EXHIBIT 13



SECURITY BANK CORPORATION AND SUBSIDIARIES

MACON, GEORGIA



CONSOLIDATED FINANCIAL
STATEMENTS AS OF

DECEMBER 31, 2005 AND 2004 AND

REPORT OF INDEPENDENT ACCOUNTANTS



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



CONTENTS



|                                                           |  |   
|---------------------------------------------------------- |  | --
|Report of Independent Registered Public Accounting Firm    |  | 1 
|                                                           | 
|Consolidated Balance Sheets                                |  | 4 
|                                                           | 
|Consolidated Statements of Income                          |  | 6 
|                                                           | 
|Consolidated Statements of Comprehensive Income            |  | 7 
|                                                           | 
|Consolidated Statements of Changes in Stockholders Equity |  | 8 
|                                                           | 
|Consolidated Statements of Cash Flows                      |  | 9 
|                                                           | 
|Notes to Consolidated Financial Statements                 |  | 10



---

MCNAIR, MCLEMORE,
MIDDLEBROOKS & CO., LLP

CERTIFIED PUBLIC ACCOUNTANTS

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

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

www.mmmcpa.com



RALPH S. McLEMORE, SR., CPA (1902-1981)

SIDNEY B. McNAIR, CPA (1913-1992)

---



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



March 16, 2006



REPORT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Stockholders

Security Bank Corporation



We have audited the accompanying consolidated balance sheets
of Security Bank Corporation and Subsidiaries as of December 31, 2005 and 2004 and the related consolidated statements of income, comprehensive income, changes in stockholders equity and cash flows for each of the years in the
three-year period ended December 31, 2005. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.



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



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Security Bank
Corporation and Subsidiaries as of December 31, 2005 and 2004, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2005 in conformity with accounting principles generally
accepted in the United States of America.



We also have
audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Security Bank Corporation and Subsidiaries internal control over financial reporting as of December 31, 2005,
based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 16, 2006 expressed an unqualified opinion on
managements assessment of internal control over financial reporting and an unqualified opinion on the effectiveness of internal control over financial reporting.



LOGO

McNair, McLemore, Middlebrooks & Co., LLP



1



---

MCNAIR, MCLEMORE,
MIDDLEBROOKS & CO., LLP

CERTIFIED PUBLIC ACCOUNTANTS

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

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

www.mmmcpa.com



RALPH S. McLEMORE, SR., CPA (1902-1981)

SIDNEY B. McNAIR, CPA (1913-1992)

---



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



March 16, 2006



REPORT OF INDEPENDENT

REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors

Security Bank Corporation



We have audited managements assessment, included in the accompanying
Management Report on Internal Control over Financial Reporting, that Security Bank Corporation and Subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Security Bank Corporations management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on managements assessment and an opinion on the effectiveness of the Companys internal control over financial
reporting based on our audit.



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



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



2



---

As indicated in the Management Report on Internal Control over Financial Reporting, managements
assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of assets and liabilities of SouthBank (North Metro) acquired on May 31, 2005 or Rivoli BanCorp, Inc. (Rivoli)
acquired on December 31, 2005, which are both included in the 2005 consolidated financial statements of Security Bank Corporation and constituted $420 million of total assets as of December 31, 2005 and $7 million in revenues for the year
then ended. Our audit of internal control over financial reporting of Security Bank Corporation also did not include an evaluation of the internal control over financial reporting of North Metro or Rivoli.



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



In our
opinion, managements assessment that Security Bank Corporation and Subsidiaries maintained effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria
established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, Security Bank Corporation and Subsidiaries maintained, in all material respects,
effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.



We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the consolidated financial statements of Security Bank Corporation and Subsidiaries and our report dated March 16, 2006, expressed an unqualified opinion.



LOGO

McNair, McLemore, Middlebrooks & Co., LLP



3



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SECURITY BANK CORPORATION AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

DECEMBER 31



|                                                                                                              |  |      |               |   |      |   |               |  
|------------------------------------------------------------------------------------------------------------- |  | ---- | ------------- | - | ---- | - | ------------- | -
|ASSETS                                                                                                        |  |      |               |   |      |   |               |  
|                                                                                                              |  | 2005 |               |   | 2004 |  
|Cash and Cash Equivalents                                                                                     |  |      |               |   |      |   |               |  
|Cash and Due from Banks                                                                                       |  | $    | 69,380,188    |   |      | $ | 26,862,022    |  
|Federal Funds Sold                                                                                            |  |      | 33,712,000    |   |      |   | 17,484,000    |  
|                                                                                                              |  |      |               |   |      |   |               |  
|                                                                                                              |  |      | 103,092,188   |   |      |   | 44,346,022    |  
|                                                                                                              |  |      |               |   |      |   |               |  
|Interest-Bearing Deposits With Other Banks                                                                    |  |      | 6,380,057     |   |      |   | 2,857,573     |  
|                                                                                                              |  |      |               |   |      |   |               |  
|Investment Securities                                                                                         |  |      |               |   |      |   |               |  
|Available for Sale, At Fair Value                                                                             |  |      | 143,662,487   |   |      |   | 104,109,721   |  
|Held to Maturity, At Cost (Fair Value of $353,741 and $2,404,040 at December 31, 2005 and 2004, Respectively) |  |      | 349,946       |   |      |   | 2,383,985     |  
|                                                                                                              |  |      |               |   |      |   |               |  
|                                                                                                              |  |      | 144,012,433   |   |      |   | 106,493,706   |  
|                                                                                                              |  |      |               |   |      |   |               |  
|Restricted Stocks, at Cost                                                                                    |  |      | 6,973,800     |   |      |   | 4,918,300     |  
|                                                                                                              |  |      |               |   |      |   |               |  
|Loans Held for Sale                                                                                           |  |      | 5,562,380     |   |      |   | 7,507,095     |  
|                                                                                                              |  |      |               |   |      |   |               |  
|Loans                                                                                                         |  |      | 1,273,682,825 |   |      |   | 846,818,162   |  
|Allowance for Loan Losses                                                                                     |  |      | (16,148,259   | ) |      |   | (10,902,783   | )
|Unearned Interest and Fees                                                                                    |  |      | (1,563,640    | ) |      |   | (1,053,267    | )
|                                                                                                              |  |      |               |   |      |   |               |  
|                                                                                                              |  |      | 1,255,970,926 |   |      |   | 834,862,112   |  
|                                                                                                              |  |      |               |   |      |   |               |  
|Premises and Equipment                                                                                        |  |      | 29,602,189    |   |      |   | 19,105,286    |  
|                                                                                                              |  |      |               |   |      |   |               |  
|Long-Lived Assets Held for Sale                                                                               |  |      | 2,410,000     |   |      |   |              |  
|                                                                                                              |  |      |               |   |      |   |               |  
|Other Real Estate (Net of Allowance of $175,138 and $60,912 in 2005 and 2004, Respectively)                   |  |      | 2,394,224     |   |      |   | 1,991,176     |  
|                                                                                                              |  |      |               |   |      |   |               |  
|Goodwill                                                                                                      |  |      | 74,582,086    |   |      |   | 28,579,479    |  
|                                                                                                              |  |      |               |   |      |   |               |  
|Core Deposit Intangible (Net of Amortization of $533,333 and $271,006 in 2005 and 2004, Respectively)         |  |      | 4,687,006     |   |      |   | 584,803       |  
|                                                                                                              |  |      |               |   |      |   |               |  
|Other Assets                                                                                                  |  |      | 26,745,585    |   |      |   | 12,238,998    |  
|                                                                                                              |  |      |               |   |      |   |               |  
|Total Assets                                                                                                  |  | $    | 1,662,412,874 |   |      | $ | 1,063,484,550 |  
|                                                                                                              |  |      |               |   |      |   |               |  



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



4



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SECURITY BANK CORPORATION AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS

DECEMBER 31



|                                                                                                                                                           |  |      |               |   |      |   |               |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------------- | - | ---- | - | ------------- | -
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                       |  |      |               |   |      |   |               |  
|                                                                                                                                                           |  | 2005 |               |   | 2004 |  
|Deposits                                                                                                                                                   |  |      |               |   |      |   |               |  
|Noninterest-Bearing                                                                                                                                        |  | $    | 156,697,897   |   |      | $ | 119,501,571   |  
|Interest-Bearing                                                                                                                                           |  |      | 1,134,555,287 |   |      |   | 723,056,181   |  
|                                                                                                                                                           |  |      |               |   |      |   |               |  
|                                                                                                                                                           |  |      | 1,291,253,184 |   |      |   | 842,557,752   |  
|                                                                                                                                                           |  |      |               |   |      |   |               |  
|Borrowed Money                                                                                                                                             |  |      |               |   |      |   |               |  
|Federal Funds Purchased and Securities Sold Under Agreement to Repurchase                                                                                  |  |      | 43,875,620    |   |      |   | 21,811,465    |  
|Subordinated Debentures                                                                                                                                    |  |      | 41,238,000    |   |      |   | 18,557,000    |  
|Other Borrowed Money                                                                                                                                       |  |      | 87,027,000    |   |      |   | 67,135,516    |  
|                                                                                                                                                           |  |      |               |   |      |   |               |  
|                                                                                                                                                           |  |      | 172,140,620   |   |      |   | 107,503,981   |  
|                                                                                                                                                           |  |      |               |   |      |   |               |  
|Other Liabilities                                                                                                                                          |  |      | 19,714,198    |   |      |   | 6,751,835     |  
|                                                                                                                                                           |  |      |               |   |      |   |               |  
|Stockholders Equity                                                                                                                                       |  |      |               |   |      |   |               |  
|Common Stock, Par Value $1 per Share; Authorized 25,000,000 Shares, Issued 14,406,696 and 11,659,546 Shares as of December 31, 2005 and
2004, Respectively |  |      | 14,406,696    |   |      |   | 11,659,546    |  
|Paid-In Capital                                                                                                                                            |  |      | 121,480,964   |   |      |   | 62,348,500    |  
|Retained Earnings                                                                                                                                          |  |      | 45,569,642    |   |      |   | 32,714,960    |  
|Restricted Stock  Unearned Compensation                                                                                                                   |  |      | (222,860      | ) |      |   | (74,697       | )
|Accumulated Other Comprehensive (Loss) Income, Net of (Benefit) Tax                                                                                        |  |      | (1,599,442    | ) |      |   | 352,801       |  
|                                                                                                                                                           |  |      |               |   |      |   |               |  
|                                                                                                                                                           |  |      | 179,635,000   |   |      |   | 107,001,110   |  
|Treasury Stock (19,736 Shares), at Cost                                                                                                                    |  |      | (330,128      | ) |      |   | (330,128      | )
|                                                                                                                                                           |  |      |               |   |      |   |               |  
|                                                                                                                                                           |  |      | 179,304,872   |   |      |   | 106,670,982   |  
|                                                                                                                                                           |  |      |               |   |      |   |               |  
|Total Liabilities and Stockholders Equity                                                                                                                 |  | $    | 1,662,412,874 |   |      | $ | 1,063,484,550 |  
|                                                                                                                                                           |  |      |               |   |      |   |               |  





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



5



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SECURITY BANK CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31



|                                                    |  |      |            |   |      |   |            |  |   |           
|--------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- |  | - | ----------
|                                                    |  | 2005 |            |   | 2004 |   | 2003      
|Interest Income                                     |  |      |            |   |      |   |            |  |   |           
|Loans, Including Fees                               |  | $    | 72,972,140 |   |      | $ | 49,722,831 |  | $ | 39,938,820
|Federal Funds Sold                                  |  |      | 475,505    |   |      |   | 114,719    |  |   | 62,621    
|Deposits with Other Banks                           |  |      | 112,195    |   |      |   | 25,041     |  |   | 9,767     
|Investment Securities                               |  |      |            |   |      |   |            |  |   |           
|U. S. Treasury                                      |  |      | 20,123     |   |      |   | 39,773     |  |   | 78,845    
|U. S. Government Agencies                           |  |      | 3,734,343  |   |      |   | 3,160,028  |  |   | 2,032,397 
|State, County and Municipal                         |  |      | 625,992    |   |      |   | 710,653    |  |   | 586,218   
|Other Investments                                   |  |      | 251,832    |   |      |   | 153,294    |  |   | 186,020   
|                                                    |  |      |            |   |      |   |            |  |   |           
|                                                    |  |      | 78,192,130 |   |      |   | 53,926,339 |  |   | 42,894,688
|                                                    |  |      |            |   |      |   |            |  |   |           
|Interest Expense                                    |  |      |            |   |      |   |            |  |   |           
|Deposits                                            |  |      | 23,727,533 |   |      |   | 11,701,538 |  |   | 10,319,415
|Federal Funds Purchased                             |  |      | 527,348    |   |      |   | 144,625    |  |   | 104,731   
|Demand Notes Issued to the U.S. Treasury            |  |      | 376        |   |      |   | 8          |  |   | 3,662     
|Other Borrowed Money                                |  |      | 3,584,022  |   |      |   | 2,526,696  |  |   | 2,484,479 
|                                                    |  |      |            |   |      |   |            |  |   |           
|                                                    |  |      | 27,839,279 |   |      |   | 14,372,867 |  |   | 12,912,287
|                                                    |  |      |            |   |      |   |            |  |   |           
|Net Interest Income                                 |  |      | 50,352,851 |   |      |   | 39,553,472 |  |   | 29,982,401
|Provision for Loan Losses                           |  |      | 2,832,845  |   |      |   | 2,818,796  |  |   | 2,859,143 
|                                                    |  |      |            |   |      |   |            |  |   |           
|Net Interest Income After Provision for Loan Losses |  |      | 47,520,006 |   |      |   | 36,734,676 |  |   | 27,123,258
|                                                    |  |      |            |   |      |   |            |  |   |           
|Noninterest Income                                  |  |      |            |   |      |   |            |  |   |           
|Service Charges on Deposits                         |  |      | 7,351,360  |   |      |   | 6,450,199  |  |   | 5,041,611 
|Other Service Charges, Commissions and Fees         |  |      | 4,477,742  |   |      |   | 3,306,114  |  |   | 2,934,877 
|Mortgage Banking Income                             |  |      | 4,539,242  |   |      |   | 4,930,747  |  |   | 9,211,326 
|Other                                               |  |      | 240,117    |   |      |   | 114,062    |  |   | 59,124    
|Securities (Losses) Gains                           |  |      | (5,598     | ) |      |   | 12,703     |  |   | 55,484    
|                                                    |  |      |            |   |      |   |            |  |   |           
|                                                    |  |      | 16,602,863 |   |      |   | 14,813,825 |  |   | 17,302,422
|                                                    |  |      |            |   |      |   |            |  |   |           
|Noninterest Expenses                                |  |      |            |   |      |   |            |  |   |           
|Salaries and Employee Benefits                      |  |      | 22,811,591 |   |      |   | 18,630,030 |  |   | 18,145,968
|Occupancy and Equipment                             |  |      | 3,832,756  |   |      |   | 3,364,670  |  |   | 2,915,892 
|Office Supplies and Printing                        |  |      | 649,289    |   |      |   | 620,061    |  |   | 714,014   
|Telephone                                           |  |      | 829,133    |   |      |   | 407,532    |  |   | 584,302   
|Loss on Foreclosed Property                         |  |      | 82,587     |   |      |   | 160,218    |  |   | 538,956   
|Marketing Expenses                                  |  |      | 1,501,231  |   |      |   | 1,248,004  |  |   | 1,242,256 
|Professional Fees                                   |  |      | 1,480,927  |   |      |   | 1,118,446  |  |   | 1,102,955 
|Other                                               |  |      | 7,440,084  |   |      |   | 6,740,580  |  |   | 5,595,520 
|                                                    |  |      |            |   |      |   |            |  |   |           
|                                                    |  |      | 38,627,598 |   |      |   | 32,289,541 |  |   | 30,839,863
|                                                    |  |      |            |   |      |   |            |  |   |           
|Income Before Income Taxes                          |  |      | 25,495,271 |   |      |   | 19,258,960 |  |   | 13,585,817
|Income Taxes                                        |  |      | 9,310,338  |   |      |   | 6,940,241  |  |   | 4,938,447 
|                                                    |  |      |            |   |      |   |            |  |   |           
|Net Income                                          |  | $    | 16,184,933 |   |      | $ | 12,318,719 |  | $ | 8,647,370 
|                                                    |  |      |            |   |      |   |            |  |   |           
|Basic Earnings Per Share                            |  | $    | 1.31       |   |      | $ | 1.10       |  | $ | 0.99      
|                                                    |  |      |            |   |      |   |            |  |   |           
|Diluted Earnings Per Share                          |  | $    | 1.27       |   |      | $ | 1.07       |  | $ | 0.96      
|                                                    |  |      |            |   |      |   |            |  |   |           
|Weighted Average Shares Outstanding                 |  |      | 12,393,980 |   |      |   | 11,156,372 |  |   | 8,725,276 
|                                                    |  |      |            |   |      |   |            |  |   |           
|Dividends Per Share                                 |  | $    | 0.26       |   |      | $ | 0.22       |  | $ | 0.20      
|                                                    |  |      |            |   |      |   |            |  |   |           



The accompanying notes
are an integral part of these statements.



