##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2006



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from  to

Commission File Number 000-23261



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SECURITY BANK
CORPORATION

(Exact name of registrant as specified in its charter)



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|                                                             |  |                                     
|------------------------------------------------------------ |  | ------------------------------------
|GEORGIA                                                      |  | 58-2107916                          
|State or other jurisdiction of incorporation or organization |  | (I.R.S. Employer Identification No.)
|                                                             | 
|4219 Forsyth Road, Macon, Georgia                            |  | 31210                               
|(Address of principal executive offices)                     |  | (Zip Code)                          

Issuers Telephone Number (478) 722-6200

N/A

(Former name, former address
and former fiscal year, if changed since last report)



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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes ̈No

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

 ̈Large accelerated filer                    x  Accelerated filer ̈Non-accelerated filer

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

Indicate the number of shares
outstanding of each of the issuers classes of common equity, as of the latest practicable date:



|                              |  |                              
|----------------------------- |  | -----------------------------
|Class                         |  | Outstanding at August 9, 2006
|Common Stock, $1.00 par value |  | 19,166,708 shares            



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##### Table of Contents

SECURITY BANK CORPORATION AND SUBSIDIARIES

INDEX



|           |  |                                                                                                                     |  |            
|---------- |  | ------------------------------------------------------------------------------------------------------------------- |  | -----------
|           |  |                                                                                                                     |  | Page Number
|PART I     |  | Financial Information                                                                                               |  |            
|           |  |                                                                                                                    
|           |  | ITEM 1 Financial Statements                                                                                         |  |            
|           |  |                                                                                                                    
|           |  | Condensed Consolidated Balance Sheets                                                                               |  | 1          
|           |  |                                                                                                                    
|           |  | Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2006 and 2005               |  | 2          
|           |  |                                                                                                                    
|           |  | Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2006 and 2005 |  | 3          
|           |  |                                                                                                                    
|           |  | Consolidated Statements of Changes in Stockholders Equity for the Six Months Ended June 30, 2006 and 2005          |  | 4          
|           |  |                                                                                                                    
|           |  | Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2006 and 2005                     |  | 5          
|           |  |                                                                                                                    
|           |  | Notes to Condensed Consolidated Financial Statements                                                                |  | 6          
|           |  |                                                                                                                    
|           |  | ITEM 2 Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 17         
|           |  |                                                                                                                    
|           |  | ITEM 3 Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 30         
|           |  |                                                                                                                    
|           |  | ITEM 4 Controls and Procedures                                                                                      |  | 30         
|           |  |                                                                                                                    
|PART II    |  | Other Information                                                                                                   |  |            
|           |  |                                                                                                                    
|           |  | ITEM 1 Legal Proceedings                                                                                            |  | 31         
|           |  |                                                                                                                    
|           |  | ITEM 1A Risk Factors                                                                                                |  | 31         
|           |  |                                                                                                                    
|           |  | ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds                                                  |  | 31         
|           |  |                                                                                                                    
|           |  | ITEM 3 Defaults Upon Senior Securities                                                                              |  | 31         
|           |  |                                                                                                                    
|           |  | ITEM 4 Submission of Matters to a Vote of Security Holders                                                          |  | 31         
|           |  |                                                                                                                    
|           |  | ITEM 5 Other Information                                                                                            |  | 31         
|           |  |                                                                                                                    
|           |  | ITEM 6 Exhibits                                                                                                     |  | 32         
|           | 
|SIGNATURES |  | 33                                                                                                                 



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##### Table of Contents

PART I,
ITEM 1

Financial Information

SECURITY BANK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)





|                                                                                                                          |  |                           |           |   |                   |   |           |  
|------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | --------- | - | ----------------- | - | --------- | -
|                                                                                                                          |  | June 30, 2006 (Unaudited) |           |   | December 31, 2005 |  
|ASSETS                                                                                                                    |  |                           |           |   |                   |   |           |  
|Cash and Balances Due from Depository Institutions                                                                        |  | $                         | 57,680    |   |                   | $ | 69,380    |  
|                                                                                                                          |  |                           |           |   |                   |   |           |  
|Interest-Bearing Deposits                                                                                                 |  |                           | 2,458     |   |                   |   | 6,380     |  
|                                                                                                                          |  |                           |           |   |                   |   |           |  
|Federal Funds Sold                                                                                                        |  |                           | 78,569    |   |                   |   | 33,712    |  
|                                                                                                                          |  |                           |           |   |                   |   |           |  
|Investment Securities                                                                                                     |  |                           | 156,773   |   |                   |   | 144,012   |  
|                                                                                                                          |  |                           |           |   |                   |   |           |  
|Restricted Stocks, at Cost                                                                                                |  |                           | 6,605     |   |                   |   | 6,974     |  
|                                                                                                                          |  |                           |           |   |                   |   |           |  
|Loans Held for Sale                                                                                                       |  |                           | 12,201    |   |                   |   | 5,562     |  
|                                                                                                                          |  |                           |           |   |                   |   |           |  
|Loans Receivable, Net                                                                                                     |  |                           | 1,482,773 |   |                   |   | 1,255,971 |  
|                                                                                                                          |  |                           |           |   |                   |   |           |  
|Premises and Equipment                                                                                                    |  |                           | 36,693    |   |                   |   | 29,602    |  
|                                                                                                                          |  |                           |           |   |                   |   |           |  
|Long-Lived Assets Held for Sale                                                                                           |  |                           |          |   |                   |   | 2,410     |  
|                                                                                                                          |  |                           |           |   |                   |   |           |  
|Other Real Estate                                                                                                         |  |                           | 1,817     |   |                   |   | 2,394     |  
|                                                                                                                          |  |                           |           |   |                   |   |           |  
|Goodwill                                                                                                                  |  |                           | 103,014   |   |                   |   | 74,582    |  
|                                                                                                                          |  |                           |           |   |                   |   |           |  
|Core Deposit Intangible, net                                                                                              |  |                           | 4,907     |   |                   |   | 4,687     |  
|                                                                                                                          |  |                           |           |   |                   |   |           |  
|Other Assets                                                                                                              |  |                           | 30,886    |   |                   |   | 26,747    |  
|                                                                                                                          |  |                           |           |   |                   |   |           |  
|Total Assets                                                                                                              |  | $                         | 1,974,376 |   |                   | $ | 1,662,413 |  
|                                                                                                                          |  |                           |           |   |                   |   |           |  
|                                                                                                                          |  |                          
|                                                                                                                          |  | June 30, 2006 (Unaudited) |           |   | December 31, 2005 |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                      |  |                           |           |   |                   |   |           |  
|Deposits                                                                                                                  |  | $                         | 1,576,009 |   |                   | $ | 1,291,253 |  
|                                                                                                                          |  |                           |           |   |                   |   |           |  
|Other Borrowed Money                                                                                                      |  |                           | 132,495   |   |                   |   | 172,141   |  
|                                                                                                                          |  |                           |           |   |                   |   |           |  
|Other Liabilities                                                                                                         |  |                           | 8,092     |   |                   |   | 19,714    |  
|                                                                                                                          |  |                           |           |   |                   |   |           |  
|Stockholders Equity                                                                                                      |  |                           |           |   |                   |   |           |  
|Common Stock, Par Value $1 Per Share; Authorized 25,000,000 Shares, Issued 17,538,848 and 14,406,696 Shares, Respectively |  |                           | 17,539    |   |                   |   | 14,407    |  
|Paid-In Capital                                                                                                           |  |                           | 189,059   |   |                   |   | 121,480   |  
|Retained Earnings                                                                                                         |  |                           | 54,407    |   |                   |   | 45,570    |  
|Restricted Stock  Unearned Compensation                                                                                  |  |                           | (190      | ) |                   |   | (223      | )
|Accumulated Other Comprehensive Loss, Net of Tax                                                                          |  |                           | (2,705    | ) |                   |   | (1,599    | )
|                                                                                                                          |  |                           |           |   |                   |   |           |  
|                                                                                                                          |  |                           | 258,110   |   |                   |   | 179,635   |  
|Treasury Stock, 19,736 Shares, at Cost                                                                                    |  |                           | (330      | ) |                   |   | (330      | )
|                                                                                                                          |  |                           |           |   |                   |   |           |  
|Total Stockholders Equity                                                                                                |  |                           | 257,780   |   |                   |   | 179,305   |  
|                                                                                                                          |  |                           |           |   |                   |   |           |  
|Total Liabilities and Stockholders Equity                                                                                |  | $                         | 1,974,376 |   |                   | $ | 1,662,413 |  
|                                                                                                                          |  |                           |           |   |                   |   |           |  

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



1



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)

Financial Information

SECURITY BANK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(IN THOUSANDS, EXCEPT
PER SHARE AND SHARE AMOUNTS)



|                                                    |  |                             |            |                           |   |            |  |      |            |  |   |            |  
|--------------------------------------------------- |  | --------------------------- | ---------- | ------------------------- | - | ---------- |  | ---- | ---------- |  | - | ---------- | -
|                                                    |  | Three Months Ended June 30, |            | Six Months Ended June 30, |  
|                                                    |  | 2006                        |            | 2005                      |   | 2006       |  | 2005 |           
|Interest Income                                     |  |                             |            |                           |   |            |  |      |            |  |   |            |  
|Loans, Including Fees                               |  | $                           | 32,003     |                           | $ | 16,734     |  | $    | 59,040     |  | $ | 31,448     |  
|Federal Funds Sold                                  |  |                             | 512        |                           |   | 88         |  |      | 690        |  |   | 175        |  
|Investment Securities                               |  |                             | 1,641      |                           |   | 1,150      |  |      | 3,147      |  |   | 2,192      |  
|Other                                               |  |                             | 58         |                           |   | 51         |  |      | 120        |  |   | 73         |  
|                                                    |  |                             |            |                           |   |            |  |      |            |  |   |            |  
|                                                    |  |                             | 34,214     |                           |   | 18,023     |  |      | 62,997     |  |   | 33,888     |  
|                                                    |  |                             |            |                           |   |            |  |      |            |  |   |            |  
|Interest Expense                                    |  |                             |            |                           |   |            |  |      |            |  |   |            |  
|Deposits                                            |  |                             | 13,379     |                           |   | 5,218      |  |      | 23,309     |  |   | 9,218      |  
|Federal Funds Purchased                             |  |                             | 103        |                           |   | 89         |  |      | 253        |  |   | 174        |  
|FHLB Advances                                       |  |                             | 704        |                           |   | 501        |  |      | 1,761      |  |   | 945        |  
|Repurchase Agreements                               |  |                             | 168        |                           |   | 36         |  |      | 300        |  |   | 63         |  
|Subordinated Debentures                             |  |                             | 772        |                           |   | 304        |  |      | 1,543      |  |   | 577        |  
|Other                                               |  |                             | 16         |                           |   | 14         |  |      | 46         |  |   | 22         |  
|                                                    |  |                             |            |                           |   |            |  |      |            |  |   |            |  
|                                                    |  |                             | 15,142     |                           |   | 6,162      |  |      | 27,212     |  |   | 10,999     |  
|                                                    |  |                             |            |                           |   |            |  |      |            |  |   |            |  
|Net Interest Income                                 |  |                             | 19,072     |                           |   | 11,861     |  |      | 35,785     |  |   | 22,889     |  
|                                                    |  |                             |            |                           |   |            |  |      |            |  |   |            |  
|Provision for Loan Losses                           |  |                             | 739        |                           |   | 804        |  |      | 1,369      |  |   | 1,579      |  
|                                                    |  |                             |            |                           |   |            |  |      |            |  |   |            |  
|Net Interest Income After Provision for Loan Losses |  |                             | 18,333     |                           |   | 11,057     |  |      | 34,416     |  |   | 21,310     |  
|                                                    |  |                             |            |                           |   |            |  |      |            |  |   |            |  
|Noninterest Income                                  |  |                             |            |                           |   |            |  |      |            |  |   |            |  
|Service Charges on Deposits                         |  |                             | 2,335      |                           |   | 1,858      |  |      | 4,439      |  |   | 3,455      |  
|Mortgage Banking Income                             |  |                             | 1,433      |                           |   | 1,207      |  |      | 2,684      |  |   | 2,166      |  
|Securities Losses                                   |  |                             |           |                           |   |           |  |      |           |  |   | (6         | )
|Other                                               |  |                             | 1,149      |                           |   | 1,517      |  |      | 2,711      |  |   | 2,481      |  
|                                                    |  |                             |            |                           |   |            |  |      |            |  |   |            |  
|                                                    |  |                             | 4,917      |                           |   | 4,582      |  |      | 9,834      |  |   | 8,096      |  
|                                                    |  |                             |            |                           |   |            |  |      |            |  |   |            |  
|Noninterest Expense                                 |  |                             |            |                           |   |            |  |      |            |  |   |            |  
|Salaries and Employee Benefits                      |  |                             | 7,804      |                           |   | 5,598      |  |      | 15,566     |  |   | 10,652     |  
|Occupancy and Equipment                             |  |                             | 1,459      |                           |   | 906        |  |      | 2,755      |  |   | 1,752      |  
|Office Supplies and Printing                        |  |                             | 228        |                           |   | 166        |  |      | 491        |  |   | 321        |  
|Telephone Expense                                   |  |                             | 288        |                           |   | 209        |  |      | 533        |  |   | 400        |  
|Data Processing                                     |  |                             | 307        |                           |   | 166        |  |      | 653        |  |   | 310        |  
|Marketing Expense                                   |  |                             | 655        |                           |   | 467        |  |      | 1,174      |  |   | 865        |  
|Other                                               |  |                             | 2,873      |                           |   | 1,820      |  |      | 5,323      |  |   | 3,495      |  
|                                                    |  |                             |            |                           |   |            |  |      |            |  |   |            |  
|                                                    |  |                             | 13,614     |                           |   | 9,332      |  |      | 26,495     |  |   | 17,795     |  
|                                                    |  |                             |            |                           |   |            |  |      |            |  |   |            |  
|Income Before Income Taxes                          |  |                             | 9,636      |                           |   | 6,307      |  |      | 17,755     |  |   | 11,611     |  
|Income Taxes                                        |  |                             | 3,546      |                           |   | 2,397      |  |      | 6,525      |  |   | 4,294      |  
|                                                    |  |                             |            |                           |   |            |  |      |            |  |   |            |  
|Net Income                                          |  | $                           | 6,090      |                           | $ | 3,910      |  | $    | 11,230     |  | $ | 7,317      |  
|                                                    |  |                             |            |                           |   |            |  |      |            |  |   |            |  
|Basic Earnings Per Share                            |  | $                           | .36        |                           | $ | .32        |  | $    | .72        |  | $ | .61        |  
|                                                    |  |                             |            |                           |   |            |  |      |            |  |   |            |  
|Diluted Earnings Per Share                          |  | $                           | .36        |                           | $ | .32        |  | $    | .71        |  | $ | .61        |  
|                                                    |  |                             |            |                           |   |            |  |      |            |  |   |            |  
|Dividends Per Share                                 |  | $                           | .08        |                           | $ | .07        |  | $    | .15        |  | $ | .13        |  
|                                                    |  |                             |            |                           |   |            |  |      |            |  |   |            |  
|Weighted Average Common Shares Outstanding          |  |                             | 16,578,004 |                           |   | 12,047,652 |  |      | 15,512,286 |  |   | 11,861,545 |  
|                                                    |  |                             |            |                           |   |            |  |      |            |  |   |            |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



