings                                |  |                                        | (127   | ) |                                        |   | 153    |           |  |   | 26     |   |  |      | 643    |   |           |   | (246   | ) |  |   | 397    |  
|Demand Note U.S. Treasury                              |  |                                        | (4     | ) |                                        |   | 0      |           |  |   | (4     | ) |  |      | (3     | ) |           |   | 0      |   |  |   | (3     | )
|                                                       |  |                                        |        |   |                                        |   |        |           |  |   |        |   |  |      |        |   |           |   |        |   |  |   |        |  
|                                                       |  |                                        |        |   |                                        |  
|Total Interest Expense                                 |  |                                        | 3,253  |   |                                        |   | (1,793 | )         |  |   | 1,460  |   |  |      | 5,484  |   |           |   | (4,682 | ) |  |   | 802    |  
|                                                       |  |                                        |        |   |                                        |   |        |           |  |   |        |   |  |      |        |   |           |   |        |   |  |   |        |  
|                                                       |  |                                        |        |   |                                        |  
|Net Interest Income                                    |  | $                                      | 9,943  |   |                                        | $ | (309   | )         |  | $ | 9,634  |   |  | $    | 8,835  |   |           | $ | 429    |   |  | $ | 9,264  |  
|                                                       |  |                                        |        |   |                                        |   |        |           |  |   |        |   |  |      |        |   |           |   |        |   |  |   |        |  

---

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



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



31



---

Provision for Loan Losses



The general nature of lending results in periodic charge-offs, in spite of our continuous loan review process, credit
standards, and internal controls. During 2004 and 2003, we factored into our provision for loan losses a subjective assessment of the economic downturns effect on the cash flow of some of our borrowers. We expensed $2.82 million in 2004, $2.86
in 2003, and $2.60 million in 2002 for loan loss provisions. The slight decrease in 2004s provision for loan losses was primarily due to a low level of net charge-offs as compared to the Companys five year average of net charge-offs. Our
net charge-offs as a percentage of average loans outstanding were 0.17% in 2004, 0.32% in 2003, and 0.28% in 2002. 2004s level of net charge-offs to average loans of 0.17% was low compared to the five-year average of 0.25%. Amounts of net
loans charged off during recent years are reasonable by industry standards and are below peer group institutions of similar asset size. We incurred net charge-offs of $1.32 million in 2004, compared to $1.82 million during 2003, and $1.22
million during 2002. The reserve for loan losses on December 31, 2004 stood at 1.28% of outstanding net loans and loans held for sale, down from 1.33% at December 31, 2003 and up from 1.16% at December 31, 2002.



Non-interest Income



Non-interest income of $14.8 million in 2004 represented a 14.5% decrease, or $2.5 million from $17.3 million recorded
in 2003. Service charges on deposit accounts, which constitute 43.5% of non-interest income, are the largest component of non-interest income, generating $6.5 million for 2004, up from $5.0 million in 2003. Service charges on deposit accounts, which
are primarily fees generated from our courtesy overdraft protection product, accounted for $5.5 million, or 85.5% of all service charges. The courtesy overdraft product completed its third full year in 2004, but its growth was enhanced by the
success of the high-performance checking program. The second largest component of non-interest income is mortgage loan fees, which constituted 33.2% of non-interest income during 2004. During 2004, mortgage loans fees decreased $4.3 million from
$9.2 million to $4.9 million. The decrease in mortgage loan fees is attributable to the slow down in the refinance market due to increasing interest rates. This decline was offset by commissions and fees generated by Fairfield Financials
interim lending division. Commissions and fees increased 32.3% to $2.2 million over amounts reported in 2003.



Non-interest Expense



Non-interest expense was $32.3 million for the year ended 2004, up 4.8% or $1.5 million, from $30.8 million in 2003. Salaries and benefits, the largest component of non-interest expense constituting 57.7% of non-interest expense, increased
$0.5 million to $18.6 million from $18.1 million in 2003. The overall increase is due to normal salary and benefit increases from merit increases and from new hires. This increase was offset by a decline in mortgage commissions paid in 2004 of $2.3
million, due to a lower level of associated mortgage revenues from the less favorable refinance market seen in 2004.



All other operating overhead increased by $1.1 million or 13.3%. The primary increases were due to increases in directors fees and audit and accounting
fees primarily attributable to compliance with Sarbanes-Oxley Section 404.



Income Tax Expense



Our consolidated federal
and state income tax expense increased to $6.9 million in 2004, up from $4.9 in 2003 and $3.1 million in 2001. The effective tax rate was 36.0%, 36.4%, and 36.8% in 2004, 2003 and 2002, respectively. Our effective tax rate has historically been at
or just below the maximum corporate federal and state income tax rates due to the relatively small percentage of tax-free investments carried on the balance sheet. See Note 7 to our Consolidated Financial Statements for a detailed analysis of income
taxes. With the addition of



32



---

Security Bank of Jones County in 2003, which had a lower effective tax rate, the blended effect reduced our overall effective tax rate.



Quarterly Results of Operations



The following table provides income statement recaps and earnings per share
data for each of the four quarters for the years ended December 31, 2004 and 2003.



QUARTERLY RESULTS OF OPERATIONS



|                            |  |                                         |        |          |   |         |  |         |        |            |   |        |  |   |       
|--------------------------- |  | --------------------------------------- | ------ | -------- | - | ------- |  | ------- | ------ | ---------- | - | ------ |  | - | ------
|                            |  | Three Months Ended                      |        |         
|                            |  | Dec. 31                                 |        | Sept. 30 |   | June 30 |  | Mar. 31 |        | Total Year
|                            |  | ($ in thousands, except per share data) |        |         
|For The Year 2004           |  |                                         |        |          |   |         |  |         |        |            |   |        |  |   |       
|Interest Income             |  | $                                       | 14,717 |          | $ | 13,824  |  | $       | 13,057 |            | $ | 12,328 |  | $ | 53,926
|Interest Expense            |  |                                         | 4,135  |          |   | 3,669   |  |         | 3,294  |            |   | 3,275  |  |   | 14,373
|                            |  |                                         |        |          |   |         |  |         |        |            |   |        |  |   |       
|Net Interest Income         |  |                                         | 10,582 |          |   | 10,155  |  |         | 9,763  |            |   | 9,053  |  |   | 39,553
|Provision For Loan Losses   |  |                                         | 852    |          |   | 529     |  |         | 718    |            |   | 720    |  |   | 2,819 
|Securities Gains            |  |                                         | 3      |          |   |        |  |         |       |            |   | 10     |  |   | 13    
|Noninterest Income          |  |                                         | 4,146  |          |   | 3,688   |  |         | 3,640  |            |   | 3,346  |  |   | 14,820
|Noninterest Expense         |  |                                         | 8,611  |          |   | 8,206   |  |         | 7,946  |            |   | 7,545  |  |   | 32,308
|                            |  |                                         |        |          |   |         |  |         |        |            |   |        |  |   |       
|Income Before Income Taxes  |  |                                         | 5,268  |          |   | 5,108   |  |         | 4,739  |            |   | 4,144  |  |   | 19,259
|Provision For Income Taxes  |  |                                         | 1,851  |          |   | 1,898   |  |         | 1,729  |            |   | 1,462  |  |   | 6,940 
|                            |  |                                         |        |          |   |         |  |         |        |            |   |        |  |   |       
|Net Income                  |  | $                                       | 3,417  |          | $ | 3,210   |  | $       | 3,010  |            | $ | 2,682  |  | $ | 12,319
|                            |  |                                         |        |          |   |         |  |         |        |            |   |        |  |   |       
|                            |  |                                         |        |          |  
|Net Income per Common Share |  |                                         |        |          |   |         |  |         |        |            |   |        |  |   |       
|Basic                       |  | $                                       | 0.59   |          | $ | 0.55    |  | $       | 0.54   |            | $ | 0.53   |  | $ | 2.21  
|Diluted                     |  |                                         | 0.57   |          |   | 0.54    |  |         | 0.53   |            |   | 0.51   |  |   | 2.15  



33



---

TABLE 20 Continued



QUARTERLY RESULTS OF OPERATIONS



|                            |  |                                         |        |          |   |         |  |         |       |            |   |       |  |   |       
|--------------------------- |  | --------------------------------------- | ------ | -------- | - | ------- |  | ------- | ----- | ---------- | - | ----- |  | - | ------
|                            |  | Three Months Ended                      |        |         
|                            |  | Dec. 31                                 |        | Sept. 30 |   | June 30 |  | Mar. 31 |       | Total Year
|                            |  | ($ in thousands, except per share data) |        |         
|For The Year 2003           |  |                                         |        |          |   |         |  |         |       |            |   |       |  |   |       
|Interest Income             |  | $                                       | 12,456 |          | $ | 12,318  |  | $       | 9,788 |            | $ | 8,332 |  | $ | 42,894
|Interest Expense            |  |                                         | 3,360  |          |   | 3,616   |  |         | 3,146 |            |   | 2,790 |  |   | 12,912
|                            |  |                                         |        |          |   |         |  |         |       |            |   |       |  |   |       
|Net Interest Income         |  |                                         | 9,096  |          |   | 8,702   |  |         | 6,642 |            |   | 5,542 |  |   | 29,982
|Provision For Loan Losses   |  |                                         | 730    |          |   | 783     |  |         | 857   |            |   | 489   |  |   | 2,859 
|Securities Gains            |  |                                         |       |          |   | 21      |  |         | 34    |            |   |      |  |   | 55    
|Noninterest Income          |  |                                         | 4,237  |          |   | 4,401   |  |         | 4,664 |            |   | 3,946 |  |   | 17,248
|Noninterest Expense         |  |                                         | 8,626  |          |   | 8,281   |  |         | 7,390 |            |   | 6,544 |  |   | 30,841
|                            |  |                                         |        |          |   |         |  |         |       |            |   |       |  |   |       
|Income Before Income Taxes  |  |                                         | 3,977  |          |   | 4,060   |  |         | 3,093 |            |   | 2,455 |  |   | 13,585
|Provision For Income Taxes  |  |                                         | 1,436  |          |   | 1,411   |  |         | 1,204 |            |   | 887   |  |   | 4,938 
|                            |  |                                         |        |          |   |         |  |         |       |            |   |       |  |   |       
|Net Income                  |  | $                                       | 2,541  |          | $ | 2,649   |  | $       | 1,889 |            | $ | 1,568 |  | $ | 8,647 
|                            |  |                                         |        |          |   |         |  |         |       |            |   |       |  |   |       
|                            |  |                                         |        |          |  
|Net Income per Common Share |  |                                         |        |          |   |         |  |         |       |            |   |       |  |   |       
|Basic                       |  | $                                       | 0.51   |          | $ | 0.53    |  | $       | 0.47  |            | $ | 0.47  |  | $ | 1.98  
|Diluted                     |  |                                         | 0.49   |          |   | 0.51    |  |         | 0.46  |            |   | 0.46  |  |   | 1.92  