6



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31



|                                                     |  |      |            |   |      |   |            |      |  |   |           |  
|---------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | --------- | -
|                                                     |  | 2005 |            |   | 2004 |   |            | 2004 | 
|Net Income                                           |  | $    | 16,184,933 |   |      | $ | 12,318,719 |      |  | $ | 8,647,370 |  
|                                                     |  |      |            |   |      |   |            |      |  |   |           |  
|Other Comprehensive Income, Net of Tax               |  |      |            |   |      |   |            |      |  |   |           |  
|Gains (Losses) on Securities Arising During the Year |  |      | (1,955,938 | ) |      |   | (525,679   | )    |  |   | 35,604    |  
|Reclassification Adjustment                          |  |      | 3,695      |   |      |   | (8,384     | )    |  |   | (36,619   | )
|                                                     |  |      |            |   |      |   |            |      |  |   |           |  
|Unrealized Losses on Securities                      |  |      | (1,952,243 | ) |      |   | (534,063   | )    |  |   | (1,015    | )
|                                                     |  |      |            |   |      |   |            |      |  |   |           |  
|Comprehensive Income                                 |  | $    | 14,232,690 |   |      | $ | 11,784,656 |      |  | $ | 8,646,355 |  
|                                                     |  |      |            |   |      |   |            |      |  |   |           |  







The accompanying notes are an integral part of these statements.



7



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SECURITY BANK CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003



|                                                                                   |  |        |            |   |             |   |            |                 |  |   |                  |   |  |                                      |            |   |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   |             |  
|---------------------------------------------------------------------------------- |  | ------ | ---------- | - | ----------- | - | ---------- | --------------- |  | - | ---------------- | - |  | ------------------------------------ | ---------- | - | ------------------------------------------ | - | -------- | ------------- |  | - | ---------- | - |  | - | -------- | - |  | - | ----------- | -
|                                                                                   |  | Shares |            |   | CommonStock |   |            | Paid-In Capital |  |   | RetainedEarnings |   |  | RestrictedStock-UnearnedCompensation |            |   | AccumulatedOtherComprehensiveIncome (Loss) |   |          | TreasuryStock |  |   | Total      |  
|Balance, December 31, 2002                                                         |  | $      | 6,796,634  |   |             | $ | 6,796,634  |                 |  | $ | 13,352,595       |   |  | $                                    | 18,511,115 |   |                                            | $ |         |               |  | $ | 887,879    |   |  | $ |         |   |  | $ | 39,548,223  |  
|Shares Issued in Connection with Contingent Payments                               |  |        | 64,834     |   |             |   | 64,834     |                 |  |   | 817,850          |   |  |                                      | (32,417    | ) |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   | 850,267     |  
|Stock Options Exercised                                                            |  |        | 53,130     |   |             |   | 53,130     |                 |  |   | 413,619          |   |  |                                      | (26,565    | ) |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   | 440,184     |  
|Issuance of Restricted Stock                                                       |  |        | 10,000     |   |             |   | 10,000     |                 |  |   | 125,050          |   |  |                                      | (5,000     | ) |                                            |   | (130,050 | )             |  |   |            |   |  |   |          |   |  |   |            |  
|Amortization of Unearned Compensation                                              |  |        |            |   |             |   |            |                 |  |   |                  |   |  |                                      |            |   |                                            |   | 26,013   |               |  |   |            |   |  |   |          |   |  |   | 26,013      |  
|Cashless Exercise of Stock Options                                                 |  |        |            |   |             |   |            |                 |  |   |                  |   |  |                                      |            |   |                                            |   |          |               |  |   |            |   |  |   | (296,837 | ) |  |   | (296,837    | )
|Common Stock Issued in Acquisition                                                 |  |        | 3,142,000  |   |             |   | 3,142,000  |                 |  |   | 26,870,652       |   |  |                                      | (1,571,000 | ) |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   | 28,441,652  |  
|Unrealized Loss on Securities Available for Sale, Net of Tax Benefit of $523       |  |        |            |   |             |   |            |                 |  |   |                  |   |  |                                      |            |   |                                            |   |          |               |  |   | (1,015     | ) |  |   |          |   |  |   | (1,015      | )
|Cash Dividends                                                                     |  |        |            |   |             |   |            |                 |  |   |                  |   |  |                                      | (1,847,129 | ) |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   | (1,847,129  | )
|Net Income                                                                         |  |        |            |   |             |   |            |                 |  |   |                  |   |  |                                      | 8,647,370  |   |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   | 8,647,370   |  
|                                                                                   |  |        |            |   |             |   |            |                 |  |   |                  |   |  |                                      |            |   |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   |             |  
|Balance, December 31, 2003                                                         |  |        | 10,066,598 |   |             |   | 10,066,598 |                 |  |   | 41,579,766       |   |  |                                      | 23,676,374 |   |                                            |   | (104,037 | )             |  |   | 886,864    |   |  |   | (296,837 | ) |  |   | 75,808,728  |  
|Shares Issued in Connection with Contingent Payments                               |  |        | 111,550    |   |             |   | 111,550    |                 |  |   | 1,632,425        |   |  |                                      | (55,775    | ) |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   | 1,688,200   |  
|Stock Options Exercised                                                            |  |        | 124,034    |   |             |   | 124,034    |                 |  |   | 584,235          |   |  |                                      | (62,017    | ) |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   | 646,252     |  
|Stock Based Compensation Awards                                                    |  |        |            |   |             |   |            |                 |  |   | 313,730          |   |  |                                      |            |   |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   | 313,730     |  
|Canceled Restricted Stock                                                          |  |        | (320       | ) |             |   | (320       | )               |  |   | (4,002           | ) |  |                                      | 160        |   |                                            |   | 4,162    |               |  |   |            |   |  |   |          |   |  |   |            |  
|Amortization of Unearned Compensation                                              |  |        |            |   |             |   |            |                 |  |   |                  |   |  |                                      |            |   |                                            |   | 25,178   |               |  |   |            |   |  |   |          |   |  |   | 25,178      |  
|Cashless Exercise of Stock Options                                                 |  |        |            |   |             |   |            |                 |  |   |                  |   |  |                                      |            |   |                                            |   |          |               |  |   |            |   |  |   | (33,291  | ) |  |   | (33,291     | )
|Shares Issued in Connection with Stock Offering                                    |  |        | 1,352,400  |   |             |   | 1,352,400  |                 |  |   | 18,165,224       |   |  |                                      | (676,200   | ) |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   | 18,841,424  |  
|Shares Issued in Connection with Employee Stock Purchase Plan                      |  |        | 5,284      |   |             |   | 5,284      |                 |  |   | 77,122           |   |  |                                      | (2,642     | ) |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   | 79,764      |  
|Unrealized Loss on Securities Available for Sale, Net of Tax Benefit of $313,893   |  |        |            |   |             |   |            |                 |  |   |                  |   |  |                                      |            |   |                                            |   |          |               |  |   | (534,063   | ) |  |   |          |   |  |   | (534,063    | )
|Cash Dividends                                                                     |  |        |            |   |             |   |            |                 |  |   |                  |   |  |                                      | (2,483,659 | ) |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   | (2,483,659  | )
|Net Income                                                                         |  |        |            |   |             |   |            |                 |  |   |                  |   |  |                                      | 12,318,719 |   |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   | 12,318,719  |  
|                                                                                   |  |        |            |   |             |   |            |                 |  |   |                  |   |  |                                      |            |   |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   |             |  
|Balance, December 31, 2004                                                         |  |        | 11,659,546 |   |             |   | 11,659,546 |                 |  |   | 62,348,500       |   |  |                                      | 32,714,960 |   |                                            |   | (74,697  | )             |  |   | 352,801    |   |  |   | (330,128 | ) |  |   | 106,670,982 |  
|Shares Issued in Connection with Contingent Payments                               |  |        | 114,028    |   |             |   | 114,028    |                 |  |   | 2,305,882        |   |  |                                      | (57,014    | ) |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   | 2,362,896   |  
|Stock Options Exercised                                                            |  |        | 20,000     |   |             |   | 20,000     |                 |  |   | 186,500          |   |  |                                      |            |   |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   | 206,500     |  
|Stock Based Compensation Awards                                                    |  |        |            |   |             |   |            |                 |  |   | 478,427          |   |  |                                      |            |   |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   | 478,427     |  
|Issuance of Restricted Stock                                                       |  |        | 9,156      |   |             |   | 9,156      |                 |  |   | 190,856          |   |  |                                      |            |   |                                            |   | (200,012 | )             |  |   |            |   |  |   |          |   |  |   |            |  
|Amortization of Unearned Compensation                                              |  |        |            |   |             |   |            |                 |  |   |                  |   |  |                                      |            |   |                                            |   | 51,849   |               |  |   |            |   |  |   |          |   |  |   | 51,849      |  
|Shares Issued in Acquisitions                                                      |  |        | 2,594,295  |   |             |   | 2,594,295  |                 |  |   | 55,798,996       |   |  |                                      |            |   |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   | 58,393,291  |  
|Shares Issued in Connection with Employee Stock Purchase Plan                      |  |        | 9,671      |   |             |   | 9,671      |                 |  |   | 171,803          |   |  |                                      | (1,917     | ) |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   | 179,557     |  
|Unrealized Loss on Securities Available for Sale, Net of Tax Benefit of $1,029,572 |  |        |            |   |             |   |            |                 |  |   |                  |   |  |                                      |            |   |                                            |   |          |               |  |   | (1,952,243 | ) |  |   |          |   |  |   | (1,952,243  | )
|Cash Dividends                                                                     |  |        |            |   |             |   |            |                 |  |   |                  |   |  |                                      | (3,271,320 | ) |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   | (3,271,320  | )
|Net Income                                                                         |  |        |            |   |             |   |            |                 |  |   |                  |   |  |                                      | 16,184,933 |   |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   | 16,184,933  |  
|                                                                                   |  |        |            |   |             |   |            |                 |  |   |                  |   |  |                                      |            |   |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   |             |  
|Balance, December 31, 2005                                                         |  |        | 14,406,696 |   |             | $ | 14,406,696 |                 |  | $ | 121,480,964      |   |  | $                                    | 45,569,642 |   |                                            | $ | (222,860 | )             |  | $ | (1,599,442 | ) |  | $ | (330,128 | ) |  | $ | 179,304,872 |  
|                                                                                   |  |        |            |   |             |   |            |                 |  |   |                  |   |  |                                      |            |   |                                            |   |          |               |  |   |            |   |  |   |          |   |  |   |             |  



The accompanying notes
are an integral part of these statements.