2



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)

Financial Information

SECURITY BANK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(DOLLARS IN THOUSANDS)



|                                                       |  |                             |       |                           |      |   |       |  |   |        |   |  |   |       |  
|------------------------------------------------------ |  | --------------------------- | ----- | ------------------------- | ---- | - | ----- |  | - | ------ | - |  | - | ----- | -
|                                                       |  | Three Months Ended June 30, |       | Six Months Ended June 30, |     
|                                                       |  | 2006                        |       |                           | 2005 |   | 2006  |  |   | 2005   |  
|Net Income                                             |  | $                           | 6,090 |                           |      | $ | 3,910 |  | $ | 11,230 |   |  | $ | 7,317 |  
|                                                       |  |                             |       |                           |      |   |       |  |   |        |   |  |   |       |  
|Other Comprehensive Income, Net of Income Tax          |  |                             |       |                           |      |   |       |  |   |        |   |  |   |       |  
|(Losses) Gains on Securities Arising During the Period |  |                             | (664  | )                         |      |   | 563   |  |   | (1,106 | ) |  |   | (325  | )
|Reclassification Adjustment                            |  |                             |      |                           |      |   |      |  |   |       |   |  |   | 4     |  
|                                                       |  |                             |       |                           |      |   |       |  |   |        |   |  |   |       |  
|Unrealized (Losses) Gains on Securities                |  |                             | (664  | )                         |      |   | 563   |  |   | (1,106 | ) |  |   | (321  | )
|                                                       |  |                             |       |                          
|Comprehensive Income                                   |  | $                           | 5,426 |                           |      | $ | 4,473 |  | $ | 10,124 |   |  | $ | 6,996 |  
|                                                       |  |                             |       |                           |      |   |       |  |   |        |   |  |   |       |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



3



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)

Financial Information

SECURITY BANK CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
(UNAUDITED)

FOR THE SIX MONTHS ENDED JUNE 30, 2006 AND 2005



|                                                             |  |        |  |             |        |                |   |                  |  |   |                                      |   |  |                                            |      |   |               |   |        |       |  |   |      |   |  |   |         |  
|------------------------------------------------------------ |  | ------ |  | ----------- | ------ | -------------- | - | ---------------- |  | - | ------------------------------------ | - |  | ------------------------------------------ | ---- | - | ------------- | - | ------ | ----- |  | - | ---- | - |  | - | ------- | -
|                                                             |  | Shares |  | CommonStock |        | Paid-InCapital |   | RetainedEarnings |  |   | RestrictedStock-UnearnedCompensation |   |  | AccumulatedOtherComprehensiveIncome (Loss) |      |   | TreasuryStock |   |        | Total | 
|Balance, December 31, 2004                                   |  | 11,660 |  | $           | 11,660 |                | $ | 62,348           |  | $ | 32,715                               |   |  | $                                          | (75  | ) |               | $ | 353    |       |  | $ | (330 | ) |  | $ | 106,671 |  
|Shares Issued in Connection with Contingent Payments         |  | 114    |  |             | 114    |                |   | 2,306            |  |   | (59                                  | ) |  |                                            |      |   |               |   |        |       |  |   |      |   |  |   | 2,361   |  
|Stock Based Compensation Awards                              |  |        |  |             |        |                |   | 240              |  |   |                                      |   |  |                                            |      |   |               |   |        |       |  |   |      |   |  |   | 240     |  
|Amortization of Unearned Compensation                        |  |        |  |             |        |                |   |                  |  |   |                                      |   |  |                                            | 12   |   |               |   |        |       |  |   |      |   |  |   | 12      |  
|Shares Issued in Acquisition                                 |  | 1,094  |  |             | 1,094  |                |   | 21,152           |  |   |                                      |   |  |                                            |      |   |               |   |        |       |  |   |      |   |  |   | 22,246  |  
|Shares Issued in Connection with Employee StockPurchase Plan |  | 3      |  |             | 3      |                |   | 82               |  |   |                                      |   |  |                                            |      |   |               |   |        |       |  |   |      |   |  |   | 85      |  
|Unrealized Loss on Securities Available for Sale             |  |        |  |             |        |                |   |                  |  |   |                                      |   |  |                                            |      |   |               |   | (321   | )     |  |   |      |   |  |   | (321    | )
|Cash Dividends                                               |  |        |  |             |        |                |   |                  |  |   | (1,592                               | ) |  |                                            |      |   |               |   |        |       |  |   |      |   |  |   | (1,592  | )
|Net Income                                                   |  |        |  |             |        |                |   |                  |  |   | 7,317                                |   |  |                                            |      |   |               |   |        |       |  |   |      |   |  |   | 7,317   |  
|                                                             |  |        |  |             |        |                |   |                  |  |   |                                      |   |  |                                            |      |   |               |   |        |       |  |   |      |   |  |   |         |  
|Balance, June 30, 2005                                       |  | 12,871 |  | $           | 12,871 |                | $ | 86,128           |  | $ | 38,381                               |   |  | $                                          | (63  | ) |               | $ | 32     |       |  | $ | (330 | ) |  | $ | 137,019 |  
|                                                             |  |        |  |             |        |                |   |                  |  |   |                                      |   |  |                                            |      |   |               |   |        |       |  |   |      |   |  |   |         |  
|Balance, December 31, 2005                                   |  | 14,407 |  | $           | 14,407 |                | $ | 121,480          |  | $ | 45,570                               |   |  | $                                          | (223 | ) |               | $ | (1,599 | )     |  | $ | (330 | ) |  | $ | 179,305 |  
|Shares Issued in Connection with Contingent Payments         |  | 160    |  |             | 160    |                |   | 3,514            |  |   |                                      |   |  |                                            |      |   |               |   |        |       |  |   |      |   |  |   | 3,674   |  
|Stock Options Exercised                                      |  | 10     |  |             | 10     |                |   | 120              |  |   |                                      |   |  |                                            |      |   |               |   |        |       |  |   |      |   |  |   | 130     |  
|Stock Based Compensation Awards                              |  |        |  |             |        |                |   | 259              |  |   |                                      |   |  |                                            |      |   |               |   |        |       |  |   |      |   |  |   | 259     |  
|Amortization of Unearned Compensation                        |  |        |  |             |        |                |   |                  |  |   |                                      |   |  |                                            | 33   |   |               |   |        |       |  |   |      |   |  |   | 33      |  
|Shares Issued in Connection with Stock Offering              |  | 1,725  |  |             | 1,725  |                |   | 34,216           |  |   |                                      |   |  |                                            |      |   |               |   |        |       |  |   |      |   |  |   | 35,941  |  
|Shares Issued in Acquisition                                 |  | 1,233  |  |             | 1,233  |                |   | 29,352           |  |   |                                      |   |  |                                            |      |   |               |   |        |       |  |   |      |   |  |   | 30,585  |  
|Shares Issued in Connection with Employee StockPurchase Plan |  | 4      |  |             | 4      |                |   | 118              |  |   |                                      |   |  |                                            |      |   |               |   |        |       |  |   |      |   |  |   | 122     |  
|Unrealized Loss on Securities Available for Sale             |  |        |  |             |        |                |   |                  |  |   |                                      |   |  |                                            |      |   |               |   | (1,106 | )     |  |   |      |   |  |   | (1,106  | )
|Cash Dividends                                               |  |        |  |             |        |                |   |                  |  |   | (2,393                               | ) |  |                                            |      |   |               |   |        |       |  |   |      |   |  |   | (2,393  | )
|Net Income                                                   |  |        |  |             |        |                |   |                  |  |   | 11,230                               |   |  |                                            |      |   |               |   |        |       |  |   |      |   |  |   | 11,230  |  
|                                                             |  |        |  |             |        |                |   |                  |  |   |                                      |   |  |                                            |      |   |               |   |        |       |  |   |      |   |  |   |         |  
|Balance, June 30, 2006                                       |  | 17,539 |  | $           | 17,539 |                | $ | 189,059          |  | $ | 54,407                               |   |  | $                                          | (190 | ) |               | $ | (2,705 | )     |  | $ | (330 | ) |  | $ | 257,780 |  
|                                                             |  |        |  |             |        |                |   |                  |  |   |                                      |   |  |                                            |      |   |               |   |        |       |  |   |      |   |  |   |         |  



4



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)

Financial Information

SECURITY BANK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30

(UNAUDITED)

(DOLLARS IN THOUSANDS)



|                                                                                   |  |      |          |   |      |   |         |  
|---------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | ------- | -
|                                                                                   |  | 2006 |          |   | 2005 |  
|Cash Flows from Operating Activities                                               |  |      |          |   |      |   |         |  
|Net Income                                                                         |  | $    | 11,230   |   |      | $ | 7,317   |  
|Adjustments to Reconcile Net Income to Net Cash Provided from Operating Activities |  |      |          |   |      |   |         |  
|Stock Options                                                                      |  |      | 259      |   |      |   | 239     |  
|Depreciation, Amortization and Accretion                                           |  |      | 1,687    |   |      |   | 887     |  
|Provision for Loan Losses                                                          |  |      | 1,369    |   |      |   | 1,579   |  
|Securities Losses                                                                  |  |      |         |   |      |   | 6       |  
|Loss (Gain) on Sale of Other Real Estate                                           |  |      | 22       |   |      |   | (1      | )
|Unrealized Loss on Other Real Estate                                               |  |      | 106      |   |      |   | 33      |  
|Gain on Sale of Premises and Equipment                                             |  |      | (56      | ) |      |   | (2      | )
|(Gain) Loss on Sales of Loans                                                      |  |      | (58      | ) |      |   | 335     |  
|Net Change in Loans Held for Sale                                                  |  |      | (6,639   | ) |      |   | 94      |  
|Change in Participations Payable                                                   |  |      | (6,853   | ) |      |   | 1,030   |  
|Net Change in Other Assets                                                         |  |      | (13      | ) |      |   | (2,262  | )
|Net Change in Other Liabilities                                                    |  |      | (2,202   | ) |      |   | 10,670  |  
|Other, Net                                                                         |  |      | (157     | ) |      |   | (1,085  | )
|                                                                                   |  |      |          |   |      |   |         |  
|                                                                                   |  |      | (1,305   | ) |      |   | 18,840  |  
|                                                                                   |  |      |          |   |      |   |         |  
|Cash Flows from Investing Activities                                               |  |      |          |   |      |   |         |  
|Interest-Bearing Deposits with Other Banks                                         |  |      | 3,922    |   |      |   | 844     |  
|Purchase of Investment Securities Available for Sale                               |  |      | (26,413  | ) |      |   | (10,058 | )
|Proceeds from Maturities and Calls of Investment Securities                        |  |      |          |   |      |   |         |  
|Available for Sale                                                                 |  |      | 16,879   |   |      |   | 10,846  |  
|Held to Maturity                                                                   |  |      | 105      |   |      |   | 936     |  
|Restricted Stocks, Net                                                             |  |      | 9        |   |      |   | 308     |  
|Loans to Customers, Net                                                            |  |      | (128,664 | ) |      |   | (89,469 | )
|Premises and Equipment, Net                                                        |  |      | (540     | ) |      |   | (1,037  | )
|Other Real Estate                                                                  |  |      | 2,048    |   |      |   | 2,349   |  
|Goodwill Resulting from Contingent Cash Payments                                   |  |      | (1,144   | ) |      |   | (910    | )
|Cash Received in Business Acquisition, Net                                         |  |      | 5,983    |   |      |   | 2,035   |  
|Payment to Neighbors Bancshares Stockholders                                       |  |      | (1,592   | ) |      |   |        |  
|Payment to Rivoli BanCorp Stockholders                                             |  |      | (4,220   | ) |      |   |        |  
|                                                                                   |  |      |          |   |      |   |         |  
|                                                                                   |  |      | (133,627 | ) |      |   | (84,156 | )
|                                                                                   |  |      |          |   |      |   |         |  
|Cash Flows from Financing Activities                                               |  |      |          |   |      |   |         |  
|Interest-Bearing Customer Deposits                                                 |  |      | 165,075  |   |      |   | 117,291 |  
|Noninterest-Bearing Customer Deposits                                              |  |      | 8,859    |   |      |   | (3,531  | )
|Dividends Paid                                                                     |  |      | (2,392   | ) |      |   | (1,592  | )
|Federal Funds Purchased and Repurchase Agreements                                  |  |      | (23,845  | ) |      |   | (16,098 | )
|Other Borrowed Money, Net                                                          |  |      | (15,800  | ) |      |   | 1,914   |  
|Proceeds from Common Stock Offering                                                |  |      | 35,941   |   |      |   |        |  
|Issuance of Common Stock                                                           |  |      | 251      |   |      |   | 85      |  
|                                                                                   |  |      |          |   |      |   |         |  
|                                                                                   |  |      | 168,089  |   |      |   | 98,069  |  
|                                                                                   |  |      |          |   |      |   |         |  
|Net Increase in Cash and Cash Equivalents                                          |  |      | 33,157   |   |      |   | 32,753  |  
|Cash and Cash Equivalents, Beginning                                               |  |      | 103,092  |   |      |   | 44,346  |  
|                                                                                   |  |      |          |   |      |   |         |  
|Cash and Cash Equivalents, Ending                                                  |  | $    | 136,249  |   |      | $ | 77,099  |  
|                                                                                   |  |      |          |   |      |   |         |  

The accompanying notes are an integral part of these condensed consolidated financial statements.