Distribution of Assets, Liabilities
& Shareholders Equity



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



AVERAGE BALANCE SHEETS



(Amounts in 1000s)



|                              |  |                         |         |   |   |        |    |      |   |         |   |  |        |      |  |   |         |   |  |        |   
|----------------------------- |  | ----------------------- | ------- | - | - | ------ | -- | ---- | - | ------- | - |  | ------ | ---- |  | - | ------- | - |  | ------ | --
|                              |  | Years Ended December 31 |        
|                              |  | 2004                    |         |   | % |        |    | 2003 |   |         | % |  |        | 2002 |  |   | %       |  
|ASSETS:                       |  |                         |         |   |   |        |    |      |   |         |   |  |        |      |  |   |         |   |  |        |   
|Cash & Due From Banks         |  | $                       | 26,089  |   |   | 2.68   | %  |      | $ | 22,255  |   |  | 2.98   | %    |  | $ | 16,886  |   |  | 3.30   | % 
|Time Deposits-Other Banks     |  |                         | 1,539   |   |   | 0.16   | %  |      |   | 1,115   |   |  | 0.15   | %    |  |   | 630     |   |  | 0.10   | % 
|Federal Funds Sold            |  |                         | 8,361   |   |   | 0.86   | %  |      |   | 5,428   |   |  | 0.73   | %    |  |   | 5,119   |   |  | 1.00   | % 
|Taxable Investment Securities |  |                         | 88,247  |   |   | 9.08   | %  |      |   | 65,001  |   |  | 8.70   | %    |  |   | 35,605  |   |  | 6.90   | % 
|Non-Taxable Inv. Securities   |  |                         | 16,206  |   |   | 1.67   | %  |      |   | 13,341  |   |  | 1.79   | %    |  |   | 8,703   |   |  | 1.70   | % 
|Loans, Net of Interest        |  |                         | 775,274 |   |   | 79.75  | %  |      |   | 574,706 |   |  | 76.97  | %    |  |   | 408,627 |   |  | 79.60  | % 
|Loans Held for Sale           |  |                         | 6,955   |   |   | 0.72   | %  |      |   | 29,518  |   |  | 3.95   | %    |  |   | 20,857  |   |  | 4.10   | % 
|Allowance for Loan Losses     |  |                         | (9,970  | ) |   | (1.03  | )% |      |   | (7,489  | ) |  | (1.00  | )%   |  |   | (4,681  | ) |  | (0.90  | )%
|Bank Premises & Equipment     |  |                         | 18,182  |   |   | 1.87   | %  |      |   | 15,432  |   |  | 2.07   | %    |  |   | 12,659  |   |  | 2.50   | % 
|Other Real Estate             |  |                         | 2,330   |   |   | 0.24   | %  |      |   | 2,982   |   |  | 0.40   | %    |  |   | 2,507   |   |  | 0.50   | % 
|Intangible Assets             |  |                         | 28,643  |   |   | 2.95   | %  |      |   | 13,943  |   |  | 1.87   | %    |  |   | 1,693   |   |  | 0.30   | % 
|Other Assets                  |  |                         | 10,235  |   |   | 1.05   | %  |      |   | 10,398  |   |  | 1.39   | %    |  |   | 4,783   |   |  | 0.90   | % 
|                              |  |                         |         |   |   |        |    |      |   |         |   |  |        |      |  |   |         |   |  |        |   
|TOTAL ASSETS                  |  | $                       | 972,091 |   |   | 100.00 | %  |      | $ | 746,630 |   |  | 100.00 | %    |  | $ | 513,388 |   |  | 100.00 | % 
|                              |  |                         |         |   |   |        |    |      |   |         |   |  |        |      |  |   |         |   |  |        |   



34



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|                                                       |  |                         |         |   |        |   |      |   |         |  |        |      |  |   |         |  |        |  
|------------------------------------------------------ |  | ----------------------- | ------- | - | ------ | - | ---- | - | ------- |  | ------ | ---- |  | - | ------- |  | ------ | -
|                                                       |  | Years Ended December 31 |        
|                                                       |  | 2004                    |         | % |        |   | 2003 |   | %       |  |        | 2002 |  | % |        
|LIABILITIES & STOCKHOLDERS EQUITY:                    |  |                         |         |   |        |   |      |   |         |  |        |      |  |   |         |  |        |  
|Deposits:                                              |  |                         |         |   |        |   |      |   |         |  |        |      |  |   |         |  |        |  
|Non-Interest Bearing                                   |  | $                       | 105,695 |   | 10.87  | % |      | $ | 80,472  |  | 10.78  | %    |  | $ | 62,575  |  | 12.19  | %
|Interest Bearing                                       |  |                         | 674,909 |   | 69.43  | % |      |   | 505,654 |  | 67.73  | %    |  |   | 333,993 |  | 65.05  | %
|                                                       |  |                         |         |   |        |  
|Federal Funds Purchased and Repurchase Agreements Sold |  |                         | 10,871  |   | 1.12   | % |      |   | 10,272  |  | 1.38   | %    |  |   | 10,724  |  | 2.09   | %
|FHLB & Other Borrowings                                |  |                         | 80,003  |   | 8.23   | % |      |   | 84,290  |  | 11.29  | %    |  |   | 64,434  |  | 12.55  | %
|Demand Notes-US Treasury                               |  |                         | 21      |   | 0.00   | % |      |   | 553     |  | 0.07   | %    |  |   | 1,005   |  | 0.20   | %
|Other Liabilities                                      |  |                         | 6,139   |   | 0.63   | % |      |   | 4,808   |  | 0.64   | %    |  |   | 3,339   |  | 0.65   | %
|                                                       |  |                         |         |   |        |   |      |   |         |  |        |      |  |   |         |  |        |  
|Total Liabilities                                      |  |                         | 877,638 |   | 90.28  | % |      |   | 686,049 |  | 91.89  | %    |  |   | 476,070 |  | 92.73  | %
|                                                       |  |                         |         |   |        |   |      |   |         |  |        |      |  |   |         |  |        |  
|                                                       |  |                         |         |   |        |  
|Common Stock                                           |  |                         | 5,280   |   | 0.54   | % |      |   | 4,359   |  | 0.58   | %    |  |   | 3,390   |  | 0.66   | %
|Surplus                                                |  |                         | 55,491  |   | 5.71   | % |      |   | 30,494  |  | 4.08   | %    |  |   | 13,196  |  | 2.57   | %
|Undivided Profits                                      |  |                         | 33,682  |   | 3.46   | % |      |   | 25,728  |  | 3.45   | %    |  |   | 20,732  |  | 4.04   | %
|                                                       |  |                         |         |   |        |   |      |   |         |  |        |      |  |   |         |  |        |  
|Total Stockholders Equity                             |  |                         | 94,453  |   | 9.72   | % |      |   | 60,581  |  | 8.11   | %    |  |   | 37,318  |  | 7.27   | %
|                                                       |  |                         |         |   |        |   |      |   |         |  |        |      |  |   |         |  |        |  
|TOTAL LIABILITIES & STOCKHOLDERS EQUITY               |  | $                       | 972,091 |   | 100.00 | % |      | $ | 746,630 |  | 100.00 | %    |  | $ | 513,388 |  | 100.00 | %
|                                                       |  |                         |         |   |        |   |      |   |         |  |        |      |  |   |         |  |        |  



As of December 31,
2004, total assets were $1.063 billion, an increase of $152.2 million, or 16.7% over year-end 2003s level. Total loans and loans held for sale, increased by $144.2 million, or 20.3%, in 2004. The increase in loans was the primary driver of
asset growth during 2004. To fund our loan and asset growth, we increased deposits by $99.2 million, borrowed funds by $21.5 million and stockholders equity by $30.9 million. Of the total increase in stockholders equity, $19.0 was
attributable to the proceeds of our common stock offering of 676,200 shares in May 2004.



As of December 31, 2003, total assets were $911.3 million, an increase of 56.9% over year-end 2002 levels. Our total loans and loans held for sale, before deducting the reserve for loan losses, grew by $234.7 million
to $709.1 million at year-end, an increase of 49.5% over year-end 2002, driven by strong growth in our construction and land development lending portfolio and our acquisition of Security Bank of Jones County. Excluding Security Bank of Jones County,
total assets were $705.3 million, an increase of 21.4% over year-end 2002 levels. Total deposits grew $302.7 million, or 68.5%, to $743.3 million, with balanced growth across both transaction and time deposit categories. On an average basis, total
assets grew from $513.4 million in 2002 to $746.6 million in 2003 for an increase of 45.4%. Average gross loans grew from $429.5 million in 2002 to $604.2 million in 2003, an increase of 40.7%. Average deposits grew from $396.6 million in 2002 to
$586.1 million in 2003, a 47.8% increase.



Loan Portfolio



Risk ElementsLoan Quality



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



35



---

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



Nonperforming assets at December 31, 2003 amounted to approximately $8.2
million, or 1.15% of total loans and other real estate. This compares to approximately $6.3 million in nonperforming assets, or 1.31% of total loans and other real estate, at December 31, 2002. We acquired $1.6 million of nonperforming assets from
Security Bank of Jones County in May 2003, of which $1.4 million remained at December 31, 2003. Excluding these assets, nonperforming assets increased $500,000, or 8.4%, versus December 31, 2002.



The following table sets forth our nonaccrual, restructured and past-due
loans, along with other real estate owned at the end of the past five years, and the amount of interest foregone in 2003 on our nonperforming assets.



NONPERFORMING ASSETS



(In thousands)



|                                                          |  |              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|--------------------------------------------------------- |  | ------------ | ------ | - | ---- | - | ------ | ---- |  | - | ------ | - |  | ---- | ------ | - |  | - | ------ | -
|                                                          |  | December 31, |       
|                                                          |  | 2004         |        |   | 2003 |   |        | 2002 |  |   | 2001   |   |  | 2000 |       
|Nonperforming loans:                                      |  |              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Nonaccrual loans                                          |  | $            | 6,214  |   |      | $ | 4,154  |      |  | $ | 4,349  |   |  | $    | 3,133  |   |  | $ | 1,426  |  
|Restructured loans                                        |  |              | 0      |   |      |   | 0      |      |  |   | 0      |   |  |      | 0      |   |  |   | 0      |  
|Loans 90 days or more past due and still accruing         |  |              | 0      |   |      |   | 27     |      |  |   | 9      |   |  |      | 295    |   |  |   | 463    |  
|                                                          |  |              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total nonperforming loans                                 |  |              | 6,214  |   |      |   | 4,181  |      |  |   | 4,358  |   |  |      | 3,428  |   |  |   | 1,889  |  
|Other real estate owned                                   |  |              | 1,991  |   |      |   | 4,007  |      |  |   | 1,903  |   |  |      | 2,705  |   |  |   | 313    |  
|                                                          |  |              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Total nonperforming assets                                |  | $            | 8,205  |   |      | $ | 8,188  |      |  | $ | 6,261  |   |  | $    | 6,133  |   |  | $ | 2,202  |  
|                                                          |  |              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Nonperforming assets to total loans and other real estate |  |              | 0.96   | % |      |   | 1.15   | %    |  |   | 1.31   | % |  |      | 1.45   | % |  |   | 0.69   | %
|                                                          |  |              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  
|Reserve for loan losses to nonperforming loans            |  |              | 175.46 | % |      |   | 224.99 | %    |  |   | 125.75 | % |  |      | 119.57 | % |  |   | 158.97 | %
|                                                          |  |              |        |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |        |  



|                                         |  |            |     |              |   |       |  |   |    
|---------------------------------------- |  | ---------- | --- | ------------ | - | ----- |  | - | ---
|                                         |  | Nonaccrual |     | Restructured |   | Total
|Year ended December 31, 2004:            |  |            |     |              |   |       |  |   |    
|Interest at contracted rates (a)         |  | $          | 327 |              | $ | 0     |  | $ | 327
|Interest recorded as income              |  |            | 0   |              |   | 0     |  |   | 0  
|                                         |  |            |     |              |   |       |  |   |    
|Reduction of interest income during 2004 |  | $          | 327 |              | $ | 0     |  | $ | 327
|                                         |  |            |     |              |   |       |  |   |    

---

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



At December 31, 2004 and December 31, 2003, there were no other loans
classified for regulatory purposes as loss or doubtful that are not included in the table above, but there were other loans classified for regulatory purposes as substandard or special mention that are not included in the table above. However,
management is aware of no such substandard or special mention loans not included above which (i) represent or result from trends or uncertainties which management reasonably expects will materially impact future operating results, liquidity, or
capital resources, or (ii) represent material credits about which any information causes management to have serious doubts as to the ability of the borrowers to comply with the loan repayment terms. We have no loans in our portfolio to borrowers in
foreign countries.



Loan concentrations exist when large
amounts of money are loaned to multiple borrowers who would be similarly impacted by economic or other conditions. The loan portfolio is concentrated in various commercial, real estate and consumer loans to individuals and entities located in Middle
Georgia and in other Georgia markets



36



---

where Fairfield Financial operates loan offices. Accordingly, the ultimate collectibility of the loans is largely dependent upon economic conditions in these
Georgia markets. Other than our geographic concentrations due to our physical location and the loan type concentrations as shown in the above table, we have no other concentrations of loans that exceed 10% of our total loan portfolio as of December
31, 2004.



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



37



---

Summary of Loan Loss Experience



The following table summarizes loans charged off, recoveries of loans previously charged off and additions to the reserve
that have been charged to operating expense for the periods indicated. We have no lease financing or foreign loans.