8



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31



|                                                                                   |  |      |              |   |      |   |              |      |  |   |              |  
|---------------------------------------------------------------------------------- |  | ---- | ------------ | - | ---- | - | ------------ | ---- |  | - | ------------ | -
|                                                                                   |  | 2005 |              |   | 2004 |   |              | 2003 | 
|Cash Flows from Operating Activities                                               |  |      |              |   |      |   |              |      |  |   |              |  
|Net Income                                                                         |  | $    | 16,184,933   |   |      | $ | 12,318,719   |      |  | $ | 8,647,370    |  
|Adjustments to Reconcile Net Income to Net Cash Provided from Operating Activities |  |      |              |   |      |   |              |      |  |   |              |  
|Expensing of Stock Options                                                         |  |      | 478,427      |   |      |   | 313,730      |      |  |   |             |  
|Depreciation, amortization and accretion                                           |  |      | 917,760      |   |      |   | 2,353,716    |      |  |   | 1,643,551    |  
|Provision for Loan Losses                                                          |  |      | 2,832,845    |   |      |   | 2,818,796    |      |  |   | 2,859,143    |  
|Deferred Income Tax (Benefit) Expense                                              |  |      | (93,521      | ) |      |   | (58,245      | )    |  |   | 179,350      |  
|Securities Gains (Losses)                                                          |  |      | 5,598        |   |      |   | (12,703      | )    |  |   | (55,484      | )
|Loss on Sale of Other Real Estate                                                  |  |      | 82,587       |   |      |   | 160,218      |      |  |   | 538,956      |  
|Unrealized Loss on Other Real Estate                                               |  |      | 133,953      |   |      |   | 60,912       |      |  |   |             |  
|Loss on Sale of Premises and Equipment                                             |  |      | 16,790       |   |      |   | 18,881       |      |  |   | 852          |  
|Loss (Gain) on Sale of Loans                                                       |  |      | 390,140      |   |      |   | (38,931      | )    |  |   | 70,979       |  
|Net Change in Loans Held for Sale                                                  |  |      | 1,944,715    |   |      |   | 3,941,275    |      |  |   | 24,506,245   |  
|Payable to Rivoli BanCorp stockholders                                             |  |      | 4,220,026    |   |      |   |             |      |  |   |             |  
|Net Change in Other Assets                                                         |  |      | (3,090,359   | ) |      |   | (1,113,351   | )    |  |   | (356,765     | )
|Net Change in Other Liabilities                                                    |  |      | 2,037,200    |   |      |   | 2,279,895    |      |  |   | (378,002     | )
|Other, Net                                                                         |  |      | 180,730      |   |      |   | (1,389,729   | )    |  |   | 1,054,083    |  
|                                                                                   |  |      |              |   |      |   |              |      |  |   |              |  
|Cash Provided by Operating Activities                                              |  |      | 26,241,824   |   |      |   | 21,653,183   |      |  |   | 38,710,278   |  
|                                                                                   |  |      |              |   |      |   |              |      |  |   |              |  
|Cash Flows from Investing Activities                                               |  |      |              |   |      |   |              |      |  |   |              |  
|Interest-Bearing Deposits with Other Banks                                         |  |      | (2,223,382   | ) |      |   | (2,325,945   | )    |  |   | (137,083     | )
|Cash Received in Business Acquisition, Net                                         |  |      | 5,923,269    |   |      |   |             |      |  |   | 2,279,981    |  
|Purchase of Investment Securities Available for Sale                               |  |      | (28,956,393  | ) |      |   | (47,018,829  | )    |  |   | (36,395,866  | )
|Purchase of Investment Securities Held to Maturity                                 |  |      |             |   |      |   | (998,444     | )    |  |   | (7,998,533   | )
|Proceeds from Disposition of Investment Securities                                 |  |      |              |   |      |   |              |      |  |   |              |  
|Available for Sale                                                                 |  |      | 23,671,842   |   |      |   | 39,208,727   |      |  |   | 16,384,787   |  
|Held to Maturity                                                                   |  |      | 1,035,500    |   |      |   | 5,000        |      |  |   | 48,918,238   |  
|Purchase of Restricted Stock, Net                                                  |  |      | 515,500      |   |      |   | (983,000     | )    |  |   | 461,900      |  
|Loans to Customers, Net                                                            |  |      | (157,036,912 | ) |      |   | (152,251,739 | )    |  |   | (123,071,131 | )
|Purchase of Premises and Equipment and Software                                    |  |      | (3,275,443   | ) |      |   | (3,558,675   | )    |  |   | (2,177,888   | )
|Proceeds from Disposal of Premises and Equipment                                   |  |      | 18,840       |   |      |   | 4,567        |      |  |   | 2,200        |  
|Other Real Estate                                                                  |  |      | 3,019,386    |   |      |   | 4,225,228    |      |  |   | 2,735,718    |  
|Goodwill Resulting from Contingent Payments                                        |  |      | (909,864     | ) |      |   | (2,016,532   | )    |  |   | (1,160,456   | )
|Purchase of Bank Owned Life Insurance                                              |  |      | (5,000,000   | ) |      |   |             |      |  |   |             |  
|Investment in Statutory Trust                                                      |  |      | (588,000     | ) |      |   |             |      |  |   |             |  
|                                                                                   |  |      |              |   |      |   |              |      |  |   |              |  
|Cash Used by Investing Activities                                                  |  |      | (163,805,657 | ) |      |   | (165,709,642 | )    |  |   | (100,158,133 | )
|                                                                                   |  |      |              |   |      |   |              |      |  |   |              |  
|Cash Flows from Financing Activities                                               |  |      |              |   |      |   |              |      |  |   |              |  
|Interest-Bearing Customer Deposits                                                 |  |      | 178,737,892  |   |      |   | 87,971,215   |      |  |   | 73,933,950   |  
|Noninterest-Bearing Customer Deposits                                              |  |      | 4,047,814    |   |      |   | 11,967,542   |      |  |   | 16,169,512   |  
|Demand Note to the U.S. Treasury                                                   |  |      |             |   |      |   |             |      |  |   | (1,274,176   | )
|Dividends Paid                                                                     |  |      | (3,271,320   | ) |      |   | (2,483,659   | )    |  |   | (1,847,129   | )
|Federal Funds Purchased and Securities Sold Under Repurchase Agreements            |  |      | 13,328,155   |   |      |   | 13,461,513   |      |  |   | (3,628,248   | )
|Proceeds from Other Borrowed Money                                                 |  |      | 65,977,000   |   |      |   | 122,200,000  |      |  |   | 472,650,000  |  
|Repayments of Other Borrowed Money                                                 |  |      | (82,485,516  | ) |      |   | (114,142,989 | )    |  |   | (478,071,901 | )
|Proceeds from Issuance of Subordinated Debentures                                  |  |      | 19,588,000   |   |      |   |             |      |  |   |             |  
|Issuance of Common Stock                                                           |  |      | 387,974      |   |      |   | 19,534,149   |      |  |   | 143,284      |  
|                                                                                   |  |      |              |   |      |   |              |      |  |   |              |  
|Cash Provided by Financing Activities                                              |  |      | 196,309,999  |   |      |   | 138,507,771  |      |  |   | 78,075,292   |  
|                                                                                   |  |      |              |   |      |   |              |      |  |   |              |  
|Net Increase (Decrease) in Cash and Cash Equivalents                               |  |      | 58,746,166   |   |      |   | (5,548,688   | )    |  |   | 16,627,437   |  
|Cash and Cash Equivalents, Beginning                                               |  |      | 44,346,022   |   |      |   | 49,894,710   |      |  |   | 33,267,273   |  
|                                                                                   |  |      |              |   |      |   |              |      |  |   |              |  
|Cash and Cash Equivalents, Ending                                                  |  | $    | 103,092,188  |   |      | $ | 44,346,022   |      |  | $ | 49,894,710   |  
|                                                                                   |  |      |              |   |      |   |              |      |  |   |              |  



The accompanying notes
are an integral part of these statements.



9



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(1) Summary of
Significant Accounting Policies



Nature of Operations



Security Bank Corporation (the Company) provides a full range of retail
and commercial banking services for consumers and small to medium size businesses in central and coastal Georgia, and in limited parts of the north metropolitan Atlanta area. Lending and investing activities are funded primarily by deposits gathered
through its retail branch office network.



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



The accounting and reporting policies of the bank conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. The following is a
description of those policies the Company follows in preparing and presenting its consolidated financial statements.



Principles of Consolidation and Basis of Presentation



The consolidated financial statements of the Company include Security Bank Corporation and its wholly-owned subsidiaries, Security Bank of Bibb County
located in Macon, Georgia; Security Bank of Houston County located in Perry, Georgia; Security Bank of Jones County (formerly Bank of Gray) located in Gray, Georgia; Security Bank of North Metro (formerly SouthBank) located in Woodstock, Georgia;
and Rivoli Bank & Trust located in Macon, Georgia (the Banks). The financial statements of Security Bank of Bibb County include its wholly-owned subsidiary, Fairfield Financial Services, Inc. All significant intercompany accounts have been
eliminated.



Certain reclassifications have been made to prior
year amounts to conform to the current year presentation.



Investment
Securities



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



Securities available for sale are reported at estimated fair value. Unrealized gains and losses on securities available for sale are excluded from
earnings and are reported, net of deferred taxes, in accumulated other comprehensive income, a component of stockholders equity. Declines in the fair value of held-to-maturity and availablefor-sale securities below their cost that are
deemed to be other than temporary are reflected in earnings as realized losses. In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which the fair value has been less than cost,
(2) the financial condition and near-term prospects of the issuer and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
Gains and losses from sales of securities available for sale are computed using the specific identification method. This caption includes



10



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



securities, which may be sold to meet liquidity needs arising from unanticipated deposit and loan fluctuations, changes in regulatory capital requirements,
or unforeseen changes in market conditions.



Restricted Stocks



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



Loans Held for Sale



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



Loans



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



When management believes there is sufficient doubt as to the collectibility of principal or interest on any loan, or generally when loans are 90 days or
more past due, the accrual of applicable interest is discontinued and the loan is designated as nonaccrual, unless the loan is well secured and in the process of collection. Interest payments received on nonaccrual loans are either applied against
principal or reported as income, according to managements judgment as to the collectibility of principal. Loans are returned to an accrual status when factors indicating doubtful collectibility on a timely basis no longer exist.



Allowance for Loan Losses



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



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



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



11



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SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating
specific and general losses in the portfolio.



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



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



Premises and Equipment



Premises and equipment are recorded at acquisition cost less accumulated depreciation.



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



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



Maintenance and
repairs are expensed as incurred and improvements are capitalized. When property and equipment are retired or sold, the cost and accumulated depreciation are removed from the respective accounts and any gain or loss is reflected in other income or
expense.



Long-Lived Assets Held For Sale



Long-lived assets held for sale consist of premises and equipment that have
been acquired in a business combination. The assets are being sold because the Company already owns similar facilities nearby. These assets are carried at the lower of their fair value less cost to sell.



Intangible Assets



Intangible assets include goodwill and core deposit intangibles resulting from Company acquisitions. Core deposit
intangibles are amortized on a straight-line basis over an estimated useful life of either five or seven years and evaluated for impairment whenever events or changes in circumstance indicate the carrying value of the assets may not be recoverable.
Goodwill is not amortized but tested annually for impairment or at any time an event occurs or circumstances change that may trigger a decline in value. Examples of such events or circumstances include adverse change in legal factors, business
climate, unanticipated competition, change in regulatory environment, or loss of key personnel.



12



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SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Amortization expense for core deposit intangibles was $262,327 and $171,162 for the years ended
December 31, 2005 and 2004, respectively.



The estimated
aggregate amortization expense for each of the next five years is:



|     |  |        |          
|---- |  | ------ | ---------
|Year |  | Amount
|2006 |  | $      | 798,980  
|2007 |  |        | 798,980  
|2008 |  |        | 685,556  
|2009 |  |        | 623,504  
|2010 |  |        | 623,504  
|     |  |        |          
|     |  | $      | 3,530,524
|     |  |        |          



The Company tests for
impairment in accordance with SFAS No. 142, Goodwill and Other Intangible Assets. Potential impairment of goodwill exists when the carrying value of a reporting unit exceeds its fair value. The fair value of each reporting unit is
computed using one or a combination of the following three methods: income, market value or cost method. The income method uses a discounted cash flow analysis to determine fair value by considering a reporting units capital structure and
applying a risk-adjusted discount rate to forecast earnings based on a capital asset pricing model. The market value method uses recent transaction analysis or publicly traded comparable analysis for similar assets and liabilities to determine fair
value. The cost method assumes the net assets of a recent business combination accounted for under the purchase method of accounting will be recorded at fair value if no event or circumstance has occurred triggering a decline in value. To the extent
a reporting units carrying value exceeds its fair value, an indication exists that the reporting units goodwill may be impaired, and a second step of impairment test will be performed.



In the second step, the implied fair value of the reporting units
goodwill, determined by allocating the reporting units fair value to all of its assets (recognized and unrecognized) and liabilities as of the reporting unit had been acquired in a business combination at the date of the impairment test. If
the implied fair value of reporting unit goodwill is lower than its carrying value, goodwill is impaired and is written down to the implied fair value. The loss recognized is limited to the carrying value of goodwill. Once an impairment loss is
recognized, future increases in fair value will not result in the reversal of previously recognized losses.



Income Taxes



The
provision for income taxes is based on income and expense reported for financial statement purposes after adjustment for permanent differences such as tax-exempt income. Deferred income tax assets and liabilities result from differences between
assets and liabilities measured for financial reporting purposes and for income tax return purposes.



Deferred tax assets and liabilities are recognized based on future tax consequences attributable to differences arising from the financial statement
carrying values of assets and liabilities and their tax bases. The differences relate primarily to depreciable assets (use of different depreciation methods for financial statement and income tax purposes) and allowance for loan losses (use of the
allowance method for financial statement purposes and the direct write-off method for tax purposes). Subsequent changes in the tax laws will require adjustment to these assets and liabilities with the cumulative effect included in the current
years income tax provision. The Company and its subsidiaries file a consolidated federal income tax return. Each subsidiary pays its proportional share of federal income taxes to the Company based on its taxable income.



13



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SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Comprehensive Income



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



Other Real Estate



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



Securities Sold Under Agreement To Repurchase



The Company sells securities under agreements to repurchase. These repurchase agreements are treated as borrowings. The obligations to repurchase
securities sold are reflected as a liability and the securities underlying the agreements continue to be reflected as assets in the consolidated balance sheets.



Off-Balance Sheet Credit Related Financial Instruments



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



Statement of
Cash Flows



For purposes of reporting cash flows, cash and
cash equivalents include cash and due from banks and federal funds sold.



Company-Owned Life Insurance



During 2005, the
Company purchased insurance on the lives of three executive officers. The policies accumulate asset values to meet future liabilities including the funding of a supplemental retirement plan for these executive officers. Increases in the cash
surrender value are recorded as other income in the consolidated statements of income. The cash surrender value of Company-Owned Life Insurance is reflected in other assets on the consolidated balance sheets in the amount of $5,094,545 at
December 31, 2005.



Transfers of Financial Assets



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



14



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SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Adopted Accounting Pronouncements



The FASB issued an FSP on December 15, 2005, SOP 94-6-1  Terms of Loan Products That May Give Rise to a
Concentration of Credit Risk which addresses the disclosure requirements for certain nontraditional mortgage and other loan products, the aggregation of which may constitute a concentration of credit risk under existing accounting literature.
Pursuant to this FSP, the FASBs intentions were to reemphasize the adequacy of such disclosures and noted that the recent popularity of certain loan products such as negative amortization loans, high loan-to-value loans, interest only loans,
teaser rate loans, option adjusted rate mortgage loans and other loan product types may aggregate to the point of being a concentration of credit risk to an issuer and thus may require enhanced disclosures under existing guidance. This FSP was
effective immediately. The Company has evaluated the impact of this FSP and has concluded that the disclosures are consistent with the objectives of the FSP.



In December 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued AICPA Statement of
Position No. 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer (SOP 03-3), to address accounting for differences between the contractual cash flows of certain loans and debt securities and the cash flows
expected to be collected when loans or debt securities are acquired in a transfer and those cash flow differences are attributable, at least in part, to credit quality. As such, SOP 03-3 applies to such loans and debt securities acquired in purchase
business combinations and does not apply to originated loans. The SOP is effective for loans acquired in fiscal years beginning after December 15, 2004. Early adoption is encouraged. The Company does not expect that the adoption of SOP 03-3
will have a material impact on its financial condition or results of operations.



Recently Issued Accounting Pronouncements



In
December 2004, the FASB issued SFAS No. 123R (revised 2004), Accounting for Stock-Based Compensation, which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods and services, with a
primary focus on transactions in which an entity obtains employees in share-based payment transactions. This statement is a revision to SFAS No. 123 and APB Opinion No. 25, Accounting for Stock Issued to Employees, and its
related implementation guidance. This statement requires measurement of the cost of employee services received in exchange for stock compensation based on the grant date fair value of stock options. Incremental compensation costs arising from
subsequent modifications of awards after the grant date must be recognized. The provisions of SFAS 123R (revised 2004) are effective for financial statements issued for the first fiscal year beginning after June 15, 2005. Effective
January 1, 2002, the Company adopted the fair value method of recording stock-based compensation. As such, the implementation of SFAS No. 123R (revised 2004) will not have an impact on the Company.



FASB Staff Position 115-1 and FAS No. 124-1, The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments, (the FSP) was issued in November 2005 and addresses the determination of when an investment is considered impaired; whether the impairment is other than
temporary, and how to measure the impairment loss. The FSP also addresses accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been
recognized as other-than-temporary impairments. The FSP replaces the impairment guidance of EITF Issue No. 03-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments, with references to existing
authoritative literature concerning other-than-temporary determinations. Under the FSP, losses arising from impairment deemed to be other-than-temporary must be recognized in earnings at an amount equal to the entire difference between the
securities cost and its fair value at the financial statement date, without considering partial recoveries subsequent to that date. The FSP also required that an



15



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SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



investor recognize an other-than-temporary impairment loss when a decision to sell a security has been made and the investor does not expect the fair value
of the security to fully recover prior to the expected time of sale. The FSP is effective for reporting periods beginning after December 15, 2005. The initial adoption of this statement is not expected to have a material impact on the
Companys consolidated financial statements.



Segment Reporting



Reportable segments are business units, which offer
different products and services and require different management and marketing strategies. Management of Security Bank Corporation considers that all banking operations are essentially similar within each of its subsidiaries and that there are no
reportable operating segments. However, fee income from mortgage loans originated and sold to investors included in consolidated noninterest income for the years ended December 31, 2005 and 2004 was $4,539,242 and $4,930,747, respectively. Such
income may fluctuate significantly with increases or decreases in mortgage rates.



Risks and Uncertainties



In the normal course
of its business, the Company encounters two significant types of risk: economic and regulatory. There are three main components of economic risk: interest rate risk, credit risk and market risk. The Company is subject to interest rate risk to the
degree that its interest-bearing liabilities mature or reprice at different speeds, or on different indexes, than its interest-earning assets. Credit risk is the risk of default on the Companys loan portfolio that results from borrowers
inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of collateral underlying loans receivable, the valuation of real estate held by the Company, and the valuation of loans held for sale,
investments and mortgage-backed securities available for sale and mortgage servicing rights.