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)

Financial Information

SECURITY BANK CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1) Summary of
Accounting Policies

The condensed consolidated financial statements include Security Bank Corporation (the Company) 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 located in Gray, Georgia; Security Bank of North Metro (formerly SouthBank)
located in Woodstock, Georgia; and Security Bank of North Fulton located in Alpharetta, Georgia (formerly Neighbors Bank) (collectively, the Banks). The financial statements of Security Bank of Bibb County include its wholly owned subsidiary,
Fairfield Financial Services, Inc.

The accompanying condensed consolidated financial statements have been prepared in accordance with the
instructions to Form 10-Q and therefore do not include all information and footnotes necessary for a fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. All
adjustments consisting of normally recurring accruals that, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the periods covered by this report have been included. The
accompanying condensed consolidated financial statements should be read in conjunction with the Security Bank Corporation consolidated financial statements and related notes appearing in the 2005 annual report previously filed on Form 10-K. The
accompanying condensed consolidated balance sheet at December 31, 2005 has been derived from audited financial statements.

Recently Issued
Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting
(SFAS) No. 123R (revised 2004), Share-Based Payment, which revises SFAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees. This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This statement does not address the accounting for employee share ownership plans, which
are subject to AICPA Statement of Position 93-6, Employers Accounting for Stock Ownership Plans. This statement requires an entity to recognize the cost of employee services received in share-based payment transactions and measure the
cost on a grant-date fair value of the award. That cost will be recognized over the period during which an employee is required to provide service in exchange for the award. The provisions of SFAS 123R (revised 2004) were effective for the Company
on January 1, 2006. Effective January 1, 2002, the Company adopted the fair value method of recording stock-based compensation. For this reason, the implementation of SFAS No. 123R (revised 2004) did not have an impact on the Company.
During the three and six month periods ended June 30, 2006 and 2005, the Company recognized $140,000 and $259,000 and $120,000 and $239,000 respectively, in expense associated with vesting stock options.

In May 2005, the FASB issued Statement No. 154, (SFAS No. 154) Accounting Changes and Error Corrections - A Replacement of APB Opinion
No. 20 and FASB Statement No. 3. This new standard replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements. Among other changes,
SFAS No. 154 requires that a voluntary change in an accounting principle be applied retrospectively with all prior period financial statements presented on the new accounting principle, unless it is impracticable to do so. SFAS No. 154
also provides that (1) a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for as a change in estimate (prospectively) that was effected by a change in an accounting principle, and (2) correction
of errors in previously issued financial statements should be termed a restatement. The new standard is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption
of this standard did not have a material effect on the consolidated financial statements.

In February 2006, the FASB issued SFAS
No. 155, Accounting for Certain Hybrid Financial Instruments - an amendment of FASB Statements No. 133 and 140. SFAS No. 155 simplifies accounting for certain hybrid instruments currently governed by SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, by allowing fair value remeasurement of hybrid instruments that contain an embedded derivative that otherwise would require bifurcation. SFAS No. 155 also eliminates the
guidance in SFAS No. 133 Implementation Issue No. D1, Application of Statement 133 to Beneficial Interests in Securitized Financial Assets, which provides such beneficial interests are not subject to SFAS No. 133.



6



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)

Financial Information

(1) Summary of Accounting Policies (Continued)

SFAS No. 155 amends SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a
Replacement of FASB Statement No. 125, by eliminating the restriction on passive derivative instruments that a qualifying special-purpose entity may hold. SFAS No. 155 is effective for all financial instruments acquired or issued after
the beginning of an entitys first fiscal year that begins after September 15, 2006. The Company does not expect the adoption of this statement to have a material impact on our financial condition, results of operations or cash flows.

In March 2006, the Financial Accounting Standards Board (FASB) issued SFAS No. 156, Accounting for Servicing of Financial Assets-
an amendment of FASB Statement No. 140. SFAS No. 156 requires an entity to recognize a servicing asset or servicing liability each time it undertakes an obligation to service a financial asset by entering into a servicing contract in
specific situations. Additionally, the servicing asset or servicing liability shall be initially measured at fair value; however, an entity may elect the amortization method or fair value method for subsequent balance sheet
reporting periods. SFAS No. 156 is effective as of an entitys first fiscal year beginning after September 15, 2006. Early adoption is permitted as of the beginning of an entitys fiscal year, provided the entity has not yet
issued financial statements, including interim financial statements, for any period of that fiscal year. The Company does not expect the adoption of this statement to have a material impact on our financial condition, results of operations or cash
flows.

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 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 was effective for the Company on January 1, 2006. The initial adoption of this statement did not have a material impact on the Companys consolidated financial
statements.

Segment Reporting

Reportable segments are business units that 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 six-month period ended
June 30, 2006 includes approximately $2,684,000 of Fairfield Financial Services, Inc. fee income. Such income may fluctuate significantly with increases or decreases in mortgage rates.

Reclassifications

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



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)

Financial Information

(2) Earnings Per Share

SFAS No. 128, Earnings Per Share, 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 that would occur
if restricted stock and options were exercised and converted into common stock. The following presents earnings per share for the three and six months ended June 30, 2006 and 2005:



|                                                            |  |                           |            |                             |   |            |  |      |            |  |   |           
|----------------------------------------------------------- |  | ------------------------- | ---------- | --------------------------- | - | ---------- |  | ---- | ---------- |  | - | ----------
|                                                            |  | Six Months Ended June 30, |            | Three Months Ended June 30,
|                                                            |  | 2006                      |            | 2005                        |   | 2006       |  | 2005
|Basic Earnings Per Share                                    |  |                           |            |                             |   |            |  |      |            |  |   |           
|Net Income Per Common Share                                 |  | $                         | 0.72       |                             | $ | 0.61       |  | $    | 0.36       |  | $ | 0.32      
|Weighted Average Common Shares and Common Stock Equivalents |  |                           | 15,512,286 |                             |   | 11,861,545 |  |      | 16,578,004 |  |   | 12,047,652
|Diluted Earnings Per Share                                  |  |                           |            |                             |   |            |  |      |            |  |   |           
|Net Income Per Common Share                                 |  | $                         | 0.71       |                             | $ | 0.61       |  | $    | 0.36       |  | $ | 0.32      
|Weighted Average Common Shares and Common Stock Equivalents |  |                           | 15,850,641 |                             |   | 12,181,041 |  |      | 16,910,380 |  |   | 12,374,075

The assumed exercise of stock options is included in the diluted earnings per share computation
using the treasury stock method and assuming an average market price for Security Bank Corporation stock of $22.3179 and $22.5685 for the three- and six-month periods ended June 30, 2006, respectively. The Companys stock is quoted on the
NASDAQ Global Market under the symbol SBKC.

(3) Investment Securities

The Company records investment securities under SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities. In accordance with the provisions of SFAS No. 115, the Company elected
to classify securities individually as either available for sale or held to maturity. Securities classified as held to maturity are recorded at amortized cost. Those classified as available for sale are adjusted to market value through a
tax-effected increase or reduction in stockholders equity.

Investment securities as of June 30, 2006 are summarized as follows:



|                              |  |                        |         |                        |   |                         |  |   |            |   |  |   |        
|----------------------------- |  | ---------------------- | ------- | ---------------------- | - | ----------------------- |  | - | ---------- | - |  | - | -------
|                              |  | Amortized Cost         |         | Gross Unrealized Gains |   | Gross Unrealized Losses |  |   | Fair Value
|                              |  | (Dollars in Thousands)
|Securities Available for Sale |  |                        |         |                        |   |                         |  |   |            |   |  |   |        
|U.S. Government Agencies      |  |                        |         |                        |   |                         |  |   |            |   |  |   |        
|Mortgage Backed               |  | $                      | 96,630  |                        | $ | 58                      |  | $ | (3,005     | ) |  | $ | 93,783 
|Other                         |  |                        | 42,117  |                        |   |                        |  |   | (1,451     | ) |  |   | 40,666 
|State, County and Municipal   |  |                        | 19,435  |                        |   | 131                     |  |   | (172       | ) |  |   | 19,394 
|Other Securities              |  |                        | 691     |                        |   |                        |  |   |           |   |  |   | 691    
|                              |  |                        |         |                        |   |                         |  |   |            |   |  |   |        
|                              |  | $                      | 158,873 |                        | $ | 289                     |  | $ | (4,628     | ) |  | $ | 154,534
|                              |  |                        |         |                        |   |                         |  |   |            |   |  |   |        
|Securities Held to Maturity   |  |                        |         |                        |   |                         |  |   |            |   |  |   |        
|U.S. Government Agencies      |  |                        |         |                        |   |                         |  |   |            |   |  |   |        
|Other                         |  | $                      | 1,994   |                        | $ |                        |  | $ | (77        | ) |  | $ | 1,917  
|State, County and Municipal   |  |                        | 245     |                        |   | 2                       |  |   |           |   |  |   | 247    
|                              |  |                        |         |                        |   |                         |  |   |            |   |  |   |        
|                              |  | $                      | 2,239   |                        | $ | 2                       |  | $ | (77        | ) |  | $ | 2,164  
|                              |  |                        |         |                        |   |                         |  |   |            |   |  |   |        

Unrealized holding losses, net of tax, on securities available for sale of $2,705,000 have been
charged to stockholders equity as of June 30, 2006.



8



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)

Financial Information

(4) Loans

Loans are comprised of the following:



|                                                           |  |                        |           |   |                  |   |           |  
|---------------------------------------------------------- |  | ---------------------- | --------- | - | ---------------- | - | --------- | -
|                                                           |  | June 30,2006           |           |   | December 31,2005 |  
|                                                           |  | (Dollars in Thousands) |          
|Commercial                                                 |  | $                      | 114,939   |   |                  | $ | 106,300   |  
|Real Estate-Construction                                   |  |                        | 667,025   |   |                  |   | 517,373   |  
|Real Estate-Other                                          |  |                        | 669,374   |   |                  |   | 599,367   |  
|Installment Loans to Individuals for Personal Expenditures |  |                        | 44,764    |   |                  |   | 47,608    |  
|All Other                                                  |  |                        | 6,804     |   |                  |   | 3,035     |  
|                                                           |  |                        |           |   |                  |   |           |  
|                                                           |  |                        | 1,502,906 |   |                  |   | 1,273,683 |  
|Allowance for Loan Losses                                  |  |                        | (18,190   | ) |                  |   | (16,148   | )
|Unearned Interest and Fees                                 |  |                        | (1,943    | ) |                  |   | (1,564    | )
|                                                           |  |                        |           |   |                  |   |           |  
|                                                           |  | $                      | 1,482,773 |   |                  | $ | 1,255,971 |  
|                                                           |  |                        |           |   |                  |   |           |  

Loans are generally reported at principal amount less unearned interest and fees. Impaired loans
are recorded under SFAS No. 114, Accounting by Creditors for Impairment of a Loan and SFAS No. 118, Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures. Impaired loans are loans for which
principal and interest are unlikely to be collected in accordance with the original loan terms and, generally, represent loans delinquent in excess of 90 days which have been placed on nonaccrual status and for which collateral values are less than
outstanding principal and interest. Small balance, homogeneous loans are excluded from impaired loans. Generally, interest payments received on impaired loans are applied to principal. Upon receipt of all loan principal, additional interest payments
are recognized as interest income on the cash basis.

The Company principally originates residential and commercial real estate loans
throughout its market area that primarily consists of the middle and coastal Georgia areas and the metropolitan Atlanta area. As of June 30, 2006 and December 31, 2005, approximately 89.0 and 87.8 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.

Nonaccrual loans are loans for which payments of principal and interest are
considered doubtful of collection under original terms but collateral values equal or exceed outstanding principal and interest.

Fees and
incremental direct costs associated with the loan origination process are deferred and amortized using the straight-line method as adjustments to yield over the respective loan terms.

(5) Allowance for Loan Losses

The allowance method is used in providing for losses on loans.
Accordingly, all loan losses decrease the allowance and all recoveries increase it. The provision for loan losses is based on factors, which, in managements judgment, deserve current recognition in estimating possible loan losses. Such factors
considered by management include growth and composition of the loan portfolio, economic conditions and the relationship of the allowance for loan losses to outstanding loans.

An allowance for loan losses is maintained for all impaired loans. Provisions are made for impaired loans upon changes in expected future cash flows or
estimated net realizable value of collateral. When determination is made that impaired loans are wholly or partially uncollectible, the uncollectible portion is charged off.



9



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)

Financial Information

(5) Allowance for Loan Losses (Continued)

The following table presents the Companys loan loss experience on all loans for the three- and six-month periods ended June 30:



|                                           |  |                            |        |                          |   |        |  |      |        |  |   |       
|------------------------------------------ |  | -------------------------- | ------ | ------------------------ | - | ------ |  | ---- | ------ |  | - | ------
|                                           |  | Three Months EndedJune 30, |        | Six Months EndedJune 30,
|                                           |  | 2006                       |        | 2005                     |   | 2006   |  | 2005
|                                           |  | (Dollars in Thousands)    
|Balance beginning of period                |  | $                          | 17,812 |                          | $ | 11,357 |  | $    | 16,148 |  | $ | 10,903
|                                           |  |                            |        |                          |   |        |  |      |        |  |   |       
|Business Combination, Neighbors Bancshares |  |                            |       |                          |   |       |  |      | 1,232  |  |   |      
|                                           |  |                            |        |                          |   |        |  |      |        |  |   |       
|Business Combination, SouthBank            |  |                            |       |                          |   | 1,420  |  |      |       |  |   | 1,420 
|                                           |  |                            |        |                          |   |        |  |      |        |  |   |       
|Charge-Offs                                |  |                            |        |                          |   |        |  |      |        |  |   |       
|Commercial, Financial and Agricultural     |  |                            | 148    |                          |   | 147    |  |      | 282    |  |   | 300   
|Real Estate  Mortgage                     |  |                            | 83     |                          |   | 59     |  |      | 122    |  |   | 198   
|Consumer                                   |  |                            | 321    |                          |   | 200    |  |      | 575    |  |   | 368   
|                                           |  |                            |        |                          |   |        |  |      |        |  |   |       
|                                           |  |                            | 552    |                          |   | 406    |  |      | 979    |  |   | 866   
|                                           |  |                            |        |                          |   |        |  |      |        |  |   |       
|Recoveries                                 |  |                            |        |                          |   |        |  |      |        |  |   |       
|Commercial, Financial and Agricultural     |  |                            | 32     |                          |   | 10     |  |      | 70     |  |   | 51    
|Real Estate  Mortgage                     |  |                            |       |                          |   | 1      |  |      | 42     |  |   | 9     
|Consumer                                   |  |                            | 159    |                          |   | 78     |  |      | 308    |  |   | 168   
|                                           |  |                            |        |                          |   |        |  |      |        |  |   |       
|                                           |  |                            | 191    |                          |   | 89     |  |      | 420    |  |   | 228   
|                                           |  |                            |        |                          |   |        |  |      |        |  |   |       
|Net Charge-Offs                            |  |                            | 361    |                          |   | 317    |  |      | 559    |  |   | 638   
|                                           |  |                            |        |                          |   |        |  |      |        |  |   |       
|Provision for Loan Losses                  |  |                            | 739    |                          |   | 804    |  |      | 1,369  |  |   | 1,579 
|                                           |  |                            |        |                          |   |        |  |      |        |  |   |       
|Balance end of period                      |  | $                          | 18,190 |                          | $ | 13,264 |  | $    | 18,190 |  | $ | 13,264
|                                           |  |                            |        |                          |   |        |  |      |        |  |   |       

(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 June 30, 2006 as the effects did
not have a material impact on the consolidated financial statements.