RESERVE FOR LOAN LOSSES



(In Thousands)



|                                                                                                    |  |                         |        |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|--------------------------------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ----- | ---- |  | - | ----- | - |  | ---- | ----- | - |  | - | ----- | -
|                                                                                                    |  | Years Ended December 31 |       
|                                                                                                    |  | 2004                    |        |   | 2003 |   |       | 2002 |  |   | 2001  |   |  | 2000 |      
|Reserve for loan losses at beginning of period                                                      |  | $                       | 9,407  |   |      | $ | 5,480 |      |  | $ | 4,099 |   |  | $    | 3,003 |   |  | $ | 2,327 |  
|Jones County Acquisition                                                                            |  |                         | 0      |   |      |   | 2,889 |      |  |   | 0     |   |  |      | 0     |   |  |   | 0     |  
|                                                                                                    |  |                         |        |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Adjusted beginning of period                                                                        |  |                         | 9,407  |   |      |   | 8,369 |      |  |   | 4,099 |   |  |      | 3,003 |   |  |   | 2,327 |  
|                                                                                                    |  |                         |        |   |     
|Loans charged off during the period:                                                                |  |                         |        |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Commercial, financial and agricultural                                                              |  |                         | 290    |   |      |   | 68    |      |  |   | 881   |   |  |      | 299   |   |  |   | 109   |  
|Real estate-construction                                                                            |  |                         | 455    |   |      |   | 835   |      |  |   | 0     |   |  |      | 0     |   |  |   | 0     |  
|Real estate-mortgage                                                                                |  |                         | 236    |   |      |   | 699   |      |  |   | 87    |   |  |      | 119   |   |  |   | 0     |  
|Loans to individuals                                                                                |  |                         | 1,069  |   |      |   | 654   |      |  |   | 479   |   |  |      | 457   |   |  |   | 576   |  
|                                                                                                    |  |                         |        |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Total loans charged off                                                                             |  |                         | 2,050  |   |      |   | 2,256 |      |  |   | 1,447 |   |  |      | 875   |   |  |   | 685   |  
|                                                                                                    |  |                         |        |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|                                                                                                    |  |                         |        |   |     
|Recoveries during the period of loans previously charged off:                                       |  |                         |        |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Commercial, financial and agricultural                                                              |  |                         | 170    |   |      |   | 136   |      |  |   | 149   |   |  |      | 13    |   |  |   | 2     |  
|Real estate-construction                                                                            |  |                         | 37     |   |      |   | 3     |      |  |   | 1     |   |  |      | 0     |   |  |   | 0     |  
|Real estate-mortgage                                                                                |  |                         | 46     |   |      |   | 187   |      |  |   | 2     |   |  |      | 0     |   |  |   | 0     |  
|Loans to individuals                                                                                |  |                         | 474    |   |      |   | 109   |      |  |   | 73    |   |  |      | 46    |   |  |   | 67    |  
|                                                                                                    |  |                         |        |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Total loans recovered                                                                               |  |                         | 727    |   |      |   | 435   |      |  |   | 225   |   |  |      | 59    |   |  |   | 69    |  
|                                                                                                    |  |                         |        |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Net loans charged off during the period                                                             |  |                         | 1,323  |   |      |   | 1,821 |      |  |   | 1,222 |   |  |      | 816   |   |  |   | 616   |  
|                                                                                                    |  |                         |        |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Additions to reserve-provision expense                                                              |  |                         | 2,819  |   |      |   | 2,859 |      |  |   | 2,603 |   |  |      | 1,912 |   |  |   | 1,292 |  
|                                                                                                    |  |                         |        |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Reserve for loan losses at end of period                                                            |  | $                       | 10,903 |   |      | $ | 9,407 |      |  | $ | 5,480 |   |  | $    | 4,099 |   |  | $ | 3,003 |  
|                                                                                                    |  |                         |        |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Reserve for loan losses to period end net loans (excluding loans held for sale)                     |  |                         | 1.29   | % |      |   | 1.35  | %    |  |   | 1.25  | % |  |      | 1.08  | % |  |   | 0.98  | %
|                                                                                                    |  |                         |        |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  
|Ratio of net loans charged off during the period to average net loans outstanding during the period |  |                         | 0.17   | % |      |   | 0.32  | %    |  |   | 0.28  | % |  |      | 0.23  | % |  |   | 0.25  | %
|                                                                                                    |  |                         |        |   |      |   |       |      |  |   |       |   |  |      |       |   |  |   |       |  



The reserve for loan
losses decreased to 1.29% at December 31, 2004 from 1.35% at December 31, 2003. The reasons for the decrease in the reserve level were two-fold: a lower level of net charge-offs and one loan relationship of $266,000 was identified as a loss as of
December 31, 2003 and was provided for, but the loss was charged-off in January 2004 (which would have lowered the reserve level to 1.31% at December 31, 2003, had the loan been charged-off on or before year-end 2003).



The provision for loan losses represents managements determination of
the amount necessary to be transferred to the reserve for loan losses to maintain a level that it considers adequate in relation to the risk of future losses inherent in the loan portfolio. It is the policy of our subsidiary banks to provide for
exposure to losses principally through an ongoing loan review process. This review process is undertaken to ascertain any probable losses that must be charged off and to assess the risk characteristics of individually significant loans and of the
portfolio in the aggregate. This review takes into consideration the judgments of the responsible lending officers and the loan committees of our subsidiary banks boards of directors, and also those of the regulatory agencies that review the
loans as part of their regular examination process. During routine examinations of banks, the primary banking regulators may, from time to time, require additions to banks provisions for loan losses and reserves for loan losses if the
regulators credit evaluations differ from those of management.



In addition to ongoing internal loan reviews and risk assessment, management uses other factors to judge the adequacy of the reserve, including current economic conditions, loan loss experience, regulatory guidelines and



38



---

current levels of non-performing loans. Management believes that the balance of $10.9 million in the reserve for loan losses at December 31, 2004 and the
balance of $9.4 million in the reserve for loan losses at December 31, 2003 were adequate to absorb known risks in the loan portfolio at those dates. No assurance can be given, however, that adverse economic conditions or other circumstances
will not result in increased losses in our loan portfolio.



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



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



ALLOCATION OF RESERVE FOR LOAN LOSSES



(In Thousands)



|                                        |  |             |        |     |      |   |         |      |       |  |      |         |  |      |       |  |         |   |     |   |       |         |     |     |  |   |       |  |     |  
|--------------------------------------- |  | ----------- | ------ | --- | ---- | - | ------- | ---- | ----- |  | ---- | ------- |  | ---- | ----- |  | ------- | - | --- | - | ----- | ------- | --- | --- |  | - | ----- |  | --- | -
|                                        |  | December 31 |       
|                                        |  | 2004        |        |     | 2003 |   |         | 2002 |       |  | 2001 |         |  | 2000 |      
|                                        |  | Reserve     |        | % * |      |   | Reserve |      | % *   |  |      | Reserve |  | % *  |       |  | Reserve |   | % * |   |       | Reserve |     | % * | 
|Balance at end of period applicable to: |  |             |        |     |      |   |         |      |       |  |      |         |  |      |       |  |         |   |     |   |       |         |     |     |  |   |       |  |     |  
|Commercial, financial and agricultural  |  | $           | 872    |     | 10   | % |         | $    | 677   |  | 9    | %       |  | $    | 1,184 |  | 9       | % |     | $ | 689   |         | 11  | %   |  | $ | 495   |  | 14  | %
|Real estate-construction                |  |             | 3,576  |     | 41   | % |         |      | 2,860 |  | 38   | %       |  |      | 877   |  | 39      | % |     |   | 623   |         | 32  | %   |  |   | 315   |  | 20  | %
|Real estate-mortgage                    |  |             | 3,838  |     | 44   | % |         |      | 3,612 |  | 48   | %       |  |      | 1,271 |  | 48      | % |     |   | 1,311 |         | 53  | %   |  |   | 901   |  | 60  | %
|Loans to individuals                    |  |             | 436    |     | 5    | % |         |      | 376   |  | 5    | %       |  |      | 1,052 |  | 4       | % |     |   | 656   |         | 5   | %   |  |   | 541   |  | 7   | %
|Unallocated                             |  |             | 2,181  |     |     |   |         |      | 1,882 |  |     |         |  |      | 1,096 |  |        |   |     |   | 820   |         |    |     |  |   | 751   |  |    |  
|                                        |  |             |        |     |      |   |         |      |       |  |      |         |  |      |       |  |         |   |     |   |       |         |     |     |  |   |       |  |     |  
|Total reserve for loan losses           |  | $           | 10,903 |     | 100  | % |         | $    | 9,407 |  | 100  | %       |  | $    | 5,480 |  | 100     | % |     | $ | 4,099 |         | 100 | %   |  | $ | 3,003 |  | 100 | %
|                                        |  |             |        |     |      |   |         |      |       |  |      |         |  |      |       |  |         |   |     |   |       |         |     |     |  |   |       |  |     |  

---

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



Investment Portfolio



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



As of December 31, 2004, our portfolio of bonds and equity investments
amounted to $111.4 million, or 10.5% of total assets, compared to $102.9 million, or 11.3% of assets at December 31, 2003.



39



---

The average tax-equivalent yield on the portfolio was 4.24% for the year 2004 versus 4.06% in 2003 and
5.61% in 2002. The increase in the average tax-equivalent yield is reflective of the rising market interest rate environment during 2004. During 2004, net gains on the sale of securities were $12,703, compared to $55,484 for 2003 and $135,802 for
2002.



At December 31, 2004, the major portfolio components,
based on amortized or accreted cost, included 56.5% in bonds of mortgage-backed U.S. government agencies; 23.4% in bonds of other U.S. agency obligations; 14.4% in state, county and municipal bonds; 4.4% in stock of the Federal Home Loan Bank; 0.7%
in U.S. Treasury securities; and 0.6% in Marketable Equity Securities. As of December 31, 2004, the investment portfolio had gross unrealized gains of $1,190,434 and gross unrealized losses of $633,209, for a net unrealized gain of $557,225. As of
December 31, 2003, the portfolio had a net unrealized gain of $1,425,230. In accordance with SFAS No. 115, shareholders equity included net unrealized gains of $352,801 for December 31, 2004 and net unrealized gains of $886,864 for December
31, 2003 recorded on the Available for Sale portfolio, net of deferred tax effects.No trading account has been established by us and none is anticipated.



The following table summarizes the Available for Sale and Held to Maturity investment securities portfolios as of December
31, 2004, 2003, and 2002. Available for Sale securities are shown at fair value, while Held to Maturity securities are shown at amortized or accreted cost. Unrealized gains and losses on securities Available for Sale are excluded from earnings and
are reported, net of deferred taxes, in accumulated other comprehensive income, a component of shareholders equity.