The Company is subject to the regulations of various government agencies. These regulations can and do change significantly from period to period. The Company also undergoes periodic examinations by the regulatory
agencies, which may subject it to further changes with respect to asset valuations, amounts of required loss allowances and operating restrictions resulting from the regulators judgments based on information available to them at the time of
their examination.



The preparation of financial statements in
conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results could vary from these estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for
loan losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans and the valuation of deferred tax assets.



(2) Cash and Balances Due from Depository Institutions



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



|                                              |  |      |            |      |   |           
|--------------------------------------------- |  | ---- | ---------- | ---- | - | ----------
|                                              |  | 2005 |            | 2004
|Cash on Hand and Cash Items                   |  | $    | 8,444,151  |      | $ | 5,878,750 
|Noninterest-Bearing Deposits with Other Banks |  |      | 60,936,037 |      |   | 20,983,272
|                                              |  |      |            |      |   |           
|                                              |  | $    | 69,380,188 |      | $ | 26,862,022
|                                              |  |      |            |      |   |           



As of
December 31, 2005, the Banks had required deposits of approximately $9,245,000 with the Federal Reserve.



16



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SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(3) Investment Securities



Investment securities as of December 31, 2005 are summarized as follows:



|                              |  |                |             |                       |   |                       |  |   |            |   |  |   |            
|----------------------------- |  | -------------- | ----------- | --------------------- | - | --------------------- |  | - | ---------- | - |  | - | -----------
|                              |  | Amortized Cost |             | Gross UnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|Securities Available for Sale |  |                |             |                       |   |                       |  |   |            |   |  |   |            
|U.S. Government Agencies      |  |                |             |                       |   |                       |  |   |            |   |  |   |            
|Mortgage Backed               |  | $              | 78,445,980  |                       | $ | 96,506                |  | $ | (1,829,014 | ) |  | $ | 76,713,472 
|Other                         |  |                | 47,105,886  |                       |   |                      |  |   | (916,009   | ) |  |   | 46,189,877 
|State, County and Municipal   |  |                | 19,864,652  |                       |   | 318,990               |  |   | (115,118   | ) |  |   | 20,068,523 
|Other Securities              |  |                | 690,614     |                       |   |                      |  |   |           |   |  |   | 690,614    
|                              |  |                |             |                       |   |                       |  |   |            |   |  |   |            
|                              |  | $              | 146,107,132 |                       | $ | 415,496               |  | $ | (2,860,141 | ) |  | $ | 143,662,487
|                              |  |                |             |                       |   |                       |  |   |            |   |  |   |            
|Securities Held to Maturity   |  |                |             |                       |   |                       |  |   |            |   |  |   |            
|State, County and Municipal   |  | $              | 349,946     |                       | $ | 3,795                 |  | $ |           |   |  | $ | 353,741    
|                              |  |                |             |                       |   |                       |  |   |            |   |  |   |            
|                              |  | $              | 349,946     |                       | $ | 3,795                 |  | $ |           |   |  | $ | 353,741    
|                              |  |                |             |                       |   |                       |  |   |            |   |  |   |            



The amortized cost and
fair value of investment securities as of December 31, 2005, by contractual maturity, are presented hereafter. Expected maturities will differ from contractual maturities because issuers have the right to call or prepay obligations with or
without call or prepayment penalties.



|                             |  |                    |             |                  |   |                |  |            |         |  |   |        
|---------------------------- |  | ------------------ | ----------- | ---------------- | - | -------------- |  | ---------- | ------- |  | - | -------
|                             |  | Securities        
|                             |  | Available for Sale |             | Held to Maturity
|                             |  | Amortized Cost     |             | Fair Value       |   | Amortized Cost |  | Fair Value
|Due in One Year or Less      |  | $                  | 9,696,780   |                  | $ | 9,683,014      |  | $          | 110,000 |  | $ | 110,273
|Due After One Year           |  |                    |             |                  |   |                |  |            |         |  |   |        
|Through Five Years           |  |                    | 38,746,259  |                  |   | 38,032,580     |  |            | 239,946 |  |   | 243,468
|Due After Five Years         |  |                    |             |                  |   |                |  |            |         |  |   |        
|Through Ten Years            |  |                    | 14,898,044  |                  |   | 14,945,382     |  |            |        |  |   |       
|Due After Ten Years          |  |                    | 4,129,455   |                  |   | 4,097,425      |  |            |        |  |   |       
|                             |  |                    |             |                  |   |                |  |            |         |  |   |        
|                             |  |                    | 67,470,538  |                  |   | 66,758,401     |  |            | 349,946 |  |   | 353,741
|                             |  |                    |             |                  |   |                |  |            |         |  |   |        
|Mortgage Backed Securities   |  |                    | 78,445,980  |                  |   | 76,713,472     |  |            |        |  |   |       
|Marketable Equity Securities |  |                    | 190,614     |                  |   | 190,614        |  |            |        |  |   |       
|                             |  |                    |             |                  |   |                |  |            |         |  |   |        
|                             |  |                    | 78,636,594  |                  |   | 76,904,086     |  |            |        |  |   |       
|                             |  |                    |             |                  |   |                |  |            |         |  |   |        
|                             |  | $                  | 146,107,132 |                  | $ | 143,662,487    |  | $          | 349,946 |  | $ | 353,741
|                             |  |                    |             |                  |   |                |  |            |         |  |   |        



17



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SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



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



Gross realized gains
on the disposition of investments totaled $0, $12,703 and $84,836 in 2005, 2004 and 2003, respectively. Gross realized losses on the disposition of investments totaled $5,598, $0 and $29,352 in 2005, 2004 and 2003, respectively.



Investment securities having a carrying value approximating $73,545,000 and
$76,339,000 as of December 31, 2005 and 2004, respectively, were pledged to secure public deposits and for other purposes.



Information pertaining to securities with gross unrealized losses at December 31, 2005 and 2004 aggregated by investment category and length of time
that individual securities have been in a continuous loss position, follows:



|                            |  |                     |            |                       |                      |          |            |       |                       |            |  |            |            |                       |  |   |             |  |   |            |  
|--------------------------- |  | ------------------- | ---------- | --------------------- | -------------------- | -------- | ---------- | ----- | --------------------- | ---------- |  | ---------- | ---------- | --------------------- |  | - | ----------- |  | - | ---------- | -
|                            |  | Less Than 12 Months |            |                       | 12 Months or Greater |          |            | Total |                      
|                            |  | Fair Value          |            | GrossUnrealizedLosses |                      |          | Fair Value |       | GrossUnrealizedLosses |            |  | Fair Value |            | GrossUnrealizedLosses | 
|December 31, 2005           |  |                     |            |                       |                      |          |            |       |                       |            |  |            |            |                       |  |   |             |  |   |            |  
|Available for Sale          |  |                     |            |                       |                      |          |            |       |                       |            |  |            |            |                       |  |   |             |  |   |            |  
|U.S. Government Agencies    |  |                     |            |                       |                      |          |            |       |                       |            |  |            |            |                       |  |   |             |  |   |            |  
|Mortgage Backed             |  | $                   | 33,730,462 |                       | $                    | (446,197 | )          |       | $                     | 39,070,247 |  | $          | (1,382,817 | )                     |  | $ | 72,800,709  |  | $ | (1,829,014 | )
|Other                       |  |                     | 24,436,182 |                       |                      | (271,201 | )          |       |                       | 20,755,509 |  |            | (644,808   | )                     |  |   | 45,191,691  |  |   | (916,009   | )
|State, County and Municipal |  |                     | 4,520,085  |                       |                      | (97,195  | )          |       |                       | 2,232,870  |  |            | (17,923    | )                     |  |   | 6,752,955   |  |   | (115,118   | )
|                            |  |                     |            |                       |                      |          |            |       |                       |            |  |            |            |                       |  |   |             |  |   |            |  
|                            |  | $                   | 62,686,729 |                       | $                    | (814,593 | )          |       | $                     | 62,058,626 |  | $          | (2,045,548 | )                     |  | $ | 124,745,355 |  | $ | (2,860,141 | )
|                            |  |                     |            |                       |                      |          |            |       |                       |            |  |            |            |                       |  |   |             |  |   |            |  



18



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SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



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



The unrealized losses relate
principally to the increase in short-term market interest rates that has occurred during the past two years. In analyzing an issuers financial condition, management considers whether the securities are issued by the federal government or its
agencies, whether downgrades by bond rating agencies have occurred and the results of reviews of the issuers financial condition. As management has the ability to hold debt securities until maturity, or for the foreseeable future if classified
as available for sale, no declines are deemed to be other-than-temporary.



19



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SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(4) Loans



The composition of loans as of December 31 are:



|                                                                        |  |      |               |      |   |            
|----------------------------------------------------------------------- |  | ---- | ------------- | ---- | - | -----------
|                                                                        |  | 2005 |               | 2004
|Loans Secured by Real Estate                                            |  |      |               |      |   |            
|Construction and Land Development                                       |  | $    | 517,372,508   |      | $ | 350,150,433
|Secured by Farmland (Including Farm Residential and Other Improvements) |  |      | 5,626,581     |      |   | 3,878,857  
|Secured by 1-4 Family Residential Properties                            |  |      | 199,071,867   |      |   | 128,770,120
|Secured by Multifamily (5 or More) Residential Properties               |  |      | 18,365,815    |      |   | 13,660,188 
|Secured by Nonfarm Nonresidential Properties                            |  |      | 376,302,415   |      |   | 220,592,590
|Commercial and Industrial Loans (U.S. Addressees)                       |  |      | 106,299,699   |      |   | 86,574,737 
|Agricultural Loans                                                      |  |      | 3,035,188     |      |   | 3,179,264  
|Loans to Individuals for Household, Family and Other                    |  |      |               |      |   |            
|Personal Expenditures                                                   |  |      |               |      |   |            
|Credit Cards and Related Plans                                          |  |      | 274,494       |      |   | 430,541    
|Other                                                                   |  |      | 47,334,258    |      |   | 39,581,432 
|                                                                        |  |      |               |      |   |            
|                                                                        |  | $    | 1,273,682,825 |      | $ | 846,818,162
|                                                                        |  |      |               |      |   |            



Loans by interest rate
type are:



|              |  |      |               |      |   |            
|------------- |  | ---- | ------------- | ---- | - | -----------
|              |  | 2005 |               | 2004
|Fixed Rate    |  | $    | 532,928,212   |      | $ | 457,456,311
|Variable Rate |  |      | 740,754,613   |      |   | 389,361,851
|              |  |      |               |      |   |            
|              |  | $    | 1,273,682,825 |      | $ | 846,818,162
|              |  |      |               |      |   |            



The Company
principally originates residential and commercial real estate loans throughout its market area that primarily consists of Bibb, Houston and Jones Counties in the state of Georgia. As of December 31, 2005 and 2004, approximately 87.8 and 84.9
percent, respectively, of the Companys loan portfolio was secured by real estate. These loans are well collateralized and, in managements opinion, do not pose an unacceptable level of credit risk. The Company does make speculative loans
to borrowers in that the collateral property has not been pre-sold or pre-leased. While these loans are inherently riskier due to the fact that the borrower may not be able to sell or lease the property as intended, the Company only makes these
loans to established customers with a good history of prior developments. At December 31, 2005, the Company had outstanding speculative loans of approximately $210.2 million.



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



Nonaccrual loans are loans for which principal and interest are doubtful of collection in accordance with original loan terms and for which accruals of
interest have been discontinued due to payment delinquency. Nonaccrual loans totaled $6,997,169 and $6,213,933 as of December 31, 2005 and 2004, respectively. There were no investments in loans past due 90 days or more and still accruing
interest at December 31, 2005 and 2004. Foregone interest on nonaccrual loans approximated $351,170 in 2005, $326,900 in 2004 and $311,000 in 2003.



20



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



|                                   |  |      |           |   |      |   |           |  
|---------------------------------- |  | ---- | --------- | - | ---- | - | --------- | -
|                                   |  | 2005 |           |   | 2004 |  
|Total Investment in Impaired Loans |  | $    | 1,488,571 |   |      | $ | 3,267,684 |  
|Allowance for Impaired Loan Losses |  |      | (228,116  | ) |      |   | (907,842  | )
|                                   |  |      |           |   |      |   |           |  
|Net Investment                     |  | $    | 1,260,455 |   |      | $ | 2,359,842 |  
|                                   |  |      |           |   |      |   |           |  
|Average Investment                 |  | $    | 2,378,128 |   |      | $ | 2,219,375 |  
|                                   |  |      |           |   |      |   |           |  
|Income Recognized During the Year  |  | $    | 65,322    |   |      | $ | 142,938   |  
|                                   |  |      |           |   |      |   |           |  
|Income Collected During the Year   |  | $    | 28,445    |   |      | $ | 138,408   |  
|                                   |  |      |           |   |      |   |           |  



(5) Allowance for Loan Losses



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



|                                        |  |      |            |   |      |   |            |      |  |   |            |  
|--------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                        |  | 2005 |            |   | 2004 |   |            | 2003 | 
|Balance, Beginning                      |  | $    | 10,902,783 |   |      | $ | 9,407,421  |      |  | $ | 5,479,508  |  
|Provision Charged to Operating Expenses |  |      | 2,832,845  |   |      |   | 2,818,796  |      |  |   | 2,859,143  |  
|Loans Charged Off                       |  |      | (1,715,615 | ) |      |   | (2,050,588 | )    |  |   | (2,255,481 | )
|Loan Recoveries                         |  |      | 496,446    |   |      |   | 727,154    |      |  |   | 435,529    |  
|Business Combination, SouthBank         |  |      | 1,420,385  |   |      |   |           |      |  |   |           |  
|Business Combination, Rivoli BanCorp    |  |      | 2,211,415  |   |      |   |           |      |  |   |           |  
|Business Combination, Bank of Gray      |  |      |           |   |      |   |           |      |  |   | 2,888,722  |  
|                                        |  |      |            |   |      |   |            |      |  |   |            |  
|Balance, Ending                         |  | $    | 16,148,259 |   |      | $ | 10,902,783 |      |  | $ | 9,407,421  |  
|                                        |  |      |            |   |      |   |            |      |  |   |            |  



(6) Derivative Financial
Instruments



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



The Company enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding (rate lock commitments). Rate
lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. Accordingly, such commitments, along with related fees received from potential borrowers, are to be recorded at fair value in derivative assets or
liabilities, with changes in fair value recorded in the net gain or loss on sale of mortgage loans. Fair value is based on fees currently charged to enter into similar agreements, and for fixed-rate commitments also considers the difference between
current levels of interest rates and the committed rates. The Company has not recorded rate lock commitments as derivative assets or liabilities as of December 31, 2005 as the effects did not have a material effect upon the consolidated
financial statements.



21



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(7) Premises and Equipment



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



|                                  |  |      |             |   |      |   |            |  
|--------------------------------- |  | ---- | ----------- | - | ---- | - | ---------- | -
|                                  |  | 2005 |             |   | 2004 |  
|Land                              |  | $    | 7,444,922   |   |      | $ | 4,890,208  |  
|Building                          |  |      | 17,528,127  |   |      |   | 11,762,623 |  
|Leasehold Improvements            |  |      | 1,307,158   |   |      |   | 1,150,829  |  
|Furniture, Fixtures and Equipment |  |      | 12,158,503  |   |      |   | 9,591,257  |  
|Construction in Progress          |  |      | 2,274,740   |   |      |   | 442,275    |  
|                                  |  |      |             |   |      |   |            |  
|                                  |  |      | 40,713,450  |   |      |   | 27,837,192 |  
|Accumulated Depreciation          |  |      | (11,111,261 | ) |      |   | (8,731,906 | )
|                                  |  |      |             |   |      |   |            |  
|                                  |  | $    | 29,602,189  |   |      | $ | 19,105,286 |  
|                                  |  |      |             |   |      |   |            |  



Depreciation charged
to operations totaled $1,594,123 in 2005, $1,421,692 in 2004 and $1,330,332 in 2003.