10



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)

Financial Information

(7) Deposits

Components of deposits are as follows:



|                        |  |                        |           |                   |   |          
|----------------------- |  | ---------------------- | --------- | ----------------- | - | ---------
|                        |  | June 30, 2006          |           | December 31, 2005
|                        |  | (Dollars in Thousands)
|Demand                  |  | $                      | 172,023   |                   | $ | 156,698  
|Interest-Bearing Demand |  |                        | 429,260   |                   |   | 398,472  
|Savings                 |  |                        | 19,804    |                   |   | 20,786   
|Time, $100,000 and Over |  |                        | 561,435   |                   |   | 393,943  
|Other Time              |  |                        | 393,487   |                   |   | 321,354  
|                        |  |                        |           |                   |   |          
|                        |  | $                      | 1,576,009 |                   | $ | 1,291,253
|                        |  |                        |           |                   |   |          

Brokered deposits are third-party time deposits placed by or through the assistance of a deposit
broker. As of June 30, 2006, the Company had $351,843,000 in brokered deposits compared to $242,821,000 at December 31, 2005.

(8) Other
Borrowed Money

Other borrowed money is comprised of the following:



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                        |         |                  |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------- | ------- | ---------------- | - | -------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | June 30, 2006          |         | December 31,2005
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  | (Dollars in Thousands)
|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 3.19 percent to 5.92 percent. Residential first mortgage loans, commercial real estate loans, home equity lines of credit loans and investment securities are pledged as collateral
for the FHLB advances                                                                                                |  | $                      | 71,227  |                  | $ | 85,427 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                       
|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 June 30, 2006, Company had availability under the revolving line of credit totaling $17,000,000 |  |                        |        |                  |   |       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                       
|Line of credit for $2 million with Thomasville National Bank. Interest is due quarterly and is based on The Wall Street Journal prime rate.
The line is secured by all shares of stock of Security Bank of North Metro                                                                                                                                                                                                                                                                                             |  |                        |        |                  |   | 1,600  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                       
|Subordinated debentures have a maturity of 30 years and are redeemable after five years with certain exceptions. At June 30, 2006, the
securities had interest rates ranging from 6.46 percent to 8.71 percent                                                                                                                                                                                                                                                                                                     |  |                        | 41,238  |                  |   | 41,238 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                       
|Federal Funds Purchased                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                        |        |                  |   | 28,657 
|Securities Sold Under Agreement to Repurchase                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |  |                        | 20,030  |                  |   | 15,219 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                        |         |                  |   |        
|Total Other Borrowed Money                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |  | $                      | 132,495 |                  | $ | 172,141
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |  |                        |         |                  |   |        



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)

Financial Information

(8) Other Borrowed Money (Continued)

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

Maturities of FHLB advances for each of the ensuing years are as follows:



|           |  |                        |       
|---------- |  | ---------------------- | ------
|Years      |  | Amount                
|           |  | (Dollars in Thousands)
|2006       |  | $                      | 7,600 
|2007       |  |                        | 32,627
|2008       |  |                        | 11,000
|2009       |  |                        |      
|2010       |  |                        | 5,000 
|Thereafter |  |                        | 15,000
|           |  |                        |       
|           |  | $                      | 71,227
|           |  |                        |       

The Companys Trust Preferred Securities are recorded as subordinated debentures on the
consolidated balance sheets.

The interest income received from the Companys trusts totaled approximately $47,000 and $17,000 for the
six months ended June 30, 2006 and 2005, respectively. The interest expense paid to the trusts totaled approximately $1,543,000 and $577,000 for the six months ended June 30, 2006 and 2005, respectively.

(9) Stock Compensation Plans

In 1999, the board
of directors of Security Bank Corporation adopted an incentive stock option plan that 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, an additional
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. Options in the first tier are nonforfeitable over three
years based on a 12 percent increase in earnings per share over the base year diluted earnings per share of $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.



12



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)

Financial Information

(9) Stock Compensation Plans (Continued)

During the second quarter of 2004, the board of directors of Security Bank Corporation adopted another performance-based incentive stock option plan,
which calls for adjustments to earnings per share based on the impact of the 2004 common stock offering. Under this plan, 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 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 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.

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 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 March 2006, the Company granted 13,000 options at $22.75 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 earnings per share over the diluted earnings per share of $1.27 for the fiscal year ended December 31, 2005. The first year of
nonforfeiture for this grant is based on the Companys performance of 2006. One-third of the nonforfeitable options vest on each anniversary of the stock option agreements.

A summary of option transactions for the six months ended June 30, 2006 follows:



|                                        |  |                        
|--------------------------------------- |  | -----------------------
|                                        |  | Incentive Stock Options
|Outstanding, December 31, 2005          |  | 796,000                
|Granted                                 |  | 13,000                 
|Canceled                                |  | 5,445                  
|Exercised                               |  | 9,555                  
|                                        |  |                        
|Outstanding, June 30, 2006              |  | 794,000                
|                                        |  |                        
|Eligible to be Exercised, June 30, 2006 |  | 389,886                
|                                        |  |                        

(10) Regulatory Capital Matters

The Federal Reserve Board measures capital adequacy for bank holding companies by using a risk-based capital framework and by monitoring compliance with
minimum leverage ratio guidelines. The minimum ratio of total risk-based capital to risk-adjusted assets is 8 percent, of which 4 percent must be Tier 1 capital. In addition, the Federal Reserve Board has established minimum leverage ratio
guidelines for bank holding companies. Those guidelines provide for a minimum leverage ratio of 3 percent for financial institutions that meet certain criteria, including that they maintain the highest regulatory rating. All other financial
institutions are required to maintain a leverage ratio of 4 percent.



13



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)

Financial Information

(10) Regulatory Capital Matters (Continued)

The Companys actual ratios as of June 30, 2006 are as follows:



|                                         |  |                      |   |  |                     |   |  |                |  
|---------------------------------------- |  | -------------------- | - |  | ------------------- | - |  | -------------- | -
|                                         |  | Tier 1 Capital Ratio |   |  | Total Capital Ratio |   |  | Leverage Ratio |  
|Security Bank Corporation (Consolidated) |  | 11.97                | % |  | 13.08               | % |  | 10.87          | %
|Security Bank of Bibb County             |  | 9.40                 |   |  | 10.50               |   |  | 8.72           |  
|Security Bank of Houston County          |  | 9.04                 |   |  | 10.19               |   |  | 8.05           |  
|Security Bank of Jones County            |  | 11.12                |   |  | 12.37               |   |  | 8.92           |  
|Security Bank of North Metro             |  | 9.37                 |   |  | 10.43               |   |  | 8.55           |  
|Security Bank of North Fulton            |  | 10.05                |   |  | 11.03               |   |  | 10.21          |  

(11) Noncash Investing Activities

Noncash investing activities for the six months ended June 30 are as follows:



|                                                    |  |      |           |      |   |          
|--------------------------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                                    |  | 2006 |           | 2005
|Acquisition of Real Estate through Loan Foreclosure |  | $    | 1,599,000 |      | $ | 1,905,000
|                                                    |  |      |           |      |   |          
|Unrealized loss on investment securities            |  | $    | 1,894,000 |      | $ | 489,000  
|                                                    |  |      |           |      |   |          

(12) Acquisition of Assets

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. The Asset Purchase Agreement provides for additional contingent payments of purchase price for years ended 2001-2005 based on the earnings of
Fairfield Financial Services, Inc. The additional payments are to be payable in cash and stock. Cash payments for 2005 equated to 20 percent of Fairfield Financial Services, Inc.s earnings for the year. Stock payments for 2005 were based on 80
percent of 2005 earnings utilizing a specific formula for determining number of shares. All additional payments of cash and stock have been charged to goodwill. The contingent payment made in 2006 as a result of 2005 earnings is a combination of
cash and stock totaling approximately $4,818,000.

On May 31, 2005, the Company acquired SouthBank, a community bank located in
Woodstock, Georgia. The stockholders of SouthBank received $9,659,994 in cash and 1,121,372 common shares of the Companys common stock. The excess of the purchase price over book value has been allocated to the fair value of core deposits
intangibles of $1,093,981. The Company amortized $78,141 of the core deposit intangibles during the six months ended June 30, 2006.

On December 31, 2005, the Company acquired Rivoli BanCorp, Inc., the parent of Rivoli Bank & Trust. Rivoli BanCorp was a community bank holding company located in Macon, Georgia. The 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. In January 2006, Rivoli Bank was merged into Security Bank of Bibb County. 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 $1,115,582 and $3,270,550, respectively. The Company amortized $233,611 of the core deposit intangibles and $12,093 of the premises
and equipment premium during the six months ended June 30, 2006.



14



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)

Financial Information

(12) Acquisition of Assets (Continued)

On March 31, 2006, the Company completed its acquisition of Neighbors Bancshares, Inc., the parent company of Neighbors Bank, a community bank
located in Alpharetta, Georgia. The stockholders of Neighbors Bancshares received $1,592,039 in cash and 1,233,404 shares of the Companys common stock in a business combination accounted for as a purchase. The excess of the purchase price over
book value has been allocated to goodwill and core deposit intangibles in the amounts of $23,421,763 and $640,257, respectively. The Company amortized $22,685 of the core deposit intangibles during the six months ended June 30, 2006.

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



|                                           |  |           |              |   |        |   |              |           |  |   |              |  
|------------------------------------------ |  | --------- | ------------ | - | ------ | - | ------------ | --------- |  | - | ------------ | -
|                                           |  | Neighbors |              |   | Rivoli |   |              | SouthBank | 
|Cash, Due from Bank and Federal Funds Sold |  | $         | 9,555,848    |   |        | $ | 9,255,842    |           |  | $ | 12,677,273   |  
|Investment Securities                      |  |           | 5,209,362    |   |        |   | 24,323,276   |           |  |   | 14,051,844   |  
|Loans, Net                                 |  |           | 101,048,365  |   |        |   | 161,764,935  |           |  |   | 107,837,573  |  
|Premises and Equipment                     |  |           | 5,168,924    |   |        |   | 8,005,934    |           |  |   | 2,902,522    |  
|Core Deposit Intangible                    |  |           | 640,257      |   |        |   | 3,270,550    |           |  |   | 1,093,981    |  
|Goodwill Arising in the Acquisition        |  |           | 23,421,763   |   |        |   | 25,738,755   |           |  |   | 17,283,373   |  
|Other Assets                               |  |           | 2,655,346    |   |        |   | 2,713,519    |           |  |   | 1,061,923    |  
|Deposits                                   |  |           | (110,821,970 | ) |        |   | (148,480,435 | )         |  |   | (118,110,954 | )
|Other Liabilities                          |  |           | (2,313,913   | ) |        |   | (47,154,533  | )         |  |   | (7,779,602   | )
|                                           |  |           |              |   |        |   |              |           |  |   |              |  
|                                           |  | $         | 34,563,982   |   |        | $ | 39,437,843   |           |  | $ | 31,017,933   |  
|                                           |  |           |              |   |        |   |              |           |  |   |              |  

Following are proforma amounts assuming that the acquisitions were made on January 1, 2005:



|                   |  |                          |        |                            |   |        |  |      |        |  |   |       
|------------------ |  | ------------------------ | ------ | -------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                   |  | Six Months EndedJune 30, |        | Three Months EndedJune 30,
|                   |  | 2006                     |        | 2005                       |   | 2006   |  | 2005
|Interest Income    |  | $                        | 65,428 |                            | $ | 36,305 |  | $    | 34,212 |  | $ | 19,407
|                   |  |                          |        |                           
|Net Income         |  |                          | 10,112 |                            |   | 7,107  |  |      | 6,089  |  |   | 3,847 
|                   |  |                          |        |                           
|Earnings Per Share |  |                          |        |                            |   |        |  |      |        |  |   |       
|Basic              |  | $                        | 0.63   |                            | $ | 0.46   |  | $    | 0.36   |  | $ | 0.25  
|Diluted            |  | $                        | 0.61   |                            | $ | 0.45   |  | $    | 0.36   |  | $ | 0.24  

(13) 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.

(14) 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. During the six months ended June 30, 2006, 1,920 shares vested.
As of June 30, 2006, a total of 5,840 shares were vested.



15



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)

Financial Information

(14) Restricted Stock-Unearned Compensation (Continued)

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. During the six months ended June 30, 2006, 1,831 shares
vested.

(15) Purchase Commitments

In
June 2006, the Company entered into two options to purchase adjacent parcels of land in Griffin, Georgia for the purpose of constructing a branch office. The option gives the Company the right to purchase the parcels for a total of $1,160,000 for 90
days.

(16) Subsequent Events

On
July 31, 2006, the Company completed the acquisition of Homestead Bank, a community bank located in Suwanee, Georgia, with approximately $287 million in assets, $240 million in deposits and $22 million in stockholders equity as of
June 30, 2006. Homestead Bank operates one full service banking office in Gwinnett County. The transaction is valued at approximately $50 million.

On August 1, 2006, the Company entered into a contract to purchase a parcel of land in Jones County, Georgia, for the purpose of building a branch office. The purchase price of the land is $400,000 and is
contingent on the Company acquiring proper access to the land and the necessary permits.



16



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##### Table of Contents

PART I,
ITEM 2

Financial Information

SECURITY BANK CORPORATION AND SUBSIDIARIES

MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

The following narrative presents managements discussion and analysis of Security Bank Corporation and Subsidiaries (SBKCs) financial condition and results of operations as of and for the three- and
six-month periods ended June 30, 2006 and 2005. The historical financial statements of SBKC are set forth elsewhere herein. This discussion should be read in conjunction with those financial statements and the other financial information
included in this report.