INVESTMENT SECURITIES



(In Thousands)



|                                 |  |              |         |      |   |         |  |   |       
|-------------------------------- |  | ------------ | ------- | ---- | - | ------- |  | - | ------
|                                 |  | December 31,
|                                 |  | 2004         |         | 2003 |   | 2002   
|Securities Available for Sale    |  |              |         |      |   |         |  |   |       
|U. S. Treasury                   |  | $            | 815     |      | $ | 859     |  | $ | 2,363 
|U. S. Government Agencies        |  |              |         |      |   |         |  |   |       
|Mortgage-Backed                  |  |              | 62,623  |      |   | 48,052  |  |   | 19,653
|Other                            |  |              | 24,796  |      |   | 32,633  |  |   | 6,216 
|State, County & Municipal        |  |              | 15,205  |      |   | 15,984  |  |   | 7,963 
|Other Investments (FHLB & Other) |  |              | 5,589   |      |   | 3,935   |  |   | 3,614 
|                                 |  |              |         |      |   |         |  |   |       
|                                 |  | $            | 109,028 |      | $ | 101,463 |  | $ | 39,809
|                                 |  |              |         |      |   |         |  |   |       
|                                 |  |              |        
|Securities Held to Maturity      |  |              |         |      |   |         |  |   |       
|U. S. Treasury                   |  | $            | 0       |      | $ | 0       |  | $ | 0     
|U. S. Government Agencies        |  |              |         |      |   |         |  |   |       
|Mortgage-Backed                  |  |              | 0       |      |   | 0       |  |   | 0     
|Other                            |  |              | 999     |      |   | 0       |  |   | 12,697
|State, County & Municipal        |  |              | 1,385   |      |   | 1,392   |  |   | 1,399 
|Other Investments (FHLB & Other) |  |              | 0       |      |   | 0       |  |   | 0     
|                                 |  |              |         |      |   |         |  |   |       
|                                 |  | $            | 2,384   |      | $ | 1,392   |  | $ | 14,096
|                                 |  |              |         |      |   |         |  |   |       
|                                 |  |              |        
|Total Investment Securities      |  |              |         |      |   |         |  |   |       
|U. S. Treasury                   |  | $            | 815     |      | $ | 859     |  | $ | 2,363 
|U. S. Government Agencies        |  |              |         |      |   |         |  |   |       
|Mortgage-Backed                  |  |              | 62,623  |      |   | 48,052  |  |   | 19,653
|Other                            |  |              | 25,795  |      |   | 32,633  |  |   | 18,913
|State, County & Municipal        |  |              | 16,590  |      |   | 17,376  |  |   | 9,362 
|Other Investments (FHLB & Other) |  |              | 5,589   |      |   | 3,935   |  |   | 3,614 
|                                 |  |              |         |      |   |         |  |   |       
|                                 |  | $            | 111,412 |      | $ | 102,855 |  | $ | 53,905
|                                 |  |              |         |      |   |         |  |   |       



40



---

The following table illustrates the contractual maturities and weighted average yields of investment
securities Available for Sale held at December 31, 2004. Expected maturities will differ from contractual maturities because certain issuers have the right to call or prepay obligations with or without call or prepayment penalties. No prepayment
assumptions have been estimated in the table. The weighted average yields are calculated on the basis of the amortized cost and effective yields of each security weighted for the scheduled maturity of each security. The yield on state, county and
municipal securities is computed on a tax equivalent basis using a statutory federal income tax rate of 34%. At December 31, 2004, the Company had $1,385,485 carrying value ($1,405,596 of fair value) of State County and Municipal investment
securities classified as held to maturity, with an average yield of 7.34% with all securities maturing in the 1-5 year time period. In addition, there was $998,500 carrying value ($998,444 of fair value) of other U.S. agency obligations classified
as held to maturity, with an average yield of 2.03% and maturities in the less than 1 year time frame.



41



---

MATURITIES OF INVESTMENT SECURITIES AND AVERAGE YIELDS



(In Thousands)



|                                  |  |                       |       |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|--------------------------------- |  | --------------------- | ----- | ------------------ | ---- | - | --------- | - | ------------- |  | ------------ | ------- |  | ---------- | - |  | - | -------
|                                  |  | Investment Securities
|                                  |  | Held to Maturity      |       | Available for Sale
|                                  |  | AmortizedCost         |       | AverageYield       |      |   | FairValue |   | AmortizedCost |  | AverageYield |         |  | Fair Value
|31-Dec-04                         |  |                       |       |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|U.S. Treasury:                    |  |                       |       |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|Within 1 Year                     |  | $                     | 0     |                    | 0.00 | % |           | $ | 0             |  | $            | 808     |  | 4.88       | % |  | $ | 815    
|1 to 5 Years                      |  |                       | 0     |                    | 0.00 | % |           |   | 0             |  |              | 0       |  | 0.00       | % |  |   | 0      
|5 to 10 Years                     |  |                       | 0     |                    | 0.00 | % |           |   | 0             |  |              | 0       |  | 0.00       | % |  |   | 0      
|More Than 10 Years                |  |                       | 0     |                    | 0.00 | % |           |   | 0             |  |              | 0       |  | 0.00       | % |  |   | 0      
|                                  |  |                       |       |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|                                  |  | $                     | 0     |                    | 0.00 | % |           | $ | 0             |  | $            | 808     |  | 4.88       | % |  | $ | 815    
|                                  |  |                       |       |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|Mortgage-Backed                   |  |                       |       |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|                                  |  |                       |       |                    |      |  
|Government Agencies:              |  |                       |       |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|Within 1 Year                     |  | $                     | 999   |                    | 2.03 | % |           | $ | 998           |  | $            | 176     |  | 5.28       | % |  | $ | 177    
|1 to 5 Years                      |  |                       | 0     |                    | 0.00 | % |           |   | 0             |  |              | 55,712  |  | 3.85       | % |  |   | 55,684 
|5 to 10 Years                     |  |                       | 0     |                    | 0.00 | % |           |   | 0             |  |              | 5,642   |  | 4.07       | % |  |   | 5,598  
|More Than 10 Years                |  |                       | 0     |                    | 0.00 | % |           |   | 0             |  |              | 1,106   |  | 6.16       | % |  |   | 1,164  
|                                  |  |                       |       |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|                                  |  | $                     | 999   |                    | 2.03 | % |           | $ | 998           |  | $            | 62,636  |  | 3.91       | % |  | $ | 62,623 
|                                  |  |                       |       |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|Other U.S. Government Agencies    |  |                       |       |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|Within 1 Year                     |  | $                     | 0     |                    | 0.00 | % |           | $ | 0             |  | $            | 2,007   |  | 5.01       | % |  | $ | 2,043  
|1 to 5 Years                      |  |                       | 0     |                    | 0.00 | % |           |   | 0             |  |              | 12,941  |  | 3.79       | % |  |   | 12,916 
|5 to 10 Years                     |  |                       | 0     |                    | 0.00 | % |           |   | 0             |  |              | 9,961   |  | 4.00       | % |  |   | 9,837  
|More Than 10 Years                |  |                       | 0     |                    | 0.00 | % |           |   | 0             |  |              | 0       |  | 0.00       | % |  |   | 0      
|                                  |  |                       |       |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|                                  |  | $                     | 0     |                    | 0.00 | % |           | $ | 0             |  | $            | 24,909  |  | 3.96       | % |  | $ | 24,796 
|                                  |  |                       |       |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|State, County and Municipal:      |  |                       |       |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|Within 1 Year                     |  | $                     | 1,035 |                    | 7.28 | % |           | $ | 1,042         |  | $            | 881     |  | 5.35       | % |  | $ | 883    
|1 to 5 Years                      |  |                       | 350   |                    | 7.42 | % |           |   | 364           |  |              | 5,666   |  | 5.77       | % |  |   | 5,845  
|5 to 10 Years                     |  |                       | 0     |                    | 0.00 | % |           |   | 0             |  |              | 6,848   |  | 6.50       | % |  |   | 7,238  
|More Than 10 Years                |  |                       | 0     |                    | 0.00 | % |           |   | 0             |  |              | 1,154   |  | 7.03       | % |  |   | 1,239  
|                                  |  |                       |       |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|                                  |  | $                     | 1,385 |                    | 7.32 | % |           | $ | 1,406         |  | $            | 14,549  |  | 6.19       | % |  | $ | 15,205 
|                                  |  |                       |       |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|Other Investments (FHLB & Other): |  |                       |       |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|Within 1 Year                     |  | $                     | 0     |                    | 0.00 | % |           | $ | 0             |  | $            | 0       |  | 0.00       | % |  | $ | 0      
|1 to 5 Years                      |  |                       | 0     |                    | 0.00 | % |           |   | 0             |  |              | 0       |  | 0.00       | % |  |   | 0      
|5 to 10 Years                     |  |                       | 0     |                    | 0.00 | % |           |   | 0             |  |              | 0       |  | 0.00       | % |  |   | 0      
|More Than 10 Years                |  |                       | 0     |                    | 0.00 | % |           |   | 0             |  |              | 5,589   |  | 2.50       | % |  |   | 5,589  
|                                  |  |                       |       |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|                                  |  | $                     | 0     |                    | 0.00 | % |           | $ | 0             |  | $            | 5,589   |  | 2.50       | % |  | $ | 5,589  
|                                  |  |                       |       |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|Total Securities:                 |  |                       |       |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|Within 1 Year                     |  | $                     | 2,034 |                    | 4.70 | % |           | $ | 2,040         |  | $            | 3,872   |  | 5.07       | % |  | $ | 3,918  
|1 to 5 Years                      |  |                       | 350   |                    | 7.42 | % |           |   | 364           |  |              | 74,319  |  | 3.99       | % |  |   | 74,445 
|5 to 10 Years                     |  |                       | 0     |                    | 0.00 | % |           |   | 0             |  |              | 22,451  |  | 4.78       | % |  |   | 22,673 
|More Than 10 Years                |  |                       | 0     |                    | 0.00 | % |           |   | 0             |  |              | 7,849   |  | 3.68       | % |  |   | 7,992  
|                                  |  |                       |       |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        
|                                  |  | $                     | 2,384 |                    | 5.10 | % |           | $ | 2,404         |  | $            | 108,491 |  | 4.17       | % |  | $ | 109,028
|                                  |  |                       |       |                    |      |   |           |   |               |  |              |         |  |            |   |  |   |        



As of December 31,
2004 and 2003, we had no holdings of securities of a single issuer in which the aggregate book value and aggregate market value of the securities exceeded 10% of shareholders equity.



42



---

Deposits



Deposits are our primary liability and funding source. Total deposits as of December 31, 2004 were $842.6 million, an increase of 13.4% from $743.3
million at December 31, 2003. Average deposits in 2004 were $780.6 million, an increase of 33% from $586.1 million, during 2003. The average cost of deposits, with non-interest checking accounts factored in, was 1.50% during 2004, down from 1.76%
during 2003 and 2.48% for 2002. We seek to set competitive deposit rates in our local markets to retain and grow our market share of deposits in our market area as our principal funding source. On an average basis for the year 2004, 13.5% of our
deposits were held in non-interest-bearing checking accounts, 23.9% were in lower yielding interest-bearing transaction and savings accounts, and 62.6% were in time certificates with higher yields. Comparable average deposit mix percentages during
2003 were 13.7%, 24.7% and 61.6%, respectively. We hold no deposit funds from foreign depositors. See the discussion on page 29 regarding our liquidity for additional details on the management of our deposit base.



To help generate additional local, low-cost consumer core deposits, we
continued a comprehensive marketing program during 2004. The program has been, in our view, extremely successful. For the year ended December 31, 2004, we opened 8,572 new transaction accounts primarily through the efforts of our High Performance
Checking campaign.



The following table reflects average
balances of deposit categories for the years 2004, 2003, and 2002.



AVERAGE
DEPOSITS



(In Thousands)



|                                     |  |                         |         |   |        |   |      |   |         |  |        |      |  |   |         |  |        |  
|------------------------------------ |  | ----------------------- | ------- | - | ------ | - | ---- | - | ------- |  | ------ | ---- |  | - | ------- |  | ------ | -
|                                     |  | Years Ended December 31 |        
|                                     |  | 2004                    |         | % |        |   | 2003 |   | %       |  |        | 2002 |  | % |        
|Non-Interest Bearing Demand Deposits |  | $                       | 105,695 |   | 13.54  | % |      | $ | 80,472  |  | 13.73  | %    |  | $ | 62,575  |  | 15.78  | %
|Interest Bearing Demand Deposits     |  |                         | 81,385  |   | 10.43  | % |      |   | 58,498  |  | 9.98   | %    |  |   | 37,606  |  | 9.48   | %
|Money Market Accounts                |  |                         | 85,886  |   | 11.00  | % |      |   | 71,802  |  | 12.25  | %    |  |   | 43,270  |  | 10.91  | %
|Savings Deposits                     |  |                         | 19,299  |   | 2.47   | % |      |   | 14,166  |  | 2.42   | %    |  |   | 8,990   |  | 2.27   | %
|Time Deposits of $100,000 or More    |  |                         | 195,300 |   | 25.02  | % |      |   | 117,634 |  | 20.07  | %    |  |   | 83,860  |  | 21.15  | %
|Other Time Deposits                  |  |                         | 293,039 |   | 37.54  | % |      |   | 243,554 |  | 41.55  | %    |  |   | 160,267 |  | 40.41  | %
|                                     |  |                         |         |   |        |   |      |   |         |  |        |      |  |   |         |  |        |  
|                                     |  | $                       | 780,604 |   | 100.00 | % |      | $ | 586,126 |  | 100.00 | %    |  | $ | 396,568 |  | 100.00 | %
|                                     |  |                         |         |   |        |   |      |   |         |  |        |      |  |   |         |  |        |  



The following table
outlines the maturities of time deposits of $100,000 or more as of December 31, 2004, 2003, and 2002.



MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 OR MORE



(In Thousands)



|                                |  |              |         |      |   |         |  |   |       
|------------------------------- |  | ------------ | ------- | ---- | - | ------- |  | - | ------
|                                |  | December 31,
|                                |  | 2004         |         | 2003 |   | 2002   
|As of the End of Period:        |  |              |         |      |   |         |  |   |       
|3 Months or Less                |  | $            | 37,573  |      | $ | 35,484  |  | $ | 20,684
|Over 3 Months through 6 Months  |  |              | 59,843  |      |   | 21,070  |  |   | 18,215
|Over 6 Months through 12 Months |  |              | 100,918 |      |   | 76,193  |  |   | 29,068
|Over 12 Months                  |  |              | 35,182  |      |   | 32,137  |  |   | 13,214
|                                |  |              |         |      |   |         |  |   |       
|                                |  | $            | 233,516 |      | $ | 164,884 |  | $ | 81,181
|                                |  |              |         |      |   |         |  |   |       



43



---

Borrowed Funds



Our interest-bearing sources of borrowed funds at December 31, 2004 totaled $107.5 million. The major component was $67.1 million in various advances from
the Federal Home Loan Bank of Atlanta (FHLB) under two separate programs. Our first program is a Blanket Agreement for Advances and Security Agreement with the FHLB, under which our banks have pledged residential first-mortgage loans,
commercial real estate loans and investment securities as collateral to secure available lines of credit totaling $176.1 million. At December 31, 2004, our lending collateral value was $85.8 million, $66.0 million of which was outstanding. These
advances have maturities in varying amounts through March 2011 and interest rates ranging from 1.54% to 4.55%. Our second FHLB program allows for up to $60.0 million in advances to our banks under a warehouse line secured by our loans held for sale.
At December 31, 2004, we had $4.6 million in lending collateral value, with $1.1 million in borrowings outstanding under our warehouse line at an interest rate of 2.94%. Total outstanding advances from the FHLB averaged $58.9 million during the
year 2004, with an average interest cost of 2.62%. Of the $67.1 million in FHLB advances outstanding at December 31, 2004, $28.3 million, or 42.1%, mature during the year 2005. Another $28.8 million, or 43.0%, mature in 2006, and the remaining $10.0
million, or 14.9%, mature after five years. For the year 2003, FHLB advances averaged $63.4 million with an average interest cost of 2.48%.



We have a line of credit with The Bankers Bank in Atlanta, Georgia totaling $17 million. The line is secured with the common stock of Security Bank of
Bibb County (and indirectly the stock of Fairfield Financial as its subsidiary) and Security Bank of Houston County as collateral, and carries a floating interest rate of prime minus 100 basis points. We use the line of credit primarily to provide
capital injections as necessary to our subsidiary banks. At December 31, 2004, the outstanding balance on the line of credit was $-0- and $6.5 million at December 31, 2003. The maximum aggregate indebtedness on the line during 2004 was $10 million.
Ten million of proceeds from our $19 million common equity offering in May 2004 were used to pay down this line. The average balance of debt under The Bankers Bank line of credit for the year 2004 was $2.5 million at an average rate of 3.05%. For
2003, the average balance was $2.4 million at a cost of 3.72%.



During the fourth quarter of 2002, we formed a Delaware statutory trust subsidiary whose sole purpose was to issue $18.0 million in trust preferred securities (subordinated debentures) through a pool sponsored by FTN Financial Capital
Markets. The proceeds from the offering were used to retire holding company debt and to fund our acquisition of Security Bank of Jones County. The average balances [of the trust preferred securities] were $18.6 million in 2004 at interest rates
averaging 4.86% and $18.6 million in 2003 at interest rates averaging 4.52%. The trust preferred securities reset quarterly at an interest rate equal the three-month LIBOR rate plus 3.25%.



44



---

The following table outlines our various sources of borrowed funds during the years 2004, 2003 and 2002,
the amounts outstanding at year-end, at the maximum point for each component during the three years and on average for each year, and the average interest rate that we paid for each borrowing source. The maximum month-end balance represents the high
indebtedness for each component of borrowed funds at any time during each of the calendar years shown.



BORROWED FUNDS



(In Thousands)



|                                               |  |               |         |                         |   |                |  |                 |        |                      |   |       |  |      |  
|---------------------------------------------- |  | ------------- | ------- | ----------------------- | - | -------------- |  | --------------- | ------ | -------------------- | - | ----- |  | ---- | -
|                                               |  | 31-DecBalance |         | MaximumMonth-EndBalance |   | AverageBalance |  | InterestExpense |        | AverageInterest Rate |  
|For The Year 2004                              |  |               |         |                         |   |                |  |                 |        |                      |   |       |  |      |  
|Federal Home Loan Bank Advances                |  | $             | 67,136  |                         | $ | 71,283         |  | $               | 58,924 |                      | $ | 1,546 |  | 2.62 | %
|Correspondent Bank Line of Credit              |  |               | 0       |                         |   | 10,000         |  |                 | 2,522  |                      |   | 77    |  | 3.05 | %
|Securities Sold Under Agreements to Repurchase |  |               | 5,338   |                         |   | 6,786          |  |                 | 5,598  |                      |   | 56    |  | 1.00 | %
|Federal Funds Purchased                        |  |               | 16,473  |                         |   | 16,473         |  |                 | 5,273  |                      |   | 89    |  | 1.69 | %
|Demand Note U.S. Treasury                      |  |               | 0       |                         |   | 12             |  |                 | 21     |                      |   | 0     |  | 0.00 | %
|Subordinated Debentures                        |  |               | 18,557  |                         |   | 18,557         |  |                 | 18,557 |                      |   | 902   |  | 4.86 | %
|                                               |  |               |         |                         |   |                |  |                 |        |                      |   |       |  |      |  
|Total Borrowed Funds                           |  | $             | 107,504 |                         | $ | 123,111        |  | $               | 90,895 |                      | $ | 2,670 |  | 2.94 | %
|                                               |  |               |         |                         |   |                |  |                 |        |                      |   |       |  |      |  
|                                               |  |               |         |                         |  
|For The Year 2003                              |  |               |         |                         |   |                |  |                 |        |                      |   |       |  |      |  
|Federal Home Loan Bank Advances                |  | $             | 52,587  |                         | $ | 75,758         |  | $               | 63,368 |                      | $ | 1,572 |  | 2.48 | %
|Correspondent Bank Line of Credit              |  |               | 6,500   |                         |   | 9,000          |  |                 | 2,365  |                      |   | 88    |  | 3.72 | %
|Securities Sold Under Agreements to Repurchase |  |               | 5,024   |                         |   | 5,990          |  |                 | 5,200  |                      |   | 41    |  | 0.79 | %
|Federal Funds Purchased                        |  |               | 3,318   |                         |   | 20,811         |  |                 | 5,072  |                      |   | 64    |  | 1.26 | %
|Demand Note U.S. Treasury                      |  |               | 0       |                         |   | 1,046          |  |                 | 553    |                      |   | 4     |  | 0.72 | %
|Subordinated Debentures                        |  |               | 18,557  |                         |   | 18,557         |  |                 | 18,557 |                      |   | 839   |  | 4.52 | %
|                                               |  |               |         |                         |   |                |  |                 |        |                      |   |       |  |      |  
|Total Borrowed Funds                           |  | $             | 85,986  |                         | $ | 131,162        |  | $               | 95,115 |                      | $ | 2,608 |  | 2.74 | %
|                                               |  |               |         |                         |   |                |  |                 |        |                      |   |       |  |      |  
|                                               |  |               |         |                         |  
|For The Year 2002                              |  |               |         |                         |   |                |  |                 |        |                      |   |       |  |      |  
|Federal Home Loan Bank Advances                |  | $             | 64,500  |                         | $ | 71,749         |  | $               | 56,341 |                      | $ | 1,776 |  | 3.15 | %
|Correspondent Bank Line of Credit              |  |               | 0       |                         |   | 9,000          |  |                 | 7,464  |                      |   | 294   |  | 3.94 | %
|Securities Sold Under Agreements to Repurchase |  |               | 5,521   |                         |   | 8,744          |  |                 | 6,486  |                      |   | 88    |  | 1.36 | %
|Federal Funds Purchased                        |  |               | 6,458   |                         |   | 12,192         |  |                 | 4,238  |                      |   | 73    |  | 1.72 | %
|Demand Note U.S. Treasury                      |  |               | 1,274   |                         |   | 1,318          |  |                 | 1,005  |                      |   | 7     |  | 0.70 | %
|Subordinated Debentures                        |  |               | 18,557  |                         |   | 18,557         |  |                 | 629    |                      |   | 32    |  | 4.84 | %
|                                               |  |               |         |                         |   |                |  |                 |        |                      |   |       |  |      |  
|Total Borrowed Funds                           |  | $             | 96,310  |                         | $ | 121,560        |  | $               | 76,163 |                      | $ | 2,270 |  | 2.98 | %
|                                               |  |               |         |                         |   |                |  |                 |        |                      |   |       |  |      |  



Capital Resources and Dividends



We place an emphasis on maintaining an adequate capital
base to support our activities in a safe manner while at the same time maximizing shareholder returns. We continue to exceed all minimum regulatory capital requirements as shown in the table below. Our equity capital of $106.7 million at December
31, 2004 amounts to 10.03% of total assets, compared to 8.3% at December 31, 2003, and 6.88% at December 31, 2002. On average, the equity capital was 9.7% of assets during 2004, compared to 8.1% for 2003 and 7.3% for 2002. The increase in the
capital ratios in 2004 was primarily due to the raising of approximately $19 million in new equity capital through a public stock offering we closed in early May with the sale of 676,200 common shares in the open market at a price of $30.25 per
share. .



In June 2003, our stock was added to the Russell 2000
Index, recognizing us as one of the largest 3,000 publicly traded companies in the U.S. in terms of market capitalization. Our market capitalization increased from



45



---

$158.6 million at the end of 2003 to $233.2 million at the end of 2004, an increase of 47%. The increase in market capitalization was primarily due to our
public stock offering discussed above, as well as, an increase of $8.49 per share, or 27%, in our common stock price from December 31, 2003 to December 31, 2004.



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



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



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



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



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



| |  |  | expanding into Jones County through our 2003 acquisition of Security Bank of Jones County;
| | - |  | ------------------------------------------------------------------------------------------



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



| |  |  | opening a de novobranch in Glynn County in 2003.
| | - |  | ------------------------------------------------



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



Current regulatory standards require bank holding companies to maintain a
minimum risk-based capital ratio of qualifying total capital to risk weighted assets of 8.0%, with at least 4.0% of the capital consisting of Tier 1 capital, and a Tier 1 leverage ratio of at least 4.0%. Additionally, the regulatory agencies define
a well-capitalized bank as one that has a Tier 1 leverage ratio of at least 5.0%, a Tier 1 capital ratio of at least 6.0%, and a total risk-based capital ratio of at least 10%. As of December 31, 2004, we had a Tier 1 leverage ratio of 9.6%, a Tier
1 capital ratio of 10.3%, and a total risk-based capital ratio of 11.4%, and were therefore well-capitalized according to all regulatory guidelines. Maintaining these capital levels is crucial to our growth strategy, because the Federal
Reserve Bank of Atlanta has indicated that it will not approve any future acquisition whereby the resulting combined company is not well-capitalized at the holding company level.



The following table demonstrates capital ratio calculations as of December
31, 2004 and 2003.