Certain bank facilities are leased under various operating leases. Rental expense was $479,336 in 2005, $421,900 in 2004 and $340,000 in 2003.



Future minimum rental commitments under noncancelable leases are:



|           |  |        |          
|---------- |  | ------ | ---------
|Year       |  | Amount
|2006       |  | $      | 593,930  
|2007       |  |        | 526,122  
|2008       |  |        | 506,252  
|2009       |  |        | 357,170  
|2010       |  |        | 313,999  
|Thereafter |  |        | 880,346  
|           |  |        |          
|           |  | $      | 3,177,819
|           |  |        |          



(8) Income Taxes



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



|                                   |  |      |           |   |      |   |           |      |  |   |          
|---------------------------------- |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | ---------
|                                   |  | 2005 |           |   | 2004 |   |           | 2003
|Current Federal Expense            |  | $    | 8,377,319 |   |      | $ | 6,288,118 |      |  | $ | 4,092,823
|Deferred Federal Expense (Benefit) |  |      | (93,521   | ) |      |   | (58,245   | )    |  |   | 179,350  
|                                   |  |      |           |   |      |   |           |      |  |   |          
|                                   |  |      | 8,283,798 |   |      |   | 6,229,873 |      |  |   | 4,272,173
|Current State Tax Expense          |  |      | 1,026,540 |   |      |   | 710,368   |      |  |   | 666,274  
|                                   |  |      |           |   |      |   |           |      |  |   |          
|                                   |  | $    | 9,310,338 |   |      | $ | 6,940,241 |      |  | $ | 4,938,447
|                                   |  |      |           |   |      |   |           |      |  |   |          



22



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Federal income tax expense of $8,283,798 in 2005, $6,229,873 in 2004 and $4,272,173 in 2003 is less
than the income taxes computed by applying the federal statutory rate of 35% to income before income taxes. The reasons for the differences are presented hereafter:



|                                     |  |      |           |   |      |   |           |      |  |   |           |  
|------------------------------------ |  | ---- | --------- | - | ---- | - | --------- | ---- |  | - | --------- | -
|                                     |  | 2005 |           |   | 2004 |   |           | 2003 | 
|Statutory Federal Income Taxes       |  | $    | 8,923,345 |   |      | $ | 6,548,047 |      |  | $ | 4,619,178 |  
|Tax-Exempt Interest                  |  |      | (253,905  | ) |      |   | (268,631  | )    |  |   | (229,330  | )
|Interest Expense Disallowance        |  |      | 6,885     |   |      |   | 13,290    |      |  |   | 11,430    |  
|Premiums on Officers Life Insurance |  |      | (9,042    | ) |      |   | (8,336    | )    |  |   | (7,638    | )
|Meal and Entertainment Disallowance  |  |      | 31,287    |   |      |   | 24,901    |      |  |   | 22,733    |  
|State Deduction                      |  |      | (317,017  | ) |      |   | (294,928  | )    |  |   | (187,953  | )
|Other                                |  |      | (97,755   | ) |      |   | 215,530   |      |  |   | 43,753    |  
|                                     |  |      |           |   |      |   |           |      |  |   |           |  
|Actual Federal Income Taxes          |  | $    | 8,283,798 |   |      | $ | 6,229,873 |      |  | $ | 4,272,173 |  
|                                     |  |      |           |   |      |   |           |      |  |   |           |  



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



|                                                                         |  |      |            |   |      |   |            |  
|------------------------------------------------------------------------ |  | ---- | ---------- | - | ---- | - | ---------- | -
|                                                                         |  | 2005 |            |   | 2004 |  
|Deferred Tax Assets                                                      |  |      |            |   |      |   |            |  
|Allowance for Loan Losses                                                |  | $    | 5,284,989  |   |      | $ | 3,623,238  |  
|Georgia Occupation and License Tax Credits                               |  |      | 53,581     |   |      |   | 53,581     |  
|Other Real Estate Owned                                                  |  |      | 61,196     |   |      |   | 22,359     |  
|Deferred Compensation                                                    |  |      | 305,954    |   |      |   | 283,343    |  
|Net Operating Loss Carryforward                                          |  |      | 419,782    |   |      |   |           |  
|Nonqualified Stock Options                                               |  |      | 965,886    |   |      |   |           |  
|Other                                                                    |  |      | 9,841      |   |      |   | 703        |  
|                                                                         |  |      |            |   |      |   |            |  
|                                                                         |  |      | 7,101,229  |   |      |   | 3,983,224  |  
|                                                                         |  |      |            |   |      |   |            |  
|Deferred Tax Liabilities                                                 |  |      |            |   |      |   |            |  
|Premises and Equipment                                                   |  |      | (856,142   | ) |      |   | (881,607   | )
|Securities Accretion                                                     |  |      | (59,648    | ) |      |   | (35,687    | )
|Goodwill                                                                 |  |      | (615,658   | ) |      |   | (311,417   | )
|Core Deposit Intangible                                                  |  |      | (1,734,433 | ) |      |   | (198,833   | )
|Acquisition Related Fair Value Adjustment                                |  |      | (815,390   | ) |      |   | (59,276    | )
|Other                                                                    |  |      | (62,766    | ) |      |   | (75,505    | )
|                                                                         |  |      |            |   |      |   |            |  
|                                                                         |  |      | (4,144,037 | ) |      |   | (1,562,325 | )
|                                                                         |  |      |            |   |      |   |            |  
|                                                                         |  |      | 2,957,192  |   |      |   | 2,420,899  |  
|Deferred Tax Asset (Liability) on Unrealized Securities Gains and Losses |  |      | 845,202    |   |      |   | (184,367   | )
|                                                                         |  |      |            |   |      |   |            |  
|Net Deferred Tax Asset                                                   |  | $    | 3,802,394  |   |      | $ | 2,236,532  |  
|                                                                         |  |      |            |   |      |   |            |  



23



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(9) Deposits



The aggregate amount of overdrawn deposit accounts reclassified as loan balances totaled $915,262 and $650,398 as of December 31, 2005 and 2004,
respectively.



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



|                        |  |      |               |      |   |            
|----------------------- |  | ---- | ------------- | ---- | - | -----------
|                        |  | 2005 |               | 2004
|Interest-Bearing Demand |  | $    | 398,472,549   |      | $ | 182,168,313
|Savings                 |  |      | 20,786,006    |      |   | 20,037,549 
|Time, $100,000 and Over |  |      | 393,942,986   |      |   | 233,515,921
|Other Time              |  |      | 321,353,746   |      |   | 287,334,398
|                        |  |      |               |      |   |            
|                        |  | $    | 1,134,555,287 |      | $ | 723,056,181
|                        |  |      |               |      |   |            



The aggregate amount
of short-term jumbo certificates of deposit, each with a minimum denomination of $100,000, approximated $345,159,000 and $198,334,000 on December 31, 2005 and 2004, respectively.



As of December 31, 2005, the scheduled maturities of certificates of deposit are as follows:



|                    |  |        |            
|------------------- |  | ------ | -----------
|Year                |  | Amount
|2006                |  | $      | 589,912,887
|2007                |  |        | 99,306,623 
|2008                |  |        | 9,273,336  
|2009                |  |        | 5,412,298  
|2010 and Thereafter |  |        | 11,391,588 
|                    |  |        |            
|                    |  | $      | 715,296,732
|                    |  |        |            



Brokered deposits are
third-party time deposits placed by or through the assistance of a deposit broker. As of December 31, 2005 and 2004, the Company had $242,821,384 and $125,387,000, respectively, in brokered deposits. The brokered deposits, which are included in
Time, $100,000 and Over, were issued at a weighted average rate of 3.96% and mature at various times through 2010.



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



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



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



|                                          |  |      |            |   |      |   |           |  
|----------------------------------------- |  | ---- | ---------- | - | ---- | - | --------- | -
|                                          |  | 2005 |            |   | 2004 |  
|Average Balance During the Year           |  | $    | 6,868,170  |   |      | $ | 5,602,782 |  
|Average Interest Rate During the Year     |  |      | 2.99       | % |      |   | 1.04      | %
|Maximum Month-End Balance During the Year |  | $    | 15,218,620 |   |      | $ | 6,785,834 |  
|Balance as of December 31                 |  | $    | 15,218,620 |   |      | $ | 5,338,465 |  



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



|                     |  |      |            |      |   |          
|-------------------- |  | ---- | ---------- | ---- | - | ---------
|                     |  | 2005 |            | 2004
|Carrying Value       |  | $    | 15,481,320 |      | $ | 6,416,855
|Estimated Fair Value |  |      | 15,483,416 |      |   | 6,428,679



The Companys
subsidiary banks maintain overnight borrowing lines for federal funds purchased through various correspondent banks that collectively amounted to $28,657,000 and $16,473,000 as of December 31, 2005 and 2004, respectively.



24



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(11) Other Borrowed Money



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



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |      |            |      |   |           
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ----------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | 2005 |            | 2004
|Advances under the Blanket Agreement for Advances and Security Agreement with the Federal Home Loan Bank (FHLB) have maturities in varying amounts through March 23, 2011 and interest rates
ranging from 2.11 percent to 5.92 percent. Residential first mortgage loans, commercial real estate loans and investment securities are pledged as collateral for the FHLB advances. At December 31, 2005, the Company had credit availability
totaling $283,341,000. Lending collateral value was $135,604,007, of which $50,177,007 was available. |  | $    | 85,427,000 |      | $ | 66,000,000
|Advances under the Warehouse Line with the FHLB matured
January 24, 2005 and had an interest rate of 2.94 percent.                                                                                                                                                                                                                                                                                                                                                                                                                                |  |      |           |      |   | 1,135,516 
|Advances under the revolving line of credit with The Bankers Bank
mature July 20, 2007 with interest rates on $14 million at Prime minus 100 basis points and $3 million at Prime minus 50 basis points. All shares of stock owned by the Company in Security Bank of Bibb County, Security Bank of Houston County and
Security Bank of Jones County are pledged as collateral on the revolving line of credit. At December 31, 2005, the Company had availability under the revolving line of credit totaling $17,000,000.                       |  |      |           |      |   |          
|Line of credit for $2,000,000 with Thomasville National Bank. Interest
is due quarterly and is based on the Wall Street prime rate. The line matures on March 6, 2006 and is secured by common stock and a pledged investment security.                                                                                                                                                                                                                                                                                                           |  |      | 1,600,000  |      |   |          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |      |            |      |   |           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  | $    | 87,027,000 |      | $ | 67,135,516
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |  |      |            |      |   |           



Per an agreement with
the Federal Reserve Bank of Atlanta, the Company will not borrow more than $4,000,000 under the line of credit with the Bankers Bank without prior approval.



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



|           |  |        |           
|---------- |  | ------ | ----------
|Year       |  | Amount
|2006       |  | $      | 31,500,000
|2007       |  |        | 33,527,000
|2008       |  |        | 2,000,000 
|2009       |  |        |          
|2010       |  |        | 5,000,000 
|Thereafter |  |        | 15,000,000
|           |  |        |           
|           |  | $      | 87,027,000
|           |  |        |           



(12) Subordinated Debentures (Trust
Preferred Securities)



During the fourth quarter of 2002,
the Company formed a subsidiary whose sole purpose was to issue $18,000,000 in Trust Preferred Securities through a pool sponsored by FTN Financial Capital Markets. The Trust Preferred Securities have a maturity of 30 years and are redeemable after
five years with certain exceptions. At December 31, 2005, the floating-rate securities had a 4.66 percent interest rate, which resets quarterly at the three-month LIBOR rate plus 3.25 percent. The proceeds from the offering were used to retire
holding company debt and to fund the acquisition of the Bank of Gray. At December 31, 2005, the Companys investment in this subsidiary was $557,000.



25



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



In December 2005, the Company formed a subsidiary for the purpose of issuing $19,000,000 in Trust
Preferred Securities through a pool sponsored by FTN Financial Capital Markets. The Trust Preferred Securities have a maturity of 30 years and are redeemable after five years with certain exceptions. During the first five years, the interest rate is
fixed at 6.46 percent. Beginning in the sixth year, the issue converts to a floating interest rate equal to the three-month LIBOR rate plus 1.40 percent. The proceeds from the offering were used to fund the acquisition of the Rivoli BanCorp (see
Note 23). At December 31, 2005, the Companys investment in this subsidiary was $588,000.



In connection with the acquisition of Rivoli BanCorp, the Company assumed $3,000,000 in Trust Preferred Securities. The Trust Preferred Securities, issued
in 2002 through a pool sponsored by Wells Fargo Bank, have a maturity of 30 years and are redeemable after 5 years with certain exceptions. At December 31, 2005, these floating rate securities had a 7.24 percent interest rate. The interest rate
resets quarterly at the three-month LIBOR rate plus 3.45 percent. At December 31, 2005, the Companys investment in this subsidiary was $93,000.



Each of the Trust Preferred Securities is recorded as Subordinated Debentures on the consolidated balance sheets. These securities qualify as Tier 1
capital for regulatory capital purposes, subject to certain limitations.



The interest income received from the Companys trusts totaled $36,817, $26,635, and $25,700 for the years ended December 31, 2005, 2004 and 2003, respectively. The interest expense paid to the trusts totaled
$1,241,605, $902,373 and $840,322 for the years ended December 31, 2005, 2004 and 2003, respectively.



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



The Company sponsors a 401(k) Savings Incentive and Profit Sharing Plan. Employees must be 21 years of age and may begin to contribute at the first open enrollment following a three-month probationary period. Upon
achieving one year of service, the employee is eligible to receive quarterly matching contributions from the Company and annual discretionary profit sharing based on years of service. The Company matches the employees contributions up to 6%.
The discretionary profit sharing varies from 2.5 percent to 4 percent, depending on years of service and position within the Company. Expense under the plan was $935,851 in 2005, $806,718 in 2004 and $846,234 in 2003.



Security Bank of North Metro maintained its own 401(k) retirement plan for
its employees through December 31, 2005. Employees could defer up to 15 percent of their total compensation. In 2005, the Bank began making matching contributions equal to 50 percent of each employees contribution up to 6 percent of the
employees compensation. The matching contribution vests at a rate of 20 percent per year. Expense under the plan was $17,204 for the seven months ended December 31, 2005. Beginning January 1, 2006, the employees of the Bank began
participating in the Companys 401(k) Savings Incentive and Profit Sharing Plan.



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



(14) Commitments and
Contingencies



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



26



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



At December 31, 2005 and 2004, the following financial instruments were outstanding whose approximate contract amounts represent credit risk:



|                              |  |                 |             |      |   |            
|----------------------------- |  | --------------- | ----------- | ---- | - | -----------
|                              |  | Contract Amount
|                              |  | 2005            |             | 2004
|Loan Commitments              |  | $               | 393,805,000 |      | $ | 233,136,000
|Standby Letters of Credit     |  |                 | 6,716,000   |      |   | 2,266,000  
|Performance Letters of Credit |  |                 | 7,261,000   |      |   | 7,672,000  



Commitments to extend
credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The
commitments for equity lines of credit may expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company,
is based on managements credit evaluation of the customer.



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



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



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



(15) Stock Compensation Plans



In 1999, the board of directors of Security Bank Corporation adopted an incentive stock option plan which authorizes 250,000 shares to be granted to certain officers and key employees. Those officers and key employees are granted the right
to purchase shares of common stock at a price representing the market value of the stock at the date of the option grant. In May 1999, 147,000 options were granted at the price of $9.25 per share and an additional 20,000 options were granted at
$8.97 per share in September 1999. An additional 51,000 options were granted at $6.50 per share in August 2000 under this same plan. Option holders may exercise in accordance with a vesting schedule beginning with 20 percent the first year and
increasing 20 percent each year thereafter such that 100 percent of granted options may be exercised by the end of the fifth year.