Overview

SBKC is a Georgia corporation that was formed to act as a bank holding company for Security Bank of Bibb County (formerly Security National Bank) (SB-Bibb) under the federal Bank Holding Company Act of 1956, as amended, and the bank holding
company laws of Georgia. SBKC was incorporated on February 10, 1994 at the instruction of management of SB-Bibb. At a special meeting of the stockholders of SB-Bibb on August 2, 1994, the stockholders of SB-Bibb voted in favor of a plan
reorganization and agreement of merger pursuant to which SB-Bibb became a wholly owned subsidiary of SBKC. The reorganization was effective on June 30, 1994, as a result of which the shares of common stock of SB-Bibb then issued and outstanding
were converted into shares of the common stock of SBKC. SB-Bibb has operated as a wholly owned subsidiary of SBKC since that time, although the functions and business of SB-Bibb, its board of directors, staff and physical office locations underwent
no changes as a result of the reorganization. Since SBKCs reorganization, we have acquired four additional subsidiary banks.

Substantially all of our business is conducted through our five subsidiary banks:



| |  |  | Security Bank of Bibb County  Security Bank of Bibb County is a state-chartered bank with $1.02 billion in assets that engages in the commercial banking business
primarily in Bibb County, Georgia. Security Bank of Bibb County commenced operations on November 4, 1988. The bank operates several banking offices around Macon, Georgia and on the southeastern coast of Georgia. Security Bank of Bibb County is
also the direct parent company of Fairfield Financial Services, Inc., which is further described below.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Security Bank of Houston County  Security Bank of Houston County is a state-chartered bank with $283.0 million in assets that engages in the commercial banking business
primarily in Houston County, Georgia. The bank operates one full-service banking office in Perry, Georgia and four full-service banking offices in Warner Robins, Georgia.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Security Bank of Jones County  Security Bank of Jones County is a state-chartered bank with $316.1 million in assets that engages in the commercial banking business
primarily in Jones County, Georgia. The bank operates one full-service banking office in Gray, Georgia.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Security Bank of North Metro  Security Bank of North Metro is a state-chartered bank with $218.1 million in assets that engages in the commercial banking business in
the northern metropolitan area of Atlanta, Georgia. The bank operates one full-service banking office in Woodstock, Georgia and loan production offices in Hiram and Cumming, Georgia. Our ownership of Security Bank of North Metro resulted from our
2005 acquisition of SouthBank.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Security Bank of North Fulton  Security Bank of North Fulton is a state-chartered bank with $158.3 million in assets that engages in the commercial banking business
primarily in Fulton County, Georgia. The bank operates one full-service banking office in Alpharetta, Georgia. Our ownership of Security Bank of North Fulton resulted from our March 2006 acquisition of Neighbors Bancshares, Inc.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

PART I, ITEM 2 (CONTINUED)

Financial Information

Overview (Continued)

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

Fairfield Financial Services, Inc. - We also operate Fairfield Financial Services, Inc., a subsidiary of Security Bank of Bibb County. Fairfield Financial is a traditional residential mortgage originator and
interim real estate development lender with a number of production locations throughout Georgia. During the six months ended June 30, 2006, Fairfield Financial closed over $108,345,000 in residential mortgages, making it one of the largest
residential mortgage originators in Middle Georgia. For the six months ended June 30, 2006, Fairfield Financial posted approximately $1,759,000 in net income.

As of June 30, 2006, SBKC had 459 employees on a full-time equivalent basis.

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

Annualized return on average assets of 1.26 percent and 1.30 percent was recorded for the
six-month periods ended June 30, 2006 and 2005, respectively. Return on average equity of 10.83 percent was recorded for the six-month period ended June 30, 2006 compared to 13.05 percent for the same period in 2005.

Financial Condition

At June 30, 2006, total
assets were $1.97 billion compared to $1.66 billion at December 31, 2005. Total interest-earning assets increased $288,809,000 or 19.6 percent to $1.76 billion at June 30, 2006 from $1.47 billion at December 31, 2005. The increases in
total assets and interest-earning assets compared to December 31, 2005 are primarily due to increases in loan volumes, mainly in real estateconstruction and real estate-mortgage loans, and an increase in federal funds sold.

Cash and Cash Equivalents

Cash and due from
banks decreased by approximately $11,700,000 or 16.9 percent to $57,680,000 at June 30, 2006 from $69,380,000 at December 31, 2005. Federal funds sold increased by $44,857,000 to $78,569,000 at June 30, 2006 from $33,712,000 at
December 31, 2005. Excluding our acquisition of Neighbors Bancshares, federal funds sold increased $40,074,000 or 119 percent from December 31, 2005. The overall increase in cash and cash equivalents of approximately $33,157,000 is
primarily attributable to the proceeds received from the common stock offering in May 2006 of $35,941,000.

Investment Securities

Investment securities have increased by $12,761,000 or 8.9 percent since December 31, 2005 when investment securities totaled $144,012,000.
Excluding our acquisition of Neighbors Bancshares, investment securities increased $7,619,000 or 5.3 percent. As of June 30, 2006, investment securities were $156,773,000. Our Companys investment in securities is largely comprised of U.S.
Government Agency securities.



18



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##### Table of Contents

PART I, ITEM 2 (CONTINUED)

Financial Information

Financial Condition (Continued)

Loans Receivable, Net and Loans Held For Sale

Loans receivable were $1.48 billion at June 30, 2006, an increase of $226,802,000 or 18.1 percent (36 percent on an annualized basis) from $1.26 billion at December 31, 2005. Excluding our acquisition, loans receivable increased
$112,419,000 or 9.0 percent (18 percent on an annualized basis). Our Company continues to experience good growth in its loan portfolio, particularly in real estate-construction and real estate-mortgage loans. Loans held for sale increased by
$6,639,000 or 119 percent from $5,562,000 at December 31, 2005 to $12,201,000 at June 30, 2006, primarily as a result of an increase in loan production.

Nonperforming Assets

Nonperforming assets were $19,086,000 or 0.97 percent of total assets at June 30, 2006
compared to $9,391,000 or 0.56 percent of total assets at December 31, 2005. Nonperforming loans increased by $10,272,000 or 147 percent to $17,269,000 at June 30, 2006. The increase in nonperforming loans is primarily attributable to two
residential development loans and one commercial lending relationship. The residential development loans total approximately $7,200,000 and are collateralized by residential developments near Hilton Head, South Carolina and in Cashiers, North
Carolina. The commercial lending relationship has outstanding loans of approximately $2,500,000 and is collateralized by a business and real estate. Presently, the Company does not anticipate that it will incur a loss on any of these loans and does
not believe that this increase in nonperforming loans is indicative of a trend. Other real estate owned at June 30, 2006, of $1,817,000 represented a decrease of $577,000 or 24 percent since December 31, 2005.

The components of nonperforming assets are as follows:



|                                                           |  |                        |        |                  |   |      
|---------------------------------------------------------- |  | ---------------------- | ------ | ---------------- | - | -----
|                                                           |  | June 30,2006           |        | December 31,2005
|                                                           |  | (Dollars in Thousands)
|Impaired and Other Nonaccrual Loans                        |  | $                      | 17,269 |                  | $ | 6,997
|Loans Past Due 90 Days or More and Still Accruing Interest |  |                        |       |                  |   |     
|Restructured Loans not Included in the Above               |  |                        |       |                  |   |     
|                                                           |  |                        |        |                  |   |      
|Total Nonperforming Loans                                  |  |                        | 17,269 |                  |   | 6,997
|                                                           |  |                       
|Other Real Estate Owned                                    |  |                        | 1,817  |                  |   | 2,394
|                                                           |  |                        |        |                  |   |      
|Total Nonperforming Assets                                 |  | $                      | 19,086 |                  | $ | 9,391
|                                                           |  |                        |        |                  |   |      

Deposits

Total deposits increased $284,756,000 or 22 percent (44 percent on an annualized basis) from $1.29 billion at December 31, 2005 to $1.58 billion at June 30, 2006. Approximately $120,050,000 of the increase
resulted from the acquisition of Neighbors Bank. The increase is also related to an increase of $109,022,000 in brokered certificates of deposit and an increase of $24,811,000 in retail certificates of deposit less than $100,000. Further discussion
of our Companys use of brokered and wholesale certificates of deposit is included in the Liquidity and Capital Adequacy section of this discussion.

Other Borrowed Money

Other borrowed money totaled $132,495,000 as of June 30, 2006, a decrease of 23 percent
(46 percent on an annualized basis) since December 31, 2005 when borrowed money totaled $172,141,000. Borrowings from the FHLB amounted to $71,227,000 or 54 percent of total borrowed money as of June 30, 2006. Borrowings are typically used
to fund loan requests. Federal funds purchased and securities sold under agreement to repurchase declined by $23,846,000 or 54 percent due to the increase in deposits discussed above. Subordinated debentures were unchanged at June 30, 2006 with
a balance of $41,238,000. The subordinated debentures are included in borrowed funds on the consolidated balance sheets, but subject to certain limitations, qualify as Tier 1 capital for regulatory capital purposes.



19



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##### Table of Contents

PART I, ITEM 2 (CONTINUED)

Financial Information

Financial Condition (Continued)

Equity

At June 30, 2006, total equity was
$257,780,000 or 13.06 percent of total assets compared to $179,305,000 or 10.79 percent of total assets as of December 31, 2005. Total equity increased by $78,475,000 primarily as a result of the May 2006 offering of 1,725,000 shares of common
stock, which raised approximately $35,941,000 in additional capital and the acquisition of Neighbors Bancshares, Inc., which resulted in additional capital of approximately $30,854,000. The remaining increase is due to the retention of net income
during the period, net of dividends paid.

Results of Operations

Net Income

Net income for the three- and six-month periods ended June 30,
2006 was $6,090,000 or $0.36 diluted earnings per share and $11,230,000 or $0.71 diluted earnings per share, respectively, compared to $3,910,000 or $0.32 and $7,317,000 or $0.61 in the same periods of the preceding year. The increase in net income
for the three- and six-month periods ended June 30, 2006 is primarily attributable to an increase in our interest income, resulting from a significant increase in average loans compared to the same periods in 2005. The increase in average loans
is largely attributable to loans purchased in connection with our acquisitions of SouthBank, Rivoli BanCorp, Inc. and Neighbors Bancshares, Inc..

Net Interest Income

Net interest income for the three-months ended June 30, 2006 was $19,072,000, an increase
of 61 percent over the same quarter in 2005. The increase resulted primarily from an increase in the volume of average interest earning assets (55 percent) and interest bearing liabilities (58 percent) for the second quarter of 2006 over the same
quarter in 2005. The net interest margin, net interest income divided by average earning assets, was 4.52 percent and 4.37 percent for the 2006 and 2005 quarters, respectively.

Total interest income increased to $34,214,000 for the three-month period ended June 30, 2006, compared to $18,023,000 for the same period in 2005.
The increase results from a 55 percent increase in earning assets, primarily loans receivable, and a 157 basis point increase in yield on loans receivable.

Total interest expense increased to $15,142,000 for the three-month period ended June 30, 2006, compared to $6,162,000 for the same period in 2005. The increase results from the increase of 58 percent in
interest-bearing liabilities and a 146 basis point increase in the cost of those liabilities.

The net interest margin of the Company was
4.53 percent for the six-month period ended June 30, 2006 compared to 4.43 percent for the same six-month period of the preceding year. Our Company has been successful in maintaining its margins despite the downward pressure on margins in the
industry as a whole. Our success is attributable to our aggressive marketing strategy with respect to low cost core deposits. Total interest income increased to $62,997,000 for the six-month period ended June 30, 2006, from $33,888,000 during
the comparable prior year period. The increase is the result of growth in the Companys loan portfolio and an increase in the yield from interest-earning assets of 135 basis points compared to the six-month period ended June 30, 2005.

Total interest expense increased to $27,212,000 for the six months ended June 30, 2006 from $10,999,000 for the six-month period
ended June 30, 2005. The increase in interest expense is primarily a result of a 144 basis point increase in the cost of interest-bearing liabilities compared to the six-month period ended June 30, 2005.



20



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##### Table of Contents

PART I, ITEM 2 (CONTINUED)

Financial Information

Results of Operations (Continued)

Net Interest Income (Continued)