CAPITAL RATIOS



(In Thousands)

|                                                                    |  |              |         |      |   |       
|------------------------------------------------------------------- |  | ------------ | ------- | ---- | - | ------
|                                                                    |  | December 31,
|                                                                    |  | 2004         |         | 2003
|As of End of Period:                                                |  |              |         |      |   |       
|Tier 1 Capital:                                                     |  |              |         |      |   |       
|Total Equity Capital                                                |  | $            | 106,671 |      | $ | 75,809
|Less Net Unrealized Gains (Losses) on Available for Sale Securities |  |              | 353     |      |   | 886   
|Qualifying Portion of Trust Preferred Securities                    |  |              | 18,000  |      |   | 16,636
|Less Disallowed Goodwill and Other Intangible Assets                |  |              | 28,579  |      |   | 25,014
|                                                                    |  |              |         |      |   |       
|Total Tier 1 Capital                                                |  |              | 95,739  |      |   | 66,545
|                                                                    |  |              |         |      |   |       
|Tier 2 Capital:                                                     |  |              |         |      |   |       
|Eligible Portion of Reserve for Loan Losses                         |  |              | 10,574  |      |   | 8,999 
|Qualifying Portion of Trust Preferred Securities                    |  |              | 0       |      |   | 1,364 
|Subordinated and Other Qualifying Debt                              |  |              | 0       |      |   | 0     
|                                                                    |  |              |         |      |   |       
|Total Tier 2 Capital                                                |  |              | 10,574  |      |   | 10,363
|                                                                    |  |              |         |      |   |       
|Total Risk Based Capital                                            |  | $            | 106,313 |      | $ | 76,908
|                                                                    |  |              |         |      |   |       



46



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|                                 |  |                         |              |  |                 |   |  |       |   |  |       |  
|-------------------------------- |  | ----------------------- | ------------ |  | --------------- | - |  | ----- | - |  | ----- | -
|                                 |  | Regulatory Requirement: |              |  |                 |  
|                                 |  |                         | December 31, | 
|                                 |  | Minimum                 |              |  | WellCapitalized |   |  | 2004  |   |  | 2003  |  
|Total Risk Based Capital Ratio   |  | 8.00                    | %            |  | 10.00           | % |  | 11.40 | % |  | 10.33 | %
|Tier 1 Capital Ratio             |  | 4.00                    | %            |  | 6.00            | % |  | 10.27 | % |  | 8.93  | %
|Tier 1 Capital to Average Assets |  | 4.00                    | %            |  | 5.00            | % |  | 9.58  | % |  | 7.85  | %



Cash dividends of
$2,483,659, or $0.44 per weighted average common share, were declared and paid during 2004, up from $1,847,129, or $0.40 per share, during 2003 and $1,187,668, or $0.35 per share, in 2002. The ratios of cash dividends paid to net income for these
years were 19.9%, 20.2% and 22.6%, respectively. Since the commencement of cash dividend payments in 1992, our board of directors has consistently declared and paid dividends on a quarterly basis.



As of December 31, 2004, $18.0 million of our trust preferred securities was
classified as Tier 1 capital under Federal Reserve Board guidelines. For regulatory purposes, the trust preferred securities represent a minority investment in a consolidated subsidiary, which is currently included in Tier 1 capital, so long as it
does not exceed 25% of total Tier 1 capital. Under Financial Accounting Standards Board (FASB) Interpretation No. 46 (FIN 46) and Revised Amendment to FIN 46, however, the trust subsidiary must be deconsolidated for accounting purposes. As a
result, the Federal Reserve Board is reconsidering its treatment of trust preferred securities as Tier 1 capital and could determine that a smaller maximum Tier 1 classification percentage is appropriate or disallow such classification altogether.
Although we cannot predict the ultimate resolution of this issue, we believe our capital ratios will remain at an adequate level to allow us to continue to be well capitalized under applicable banking regulations.



Liquidity



Primarily through the actions of our subsidiary banks, we engage in liquidity management to ensure adequate cash flow for
deposit withdrawals, credit commitments and repayments of borrowed funds. Liquidity needs are met through loan repayments, net interest and fee income, and the sale or maturity of existing assets. In addition, liquidity is continuously provided
through the acquisition of new deposits, the renewal of maturing deposits, and external borrowings. Management monitors deposit flow and evaluates alternate pricing structures to retain and grow deposits as needed. To the extent needed to fund loan
demand, traditional local deposit funding sources are supplemented by the use of FHLB borrowings, brokered deposits, and other wholesale deposit sources outside our immediate market area, including an Internet-based national CD service. Management
has found that most non-relationship oriented retail CDs are interchangeable with wholesale funding sources such as brokered deposits and national market CDs and alternates between these sources depending on the relative cost.



Since we acquired Fairfield Financial in 2000, the high volume and activity
of its interim lending activities have required us to have higher levels of sophistication and internal tracking to ensure adequate liquidity across our organization. We have developed more liquidity measurement tools for use on a consolidated
basis. We have updated internal policies to monitor the use of various core and non-core funding sources and to balance ready access with risk and cost. Our Asset/Liability Management Committee meets weekly to discuss liquidity-related issues such
as loan pipelines, deposit pricing and upcoming deposit maturities, among others. Through various asset/liability management strategies, we maintain a balance among goals of liquidity, safety and earnings potential. Our subsidiary banks monitor
internal policies that are consistent with regulatory liquidity guidelines.



The investment portfolio provides a ready means to raise cash if liquidity needs arise. As of December 31, 2004, we held $104.1 million in bonds (excluding FHLB stock) at current market value in our Available for Sale
portfolio. We purchase only marketable investment grade bonds. Although a portion of our bond portfolio is encumbered as pledges to secure various public funds deposits, repurchase agreements, and for other purposes,



47



---

management can restructure and free up investment securities for sale if required to meet liquidity needs. At December 31, 2004, approximately $76.3 million,
or 73.3%, of our available for sale investment portfolio was pledged to secure deposits, repurchase agreements and for other related purposes.



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



At December 31, 2004 and 2003, our subsidiary banks had $233.5 million and
$164.9 million, respectively, in certificates of deposit of $100,000 or more. These larger deposits represented 27.7% and 22.2% of respective total deposits. Management seeks to monitor and control the use of these larger certificates, which tend to
be more volatile in nature, to ensure an adequate supply of funds as needed. Relative interest costs to attract local core relationships are compared to market rates of interest on various external deposit sources to help minimize our overall cost
of funds.



Our local market deposit sources were not sufficient
to fund the strong loan growth trends of Fairfield Financial over the past four years. Our banks supplemented deposit sources with brokered deposits and Internet-based CDs. As of December 31, 2004 the banks reported $125.4 million, or 14.9% of total
deposits, in brokered certificates of deposit attracted by external third parties with a weighted average rate of 2.48%. Additionally, the banks use external wholesale or Internet services to obtain out-of-market certificates of deposits at
competitive interest rates when funding is needed. As of December 31, 2004, the banks reported $111.5 million in wholesale CDs, representing 13.2% of total deposits and carrying a weighted average rate of 2.14% at year end.



To plan for contingent sources of funding not satisfied by both local and
out-of-market deposit balances, we have established multiple borrowing sources to augment our funds management. At the holding company level, we have an unsecured line of credit, and borrowing capacity also exists through the membership of our
subsidiary banks in the Federal Home Loan Bank program. At December 31, 2004, we had, at the holding company level, a $17 million line of credit with The Bankers Bank, with $0.0 million outstanding at year-end. This line of credit is secured by the
common stock of two of our subsidiary banks and indirectly, the stock of Fairfield Financial. Based on the collateral value of assets pledged to the Federal Home Loan Bank at December 31, 2004 under our two programs for advances, our subsidiary
banks had total borrowing capacity of up to $90.4 million, of which $67.1 million was drawn and outstanding at year-end. Our subsidiary banks have also established overnight borrowing lines for federal funds purchased through various
correspondent banks that collectively amounted to $95.4 million in capacity at December 31, 2004. $16.5 million of our federal funds lines were in use at year-end. Management believes that the various funding sources discussed above are adequate to
meet our liquidity needs in the future without any material adverse impact on operating results.



Interest Rate Risk Management



We have successfully managed the level of our net interest margin since 2001, despite the pressure on our net interest margin from a low interest rate environment. Our net interest margin was 4.24% in 2001, 4.38% in 2002, 4.40% in 2003, and
4.45% in 2004. Since 2002 we have aggressively worked to lower deposit costs to offset lower yields from the loan portfolio. As noted above, we have been successful in generating low cost transaction accounts, as well as selectively alternating
between retail CDs, borrowed funds and Internet/brokered CDs to generate the lowest cost funding sources available.



To help us manage fluctuations in our net interest income, we use simulation modeling to estimate the impact on net interest income of both the current
level of market interest rates and for changes to the current level of market interest rates. We measure the projected changes in market interest rates in terms of rate shifts of plus or minus 100, 200 and 300 basis points over the
current levels of market interest rates. We assume rate shifts



48



---

occur ratably over a 12-month measurement horizon. We then use a new set of market interest rates to derive pricing for maturing or repricing assets and
liabilities. We base projected pricing for maturing and repricing assets and liabilities upon market interest rates and actual pricing experience over the period immediately preceding the projection period.



Using the current level of market interest rates at December 31, 2004 and
using actual pricing experience immediately preceding the projection, our simulation model projects a net interest margin of 4.59% for the twelve-month period ending December 31, 2005. This compares to a net interest margin of 4.45% for the year
ended December 31, 2004. Assuming a 100 basis point rise in rates over year-end market levels, the net interest margin is projected to be 4.70% for the 12-month horizon. The net interest margin is projected to be 4.82% and 4.95% for a 200 and 300
basis point rise in rates, respectively, over the same measurement period. The net interest margin is projected to be 4.51% and 4.41% for a 100 and 200 basis point fall in rates, respectively. Our interest rate risk profile shows a fairly balanced
position for both rising and falling rates. Our balance sheet as of December 31, 2004 was slightly asset-sensitive. The consensus Blue Chip Economic Forecast at December 31, 2004 called for rising short-term rates over the next twelve months, with
long-term rates (beyond 2 years) rising less than short-term rates, which is commonly referred to as a flattening of the yield curve. Accordingly, we are closely monitoring the impact of both a rising rate environment and a flattening of the yield
curve.



We also use a cumulative gap analysis model that seeks
to measure the repricing differentials, or gap, between rate-sensitive assets and liabilities over various time horizons. The following table reflects the gap positions of our consolidated balance sheet as of December 31, 2004 and 2003 at various
repricing intervals. This gap analysis indicates that we had a relatively matched balance sheet over a one-year time horizon at December 31, 2004, with rate-sensitive assets amounting to 103% of rate-sensitive liabilities. At December 31, 2003,
our balance sheet was slightly asset-sensitive over a one-year time horizon, with rate-sensitive assets amounting to 108.7% of rate-sensitive liabilities. The projected deposit repricing volumes reflect adjustments based on managements
assumptions of the expected rate sensitivity to current market rates for core deposits without contractual maturity (i.e., interest-bearing checking, savings and money market accounts). Adjustments are also made for callable investment securities in
the bond portfolio to place these bonds in call date categories. Management believes that the current degree of interest rate risk is acceptable in the current interest rate environment.



49



---

The following table sets forth information regarding interest rate sensitivity.