During the first quarter of 2002, the board of directors of Security Bank Corporation adopted a performance-based incentive stock option plan. Under this
plan, 210,000 options were granted in May 2002 at $9.75 per share, 15,000 were granted at $11.40 in November 2002, 10,000 options were granted at $11.75 in December 2002 and an additional 7,000 options were granted at $16.50 in August 2003. The
nonforfeitable provisions for these options are two-tiered.



27



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



Options in the first tier are nonforfeitable over three years based on a 12 percent increase in
diluted earnings per share over the base year diluted earnings per share of $0.52 each year. If the maximum diluted earnings per share of $0.72 is reached during the three-year period, the nonforfeitable shares are doubled. Under the second tier,
additional shares shall become nonforfeitable for two executive officers based on the same requirements except the diluted earnings per share must increase 15 percent a year to a maximum of $0.78 during the three-year period. The first year of
nonforfeiture for this plan is based on the Companys performance for 2001. One-third of the nonforfeitable options vest on each anniversary of the stock option agreements.



During the second quarter of 2004, the board of directors of Security Bank Corporation adopted another performance-based
incentive stock option plan, which calls for adjustments to diluted earnings per share based on the impact of the 2004 common stock offering. Under this plan, 436,000 options were granted in May 2004 at $15.71 per share. The nonforfeitable
provisions for these options are two-tiered. Options in the first-tier are nonforfeitable over three years based on a 12 percent increase in adjusted diluted earnings per share over the base year diluted earnings of $0.96. If the maximum adjusted
diluted earnings per share of $1.35 is reached during the three-year period, the nonforfeitable shares are doubled. Under the second tier, additional shares shall become nonforfeitable for three executive officers based on the same requirements
except the adjusted diluted earnings per share must increase 15 percent a year to a maximum of $1.46 during the three-year period. The first year of nonforfeiture for this plan is based on the Companys performance of 2004. One-third of the
nonforfeitable options vest on each anniversary of the stock option agreements.



In June 2005, the Company granted 15,000 options at $20.09 per share under the incentive stock plan adopted in 2004. The nonforfeitable provisions for these options are in the first-tier, and are nonforfeitable over
three years based on a twelve percent increase in diluted earnings per share over the diluted earnings per share of $1.07 for the fiscal year ended December 31, 2004. The first year of nonforfeiture for this grant is based on the Companys
performance of 2005. One-third of the nonforfeitable options vest on each anniversary of the stock option agreements.



In addition, stockholders of Security Bank Corporation approved the 2004 Employee Stock Purchase Plan. One hundred thousand shares have been reserved for
issuance under this plan. Through payroll deductions eligible employees may specify withholdings of a minimum of $10 and maximum of $300 per payroll period. The purchase price of shares under this plan is 85 percent of the fair market value of the
stock on the first day of the offer period. The fair market value of the stock will reset on the first day of each subsequent quarter during the offer period. Participation in the plan began in August 2004.



A summary of option transactions follows:



|                                            |  |                                      |        
|------------------------------------------- |  | ------------------------------------ | -------
|                                            |  | Shares Under Incentive Stock Options
|Outstanding, December 31, 2004              |  | $                                    | 801,000
|Granted                                     |  |                                      | 15,000 
|Canceled                                    |  |                                      |       
|Exercised                                   |  |                                      | 20,000 
|                                            |  |                                      |        
|Outstanding, December 31, 2005              |  |                                      | 796,000
|                                            |  |                                      |        
|Eligible to be Exercised, December 31, 2005 |  |                                      | 306,592
|                                            |  |                                      |        



28



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(16) Interest Income and Expense



Interest income of $625,992, $722,104 and $607,647 from state, county and municipal bonds was exempt from regular income
taxes in 2005, 2004 and 2003, respectively.



Interest on
deposits includes interest expense on time certificates of $100,000 or more totaling $10,394,540, $4,363,314, and $2,683,113 for the years ended December 31, 2005, 2004 and 2003, respectively.



(17) Supplemental Cash Flow Information



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



|                 |  |      |            |      |   |            |  |   |           
|---------------- |  | ---- | ---------- | ---- | - | ---------- |  | - | ----------
|                 |  | 2005 |            | 2004 |   | 2003      
|Interest Expense |  | $    | 30,664,500 |      | $ | 15,016,129 |  | $ | 13,626,583
|                 |  |      |            |      |   |            |  |   |           
|Income Taxes     |  | $    | 9,704,500  |      | $ | 6,806,700  |  | $ | 4,636,400 
|                 |  |      |            |      |   |            |  |   |           



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



|                                                  |  |      |             |   |      |   |           |  |   |             |  
|------------------------------------------------- |  | ---- | ----------- | - | ---- | - | --------- |  | - | ----------- | -
|                                                  |  | 2005 |             |   | 2004 |   | 2003      | 
|Acquisitions of Real Estate Through Foreclosure   |  | $    | 3,421,973   |   |      | $ | 2,373,329 |  | $ | 4,948,635   |  
|                                                  |  |      |             |   |      |   |           |  |   |             |  
|Acquisition, Net of Cash Acquired                 |  |      |             |   |      |   |           |  |   |             |  
|Common Stock Issued                               |  | $    | 58,393,291  |   |      | $ |          |  | $ | 29,361,990  |  
|Cash Received, Less Cash Paid                     |  |      | (5,923,269  | ) |      |   |           |  |   | (2,279,981  | )
|Liabilities Assumed                               |  |      | 321,525,524 |   |      |   |           |  |   | 214,487,707 |  
|                                                  |  |      |             |   |      |   |           |  |   |             |  
|Fair Value of Assets Acquired, Including Goodwill |  | $    | 373,995,546 |   |      | $ |          |  | $ | 241,569,716 |  
|                                                  |  |      |             |   |      |   |           |  |   |             |  
|Goodwill Resulting from Contingent Payment        |  |      |             |   |      |   |           |  |   |             |  
|Common Stock Issued                               |  | $    | 2,362,896   |   |      | $ | 1,688,199 |  | $ | 850,267     |  
|Cash Paid                                         |  |      | 909,864     |   |      |   | 2,016,533 |  |   | 1,160,456   |  
|                                                  |  |      |             |   |      |   |           |  |   |             |  
|Total Goodwill                                    |  | $    | 3,272,760   |   |      | $ | 3,704,732 |  | $ | 2,010,723   |  
|                                                  |  |      |             |   |      |   |           |  |   |             |  
|Unrealized Loss on Investment Securities          |  | $    | 2,981,815   |   |      | $ | 814,777   |  | $ | 1,409,233   |  
|                                                  |  |      |             |   |      |   |           |  |   |             |  



(18) Earnings Per Share



SFAS No. 128 establishes standards for computing and
presenting basic and diluted earnings per share. Basic earnings per share is calculated and presented based on income available to common stockholders divided by the weighted average number of shares outstanding during the reporting periods. Diluted
earnings per share reflects the potential dilution of restricted stock and stock options. The following presents earnings per share for the years ended December 31, 2005, 2004 and 2003 under the requirements of Statement 128:



|                                          |  |                 |            |                          |            |     |   |     
|----------------------------------------- |  | --------------- | ---------- | ------------------------ | ---------- | --- | - | ----
|                                          |  | IncomeNumerator |            | CommonShares Denominator |            | EPS
|December 31, 2005                         |  |                 |            |                          |            |     |   |     
|                                          |  |                 |           
|Basic EPS                                 |  |                 |            |                          |            |     |   |     
|Income Available to Common Stockholders   |  | $               | 16,184,933 |                          | 12,393,980 |     | $ | 1.31
|                                          |  |                 |            |                          |            |     |   |     
|Dilutive Effect of Potential Common Stock |  |                 |            |                          |            |     |   |     
|Stock Options and Restricted Stock        |  |                 |            |                          | 342,565    |     |   |     
|                                          |  |                 |            |                          |            |     |   |     



29



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                                                                         |  |   |            |  |            |  |   |     
|---------------------------------------------------------------------------------------- |  | - | ---------- |  | ---------- |  | - | ----
|Diluted EPS                                                                              |  |   |            |  |            |  |   |     
|Income Available to Common Stockholders After Assumed Conversions of Dilutive Securities |  | $ | 16,184,933 |  | 12,736,545 |  | $ | 1.27
|                                                                                         |  |   |            |  |            |  |   |     
|December 31, 2004                                                                        |  |   |            |  |            |  |   |     
|                                                                                         |  |   |           
|Basic EPS                                                                                |  |   |            |  |            |  |   |     
|Income Available to Common Stockholders                                                  |  | $ | 12,318,719 |  | 11,156,372 |  | $ | 1.10
|                                                                                         |  |   |            |  |            |  |   |     
|Dilutive Effect of Potential Common Stock                                                |  |   |            |  |            |  |   |     
|Stock Options                                                                            |  |   |            |  | 326,458    |  |   |     
|                                                                                         |  |   |            |  |            |  |   |     
|Diluted EPS                                                                              |  |   |            |  |            |  |   |     
|Income Available to Common Stockholders After Assumed Conversions of Dilutive Securities |  | $ | 12,318,719 |  | 11,482,830 |  | $ | 1.07
|                                                                                         |  |   |            |  |            |  |   |     
|December 31, 2003                                                                        |  |   |            |  |            |  |   |     
|                                                                                         |  |   |           
|Basic EPS                                                                                |  |   |            |  |            |  |   |     
|Income Available to Common Stockholders                                                  |  | $ | 8,647,370  |  | 8,725,276  |  | $ | 0.99
|                                                                                         |  |   |            |  |            |  |   |     
|Dilutive Effect of Potential Common Stock                                                |  |   |            |  |            |  |   |     
|Stock Options                                                                            |  |   |            |  | 268,566    |  |   |     
|                                                                                         |  |   |            |  |            |  |   |     
|Diluted EPS                                                                              |  |   |            |  |            |  |   |     
|Income Available to Common Stockholders After Assumed Conversions of Dilutive Securities |  | $ | 8,647,370  |  | 8,993,842  |  | $ | 0.96
|                                                                                         |  |   |            |  |            |  |   |     



Effective
January 1, 2002, the Company adopted the fair value method of recording stock-based compensation contained in SFAS No. 123, Accounting for Stock-Based Compensation, which is considered the preferable accounting method for
stock-based employee compensation. Historically the Company had applied the intrinsic value method permitted under SFAS No. 123, as defined in Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, in accounting for stock-based compensation plans. Accordingly, no compensation expense has been recognized for the Companys stock option plans prior to January 1, 2002. In adopting SFAS 123, the Company is allowed to
choose from three alternative transition methods. The Company elected to apply SFAS 123 prospectively to all new awards. Accordingly, stock option expense totaling $478,427 as of December 31, 2005 and $313,730 as of December 31, 2004 was
recorded to Salaries and Employee Benefits. Stock-based compensation awards granted in previous years will continue to be accounted for under Opinion 25.



If compensation expense for these awards were determined on the basis of SFAS 123, net income and earnings per share would have been reduced as shown in
the proforma information presented hereafter.



|                         |  |      |            |      |   |            |  |   |          
|------------------------ |  | ---- | ---------- | ---- | - | ---------- |  | - | ---------
|                         |  | 2005 |            | 2004 |   | 2003      
|Net Income               |  |      |            |      |   |            |  |   |          
|As Reported              |  | $    | 16,184,933 |      | $ | 12,318,719 |  | $ | 8,647,370
|                         |  |      |            |      |   |            |  |   |          
|Proforma                 |  |      | 16,179,397 |      | $ | 12,262,683 |  | $ | 8,592,324
|                         |  |      |            |      |   |            |  |   |          
|Basic Earnings Per Share |  |      |            |      |   |            |  |   |          
|As Reported              |  | $    | 1.31       |      | $ | 1.10       |  | $ | 0.99     
|                         |  |      |            |      |   |            |  |   |          
|Proforma                 |  | $    | 1.31       |      | $ | 1.10       |  | $ | 0.98     
|                         |  |      |            |      |   |            |  |   |          



30



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                           |  |   |      |  |   |      |  |   |     
|-------------------------- |  | - | ---- |  | - | ---- |  | - | ----
|Diluted Earnings Per Share |  |   |      |  |   |      |  |   |     
|As Reported                |  | $ | 1.27 |  | $ | 1.07 |  | $ | 0.96
|                           |  |   |      |  |   |      |  |   |     
|Proforma                   |  | $ | 1.27 |  | $ | 1.07 |  | $ | 0.95
|                           |  |   |      |  |   |      |  |   |     



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



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



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



(19) Related Party Transactions



The aggregate balance of direct and indirect loans to
directors, executive officers or principal holders of equity securities of the Company was $36,290,596 as of December 31, 2005 and $35,340,799 as of December 31, 2004. All such loans were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than a normal risk of collectibility. A summary of activity of related party loans is presented hereafter.



|                                     |  |      |             |   |      |   |             |  
|------------------------------------ |  | ---- | ----------- | - | ---- | - | ----------- | -
|                                     |  | 2005 |             |   | 2004 |  
|Balance, Beginning                   |  | $    | 35,340,799  |   |      | $ | 28,749,881  |  
|New Loans                            |  |      | 28,476,316  |   |      |   | 41,978,560  |  
|Repayments                           |  |      | (36,047,496 | ) |      |   | (35,387,642 | )
|Business Combination, SouthBank      |  |      | 7,716,469   |   |      |   |            |  
|Business Combination, Rivoli BanCorp |  |      | 804,508     |   |      |   |            |  
|                                     |  |      |             |   |      |   |             |  
|Balance, Ending                      |  | $    | 36,290,596  |   |      | $ | 35,340,799  |  
|                                     |  |      |             |   |      |   |             |  



Deposits from related
parties held by the Company at December 31, 2005 and 2004 totaled approximately $46,913,000 and $23,386,000, respectively.



Fairfield Financial Services, Inc. originated $1,359,000 in mortgage loans to related parties during 2005. The loans were then sold to a third-party
investor before the 2005 year-end.



Fairfield Financial
Services, Inc. leases office space from a director. Payments made under the lease agreements totaled $76,800 during each of the years ended December 31, 2005 and 2004.