The following
table represents the effective yields and costs of funds for the six-month periods ended June 30:



|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|-------------------------------------------------------------- |  | --------------- | --------- | - | -------------- | - | ------------- |  | ---- | --------------- |  | - | --------------- | - | ------------ | - | ------ |  | ----- | -
|                                                               |  | 2006            |           |   | 2005           |  
|(Dollars in thousands)                                         |  | AverageBalances |           |   | Income/Expense |   | Yields/ Rates |  |      | AverageBalances |  |   | Income/ Expense |   | Yields/Rates |  
|Assets                                                         |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Interest-Earning Assets                                        |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Loans, Net of Unearned Income                                  |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Taxable                                                        |  | $               | 1,415,242 |   |                | $ | 58,815        |  | 8.38 | %               |  | $ | 915,505         |   |              | $ | 31,287 |  | 6.89  | %
|Loans Held for Sale                                            |  |                 | 6,613     |   |                |   | 225           |  | 6.86 |                 |  |   | 5,649           |   |              |   | 161    |  | 5.75  |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Total Loans                                                    |  |                 | 1,421,855 |   |                |   | 59,040        |  | 8.37 |                 |  |   | 921,154         |   |              |   | 31,448 |  | 6.88  |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Investment Securities                                          |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Taxable                                                        |  |                 | 127,229   |   |                |   | 2,756         |  | 4.37 |                 |  |   | 96,720          |   |              |   | 317    |  | 0.66  |  
|Tax-Exempt, Tax Equivalent Basis                               |  |                 | 19,804    |   |                |   | 593           |  | 6.04 |                 |  |   | 14,964          |   |              |   | 2,039  |  | 27.48 |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Total Investment Securities                                    |  |                 | 147,033   |   |                |   | 3,349         |  | 4.59 |                 |  |   | 111,684         |   |              |   | 2,356  |  | 4.25  |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Interest-Bearing Deposits in Other Banks                       |  |                 | 2,834     |   |                |   | 73            |  | 5.19 |                 |  |   | 3,973           |   |              |   | 56     |  | 2.84  |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Federal Funds Sold                                             |  |                 | 29,224    |   |                |   | 690           |  | 4.76 |                 |  |   | 11,569          |   |              |   | 174    |  | 3.03  |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Other Interest-Earning Assets                                  |  |                 | 1,238     |   |                |   | 47            |  | 7.66 |                 |  |   | 557             |   |              |   | 17     |  | 6.15  |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Total Interest-Earning Assets                                  |  |                 | 1,602,184 |   |                |   | 63,199        |  | 7.95 |                 |  |   | 1,048,937       |   |              |   | 34,051 |  | 6.55  |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Noninterest-Earning Assets                                     |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Cash                                                           |  |                 | 48,575    |   |                |   |               |  |      |                 |  |   | 29,880          |   |              |   |        |  |       |  
|Allowance for Loan Losses                                      |  |                 | (17,161   | ) |                |   |               |  |      |                 |  |   | (11,545         | ) |              |   |        |  |       |  
|Other Assets                                                   |  |                 | 156,951   |   |                |   |               |  |      |                 |  |   | 66,159          |   |              |   |        |  |       |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Total Noninterest-Earning Assets                               |  |                 | 188,365   |   |                |   |               |  |      |                 |  |   | 84,494          |   |              |   |        |  |       |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Total Assets                                                   |  | $               | 1,790,549 |   |                |   |               |  |      |                 |  | $ | 1,133,431       |   |              |   |        |  |       |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Liabilities and Stockholders Equity                           |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Interest-Bearing Liabilities                                   |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Interest-Bearing Deposits                                      |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Interest-Bearing Demand and Savings                            |  | $               | 410,159   |   |                | $ | 5,714         |  | 2.81 |                 |  | $ | 229,802         |   |              | $ | 1,497  |  | 1.31  |  
|Time Deposits                                                  |  |                 | 850,570   |   |                |   | 17,594        |  | 4.17 |                 |  |   | 573,483         |   |              |   | 7,721  |  | 2.71  |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Total Interest-Bearing Deposits                                |  |                 | 1,260,729 |   |                |   | 23,308        |  | 3.73 |                 |  |   | 803,285         |   |              |   | 9,218  |  | 2.31  |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Other Interest-Bearing Liabilities                             |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Debt                                                           |  |                 | 78,284    |   |                |   | 1,808         |  | 4.66 |                 |  |   | 60,800          |   |              |   | 967    |  | 3.21  |  
|Subordinated Debentures                                        |  |                 | 41,238    |   |                |   | 1,543         |  | 7.55 |                 |  |   | 18,557          |   |              |   | 577    |  | 6.27  |  
|Funds Purchased and Securities                                 |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Under Agreement to Repurchase                                  |  |                 | 23,916    |   |                |   | 553           |  | 4.66 |                 |  |   | 16,577          |   |              |   | 237    |  | 2.88  |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Total Other Interest-Bearing Liabilities                       |  |                 | 143,438   |   |                |   | 3,904         |  | 5.49 |                 |  |   | 95,934          |   |              |   | 1,781  |  | 3.74  |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Total Interest-Bearing Liabilities                             |  |                 | 1,404,167 |   |                |   | 27,212        |  | 3.91 |                 |  |   | 899,219         |   |              |   | 10,999 |  | 2.47  |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Noninterest-Bearing Liabilities and Stockholders Equity       |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Demand Deposits                                                |  |                 | 161,095   |   |                |   |               |  |      |                 |  |   | 112,479         |   |              |   |        |  |       |  
|Other Liabilities                                              |  |                 | 16,164    |   |                |   |               |  |      |                 |  |   | 8,696           |   |              |   |        |  |       |  
|Stockholders Equity                                           |  |                 | 209,123   |   |                |   |               |  |      |                 |  |   | 113,037         |   |              |   |        |  |       |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Total Noninterest-Bearing Liabilities and Stockholders Equity |  |                 | 386,382   |   |                |   |               |  |      |                 |  |   | 234,212         |   |              |   |        |  |       |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Total Liabilities and Stockholders Equity                     |  | $               | 1,790,549 |   |                |   |               |  |      |                 |  | $ | 1,133,431       |   |              |   |        |  |       |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Interest Rate Spread                                           |  |                 |           |   |                |   |               |  | 4.04 | %               |  |   |                 |   |              |   |        |  | 4.08  | %
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Net Interest Income                                            |  |                 |           |   |                | $ | 35,987        |  |      |                 |  |   |                 |   |              | $ | 23,052 |  |       |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  
|Net Interest Margin                                            |  |                 |           |   |                |   |               |  | 4.53 | %               |  |   |                 |   |              |   |        |  | 4.43  | %
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |       |  



21



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##### Table of Contents

PART I, ITEM 2 (CONTINUED)

Financial Information

Results of Operations (Continued)

Net Interest Income (Continued)

The following
table provides a detailed analysis of the changes in interest income and interest expense due to changes in rate and volume for the six months ended June 30, 2006 compared to the six months ended June 30, 2005.



|                                                             |                        |                               |        |   |      |   |        |           |  |   |        |  
|------------------------------------------------------------ | ---------------------- | ----------------------------- | ------ | - | ---- | - | ------ | --------- |  | - | ------ | -
|                                                             |                        | Changes From 2005 to 2006 (1) |       
|Rate/Volume Analysis                                         |                        | Volume                        |        |   | Rate |   |        | NetChange | 
|                                                             | (Dollars in Thousands) |                              
|Interest Income                                              |                        |                               |        |   |      |   |        |           |  |   |        |  
|Loans, Net                                                   |                        | $                             | 17,235 |   |      | $ | 10,357 |           |  | $ | 27,592 |  
|                                                             |                        |                               |        |   |      |   |        |           |  |   |        |  
|Investment Securities                                        |                        |                               |        |   |      |   |        |           |  |   |        |  
|Taxable                                                      |                        |                               | 101    |   |      |   | 2,338  |           |  |   | 2,439  |  
|Tax-Exempt                                                   |                        |                               | 665    |   |      |   | (2,111 | )         |  |   | (1,446 | )
|                                                             |                        |                               |        |   |      |   |        |           |  |   |        |  
|Total Investment Securities                                  |                        |                               | 766    |   |      |   | 227    |           |  |   | 993    |  
|                                                             |                        |                               |        |   |      |   |        |           |  |   |        |  
|Interest-Bearing Deposits in Other Banks                     |                        |                               | (16    | ) |      |   | 33     |           |  |   | 17     |  
|                                                             |                        |                               |        |   |      |   |        |           |  |   |        |  
|Funds Sold                                                   |                        |                               | 268    |   |      |   | 248    |           |  |   | 516    |  
|                                                             |                        |                               |        |   |      |   |        |           |  |   |        |  
|Other Interest-Earning Assets                                |                        |                               | 21     |   |      |   | 9      |           |  |   | 30     |  
|                                                             |                        |                               |        |   |      |   |        |           |  |   |        |  
|Total Interest Income                                        |                        |                               | 18,274 |   |      |   | 10,874 |           |  |   | 29,148 |  
|                                                             |                        |                               |        |   |      |   |        |           |  |   |        |  
|Interest Expense                                             |                        |                               |        |   |      |   |        |           |  |   |        |  
|Interest-Bearing Demand and Savings Deposits                 |                        |                               | 1,185  |   |      |   | 3,032  |           |  |   | 4,217  |  
|                                                             |                        |                               |        |   |      |   |        |           |  |   |        |  
|Time Deposits                                                |                        |                               | 3,761  |   |      |   | 6,112  |           |  |   | 9,873  |  
|                                                             |                        |                               |        |   |      |   |        |           |  |   |        |  
|Other Interest-Bearing Liabilities                           |                        |                               |        |   |      |   |        |           |  |   |        |  
|Funds Purchased and Securities Under Agreement to Repurchase |                        |                               | 106    |   |      |   | 210    |           |  |   | 316    |  
|                                                             |                        |                               |        |   |      |   |        |           |  |   |        |  
|Subordinated Debentures                                      |                        |                               | 711    |   |      |   | 255    |           |  |   | 966    |  
|                                                             |                        |                               |        |   |      |   |        |           |  |   |        |  
|Other Debt                                                   |                        |                               | 280    |   |      |   | 561    |           |  |   | 841    |  
|                                                             |                        |                               |        |   |      |   |        |           |  |   |        |  
|Total Interest Expense                                       |                        |                               | 6,043  |   |      |   | 10,170 |           |  |   | 16,213 |  
|                                                             |                        |                               |        |   |      |   |        |           |  |   |        |  
|Net Interest Income                                          |                        | $                             | 12,231 |   |      | $ | 704    |           |  | $ | 12,935 |  
|                                                             |                        |                               |        |   |      |   |        |           |  |   |        |  

---

|(1) | Changes in net interest income for the periods, based on either changes in average balances or changes in average rates for interest-earning assets and interest-bearing liabilities,
are shown on this table. During each year there are numerous and simultaneous balance and rate changes; therefore, it is not possible to precisely allocate the changes between balances and rates. For the purpose of this table, changes that are not
exclusively due to balance changes or rate changes have been attributed to rates.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



22



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##### Table of Contents

PART I, ITEM 2 (CONTINUED)

Financial Information

Results of Operations (Continued)

Net Interest Income (Continued)

The following
table represents the effective yields and costs of funds for the three-month periods ended June 30:



|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|-------------------------------------------------------------- |  | --------------- | --------- | - | -------------- | - | ------------- |  | ---- | --------------- |  | - | --------------- | - | ------------ | - | ------ |  | ---- | -
|                                                               |  | 2006            |           |   | 2005           |  
|(Dollars in thousands)                                         |  | AverageBalances |           |   | Income/Expense |   | Yields/ Rates |  |      | AverageBalances |  |   | Income/ Expense |   | Yields/Rates |  
|Assets                                                         |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Interest-Earning Assets                                        |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Loans, Net of Unearned Income                                  |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Taxable                                                        |  | $               | 1,494,812 |   |                | $ | 31,865        |  | 8.55 | %               |  | $ | 956,933         |   |              | $ | 16,647 |  | 6.98 | %
|Loans Held for Sale                                            |  |                 | 8,011     |   |                |   | 138           |  | 6.91 |                 |  |   | 6,132           |   |              |   | 87     |  | 5.69 |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Total Loans                                                    |  |                 | 1,502,823 |   |                |   | 32,003        |  | 8.54 |                 |  |   | 963,065         |   |              |   | 16,734 |  | 6.97 | %
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Investment Securities                                          |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Taxable                                                        |  |                 | 131,835   |   |                |   | 1,446         |  | 4.40 |                 |  |   | 100,912         |   |              |   | 1,073  |  | 4.26 |  
|Tax-Exempt, Tax Equivalent Basis                               |  |                 | 19,707    |   |                |   | 295           |  | 6.00 |                 |  |   | 14,782          |   |              |   | 158    |  | 4.29 |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Total Investment Securities                                    |  |                 | 151,542   |   |                |   | 1,741         |  | 4.61 |                 |  |   | 115,694         |   |              |   | 1,231  |  | 4.27 |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Interest-Bearing Deposits in Other Banks                       |  |                 | 2,277     |   |                |   | 32            |  | 5.64 |                 |  |   | 6,154           |   |              |   | 42     |  | 2.74 |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Federal Funds Sold                                             |  |                 | 42,314    |   |                |   | 511           |  | 4.84 |                 |  |   | 11,756          |   |              |   | 88     |  | 3.00 |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Other Interest-Earning Assets                                  |  |                 | 1,238     |   |                |   | 26            |  | 8.42 |                 |  |   | 557             |   |              |   | 9      |  | 6.48 |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Total Interest-Earning Assets                                  |  |                 | 1,700,194 |   |                |   | 34,313        |  | 8.09 |                 |  |   | 1,097,226       |   |              |   | 18,104 |  | 6.62 |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Noninterest-Earning Assets                                     |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Cash                                                           |  |                 | 49,863    |   |                |   |               |  |      |                 |  |   | 28,764          |   |              |   |        |  |      |  
|Allowance for Loan Losses                                      |  |                 | (17,940   | ) |                |   |               |  |      |                 |  |   | (12,001         | ) |              |   |        |  |      |  
|Other Assets                                                   |  |                 | 174,683   |   |                |   |               |  |      |                 |  |   | 70,452          |   |              |   |        |  |      |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Total Noninterest-Earning Assets                               |  |                 | 206,606   |   |                |   |               |  |      |                 |  |   | 87,215          |   |              |   |        |  |      |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Total Assets                                                   |  | $               | 1,906,800 |   |                |   |               |  |      |                 |  | $ | 1,184,441       |   |              |   |        |  |      |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Liabilities and Stockholders Equity                           |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Interest-Bearing Liabilities                                   |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Interest-Bearing Deposits                                      |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Interest-Bearing Demand and Savings                            |  | $               | 431,529   |   |                | $ | 3,266         |  | 3.04 |                 |  | $ | 243,450         |   |              | $ | 899    |  | 1.48 |  
|Other Time                                                     |  |                 | 928,919   |   |                |   | 10,111        |  | 4.37 |                 |  |   | 602,852         |   |              |   | 4,318  |  | 2.87 |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Total Interest-Bearing Deposits                                |  |                 | 1,360,448 |   |                |   | 13,377        |  | 3.94 |                 |  |   | 846,302         |   |              |   | 5,217  |  | 2.47 |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Other Interest-Bearing Liabilities                             |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Debt                                                           |  |                 | 61,255    |   |                |   | 721           |  | 4.72 |                 |  |   | 57,954          |   |              |   | 516    |  | 3.57 |  
|Subordinated Debentures                                        |  |                 | 41,238    |   |                |   | 772           |  | 7.51 |                 |  |   | 18,557          |   |              |   | 304    |  | 6.57 |  
|Funds Purchased and Securities                                 |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Under Agreement to Repurchase                                  |  |                 | 23,230    |   |                |   | 272           |  | 4.70 |                 |  |   | 15,899          |   |              |   | 125    |  | 3.15 |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Total Other Interest-Bearing Liabilities                       |  |                 | 125,723   |   |                |   | 1,765         |  | 5.63 |                 |  |   | 92,410          |   |              |   | 945    |  | 4.10 |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Total Interest-Bearing Liabilities                             |  |                 | 1,486,171 |   |                |   | 15,142        |  | 4.09 |                 |  |   | 938,712         |   |              |   | 6,162  |  | 2.63 |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Noninterest-Bearing Liabilities and Stockholders Equity       |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Demand Deposits                                                |  |                 | 166,941   |   |                |   |               |  |      |                 |  |   | 116,899         |   |              |   |        |  |      |  
|Other Liabilities                                              |  |                 | 17,957    |   |                |   |               |  |      |                 |  |   | 10,465          |   |              |   |        |  |      |  
|Stockholders Equity                                           |  |                 | 235,731   |   |                |   |               |  |      |                 |  |   | 118,365         |   |              |   |        |  |      |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Total Noninterest-Bearing Liabilities and Stockholders Equity |  |                 | 420,629   |   |                |   |               |  |      |                 |  |   | 245,729         |   |              |   |        |  |      |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Total Liabilities and Stockholders Equity                     |  | $               | 1,906,800 |   |                |   |               |  |      |                 |  | $ | 1,184,441       |   |              |   |        |  |      |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Interest Rate Spread                                           |  |                 |           |   |                |   |               |  | 4.00 | %               |  |   |                 |   |              |   |        |  | 3.99 | %
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Net Interest Income                                            |  |                 |           |   |                | $ | 19,171        |  |      |                 |  |   |                 |   |              | $ | 11,942 |  |      |  
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  
|Net Interest Margin                                            |  |                 |           |   |                |   |               |  | 4.52 | %               |  |   |                 |   |              |   |        |  | 4.37 | %
|                                                               |  |                 |           |   |                |   |               |  |      |                 |  |   |                 |   |              |   |        |  |      |  