INTEREST RATE SENSITIVITY



(In Thousands)



|                                                                                                  |  |                   |          |    |                      |   |          |                         |  |   |             |   |  |   |         |  
|------------------------------------------------------------------------------------------------- |  | ----------------- | -------- | -- | -------------------- | - | -------- | ----------------------- |  | - | ----------- | - |  | - | ------- | -
|                                                                                                  |  | December 31, 2004 |         
|                                                                                                  |  | 0 up to3 months   |          |    | Over3 up to12 Months |   |          | Over 1 yearup to5 years |  |   | Over5 years |  
|Amounts Maturing or Repricing:                                                                    |  |                   |          |    |                      |   |          |                         |  |   |             |   |  |   |         |  
|Investment Securities (a)                                                                         |  | $                 | 2,753    |    |                      | $ | 3,199    |                         |  | $ | 74,795      |   |  | $ | 30,665  |  
|Loans, Net of Unearned Income (b)                                                                 |  |                   | 139,039  |    |                      |   | 254,371  |                         |  |   | 425,038     |   |  |   | 34,824  |  
|Other Earning Assets                                                                              |  |                   | 20,342   |    |                      |   | 0        |                         |  |   | 0           |   |  |   | 0       |  
|                                                                                                  |  |                   |          |    |                      |   |          |                         |  |   |             |   |  |   |         |  
|Interest Sensitive Assets                                                                         |  |                   | 162,134  |    |                      |   | 257,570  |                         |  |   | 499,833     |   |  |   | 65,489  |  
|                                                                                                  |  |                   |          |    |                      |   |          |                         |  |   |             |   |  |   |         |  
|Deposits (c)                                                                                      |  |                   | 299,844  |    |                      |   | 325,162  |                         |  |   | 98,050      |   |  |   | 0       |  
|Other Borrowings                                                                                  |  |                   | 39,547   |    |                      |   | 23,150   |                         |  |   | 16,250      |   |  |   | 10,000  |  
|Trust Preferred Securities                                                                        |  |                   | 18,557   |    |                      |   | 0        |                         |  |   | 0           |   |  |   | 0       |  
|                                                                                                  |  |                   |          |    |                      |   |          |                         |  |   |             |   |  |   |         |  
|Interest Sensitive Liabilities                                                                    |  |                   | 357,948  |    |                      |   | 348,312  |                         |  |   | 114,300     |   |  |   | 10,000  |  
|                                                                                                  |  |                   |          |    |                      |   |          |                         |  |   |             |   |  |   |         |  
|Interest Sensitivity Gap                                                                          |  | $                 | (195,814 | )  |                      | $ | (90,742  | )                       |  | $ | 385,533     |   |  | $ | 55,489  |  
|                                                                                                  |  |                   |          |    |                      |   |          |                         |  |   |             |   |  |   |         |  
|Cumulative Interest Sensitivity Gap                                                               |  | $                 | (195,814 | )  |                      | $ | (286,556 | )                       |  | $ | 98,977      |   |  | $ | 154,466 |  
|                                                                                                  |  |                   |          |    |                      |   |          |                         |  |   |             |   |  |   |         |  
|Cumulative Interest Sensitivity Gap as a Percentage of Total Interest Sensitive Assets            |  |                   | (19.88   | )% |                      |   | (29.09   | )%                      |  |   | 10.05       | % |  |   | 15.68   | %
|                                                                                                  |  |                   |          |    |                      |   |          |                         |  |   |             |   |  |   |         |  
|Cumulative Interest Sensitive Assets as a Percentage of Cumulative Interest Sensitive Liabilities |  |                   | 45.30    | %  |                      |   | 59.43    | %                       |  |   | 112.06      | % |  |   | 118.60  | %
|                                                                                                  |  |                   |          |    |                      |   |          |                         |  |   |             |   |  |   |         |  
|                                                                                                  |  |                   |          |   
|(In Thousands)                                                                                    |  |                   |          |    |                      |   |          |                         |  |   |             |   |  |   |         |  
|                                                                                                  | 
|                                                                                                  |  | December 31, 2003 |         
|                                                                                                  |  | 0 up to 3months   |          |    | Over3 up to12 Months |   |          | Over 1 yearup to5 years |  |   | Over5 years |  
|Amounts Maturing or Repricing:                                                                    |  |                   |          |    |                      |   |          |                         |  |   |             |   |  |   |         |  
|Investment Securities (a)                                                                         |  | $                 | 1,670    |    |                      | $ | 3,053    |                         |  | $ | 35,704      |   |  | $ | 61,075  |  
|Loans, Net of Unearned Income (b)                                                                 |  |                   | 247,406  |    |                      |   | 155,405  |                         |  |   | 271,348     |   |  |   | 30,831  |  
|Other Earning Assets                                                                              |  |                   | 11,019   |    |                      |   | 0        |                         |  |   | 0           |   |  |   | 0       |  
|                                                                                                  |  |                   |          |    |                      |   |          |                         |  |   |             |   |  |   |         |  
|Interest Sensitive Assets                                                                         |  |                   | 260,095  |    |                      |   | 158,458  |                         |  |   | 307,052     |   |  |   | 91,906  |  
|                                                                                                  |  |                   |          |    |                      |   |          |                         |  |   |             |   |  |   |         |  
|Deposits (c)                                                                                      |  |                   | 188,922  |    |                      |   | 270,242  |                         |  |   | 176,604     |   |  |   | 0       |  
|Other Borrowings                                                                                  |  |                   | 22,829   |    |                      |   | 14,800   |                         |  |   | 13,300      |   |  |   | 16,500  |  
|Trust Preferred Securities                                                                        |  |                   | 18,557   |    |                      |   | 0        |                         |  |   | 0           |   |  |   | 0       |  
|                                                                                                  |  |                   |          |    |                      |   |          |                         |  |   |             |   |  |   |         |  
|Interest Sensitive Liabilities                                                                    |  |                   | 230,308  |    |                      |   | 285,042  |                         |  |   | 189,904     |   |  |   | 16,500  |  
|                                                                                                  |  |                   |          |    |                      |   |          |                         |  |   |             |   |  |   |         |  
|Interest Sensitivity Gap                                                                          |  | $                 | 29,787   |    |                      | $ | (126,584 | )                       |  | $ | 117,148     |   |  | $ | 75,406  |  
|                                                                                                  |  |                   |          |    |                      |   |          |                         |  |   |             |   |  |   |         |  
|Cumulative Interest Sensitivity Gap                                                               |  | $                 | 29,787   |    |                      | $ | (96,797  | )                       |  | $ | 20,351      |   |  | $ | 95,757  |  
|                                                                                                  |  |                   |          |    |                      |   |          |                         |  |   |             |   |  |   |         |  
|Cumulative Interest Sensitivity Gap as a Percentage of Total Interest Sensitive Assets            |  |                   | 3.64     | %  |                      |   | (11.84   | )%                      |  |   | 2.49        | % |  |   | 11.71   | %
|                                                                                                  |  |                   |          |    |                      |   |          |                         |  |   |             |   |  |   |         |  
|Cumulative Interest Sensitive Assets as a Percentage of Cumulative Interest Sensitive Liabilities |  |                   | 112.93   | %  |                      |   | 81.22    | %                       |  |   | 102.89      | % |  |   | 113.27  | %
|                                                                                                  |  |                   |          |    |                      |   |          |                         |  |   |             |   |  |   |         |  



50



---

---

|(a) | Excludes the effect of SFAS No. 115 Accounting for Certain Investments in Debt and Equity Securities, consisting of a net unrealized gain of $1,430 in 2003 and $1,449 in
2002. Includes FHLB stock & other equity securities.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Includes loans held for sale. Nonaccrual loans are excluded.
|--- | ------------------------------------------------------------



|(c) | For repricing purposes, non-maturity deposits are placed in the "0 up to 3 months" category
|--- | -------------------------------------------------------------------------------------------



The following table provides information on the maturity distribution of selected categories of the loan portfolio and
certain interest sensitivity data as of December 31, 2004.



MATURITIES AND
SENSITIVITIES OF LOANS TO CHANGES IN INTEREST RATES



(In Thousands)



|                                       |  |                   |         |                                |   |                |  |       |       |  |   |        
|-------------------------------------- |  | ----------------- | ------- | ------------------------------ | - | -------------- |  | ----- | ----- |  | - | -------
|                                       |  | December 31, 2004
|                                       |  | One Yearor Less   |         | Over OneYear ThroughFive Years |   | Over FiveYears |  | Total
|Selected loan categories:              |  |                   |         |                                |   |                |  |       |       |  |   |        
|Commercial, financial and agricultural |  | $                 | 49,170  |                                | $ | 37,810         |  | $     | 2,774 |  | $ | 89,754 
|Real estate-construction               |  |                   | 205,657 |                                |   | 143,904        |  |       | 589   |  |   | 350,150
|                                       |  |                   |         |                                |   |                |  |       |       |  |   |        
|Total                                  |  | $                 | 254,827 |                                | $ | 181,714        |  | $     | 3,363 |  | $ | 439,904
|                                       |  |                   |         |                                |   |                |  |       |       |  |   |        
|Loans shown above due after one year:  |  |                   |         |                                |   |                |  |       |       |  |   |        
|Having predetermined interest rates    |  |                   |         |                                |   |                |  |       |       |  | $ | 58,725 
|Having floating interest rates         |  |                   |         |                                |   |                |  |       |       |  |   | 126,352
|                                       |  |                   |         |                                |   |                |  |       |       |  |   |        
|Total                                  |  |                   |         |                                |   |                |  |       |       |  | $ | 185,077
|                                       |  |                   |         |                                |   |                |  |       |       |  |   |        



Contractual Obligations



As of December 31, 2004, we are contractually obligated under long-term
agreements as follows:



|                                  |  |                        |  |                 |  |            |  |           |  |                 
|--------------------------------- |  | ---------------------- |  | --------------- |  | ---------- |  | --------- |  | ----------------
|                                  |  | Payments Due by Period
|Contractual Obligations           |  | Total                  |  | Less than1 year |  | 1-3 Years  |  | 3-5 years |  | More than5 years
|Federal Home Loan Bank Advances   |  | 67,135,516             |  | 28,285,516      |  | 28,850,000 |  |          |  | 10,000,000      
|Correspondent Bank Line of Credit |  |                       |  |                 |  |            |  |           |  |                
|Subordinated Debentures           |  | 18,557,000             |  |                 |  |            |  |           |  | 18,557,000      
|Capital Lease Obligations         |  |                       |  |                |  |           |  |          |  |                
|Operating Leases                  |  | 1,205,000              |  | 288,946         |  | 654,442    |  | 261,612   |  |                
|Purchase Obligations              |  |                       |  |                |  |           |  |          |  |                
|Deferred Compensation             |  | 827,598                |  |                |  |           |  |          |  | 827,598         
|                                  |  |                        |  |                 |  |            |  |           |  |                 
|Total                             |  | 87,725,114             |  | 28,574,462      |  | 29,504,442 |  | 261,612   |  | 29,384,598      
|                                  |  |                        |  |                 |  |            |  |           |  |                 



The Federal Home Loan
Bank Advances (FHLB) consists of two separate programs. The first program is a Blanket Agreement for Advances and Security Agreement with the FHLB, under which our subsidiaries have pledged residential first-mortgage loans, commercial real estate
loans and investments securities as collateral to secure available lines of credit. The second program allows for advances under a warehouse line secured by our mortgage loans held for sale.



Our correspondent bank line of credit is with The Bankers Bank in Atlanta,
Georgia. The line is secured with the common stock of Security Bank of Bibb County (and indirectly the stock of Fairfield Financial as its subsidiary) and Security Bank of Houston County and is primarily used to provide capital injections to the
subsidiaries.



51



---

The $18.6 million of subordinated debentures above relate to our December 2002 offering of trust
preferred securities, the proceeds of which were used to retire holding company debt and to fund our acquisition of Security Bank of Jones County.



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



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



Off-Balance Sheet Arrangements



We are a party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of our customers. These
financial instruments consist of commitments to extend credit and standby letters of credit. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Standby
letters of credit are written conditional commitments issued by a bank to guarantee the performance of a customer to a third party. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. A
commitment involves, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. Our exposure to credit loss in the event of non-performance by the other party to the instrument is
represented by the contractual notional amount of the instrument.



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



The following table summarizes our off-balance-sheet financial instruments
whose contract amounts represented credit risk as of December 31, 2004:



|                                            |  |   |              
|------------------------------------------- |  | - | -------------
|Financial and performance letters of credit |  | $ | 8.1 million  
|Unfulfilled loan commitments                |  | $ | 150.8 million



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



Inflation



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



52



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



The information required by this Item is located in Item 7 under the heading Interest Rate Risk Management beginning on Page 48.



|Item 8 | FINANCIAL STATEMENTS
|------ | --------------------



The following consolidated financial statements of the Registrant and its subsidiaries are included on Exhibit 99.1 of this Annual Report on Form 10-K:



|                                                                                               |  | 
|---------------------------------------------------------------------------------------------- |  | 
|Consolidated Balance Sheets - December 31, 2004 and 2003                                       |  | 
|                                                                                               | 
|Consolidated Statements of Income - Years Ended December 31, 2004, 2003 and 2002               |  | 
|                                                                                               | 
|Consolidated Statements of Comprehensive Income - Years Ended December 31, 2004, 2003 and 2002 |  | 
|                                                                                               | 
|Consolidated Statements of Stockholders Equity - Years Ended December 31, 2004, 2003 and 2002 |  | 
|                                                                                               | 
|Consolidated Statements of Cash Flows - Years Ended December 31, 2004, 2003 and 2002           |  | 
|                                                                                               | 
|Notes to Consolidated Financial Statements                                                     |  | 



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



Not applicable.



|Item 9a | CONTROLS AND PROCEDURES
|------- | -----------------------



As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive
Officer and the Principal Financial and Accounting Officer, of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and principal Financial and Accounting Officer concluded that
our disclosure controls and procedures provide reasonable assurance of their effectiveness for gathering, analyzing and disclosing the information that we are required to disclose in the reports we file under the Securities Exchange Act of 1934,
within the time periods specified in the SECs rules and forms. Our Chief Executive Officer and Principal Financial and Accounting Officer also concluded that our disclosure controls and procedures provide reasonable assurance of their
effectiveness in timely alerting them to material information relating to our company (including its consolidated subsidiaries) required to be included in our periodic SEC filings. In connection with the new rules, we are in the process of further
reviewing and documenting our disclosure controls and procedures, including our internal controls and procedures for financial reporting, and may from time to time make changes designed to enhance their effectiveness and to ensure that our systems
evolve with our business.



