##### 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 UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------



For the Quarterly Period Ended June 30, 2004



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



For the Transition Period from
 to



Commission File Number 000-23261



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SECURITY BANK CORPORATION

(Name of Small Business Issuer 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



SAME AS ABOVE

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)



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



APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS



Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a
court. ̈Yes ̈No



Check whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)  x    Yes ̈No



APPLICABLE ONLY TO CORPORATE ISSUERS



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



5,811,492 Shares of $1 par value common stock as of August 6, 2004



DOCUMENTS INCORPORATED BY REFERENCE



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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 Months Ended June 30, 2004 and 2003               |  | 3          
|           |  |                                                                                                            
|           |  | Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended June 30, 2004 and 2003 |  | 4          
|           |  |                                                                                                            
|           |  | Condensed Consolidated Statements of Income for Six Months Ended June 30, 2004 and 2003                     |  | 5          
|           |  |                                                                                                            
|           |  | Condensed Consolidated Statements of Comprehensive Income for Six Months Ended June 30, 2004 and 2003       |  | 6          
|           |  |                                                                                                            
|           |  | Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and 2003             |  | 7          
|           |  |                                                                                                            
|           |  | Notes to Condensed Consolidated Financial Statements                                                        |  | 8          
|           |  |                                                                                                            
|           |  | ITEM 2
Managements Discussion and Analysis of Financial Condition and Results of Operations                |  | 22         
|           |  |                                                                                                            
|           |  | ITEM 3
Quantitative and Qualitative Disclosures About Market Risk                                           |  | 38         
|           |  |                                                                                                            
|           |  | ITEM 4
Controls and Procedures                                                                              |  | 40         
|           |  |                                                                                                            
|PART II    |  | Other Information                                                                                           |  |            
|           |  |                                                                                                            
|           |  | ITEM 1
Legal Proceedings                                                                                    |  | 40         
|           |  |                                                                                                            
|           |  | ITEM 2
Changes in Securities and Use of Proceeds                                                            |  | 40         
|           |  |                                                                                                            
|           |  | ITEM 3
Defaults Upon Senior Securities                                                                      |  | 40         
|           |  |                                                                                                            
|           |  | ITEM 4
Submission of Matters to a Vote of Security Holders                                                  |  | 41         
|           |  |                                                                                                            
|           |  | ITEM 5
Other Information                                                                                    |  | 42         
|           |  |                                                                                                            
|           |  | ITEM 6
Exhibits and Reports on Form 8-K                                                                     |  | 42         
|           | 
|SIGNATURES |  | 44                                                                                                         



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##### Table of Contents

PART I,
ITEM 1



Financial Information



SECURITY BANK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)



ASSETS



|                                                   |  |                          |         |                  |   |        
|-------------------------------------------------- |  | ------------------------ | ------- | ---------------- | - | -------
|                                                   |  | June 30, 2004(Unaudited) |         | December 31,2003
|Cash and Balances Due from Depository Institutions |  | $                        | 26,131  |                  | $ | 39,407 
|                                                   |  |                          |         |                  |   |        
|Interest-Bearing Deposits                          |  |                          | 1,461   |                  |   | 532    
|                                                   |  |                          |         |                  |   |        
|Federal Funds Sold                                 |  |                          | 16,105  |                  |   | 10,487 
|                                                   |  |                          |         |                  |   |        
|Investments Securities                             |  |                          | 103,530 |                  |   | 98,920 
|                                                   |  |                          |         |                  |   |        
|Federal Home Loan Bank Stock, at Cost              |  |                          | 3,537   |                  |   | 3,935  
|                                                   |  |                          |         |                  |   |        
|Loans Held for Sale                                |  |                          | 8,882   |                  |   | 11,448 
|                                                   |  |                          |         |                  |   |        
|Loans                                              |  |                          | 771,613 |                  |   | 688,275
|                                                   |  |                          |         |                  |   |        
|Premises and Equipment                             |  |                          | 18,096  |                  |   | 17,113 
|                                                   |  |                          |         |                  |   |        
|Other Real Estate                                  |  |                          | 1,923   |                  |   | 4,006  
|                                                   |  |                          |         |                  |   |        
|Goodwill                                           |  |                          | 28,579  |                  |   | 24,875 
|                                                   |  |                          |         |                  |   |        
|Other Assets                                       |  |                          | 13,181  |                  |   | 12,271 
|                                                   |  |                          |         |                  |   |        
|Total Assets                                       |  | $                        | 993,038 |                  | $ | 911,269
|                                                   |  |                          |         |                  |   |        