23



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##### Table of Contents

PART I, ITEM 2 (CONTINUED)

Financial Information

Results of Operations (Continued)

Net Interest Income (Continued)

The following
table provides a detailed analysis of the changes in interest income and interest expense due to changes in rate and volume for the three months ended June 30, 2006 compared to the three months ended June 30, 2005.



|                                                             |  |                               |        |   |      |   |           |  |   |        |  
|------------------------------------------------------------ |  | ----------------------------- | ------ | - | ---- | - | --------- |  | - | ------ | -
|                                                             |  | Changes From 2005 to 2006 (1) |       
|Rate/Volume Analysis                                         |  | Volume                        |        |   | Rate |   | NetChange | 
|                                                             |  | (Dollars in Thousands)        |       
|Interest Income                                              |  |                               |        |   |      |   |           |  |   |        |  
|Loans, Net                                                   |  | $                             | 9,404  |   |      | $ | 5,865     |  | $ | 15,269 |  
|                                                             |  |                               |        |   |      |   |           |  |   |        |  
|Investment Securities                                        |  |                               |        |   |      |   |           |  |   |        |  
|Taxable                                                      |  |                               | 330    |   |      |   | 43        |  |   | 373    |  
|Tax-Exempt                                                   |  |                               | 53     |   |      |   | 84        |  |   | 137    |  
|                                                             |  |                               |        |   |      |   |           |  |   |        |  
|Total Investment Securities                                  |  |                               | 383    |   |      |   | 127       |  |   | 510    |  
|                                                             |  |                               |        |   |      |   |           |  |   |        |  
|Interest-Bearing Deposits in Other Banks                     |  |                               | (27    | ) |      |   | 17        |  |   | (10    | )
|                                                             |  |                               |        |   |      |   |           |  |   |        |  
|Funds Sold                                                   |  |                               | 229    |   |      |   | 194       |  |   | 423    |  
|                                                             |  |                               |        |   |      |   |           |  |   |        |  
|Other Interest-Earning Assets                                |  |                               | 11     |   |      |   | 6         |  |   | 17     |  
|                                                             |  |                               |        |   |      |   |           |  |   |        |  
|Total Interest Income                                        |  |                               | 10,000 |   |      |   | 6,209     |  |   | 16,209 |  
|                                                             |  |                               |        |   |      |   |           |  |   |        |  
|Interest Expense                                             |  |                               |        |   |      |   |           |  |   |        |  
|Interest-Bearing Demand and Savings Deposits                 |  |                               | 696    |   |      |   | 1,671     |  |   | 2,367  |  
|                                                             |  |                               |        |   |      |   |           |  |   |        |  
|Time Deposits                                                |  |                               | 2,342  |   |      |   | 3,451     |  |   | 5,793  |  
|                                                             |  |                               |        |   |      |   |           |  |   |        |  
|Other Interest-Bearing Liabilities                           |  |                               |        |   |      |   |           |  |   |        |  
|Funds Purchased and Securities Under Agreement to Repurchase |  |                               | 58     |   |      |   | 89        |  |   | 147    |  
|                                                             |  |                               |        |   |      |   |           |  |   |        |  
|Subordinated Debentures                                      |  |                               | 373    |   |      |   | 95        |  |   | 468    |  
|                                                             |  |                               |        |   |      |   |           |  |   |        |  
|Other Debt                                                   |  |                               | 29     |   |      |   | 176       |  |   | 205    |  
|                                                             |  |                               |        |   |      |   |           |  |   |        |  
|Total Interest Expense                                       |  |                               | 3,498  |   |      |   | 5,482     |  |   | 8,980  |  
|                                                             |  |                               |        |   |      |   |           |  |   |        |  
|Net Interest Income                                          |  | $                             | 6,502  |   |      | $ | 727       |  | $ | 7,229  |  
|                                                             |  |                               |        |   |      |   |           |  |   |        |  

---

|(1) | Changes in net interest income for the periods, based on either changes in average balances or changes in average rates for interest-earning assets and interest-bearing liabilities,
are shown on this table. During each year there are numerous and simultaneous balance and rate changes; therefore, it is not possible to precisely allocate the changes between balances and rates. For the purpose of this table, changes that are not
exclusively due to balance changes or rate changes have been attributed to rates.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



24



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##### Table of Contents

PART I, ITEM 2 (CONTINUED)

Financial Information

Results of Operations (Continued)

Provision for Loan Losses

Our Company
establishes a provision for loan losses, which is charged to operations, in order to maintain the allowance for loan losses at a level that is deemed to be appropriate by management. The amount of this provision is based upon an assessment of prior
loss experience, the volume and type of lending presently being conducted by the Company, industry standards, past due loans, economic conditions of the Companys market area and other factors related to the collectibility of the Companys
loan portfolio. For the three- and six-month periods ended June 30, 2006, the provision for loan losses totaled $739,000 and $1,369,000, respectively, compared to $804,000 and $1,579,000 for the same periods ended June 30, 2005. The
decrease in the provision for loan losses in 2006 was primarily due to a reduction in annualized net charge-offs. Our net charge-offs as a percentage of average loans outstanding for the three- and six-month periods ended June 30, 2006 and
June 30, 2005 were 0.10 percent and 0.08 percent and 0.13 percent and 0.14 percent, respectively. Amounts of net loans charged off during recent years are reasonable by industry standards and are below peer group institutions of similar asset
size. We incurred net charge-offs of approximately $361,000 and $559,000 and $317,000 and $638,000 during the three- and six-month periods ended June 30, 2006 and 2005, respectively. The allowance for loan losses on June 30, 2006 stood at
1.20 percent of outstanding net loans and loans held for sale, down from 1.26 percent at December 31, 2005.

Although management
utilizes its best judgment in providing for inherent losses, there can be no assurance that our Company will not have to increase its provision for loan losses in the future as a result of future increases in nonperforming loans or for other reasons
which could adversely affect our Companys results of operations. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses. Such agencies may require our
Company to recognize additions to the allowance for loan losses based on their judgments of information that is available to them at the time of their examination.

Noninterest Income and Expense

Noninterest income for the three-months ended June 30, 2006 totaled $4,917,000
compared to $4,582,000 for the prior year period. Service charges on deposits increased by 25.6 percent due to the growth in deposits, which was due in large part to our acquisitions of Rivoli Bancorp and Neighbors Bancshares.

Noninterest expenses increased by 45.9 percent to $13,614,000 for the second quarter of 2006. The increase is primarily attributable to our acquisitions
as seen in additional salaries and employee benefits (up 39.4 percent), occupancy and equipment (up 61.0 percent) and other noninterest expenses (up 57.9 percent).

Noninterest income for the six months ended June 30, 2006 totaled $9,834,000 compared to $8,096,000 for the comparable prior period. Mortgage banking income for the six months ended June 30, 2006 totaled
$2,684,000 compared to $2,166,000 for the comparable prior period. This change was primarily due to an increase in loan production resulting from the acquisitions of Rivoli Bancorp and Neighbors Bancshares and the addition of personnel. Service
charges on deposits increased 28 percent for the six-month period ended June 30, 2006 compared to the prior period ended June 30, 2005. The increase is directly related to the increase in deposits since the second quarter of 2005
(primarily related to our acquisitions) and is primarily in fees generated from our courtesy overdraft product for protection from bounced checks.

Noninterest expenses increased $8,700,000 or 49 percent for the six months ended June 30, 2006 over the same period in 2005. The primary driver of this increase was the increase in salaries and employee benefits of $4,914,000 resulting
from the additional employees from our acquisitions since the second quarter of 2005. The increase is also attributable to an increase in occupancy and equipment of approximately $1,000,000 resulting from the addition of properties in connection
with acquisitions. In addition, the Companys amortization of acquisition-related intangible assets increased approximately $321,000 from the same period in 2005. The remainder of the increase is spread over various expense categories.

Income Taxes

Income tax
expense totaled $3,546,000 and $2,397,000 for the three-month periods ended June 30, 2006 and 2005, respectively. The effective tax rates for the 2006 and 2005 periods were approximately 37 percent and 38 percent, respectively.

Income tax expense totaled $6,525,000 for the six-month period ended June 30, 2006, compared to $4,294,000 for the same period ended June 30,
2005. These amounts resulted in the effective tax rates of approximately 37 percent for 2006 and 2005. The effective tax rate has historically been at or just below the maximum corporate federal and state income tax rates due to the relatively small
percentage of tax-free investments carried on the consolidated balance sheets.



25



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##### Table of Contents

PART I, ITEM 2 (CONTINUED)

Financial Information

Results of Operations (Continued)

Liquidity and Capital Adequacy

Stockholders equity increased to $257,780,000 due to our sale of 1,725,000 shares of common stock in May 2006, the acquisition of Neighbors Bancshares, the retention of earnings, net of dividends paid and additional stock issuances.
Unrealized losses on investment securities available for sale net of taxes totaled $2,705,000 at June 30, 2006. It is managements intention to continue paying a reasonable return on stockholders investment while retaining adequate
earnings to allow for continued growth.

The Federal Reserve Board measures capital adequacy for bank holding companies by using a
risk-based capital framework and by monitoring compliance with minimum leverage ratio guidelines. The minimum ratio of total risk-based capital to risk-adjusted assets is 8 percent, of which 4 percent must be Tier 1 capital. Our Companys total
risk-based capital ratio was 13.08 percent at June 30, 2006. Our Companys Tier 1 risk-based capital ratio was 11.97 percent at June 30, 2006.

In addition, the Federal Reserve Board has established minimum leverage ratio guidelines for bank holding companies. Those guidelines provide for a minimum leverage ratio of 3 percent for financial institutions that
meet certain criteria, including that they maintain the highest regulatory rating. All other financial institutions are required to maintain a leverage ratio of 4 percent. Our Companys leverage ratio was 10.87 percent at June 30, 2006.

The Federal Deposit Insurance Corporation Improvement Act (FDICIA) established minimum capital requirements for all depository
institutions and established five capital tiers: well capitalized, adequately capitalized, under-capitalized, significantly under-capitalized and critically under-capitalized. FDICIA
imposes significant restrictions on the operations of a bank that is not at least adequately capitalized. A depository institutions capital tier will depend upon where its capital levels are in relation to various other capital measures that
include a risk-based capital measure, a leverage ratio capital measure and other factors. Under regulations adopted, for an institution to be well capitalized, it must have a total risk-based capital ratio of at least 10 percent, a Tier 1 risk-based
capital ratio of at least 6 percent and a Tier 1 leverage ratio of at least 5 percent. Also, the institution may not be subject to any specific capital order or directive.

At June 30, 2006, each of the subsidiary banks was well-capitalized under the established guidelines.

SBKC, primarily through the actions of its subsidiary banks, engages in liquidity management to ensure adequate cash flow for deposit withdrawals, credit
commitments and repayments of borrowed funds. Needs are met through loan repayments, net interest and fee income and the sale or maturity of existing assets. In addition, liquidity is continuously provided through the acquisition of new deposits,
the renewal of maturing deposits and external borrowings.

Each week, management monitors deposit flow and evaluates alternate pricing
structures to retain and grow deposits. To the extent needed to fund loan demand, traditional local deposit funding sources are supplemented by the use of FHLB borrowings, brokered deposits and other wholesale deposit sources outside the immediate
market area. High volumes and activity in mortgage and construction lending at the Fairfield subsidiary since its acquisition in 2000 have required higher levels of sophistication and tracking to ensure adequate liquidity throughout the
organization. Internal policies have been updated to monitor the use of various core and non-core funding sources, and to balance ready access with risk and cost. Through various asset/liability management strategies, a balance is maintained among
goals of liquidity, safety and earnings potential. Internal policies that are consistent with regulatory liquidity guidelines are monitored and enforced by the banks. Our Companys Asset Liability Committee (ALCO) meets on a weekly basis to
monitor liquidity, funding, interest rate risk and other asset-liability management related issues.

The investment portfolio provides a
ready means to raise cash if liquidity needs arise. As of June 30, 2006, SBKC held $154,534,000 in bonds, at current market value in the available for sale portfolio. At December 31, 2005, the available for sale bond portfolio totaled
$143,662,000. Only marketable investment grade bonds are purchased. Although most of the banks bond portfolios are encumbered as pledges to secure various public funds deposits, repurchase agreements, and for other purposes, management can
restructure and free up investment securities for a sale if required to meet liquidity needs.



26



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##### Table of Contents

PART I, ITEM 2 (CONTINUED)

Financial Information

Results of Operations (Continued)

Liquidity and Capital Adequacy (Continued)

Management continually monitors the relationship of loans to deposits as it serves as a proxy for SBKCs liquidity posture. SBKC had ratios of loans and loans held for sale to deposits of 96.01 percent as of June 30, 2006 and
98.97 percent at December 31, 2005. Management employs alternative funding sources when deposit balances will not meet loan demands. The ratios of loans and loans held for sale to all funding sources at June 30, 2006 and December 31,
2005 were 88.6 percent and 87.4 percent, respectively. Management continues to emphasize programs to generate local core deposits as our Companys primary funding sources. The stability of the banks core deposit base is an important
factor in SBKCs liquidity position. A heavy percentage of the deposit base is comprised of accounts of individuals and small businesses with comprehensive banking relationships and limited volatility. At June 30, 2006 and
December 31, 2005, the banks had $204,465,000 and $139,928,000 in retail certificates of deposit of $100,000 or more. These larger deposits represented 12.97 percent and 10.84 percent of respective total deposits. Management seeks to monitor
and control the use of these larger certificates, which tend to be more volatile in nature, to ensure an adequate supply of funds as needed. Relative interest costs to attract local core relationships are compared to market rates of interest on
various external deposit sources to help minimize the Companys overall cost of funds.