There have been no significant
changes in our internal controls or in other factors that could significantly affect internal controls subsequent to the date of this evaluation, and there have been no corrective actions with respect to significant deficiencies or material
weaknesses.



MANAGEMENT REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING



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



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



53



---

SBKC management assessed the effectiveness of the companys internal control over financial
reporting as of December 31, 2004. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal ControlIntegrated Framework. Based on our assessment
we believe that, as of December 31, 2004, the companys internal control over financial reporting is effective based on those criteria.



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



/s/    H. AVERETT WALKERH. AVERETT WALKER Chief Executive OfficerMarch 10, 2005/s/    JAMES R. MCLEMOREJAMES R. McLEMORE Chief Financial and Accounting OfficerMarch 10, 2005




/s/    HOLLY L. MCDOWELLHOLLY L. McDOWELL Principal Accounting OfficerMarch 10, 2005




|Item 9b | OTHER INFORMATION
|------- | -----------------



The Company has previously disclosed all information required to be disclosed in a report on Form 8-K during the fourth quarter of 2004.



54



---

Part III



|Item 10 | DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS, COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
|------- | ------------------------------------------------------------------------------------------------------------------



Code of Ethics



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



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



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



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



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



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



Equity Compensation Plan Information



|                                                           |  |                                                                                             |  |                                                                             |       |                                                                                                                                           |        
|---------------------------------------------------------- |  | ------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------- | ----- | ----------------------------------------------------------------------------------------------------------------------------------------- | -------
|Plan Category                                              |  | Number of securitiesto
be issuedupon exercise ofoutstanding options,warrants and rights (a) |  | Weighted-averageexercise price ofoutstandingoptions, warrantsand rights (b) |       | Number of securitiesremaining availablefor future issuanceunder equitycompensation plans(excluding securitiesreflected in column (a)) (c)
|                                                           |  |                                                                                             | 
|Equity compensation plans approved by security holders     |  |                                                                                             |  |                                                                             |       |                                                                                                                                           |        
|                                                           |  |                                                                                             | 
|(i) 1999 Incentive Stock Option Plan                       |  | 65,500                                                                                      |  | $                                                                           | 16.95 |                                                                                                                                           | -0-    
|                                                           |  |                                                                                             | 
|(ii) 2002 Incentive Stock Option Plan                      |  | 117,000                                                                                     |  | $                                                                           | 20.29 |                                                                                                                                           | 137,750
|                                                           |  |                                                                                             | 
|(iii) 2004 Incentive Stock Option
Plan                     |  | 218,000                                                                                     |  | $                                                                           | 31.43 |                                                                                                                                           | 82,000 
|                                                           |  |                                                                                             | 
|Equity compensation plans not approved by security holders |  |                                                                                             |  |                                                                             |       |                                                                                                                                           |        
|                                                           |  |                                                                                             | 
|(i) 2003 Restricted Stock Bonus Plan                       |  | 5,000                                                                                       |  |                                                                             | -0-   |                                                                                                                                           | -0-    
|                                                           |  |                                                                                             | 
|Total                                                      |  | 405,500                                                                                     |  | $                                                                           | 25.81 |                                                                                                                                           | 219,750

---

|* | Figures above are as of December 31, 2004.
|- | ------------------------------------------



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



55



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



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



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



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



56



---

Part IV



|Item 15 | EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES
|------- | --------------------------------------------



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



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



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



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



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



57



---

SIGNATURES



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



SECURITY BANK CORPORATION/s/    H. AVERETT WALKERH. AVERETT WALKERPresident/Director/Chief Executive OfficerDate: March 15, 2005




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



|                                                                    |  |  |  |                     
|------------------------------------------------------------------- |  |  |  | --------------------
|/s/    H. AVERETT
WALKERH. AVERETT WALKER,
Director                 |  |  |  | Date: March 15, 2005
|                                                                    |  | 
|/s/    EDWARD M. BECKHAM,
IIEDWARD M. BECKHAM, II,
Director         |  |  |  | Date: March 15, 2005
|                                                                    |  | 
|/s/    ALFORD C.
BRIDGESALFORD C. BRIDGES,
Director                 |  |  |  | Date: March 15, 2005
|                                                                    |  | 
|/s/    FRANK H. CHILDS,
JR.FRANK H. CHILDS, JR.,
Director           |  |  |  | Date: March 15, 2005
|                                                                    |  | 
|/s/    Thad G. Childs, Jr.THAD G. CHILDS, JR., Director             |  |  |  | Date: March 15, 2005
|                                                                    |  | 
|/s/    BENJAMIN W. GRIFFITH,
IIIBENJAMIN W. GRIFFITH, III,
Director |  |  |  | Date: March 15, 2005
|                                                                    |  | 
|/s/    ROBERT C. HAMROBERT C. HAM, Director                         |  |  |  | Date: March 15, 2005
|                                                                    |  | 
|/s/    RUTHIE G.
MCMICHAEL                                          |  |  |  | Date: March 15, 2005
|RUTHIE G. McMICHAEL, Director                                       |  |  |  |                     
|                                                                    |  | 
|/s/    ROBERT T. MULLIS                                             |  |  |  | Date: March 15, 2005
|ROBERT T. MULLIS, Director                                          |  |  |  |                     
|                                                                    |  | 
|/s/    BEN G. PORTER                                                |  |  |  | Date: March 15, 2005
|BEN G. PORTER, Director                                             |  |  |  |                     
|                                                                    |  | 
|/s/    JOHN W. RAMSEY                                               |  |  |  | Date: March 15, 2005
|JOHN W. RAMSEY, Director                                            |  |  |  |                     
|                                                                    |  | 
|/s/    ROBERT M. STALNAKER                                          |  |  |  | Date: March 15, 2005
|ROBERT M. STALNAKER, Director                                       |  |  |  |                     



58



---

|                                       |  |  |  |                     
|-------------------------------------- |  |  |  | --------------------
|                                       |  | 
|/s/    H. CULLEN TALTON,
JR.           |  |  |  | Date: March 15, 2005
|H. CULLEN TALTON, JR., Director        |  |  |  |                     
|                                       |  | 
|/s/    JOE E. TIMBERLAKE, III          |  |  |  | Date: March 15, 2005
|JOE E. TIMBERLAKE, III, Director       |  |  |  |                     
|                                       |  | 
|/s/    LARRY WALKER                    |  |  |  | Date: March 15, 2005
|LARRY WALKER, Director                 |  |  |  |                     
|                                       |  | 
|/s/    RICHARD W. WHITE                |  |  |  | Date: March 15, 2005
|RICHARD W. WHITE, Director             |  |  |  |                     
|                                       |  | 
|/s/    RICHARD A.
COLLINSWORTH         |  |  |  | Date: March 15, 2005
|RICHARD A. COLLINSWORTH                |  |  |  |                     
|Executive Vice President               |  |  |  |                     
|                                       |  | 
|/s/    JAMES R.
MCLEMORE               |  |  |  | Date: March 15, 2005
|JAMES R. McLEMORE                      |  |  |  |                     
|Chief Financial and Accounting Officer |  |  |  |                     
|                                       |  | 
|/s/    JACKIE H. MILLER                |  |  |  | Date: March 15, 2005
|JACKIE H. MILLER                       |  |  |  |                     
|Secretary                              |  |  |  |                     



59



---

EXHIBIT INDEX



|            |  |                                                                                                                                                                                                                                                                                           
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                                                                                                                                               
|            | 
|3.1         |  | Articles of Incorporation (incorporated by reference to Exhibit 3(a) to the registrants Registration Statement on Form S-4 (File No. 33-80076), filed with the Commission on June 13,
1994).                                                                                             
|            | 
|3.2         |  | Amendment to Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.2 to the registrants Registration Statement on Form S-4 (File No. 333-49977) filed with the
Commission on April 13, 1998).                                                                    
|            | 
|3.3         |  | Bylaws of SBKC, as amended (incorporated by reference to Exhibit 3.2 to SBKCs Registration Statement on Form S-4 (File No. 333-49977) filed with the Commission on April 13,
1998).                                                                                                      
|            | 
|4.1         |  | See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions of Articles of Incorporation and Bylaws, as amended, which define the rights of its shareholders.                                                                                                                                       
|            | 
|4.2         |  | Form of Stock Certificate (incorporated herein by reference as Exhibit 4.1 to the registrants Registration Statement on Form S-4 (File No. 333-49977) filed with the Commission on April
13, 1998).                                                                                      
|            | 
|10.1        |  | 1996 Incentive Stock Option Plan (incorporated by reference as Exhibit 10(c) to the registrants Form SB-2 (File No. 333-11371) filed with the Commission on September 4,
1996).                                                                                                          
|            | 
|10.2        |  | 1999 Incentive Stock Option Plan (incorporated by reference as Appendix to the registrants definitive proxy statement (File No. 000-23261) filed on March 30, 1999).                                                                                                                     
|            | 
|10.3        |  | 2002 Incentive Stock Option Plan (incorporated by reference as Appendix A to the registrants definitive proxy statement (File No. 000-23261) filed on March 15, 2002).                                                                                                                   
|            | 
|10.4        |  | Employment Agreement with H. Averett Walker dated January 1, 2002 (incorporated herein by reference as Exhibit 10.4 to SBKCs Registration Statement on Form S-4 (File No. 333-103554)
filed with the Commission on March 3, 2003).                                                       
|            | 
|10.5        |  | Employment Agreement with Richard A. Collinsworth dated January 1, 2002 (incorporated herein by reference as Exhibit 10.5 to SBKCs Registration Statement on Form S-4 (File No.
333-103554) filed with the Commission on March 3, 2003).                                                 
|            | 
|10.6        |  | Employment Agreement with James R. McLemore dated December 1, 2002 (incorporated herein by reference as Exhibit 10.6 to SBKCs Registration Statement on Form S-4 (File No. 333-103554)
filed with the Commission on March 3, 2003).                                                      
|            | 
|10.7        |  | Asset Purchase Agreement (Fairfield Financial) (incorporated by reference as Exhibit 2 to registrants Form 10-Q (Commission File No. 000-23261) filed on August 10,
2000).                                                                                                               
|            | 
|10.8        |  | Employment Agreement between Security Bank Corporation, Security Interim Bank and Thad G. Childs, Jr. dated May 30, 2003 (incorporated herein by reference as Exhibit 10.7 to SBKCs
Registration Statement on Form S-4 (File No. 333-103554) filed with the Commission on March 3, 2003).
|            | 
|11.1        |  | Statement of Computation of Earnings Per Share.                                                                                                                                                                                                                                           
|            | 
|21.1        |  | Schedule of Subsidiaries of Security Bank Corporation.                                                                                                                                                                                                                                    
|            | 
|23.1        |  | Consent of McNair, McLemore, Middlebrooks & Co., LLP.                                                                                                                                                                                                                                     
|            | 
|24.1        |  | Power of Attorney relating to this Form 10-K is set forth on the signature page of this Form 10-K.                                                                                                                                                                                        
|            | 
|31.1        |  | Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                     
|            | 
|31.2        |  | Certificate of the Chief Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                      
|            | 
|32.1        |  | Certificate of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                         
|            | 
|99.1        |  | Consolidated Financial Statements of Security Bank Corporation as of December 31, 2004 and 2003.                                                                                                                                                                                          



60