31



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



The parent companys balance sheets as of December 31, 2005 and
2004 and the related statements of income and comprehensive income and cash flows for the years then ended are as follows:



SECURITY BANK CORPORATION (PARENT ONLY)



BALANCE SHEETS

DECEMBER 31



|                                                                                                              |  |      |             |   |      |   |             |  
|------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|ASSETS                                                                                                        |  |      |             |   |     
|                                                                                                              |  | 2005 |             |   | 2004 |  
|Cash                                                                                                          |  | $    | 9,072,757   |   |      | $ | 420,018     |  
|Securities                                                                                                    |  |      | 190,614     |   |      |   | 670,614     |  
|Bank Premises and Equipment, Net                                                                              |  |      | 274,347     |   |      |   | 294,037     |  
|Investment in Subsidiaries, at Equity                                                                         |  |      | 217,722,411 |   |      |   | 124,046,071 |  
|Prepaid Expenses                                                                                              |  |      | 64,053      |   |      |   | 159,385     |  
|Trust Preferred Placement Fee, Net                                                                            |  |      | 484,000     |   |      |   | 418,750     |  
|Income Tax Benefit                                                                                            |  |      | 144,283     |   |      |   | 35,099      |  
|Other                                                                                                         |  |      | 161,116     |   |      |   | 38,401      |  
|                                                                                                              |  |      |             |   |      |   |             |  
|Total Assets                                                                                                  |  | $    | 228,113,581 |   |      | $ | 126,082,375 |  
|                                                                                                              |  |      |             |   |      |   |             |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                          |  |      |             |   |     
|Liabilities                                                                                                   |  |      |             |   |      |   |             |  
|Payable to Rivoli Stockholders                                                                                |  |      | 4,220,026   |   |      |   |            |  
|Other                                                                                                         |  |      | 1,750,683   |   |      |   | 854,393     |  
|                                                                                                              |  |      |             |   |      |   |             |  
|                                                                                                              |  |      | 5,970,709   |   |      |   | 854,393     |  
|                                                                                                              |  |      |             |   |      |   |             |  
|Other Borrowed Money                                                                                          |  |      | 1,600,000   |   |      |   |             |  
|                                                                                                              |  |      |             |   |      |   |             |  
|Subordinated Debentures                                                                                       |  |      | 41,238,000  |   |      |   | 18,557,000  |  
|                                                                                                              |  |      |             |   |      |   |             |  
|Stockholders Equity                                                                                          |  |      |             |   |      |   |             |  
|Common Stock, Par Value $1 Per Share; Authorized 25,000,000                                                   |  |      |             |   |      |   |             |  
|Shares, Issued and Outstanding 14,406,696 and 11,659,546Shares as of December 31, 2005 and 2004, Respectively |  |      | 14,406,696  |   |      |   | 11,659,546  |  
|Paid-In Capital                                                                                               |  |      | 121,480,964 |   |      |   | 62,348,500  |  
|Retained Earnings                                                                                             |  |      | 45,569,642  |   |      |   | 32,714,960  |  
|Restricted Stock  Unearned Compensation                                                                      |  |      | (222,860    | ) |      |   | (74,697     | )
|Accumulated Other Comprehensive (Loss) Income, Net of (Benefit) Tax                                           |  |      | (1,599,442  | ) |      |   | 352,801     |  
|                                                                                                              |  |      |             |   |      |   |             |  
|                                                                                                              |  |      | 179,635,000 |   |      |   | 107,001,110 |  
|Treasury Stock (19,736 Shares), at Cost                                                                       |  |      | (330,128    | ) |      |   | (330,128    | )
|                                                                                                              |  |      |             |   |      |   |             |  
|                                                                                                              |  |      | 179,304,872 |   |      |   | 106,670,982 |  
|                                                                                                              |  |      |             |   |      |   |             |  
|Total Liabilities and Stockholders Equity                                                                    |  | $    | 228,113,581 |   |      | $ | 126,082,375 |  
|                                                                                                              |  |      |             |   |      |   |             |  



32



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



SECURITY BANK CORPORATION (PARENT ONLY)



STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31



|                                                                                |  |      |            |   |      |   |            |      |  |   |           |  
|------------------------------------------------------------------------------- |  | ---- | ---------- | - | ---- | - | ---------- | ---- |  | - | --------- | -
|                                                                                |  | 2005 |            |   | 2004 |   |            | 2003 | 
|Income                                                                          |  |      |            |  
|Dividends from Subsidiaries                                                     |  | $    | 4,500,000  |   |      | $ | 1,476,635  |      |  | $ | 6,355,699 |  
|Interest and Dividends                                                          |  |      | 38,549     |   |      |   | 806        |      |  |   |          |  
|Management Fees                                                                 |  |      | 1,405,891  |   |      |   | 1,184,980  |      |  |   |          |  
|                                                                                |  |      |            |   |      |   |            |      |  |   |           |  
|                                                                                |  |      | 5,944,440  |   |      |   | 2,662,421  |      |  |   | 6,355,699 |  
|                                                                                |  |      |            |   |      |   |            |      |  |   |           |  
|Expenses                                                                        |  |      |            |   |      |   |            |      |  |   |           |  
|Salaries and Employee Benefits                                                  |  |      | 3,944,127  |   |      |   | 2,713,166  |      |  |   | 944,668   |  
|Occupancy and Equipment                                                         |  |      | 50,899     |   |      |   | 38,848     |      |  |   | 34,553    |  
|Interest                                                                        |  |      | 1,609,340  |   |      |   | 979,289    |      |  |   | 913,572   |  
|Other                                                                           |  |      | 1,456,164  |   |      |   | 1,014,968  |      |  |   | 739,033   |  
|                                                                                |  |      |            |   |      |   |            |      |  |   |           |  
|                                                                                |  |      | 7,060,530  |   |      |   | 4,746,271  |      |  |   | 2,631,826 |  
|                                                                                |  |      |            |   |      |   |            |      |  |   |           |  
|Income (Loss) Before Taxes and Equity in Undistributed Earnings of Subsidiaries |  |      | (1,116,090 | ) |      |   | (2,083,850 | )    |  |   | 3,723,873 |  
|Income Tax Benefit                                                              |  |      | 1,978,432  |   |      |   | 1,148,925  |      |  |   | 960,618   |  
|                                                                                |  |      |            |   |      |   |            |      |  |   |           |  
|                                                                                |  |      |            |   |      |   |            |      |  |   |           |  
|Income (Loss) Before Equity in Undistributed Earnings of Subsidiaries           |  |      | 862,342    |   |      |   | (934,925   | )    |  |   | 4,684,491 |  
|Equity in Undistributed Earnings of Subsidiaries                                |  |      | 15,322,591 |   |      |   | 13,253,644 |      |  |   | 3,962,879 |  
|                                                                                |  |      |            |   |      |   |            |      |  |   |           |  
|Net Income                                                                      |  |      | 16,184,933 |   |      |   | 12,318,719 |      |  |   | 8,647,370 |  
|                                                                                |  |      |            |   |      |   |            |      |  |   |           |  
|Other Comprehensive Income, Net of Tax                                          |  |      |            |   |      |   |            |      |  |   |           |  
|(Losses) Gains on Securities Arising During the Year                            |  |      | (1,955,938 | ) |      |   | (525,679   | )    |  |   | 35,604    |  
|Reclassification Adjustment                                                     |  |      | 3,695      |   |      |   | (8,384     | )    |  |   | (36,619   | )
|                                                                                |  |      |            |   |      |   |            |      |  |   |           |  
|Unrealized Losses on Securities                                                 |  |      | (1,952,243 | ) |      |   | (534,063   | )    |  |   | (1,015    | )
|                                                                                |  |      |            |   |      |   |            |      |  |   |           |  
|Comprehensive Income                                                            |  | $    | 14,232,690 |   |      | $ | 11,784,656 |      |  | $ | 8,646,355 |  
|                                                                                |  |      |            |   |      |   |            |      |  |   |           |  



33



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  
|------------------------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|SECURITY BANK CORPORATION (PARENT ONLY)  STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31 | 
|                                                                                                  |  | 2005 |             |   | 2004 |   |             | 2003 | 
|Cash Flows from Operating Activities                                                              |  |      |             |   |      |   |             |      |  |   |             |  
|Net Income                                                                                        |  | $    | 16,184,933  |   |      | $ | 12,318,719  |      |  | $ | 8,647,370   |  
|Adjustments to Reconcile Net Income to Net                                                        |  |      |             |   |      |   |             |      |  |   |             |  
|Cash Provided (Used) by Operating Activities                                                      |  |      |             |   |      |   |             |      |  |   |             |  
|Deferred Income Taxes                                                                             |  |      | (12,510     | ) |      |   | (7,181      | )    |  |   | 2,282       |  
|Depreciation and Amortization                                                                     |  |      | 119,621     |   |      |   | 72,808      |      |  |   | 70,926      |  
|Stock Option Expense                                                                              |  |      | 478,427     |   |      |   | 313,730     |      |  |   |            |  
|Equity in Undistributed Earnings of Subsidiaries                                                  |  |      | (15,322,591 | ) |      |   | (13,253,644 | )    |  |   | (3,962,879  | )
|Payable to Rivoli BanCorp Stockholders                                                            |  |      | 4,220,026   |   |      |   |            |      |  |   |            |  
|Increase (Decrease) in Other                                                                      |  |      | (820,649    | ) |      |   | (137,130    | )    |  |   | 399,108     |  
|                                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  
|                                                                                                  |  |      | 4,847,257   |   |      |   | (692,698    | )    |  |   | 5,156,807   |  
|                                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  
|Cash Flows from Investing Activities                                                              |  |      |             |   |      |   |             |      |  |   |             |  
|Investment in Statutory Trust                                                                     |  |      | (588,000    | ) |      |   |            |      |  |   |            |  
|Capital Infusion in Subsidiaries                                                                  |  |      | (750,000    | ) |      |   | (11,550,000 | )    |  |   | (2,900,000  | )
|Sale (Purchase) of Premises and Equipment                                                         |  |      | 53,302      |   |      |   | (27,643     | )    |  |   | (5,322      | )
|Purchase of Investments                                                                           |  |      |            |   |      |   | (670,614    | )    |  |   |            |  
|Payment for Business Combinations                                                                 |  |      | (13,975,457 | ) |      |   |            |      |  |   | (15,156,910 | )
|                                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  
|                                                                                                  |  |      | (15,260,151 | ) |      |   | (12,248,257 | )    |  |   | (18,062,232 | )
|                                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  
|Cash Flows from Financing Activities                                                              |  |      |             |   |      |   |             |      |  |   |             |  
|Dividends Paid                                                                                    |  |      | (3,271,320  | ) |      |   | (2,483,659  | )    |  |   | (1,847,129  | )
|Issuance of Common Stock                                                                          |  |      | 2,748,953   |   |      |   | 21,222,339  |      |  |   | 993,551     |  
|Note Payable                                                                                      |  |      |            |   |      |   | (6,500,000  | )    |  |   | 6,500,000   |  
|Subordinated Debt                                                                                 |  |      | 19,588,000  |   |      |   |            |      |  |   |            |  
|                                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  
|                                                                                                  |  |      | 19,065,633  |   |      |   | 12,238,680  |      |  |   | 5,646,422   |  
|                                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  
|Net Increase (Decrease) in Cash                                                                   |  |      | 8,652,739   |   |      |   | (702,275    | )    |  |   | (7,259,003  | )
|Cash, Beginning                                                                                   |  |      | 420,018     |   |      |   | 1,122,293   |      |  |   | 8,381,296   |  
|                                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  
|Cash, Ending                                                                                      |  | $    | 9,072,757   |   |      | $ | 420,018     |      |  | $ | 1,122,293   |  
|                                                                                                  |  |      |             |   |      |   |             |      |  |   |             |  



(21) Fair Value of Financial
Instruments



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



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



34



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



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



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



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



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



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



|                                         |  |                |           |                      |   |                |  |                     |         |  |   |        
|---------------------------------------- |  | -------------- | --------- | -------------------- | - | -------------- |  | ------------------- | ------- |  | - | -------
|                                         |  | 2005           |           | 2004                
|                                         |  | CarryingAmount |           | Estimated Fair Value |   | CarryingAmount |  | EstimatedFair Value
|                                         |  | (in Thousands)
|Assets                                   |  |                |           |                      |   |                |  |                     |         |  |   |        
|Cash and Short-Term Investments          |  | $              | 103,092   |                      | $ | 103,092        |  | $                   | 44,346  |  | $ | 44,346 
|Interest-Bearing Deposits                |  |                | 6,380     |                      |   | 6,380          |  |                     | 2,858   |  |   | 2,858  
|Investment Securities Available for Sale |  |                | 143,662   |                      |   | 143,662        |  |                     | 104,110 |  |   | 104,110
|Investment Securities Held to Maturity   |  |                | 350       |                      |   | 354            |  |                     | 2,384   |  |   | 2,404  
|Restricted Stocks                        |  |                | 6,974     |                      |   | 6,974          |  |                     | 4,918   |  |   | 4,918  
|Loans                                    |  |                | 1,273,683 |                      |   | 1,263,672      |  |                     | 846,818 |  |   | 849,732
|Loans Held for Sale                      |  |                | 5,562     |                      |   | 5,565          |  |                     | 7,507   |  |   | 7,506  
|                                         |  |                |           |                     
|Liabilities                              |  |                |           |                      |   |                |  |                     |         |  |   |        
|Deposits                                 |  |                | 1,291,253 |                      |   | 1,290,018      |  |                     | 842,558 |  |   | 841,238
|Borrowed Money                           |  |                | 130,903   |                      |   | 130,530        |  |                     | 88,947  |  |   | 88,817 
|Subordinated Debentures                  |  |                | 41,238    |                      |   | 41,238         |  |                     | 18,557  |  |   | 18,557 
|                                         |  |                |           |                     
|Unrecognized Financial Instruments       |  |                |           |                      |   |                |  |                     |         |  |   |        
|Letters of Credit                        |  |                |          |                      |   | 13,977         |  |                     |        |  |   | 9,938  
|Unfulfilled Loan Commitments             |  |                |          |                      |   | 393,805        |  |                     |        |  |   | 233,136



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



35



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



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



(22) Regulatory Capital
Matters



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



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



Quantitative measures
established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets, and of Tier I capital to average assets. The amounts and ratios as defined in
regulations are presented hereafter. Management believes, as of December 31, 2005, the Company meets all capital adequacy requirements to which it is subject and is classified as well capitalized under the regulatory framework for prompt
corrective action. In the opinion of management, there are no conditions or events since prior notification of capital adequacy from the regulators that have changed the institutions category.



36



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



|                                       |  |        |         |       |                             |   |                |                                                               |         |  |      |        |  |       |         |  |       |  
|-------------------------------------- |  | ------ | ------- | ----- | --------------------------- | - | -------------- | ------------------------------------------------------------- | ------- |  | ---- | ------ |  | ----- | ------- |  | ----- | -
|                                       |  | Actual |         |       | For CapitalAdequacyPurposes |   |                | To Be WellCapitalized UnderPrompt CorrectiveAction Provisions |        
|                                       |  | Amount |         | Ratio |                             |   | Amount         |                                                               | Ratio   |  |      | Amount |  | Ratio |        
|                                       |  |        |         |       |                             |   | (In Thousands) |                                                               |         |  |      |        | 
|As of December 31, 2005                |  |        |         |       |                             |   |                |                                                               |         |  |      |        |  |       |         |  |       |  
|Total Capital to Risk-Weighted Assets  |  |        |         |       |                             |   |                |                                                               |         |  |      |        |  |       |         |  |       |  
|Consolidated                           |  | $      | 156,126 |       | 11.27                       | % |                | $                                                             | 110,849 |  | 8.00 | %      |  | $     | 138,562 |  | 10.00 | %
|Bibb                                   |  |        | 69,641  |       | 10.88                       |   |                |                                                               | 51,210  |  | 8.00 |        |  |       | 64,012  |  | 10.00 |  
|Houston                                |  |        | 22,236  |       | 10.54                       |   |                |                                                               | 16,871  |  | 8.00 |        |  |       | 21,089  |  | 10.00 |  
|Jones                                  |  |        | 27,124  |       | 13.48                       |   |                |                                                               | 16,099  |  | 8.00 |        |  |       | 20,124  |  | 10.00 |  
|North Metro                            |  |        | 16,575  |       | 11.12                       |   |                |                                                               | 11,927  |  | 8.00 |        |  |       | 14,909  |  | 10.00 |  
|Rivoli                                 |  |        | 17,730  |       | 9.74                        |   |                |                                                               | 14,559  |  | 8.00 |        |  |       | 18,198  |  | 10.00 |  
|Tier I Capital to Risk-Weighted Assets |  |        |         |       |                             |   |                |                                                               |         |  |      |        |  |       |         |  |       |  
|Consolidated                           |  |        | 140,268 |       | 10.12                       |   |                |                                                               | 55,425  |  | 4.00 |        |  |       | 83,137  |  | 6.00  |  
|Bibb                                   |  |        | 62,618  |       | 9.78                        |   |                |                                                               | 25,605  |  | 4.00 |        |  |       | 38,407  |  | 6.00  |  
|Houston                                |  |        | 19,708  |       | 9.35                        |   |                |                                                               | 8,436   |  | 4.00 |        |  |       | 12,654  |  | 6.00  |  
|Jones                                  |  |        | 24,605  |       | 12.23                       |   |                |                                                               | 8,050   |  | 4.00 |        |  |       | 12,074  |  | 6.00  |  
|North Metro                            |  |        | 14,998  |       | 10.06                       |   |                |                                                               | 5,964   |  | 4.00 |        |  |       | 8,946   |  | 6.00  |  
|Rivoli                                 |  |        | 15,519  |       | 8.53                        |   |                |                                                               | 7,279   |  | 4.00 |        |  |       | 10,919  |  | 6.00  |  
|Tier I Capital to Average Assets       |  |        |         |       |                             |   |                |                                                               |         |  |      |        |  |       |         |  |       |  
|Consolidated                           |  |        | 140,268 |       | 9.72                        |   |                |                                                               | 57,728  |  | 4.00 |        |  |       | 72,160  |  | 5.00  |  
|Bibb                                   |  |        | 62,618  |       | 9.79                        |   |                |                                                               | 25,584  |  | 4.00 |        |  |       | 31,980  |  | 5.00  |  
|Houston                                |  |        | 19,708  |       | 8.46                        |   |                |                                                               | 9,323   |  | 4.00 |        |  |       | 11,654  |  | 5.00  |  
|Jones                                  |  |        | 24,605  |       | 9.41                        |   |                |                                                               | 10,461  |  | 4.00 |        |  |       | 13,077  |  | 5.00  |  
|North Metro                            |  |        | 14,998  |       | 9.30                        |   |                |                                                               | 6,450   |  | 4.00 |        |  |       | 8,062   |  | 5.00  |  
|Rivoli                                 |  |        | 15,519  |       | 8.77                        |   |                |                                                               | 7,076   |  | 4.00 |        |  |       | 8,845   |  | 5.00  |  