Local market deposit sources have proven
insufficient to fund the strong loan growth trends at the Fairfield Financial subsidiary over the past several years. SBKCs banks supplemented deposit sources with brokered deposits. As of June 30, 2006 and December 31, 2005, the
banks reported $351,843,000 or 22 percent and $242,821,000 or 18.81 percent of total deposits, respectively, in brokered certificates of deposit attracted by external third parties. Additionally, the banks use external wholesale or Internet services
to obtain out-of-market certificates of deposit at competitive interest rates when funding is needed.

To plan for contingent sources of
funding not satisfied by both local and out-of-market deposit balances, SBKC and its subsidiaries have established multiple borrowing sources to augment their funds management. SBKC has an unsecured line of credit, and borrowing capacity also exists
through the membership of the Federal Home Loan Bank program. The banks have also established overnight borrowing for Federal Funds Purchased through various correspondent banks. Management believes the various funding sources discussed above are
adequate to meet the Companys liquidity needs in the future without any material adverse impact on operating results.

Contractual Obligations

As of June 30, 2006, we are contractually obligated under long-term agreements as follows:



|                                |  |                        |             |                  |   |            |  |           |            |                   |   |            |  |   |           
|------------------------------- |  | ---------------------- | ----------- | ---------------- | - | ---------- |  | --------- | ---------- | ----------------- | - | ---------- |  | - | ----------
|                                |  | Payments Due by Period
|Contractual Obligations         |  | Total                  |             | Less Than 1 Year |   | 1-3 Years  |  | 3-5 Years |            | More Than 5 Years
|Federal Home Loan Bank Advances |  | $                      | 71,227,000  |                  | $ | 9,600,000  |  | $         | 41,627,000 |                   | $ | 20,000,000 |  | $ |          
|Subordinated Debentures         |  |                        | 41,238,000  |                  |   |           |  |           |           |                   |   |           |  |   | 41,238,000
|Operating Leases                |  |                        | 3,007,918   |                  |   | 601,388    |  |           | 1,005,412  |                   |   | 664,113    |  |   | 737,005   
|Deferred Compensation           |  |                        | 962,834     |                  |   |           |  |           |           |                   |   |           |  |   | 962,834   
|                                |  |                        |             |                  |   |            |  |           |            |                   |   |            |  |   |           
|                                |  | $                      | 116,435,752 |                  | $ | 10,201,388 |  | $         | 42,632,412 |                   | $ | 20,664,113 |  | $ | 42,937,839
|                                |  |                        |             |                  |   |            |  |           |            |                   |   |            |  |   |           

The FHLB Advances program is a Blanket Agreement for Advances and Security Agreement with the
FHLB, under which our subsidiaries have pledged residential first- and second-mortgage loans, commercial loans and investment securities as collateral to secure available lines of credit.

The Correspondent Bank Line of Credit is with Thomasville National Bank in Thomasville, Georgia. The line is secured with the common stock of Security
Bank of North Metro.

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

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

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



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##### Table of Contents

PART I, ITEM 2 (CONTINUED)

Financial Information

Results of Operations (Continued)

Off-Balance Sheet Arrangements

Our Company, in
the normal course of business, is a party to financial instruments with off-balance sheet risk to meet the financing needs of its customers. These financial instruments primarily include unfulfilled loan commitments and standby letters of credit.
Our Companys exposure to credit loss in the event of nonperformance by the counter party to the financial instrument for unfulfilled loan commitments and standby letters of credit is represented by the contractual notional amount of those
instruments. Our Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet transactions.

Unfulfilled loan commitments are arrangements 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. Historically, many commitments expire without being drawn upon; therefore, the following total commitment amounts are not necessarily indicative of future funding requirements. Unfulfilled loan commitments
as of June 30, 2006 and December 31, 2005 approximated $367,081,000 and $393,805,000, respectively.

Standby letters of credit
are conditional commitments issued by our Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers, and
letters of credit are collateralized when deemed necessary. Our Company has commitments under financial standby letters of credit of $9,449,000 as of June 30, 2006 and $6,716,000 as of December 31, 2005 and commitments under performance
standby letters of credit of $7,155,000 and $7,261,000 for the corresponding periods and commitments under commercial letters of credit of $544,000 at June 30, 2006.

Critical Accounting Estimates

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

Allowance for Loan Losses (ALL)

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

We
establish the allocated amount separately for three tiers:



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



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



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

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

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



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##### Table of Contents

PART I, ITEM 2 (CONTINUED)

Financial Information

Results of Operations (Continued)

Allowance for Loan Losses (ALL) (Continued)

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

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

Goodwill

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

Stock-Based Compensation

In accordance with
SFAS No. 123R, Share Based Payment, management expenses the value of stock options. We utilize the Black-Scholes model in determining the fair value of the stock options. The model takes into account certain estimated factors such as the
expected life of the stock option and the volatility of the stock. The expected life of the stock option is a function of the vesting period of the grant, the average length of time similar grants have remained outstanding and the expected
volatility of the underlying stock. Volatility is a measure of the amount by which a price has fluctuated or is expected to fluctuate during a period.

Forward-Looking Statements

Within this report we have included certain forward-looking statements
concerning the future operations of the Company. It is managements desire to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. This statement is for the express purpose of
availing the Company of the protections of such safe harbor with respect to all forward-looking statements contained in our financial statements. We have used forward-looking statements to describe the future plans and
strategies including our expectations of the Companys future financial results. Managements ability to predict results or the effect of future plans and strategy is inherently uncertain. Factors that could affect results include interest
rate trends, competition, the general economic climate in the middle Georgia area, the southeastern United States region and the country as a whole, loan delinquency rates and changes in federal and state regulations. These factors should be
considered in evaluating the forward-looking statements, and undue reliance should not be placed on such statements.



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##### Table of Contents

PART I,
ITEM 3

Quantitative and Qualitative Disclosures About Market Risk

SBKCs financial performance is impacted by, among other factors, interest rate risk and credit risk. To mitigate credit risk, the Company relies on
a loan review process and the provision for loan losses. See Provision for Loan Losses herein.

The management of interest rate risk
is the primary goal of SBKCs Asset/Liability Committee (ALCO). SBKC attempts to achieve consistent growth in net interest income while limiting volatility from changes in interest rates. Management seeks to accomplish this goal by balancing
the maturity and repricing characteristics of various assets and liabilities. ALCO meets regularly and has responsibility for approving asset/liability management policies, formulating and implementing strategies to improve balance sheet positioning
and/or earnings, and reviewing SBKCs interest rate sensitivity.

One of the tools management utilizes to estimate the sensitivity of
net interest income to changes in interest rates is an interest rate simulation model. Such estimates are based upon a number of assumptions for various scenarios, including the level of balance sheet growth and loan and deposit repricing
characteristics. The simulation model measures the potential change in net interest income over a twelve-month period under various interest rate scenarios. The first scenario assumes rates remain flat (flat rate scenario) over the next
twelve months and is the scenario that all others are compared to in order to measure the change in net interest income. The second scenario is a most likely scenario that projects the most likely change in rates over the next twelve months based on
the slope of the yield curve. SBKC runs ramp scenarios that assume gradual increases and decreases of 100, 200 and 300 basis points each over the next twelve months. SBKCs ALCO policy sets limits on the acceptable level of change resulting
from each ramp scenario. As of May 31, 2006 (the last date the analysis was performed), SBKCs simulation model indicated that a 100 and 200 basis point increase in rates over the next twelve months would cause an approximate 3.2% and 6.4%
increase in net interest income, respectively. A 100 and a 200 basis point decrease in rates over the next twelve months would cause an approximate 1.3 percent and 2.6 percent decrease in net interest income, respectively. These estimated changes
are well within policy limits.

PART I,
ITEM 4

Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer, H. Averett Walker, and the Chief Financial Officer,
James R. McLemore, of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective.

There have been no changes in our internal controls or in other factors that materially affected, or are reasonably likely to materially
affect internal control over financial reporting subsequent to the date of this evaluation, and there have been no corrective actions with respect to significant deficiencies or material weaknesses.



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##### Table of Contents

PART II

Other Information

ITEM 1

Legal Proceedings

None.

ITEM 1A

Risk Factors

In addition to other information set forth in this report, you should carefully consider the factors discussed in Item 1A to Part 1 of Form 10-K for the year ended December 31, 2005, which could materially
affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be
immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

None.

ITEM 3

Defaults Upon Senior Securities

None.

ITEM 4

Submission of Matters to a Vote of Security Holders

The annual shareholders meeting of the Company was held on April 25, 2006. At the annual meeting, the following matters were submitted to a vote:

(I) Proposal 001-P  Election of Directors



|                       |  |            |  |         
|---------------------- |  | ---------- |  | --------
|                       |  | For        |  | Withheld
|Frank H. Childs, Jr    |  | 11,568,229 |  | 334,579 
|Robert T. Mullis       |  | 11,716,282 |  | 186,526 
|T. Kevin Reece         |  | 11,632,397 |  | 270,411 
|H. Cullen Talton, Jr   |  | 11,716,756 |  | 186,052 
|Joe E. Timberlake, III |  | 11,680,639 |  | 222,169 

The term of directors Benjamin W. Griffith, III, Ruthie G. McMichael, Benjamin G. Porter, H.
Averett Walker and Larry C. Walker continue until 2007. The term of directors Edward M. Beckham, II, Alford C. Bridges, Thad G. Childs, Jr, John W. Ramsey, Robert M. Stalnaker and Richard W. White, Jr continue until 2008.

ITEM 5

Other Information

None.



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##### Table of Contents

PART II (CONTINUED)

Other Information

ITEM 6 EXHIBITS

(a) The following is a list of exhibits including items incorporated by reference



|      |  |                                                                                                                                                                                                                                                                                            
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1   |  | Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.1 to Securitys Registration Statement on Form S-4 (File No. 333-128767), filed with the Commission on
October 4, 2005).                                                                                     
|      | 
|3.2   |  | Bylaws (incorporated by reference to Exhibit 3.2 to Securitys Registration Statement on Form S-4 (File No. 333-49977), filed with the Commission on April 13, 1998).                                                                                                                      
|      | 
|4.1   |  | See Exhibits 3.1 and 3.2 for provisions of Articles of Incorporation and Bylaws, as amended, which define the rights of its shareholders.                                                                                                                                                  
|      | 
|4.2   |  | Form of Stock Certificate (incorporated herein by reference as Exhibit 4.1 to Securitys Registration Statement on Form S-4 (File No. 333-49977), filed with the Commission on April 13,
1998).                                                                                            
|      | 
|10.1  |  | 1996 Incentive Stock Option Plan (incorporated by reference as Exhibit 10(c) to Securitys Form SB-2 (File No. 333-11371), filed with the Commission on September 4,
1996).                                                                                                                
|      | 
|10.2  |  | 1999 Incentive Stock Option Plan (incorporated by reference as Appendix to the Registrants Definitive Proxy Statement (File No. 000-23261), filed on March 30, 1999).                                                                                                                     
|      | 
|10.3  |  | 2002 Incentive Stock Option Plan (incorporated by reference as Appendix A to the Registrants Definitive Proxy Statement (File No. 000-23261), filed on March 15,
2002).                                                                                                                   
|      | 
|10.4  |  | Employment Agreement with H. Averett Walker dated January 1, 2002 (incorporated herein by reference as Exhibit 10.4 to SBKCs Registration Statement on Form S-4 (File No. 333-103554),
filed with the Commission on March 3, 2003).                                                       
|      | 
|10.5  |  | Employment Agreement with Richard A. Collinsworth dated January 1, 2002 (incorporated herein by reference as Exhibit 10.5 to SBKCs Registration Statement on Form S-4 (File No.
333-103554), filed with the Commission on March 3, 2003).                                                 
|      | 
|10.6  |  | Employment Agreement with James R. McLemore, Jr. dated December 1, 2002 (incorporated herein by reference as Exhibit 10.6 to SBKCs Registration Statement on Form S-4 (File No.
333-103554) filed with the Commission on March 3, 2003).                                                  
|      | 
|10.7  |  | Asset Purchase Agreement (Fairfield Financial) (incorporated by reference as Exhibit 10.7 to registrants Form 10-Q/A (Commission File No. 000-23261), filed on May 22,
2006).                                                                                                             
|      | 
|10.8  |  | Employment Agreement between Security Bank Corporation, Security Interim Bank and Thad G. Childs, Jr. dated May 30, 2003 (incorporated herein by reference as Exhibit 10.8 to SBKCs
Registration Statement on Form S-4 (File No. 333-103554), filed with the Commission on March 3, 2003).
|      | 
|10.9  |  | 2003 Restricted Stock Bonus Plan (incorporated by reference to the registrants Registration Statement on Form S-8 (File No. 333-116592), filed with the Commission June 17,
2004).                                                                                                        
|      | 
|10.10 |  | 2004 Omnibus Stock Ownership and Long Term Incentive Plan (incorporated by reference as Appendix B to the registrants definitive proxy statement (File No. 000-23261), filed on March 25,
2004).                                                                                          
|      | 
|10.11 |  | 2004 Employee Stock Purchase Plan (incorporated by reference as Appendix D to the registrants definitive proxy Statement (File No. 000-23261), filed with the Commission on March 25,
2004).                                                                                              
|      | 
|11    |  | Statement of Computation of Net Income Per Share.                                                                                                                                                                                                                                          
|      | 
|31.1  |  | Certificate of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                      
|      | 
|31.2  |  | Certificate of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                      
|      | 
|32    |  | Certificate of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                          



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SIGNATURES

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



|                            
|----------------------------
|SECURITY BANK CORPORATION   
|                            
|/s/ H. Averett Walker       
|H. Averett Walker           
|Chief Executive Officer     
|Date: August 9, 2006        
|                            
|/s/ James R. McLemore       
|James R. McLemore           
|Chief Financial Officer     
|Date: August 9, 2006        
|                            
|/s/ Holly L. McDowell       
|Holly L. McDowell           
|Principal Accounting Officer
|Date: August 9, 2006        



33