|                                       |  |        |         |       |                               |   |                |                                                               |        |  |      |        |  |       |        |  |       |  
|-------------------------------------- |  | ------ | ------- | ----- | ----------------------------- | - | -------------- | ------------------------------------------------------------- | ------ |  | ---- | ------ |  | ----- | ------ |  | ----- | -
|                                       |  | Actual |         |       | For Capital Adequacy Purposes |   |                | To Be WellCapitalized UnderPrompt CorrectiveAction Provisions |       
|                                       |  | Amount |         | Ratio |                               |   | Amount         |                                                               | Ratio  |  |      | Amount |  | Ratio |       
|                                       |  |        |         |       |                               |   | (In Thousands) |                                                               |        |  |      |        | 
|As of December 31, 2004                |  |        |         |       |                               |   |                |                                                               |        |  |      |        |  |       |        |  |       |  
|Total Capital to Risk-Weighted Assets  |  |        |         |       |                               |   |                |                                                               |        |  |      |        |  |       |        |  |       |  
|Consolidated                           |  | $      | 106,313 |       | 11.40                         | % |                | $                                                             | 74,583 |  | 8.00 | %      |  | $     | 93,229 |  | 10.00 | %
|Bibb                                   |  |        | 62,112  |       | 10.86                         |   |                |                                                               | 45,762 |  | 8.00 |        |  |       | 57,203 |  | 10.00 |  
|Houston                                |  |        | 18,611  |       | 10.68                         |   |                |                                                               | 13,943 |  | 8.00 |        |  |       | 17,429 |  | 10.00 |  
|Jones                                  |  |        | 24,408  |       | 13.33                         |   |                |                                                               | 14,654 |  | 8.00 |        |  |       | 18,317 |  | 10.00 |  
|Tier I Capital to Risk-Weighted Assets |  |        |         |       |                               |   |                |                                                               |        |  |      |        |  |       |        |  |       |  
|Consolidated                           |  |        | 95,739  |       | 10.27                         |   |                |                                                               | 37,292 |  | 4.00 |        |  |       | 55,937 |  | 6.00  |  
|Bibb                                   |  |        | 55,928  |       | 9.78                          |   |                |                                                               | 22,881 |  | 4.00 |        |  |       | 34,322 |  | 6.00  |  
|Houston                                |  |        | 16,518  |       | 9.48                          |   |                |                                                               | 6,971  |  | 4.00 |        |  |       | 10,457 |  | 6.00  |  
|Jones                                  |  |        | 22,111  |       | 12.07                         |   |                |                                                               | 7,327  |  | 4.00 |        |  |       | 10,990 |  | 6.00  |  
|Tier I Capital to Average Assets       |  |        |         |       |                               |   |                |                                                               |        |  |      |        |  |       |        |  |       |  
|Consolidated                           |  |        | 95,739  |       | 9.58                          |   |                |                                                               | 39,959 |  | 4.00 |        |  |       | 49,949 |  | 5.00  |  
|Bibb                                   |  |        | 55,928  |       | 10.04                         |   |                |                                                               | 22,283 |  | 4.00 |        |  |       | 27,854 |  | 5.00  |  
|Houston                                |  |        | 16,518  |       | 8.28                          |   |                |                                                               | 7,984  |  | 4.00 |        |  |       | 9,981  |  | 5.00  |  
|Jones                                  |  |        | 22,111  |       | 9.17                          |   |                |                                                               | 9,646  |  | 4.00 |        |  |       | 12,058 |  | 5.00  |  



37



---

SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



(23) Business Combinations



On July 31, 2000, Security Bank of Bibb County purchased the assets of Group Financial Southeast (dba Fairfield
Financial) in a business combination accounted for as a purchase. The assets were placed in a newly formed subsidiary of Security Bank of Bibb County incorporated as Fairfield Financial Services, Inc. Fairfield Financial is primarily engaged in
residential real estate mortgage lending in the state of Georgia. The results of operations of Fairfield Financial since the date of acquisition are included in the accompanying consolidated financial statements. The initial purchase price
approximated $1.4 million, which consisted of approximately $1.0 million in cash and 64,690 shares of Security Bank Corporation stock valued at $388,140 at closing. The initial cost of the acquisition exceeded the fair value of the assets of
Fairfield Financial by $988,000. The excess was recorded as goodwill and was amortized on the straight-line method over 10 years through December 31, 2001. As a result of the issuance of SFAS No. 142, the goodwill is no longer amortized
but is reviewed annually for impairment.



The Asset Purchase
Agreement provides for additional contingent payments of purchase price for years 2001 through 2005 based on the earnings of Fairfield Financial. The additional payments, if any, are payable in cash and stock. Cash and stock payments for 2005 will
equate to 20 percent and 80 percent, respectively, of Fairfield Financials earnings for the year. The number of shares issued during any year cannot exceed 150,000. The maximum number of shares under the agreement cannot exceed 600,000 for
years 2002-2005. All additional payments of cash and stock have been charged to goodwill. The contingent payment due in 2006 as a result of 2005 earnings is a combination of cash and stock approximating $4,168,700.



On October 25, 2002, Security Bank Corporation executed a definitive
agreement to acquire Bank of Gray located in Gray (Jones County), Georgia. The stockholders of the Bank of Gray received $15,000,000 in cash and 3,142,000 common shares of the Company in a business combination accounted for as a purchase. The merger
closed on May 30, 2003. Results of operations for the Bank of Gray are included in the consolidated financial statements since that date. The acquisition was made for the purpose of increasing the Companys market share in the middle
Georgia area.



The excess of the purchase price over book value
has been allocated to the fair value of premises and equipment, the fair value of deposits and core deposit intangibles in the amounts of $1,168,000, $2,044,983 and $855,809, respectively. During 2005, $681,661 of the deposit premium was accreted to
interest expense, and $171,162 of the core deposit intangibles were amortized to noninterest expense. The Company amortized $17,667 of the premises and equipment premium in 2005. Goodwill of $20,964,250 was recorded as a result of this acquisition.
The goodwill is not deductible for income tax purposes.



On
January 19, 2005, the Company executed a definitive agreement to acquire SouthBank, a community bank located in Woodstock, Georgia. The stockholders of SouthBank received $9,659,994 in cash and 1,121,372 shares of the Companys common
stock in a business combination accounted for as a purchase. The acquisition was executed on May 31, 2005. Results of operations for SouthBank are included in the consolidated financial statements since that date. The acquisition was made for
the purpose of expanding the Companys operations into the fast growing north metropolitan Atlanta area.



The excess of the purchase price over book value has been allocated to the fair value of core deposit intangibles of $1,093,981. During 2005, the Company
amortized $91,165 of the core deposit intangibles. Goodwill of $17,925,157 was recorded as a result of this acquisition. The goodwill is not deductible for income tax purposes.



On September 9, 2005, the Company executed a definitive agreement to acquire Rivoli BanCorp, Inc., the parent of Rivoli
Bank & Trust. Rivoli BanCorp is a community bank holding located in Macon, Georgia. The



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SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



stockholders of Rivoli BanCorp received $4,220,026 in cash and 1,472,995 shares of the Companys common stock in a business combination accounted for as
a purchase. The acquisition was executed on December 31, 2005. Results of operations for Rivoli BanCorp are included in the consolidated financial statements since that date. The acquisition was made for the purpose of increasing the
Companys market share in the middle Georgia area.



The
excess of the purchase price over book value has been allocated to the fair value of premises and equipment and core deposit intangibles in the amounts of $1,478,229 and $3,270,550, respectively. Goodwill of $26,146,085 was recorded as a result of
this acquisition. The goodwill is not deductible for income tax purposes.



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



|                                            |  |        |              |   |           |   |              |              |  |   |              |  
|------------------------------------------- |  | ------ | ------------ | - | --------- | - | ------------ | ------------ |  | - | ------------ | -
|                                            |  | Rivoli |              |   | SouthBank |   |              | Bank of Gray | 
|Cash, Due from Banks and Federal Funds Sold |  | $      | 9,255,842    |   |           | $ | 12,677,273   |              |  | $ | 17,319,124   |  
|Investment Securities                       |  |        | 24,323,276   |   |           |   | 14,051,844   |              |  |   | 72,516,776   |  
|Loans, Net                                  |  |        | 161,764,935  |   |           |   | 107,837,573  |              |  |   | 139,530,148  |  
|Premises and Equipment                      |  |        | 8,005,934    |   |           |   | 2,902,522    |              |  |   | 3,699,770    |  
|Core Deposit Intangible                     |  |        | 3,270,550    |   |           |   | 1,093,981    |              |  |   | 855,809      |  
|Goodwill Arising in the Acquisition         |  |        | 26,146,085   |   |           |   | 17,925,157   |              |  |   | 20,964,250   |  
|Other Assets                                |  |        | 2,713,519    |   |           |   | 1,061,923    |              |  |   | 3,963,820    |  
|Deposits                                    |  |        | (148,480,435 | ) |           |   | (118,110,954 | )            |  |   | (212,999,994 | )
|Other Liabilities                           |  |        | (47,154,533  | ) |           |   | (7,779,602   | )            |  |   | (1,487,713   | )
|                                            |  |        |              |   |           |   |              |              |  |   |              |  
|                                            |  | $      | 39,845,173   |   |           | $ | 31,659,717   |              |  | $ | 44,361,990   |  
|                                            |  |        |              |   |           |   |              |              |  |   |              |  



Following are proforma
amounts assuming that the acquisitions of SouthBank and Rivoli were made on January 1, 2004:



|                   |  |             |            |      |   |           
|------------------ |  | ----------- | ---------- | ---- | - | ----------
|                   |  | December 31
|                   |  | 2005        |            | 2004
|Interest Income    |  | $           | 97,926,886 |      | $ | 67,845,926
|Net Income         |  |             | 16,230,126 |      |   | 14,390,780
|Earnings Per Share |  |             |            |      |   |           
|Basic              |  | $           | 1.31       |      | $ | 1.29      
|Diluted            |  | $           | 1.27       |      | $ | 1.25      



(24) Deferred Compensation Plan



Security Bank of Houston County maintains a deferred
compensation plan under which certain officers may elect to defer, until termination, retirement, death or unforeseeable emergency a portion of current compensation. The plan is created in accordance with Internal Revenue Code Section 457.
Interest is paid on such deferrals at a rate that is determined annually. The participants are general creditors of the Bank with respect to amounts deferred and interest additions. As of December 31, 2005 and 2004, the liability under this
plan totaled $225,124 and $199,047, respectively. Provisions charged to operations totaled $26,077 in 2005, $23,468 in 2004 and $0 in 2003.



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



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SECURITY BANK CORPORATION AND SUBSIDIARIES



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)



The contracts were initially funded through the purchase of life insurance with immediate cash value
vesting in the amount of $885,783, which is included in other assets. The cash value of the life insurance contracts totaled $1,166,691 as of December 31, 2005.



Liabilities accrued under the plan totaled $642,612 and $634,315 as of December 31, 2005 and 2004, respectively.
Provisions charged to operations totaled $8,297 in 2005, $45,696 in 2004 and $96,234 in 2003. No benefits have been paid as of December 31, 2005.



In 2005, Security Bank of Bibb County commenced a Supplemental Executive Retirement Plan (SERP) covering its executive officers (who are also
the executive officers of Security Bank Corporation) through individual contracts. Under this plan, the Bank is committed to pay the individuals an annual benefit of 65% of final average compensation (as defined) reduced by other benefits such as
Social Security, 401(k), and benefits from prior plans. The benefit will be paid over a period of 15 years beginning at age 65. If the individual dies before age 65, the amount of the annual benefit will be calculated and distributed to the
individuals beneficiary for a period of 15 years.



The
SERP was initially funded through the purchase of life insurance with immediate cash value vesting in the amount of $5,000,000, which is included in other assets. The cash value of the life insurance contracts totaled $5,094,545 as of December 31,
2005. Liabilities accrued under the SERP totaled $32,130 as of December 31, 2005. Provisions charged to operations totaled $32,130 in 2005. No benefits have been paid as of December 31, 2005.



(25) Restricted Stock-Unearned Compensation



In 2003, the board of directors of Security Bank Corporation adopted a
restricted stock grant plan which awards certain executive officers common shares of the Company. The maximum number of shares which may be subject to restricted stock awards is 10,000. During 2003, all 10,000 shares were issued under this plan. The
shares are recorded at fair market value (on the date granted) as a separate component of stockholders equity. The cost of these shares is being amortized against earnings using the straight-line method over the five-year restriction period.



In May 2005, 9,156 shares were issued in connection with the
SouthBank acquisition. The shares are recorded at fair market value (on the date granted) as a separate component of stockholders equity. The cost of these shares is being amortized against earnings using the straight-line method over the
five-year restriction period.



(26) Stock Split



In May 2005, the Companys board of directors approved a two-for-one
split of the Companys common stock, payable on May 27, 2005 in the form of a 100 percent stock dividend to shareholders of record on May 16, 2005. All share and per share amounts have been adjusted for the stock split.



(27) Subsequent Events



In November 2005, Security Bank Corporation announced a definitive agreement to acquire Neighbors Bancshares, Inc., a
community bank holding company in Alpharetta, Georgia, with approximately $115 million in assets as of December 31, 2005. That agreement is subject to Neighbors shareholder and regulatory approvals, and the acquisition is expected to be
completed in the first quarter of 2006. Neighbors shareholders will receive approximately $1.8 million in cash and approximately 1,233,404 shares of the Companys common stock. The Company expects the total consideration, which varies with the
market price of the Companys common stock, to approximate $30.0 million.



On January 16, 2006, the Company executed a contract to sell a branch office building and land, which it had acquired in the Rivoli BanCorp acquisition. This property is carried on the consolidated balance sheet
as Long-Lived Assets Held For Sale. The resulting gain on sale is immaterial to the consolidated financial statements of the Company.



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