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 BALANCE SHEETS

(IN THOUSANDS)



LIABILITIES AND STOCKHOLDERS EQUITY



|                                                                                                                        |  |                         |         |   |                  |   |         |  
|----------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                                                        |  | June 30,2004(Unaudited) |         |   | December 31,2003 |  
|Deposits                                                                                                                |  | $                       | 793,044 |   |                  | $ | 743,301 |  
|                                                                                                                        |  |                         |         |   |                  |   |         |  
|Borrowed Money                                                                                                          |  |                         | 93,111  |   |                  |   | 85,985  |  
|                                                                                                                        |  |                         |         |   |                  |   |         |  
|Other Liabilities                                                                                                       |  |                         | 6,435   |   |                  |   | 6,174   |  
|                                                                                                                        |  |                         |         |   |                  |   |         |  
|Stockholders Equity                                                                                                    |  |                         |         |   |                  |   |         |  
|Common Stock, Par Value $1 Per Share; Authorized 10,000,000 Shares, Issued 5,820,491 and 5,033,299 Shares, Respectively |  |                         | 5,820   |   |                  |   | 5,033   |  
|Paid-In Capital                                                                                                         |  |                         | 62,042  |   |                  |   | 41,580  |  
|Retained Earnings                                                                                                       |  |                         | 33,198  |   |                  |   | 28,710  |  
|Restricted Stock  Unearned Compensation                                                                                |  |                         | (91     | ) |                  |   | (104    | )
|Accumulated Other Comprehensive Income, Net of Tax                                                                      |  |                         | (224    | ) |                  |   | 887     |  
|                                                                                                                        |  |                         |         |   |                  |   |         |  
|                                                                                                                        |  |                         | 100,745 |   |                  |   | 76,106  |  
|Treasury Stock, 8,999 Shares, at Cost                                                                                   |  |                         | (297    | ) |                  |   | (297    | )
|                                                                                                                        |  |                         |         |   |                  |   |         |  
|                                                                                                                        |  |                         | 100,448 |   |                  |   | 75,809  |  
|                                                                                                                        |  |                         |         |   |                  |   |         |  
|Total Liabilities and Stockholders Equity                                                                              |  | $                       | 993,038 |   |                  | $ | 911,269 |  
|                                                                                                                        |  |                         |         |   |                  |   |         |  



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



2



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)



Financial Information



SECURITY BANK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE THREE MONTHS ENDED JUNE 30

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)



|                                                    |  |      |           |      |   |          
|--------------------------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                                    |  | 2004 |           | 2003
|Interest Income                                     |  |      |           |      |   |          
|Loans, Including Fees                               |  | $    | 12,127    |      | $ | 9,201    
|Federal Funds Sold                                  |  |      | 16        |      |   | 14       
|Investment Securities                               |  |      | 903       |      |   | 570      
|Other                                               |  |      | 11        |      |   | 9        
|                                                    |  |      |           |      |   |          
|                                                    |  |      | 13,057    |      |   | 9,794    
|                                                    |  |      |           |      |   |          
|Interest Expense                                    |  |      |           |      |   |          
|Deposits                                            |  |      | 2,656     |      |   | 2,507    
|Federal Funds Purchased                             |  |      | 30        |      |   | 15       
|Demand Notes Issued to the U.S. Treasury            |  |      |          |      |   | 1        
|FHLB Loans                                          |  |      | 360       |      |   | 367      
|Repurchase Agreements                               |  |      | 10        |      |   | 13       
|Subordinated Debentures                             |  |      | 211       |      |   | 218      
|Other                                               |  |      | 27        |      |   | 31       
|                                                    |  |      |           |      |   |          
|                                                    |  |      | 3,294     |      |   | 3,152    
|                                                    |  |      |           |      |   |          
|Net Interest Income                                 |  |      | 9,763     |      |   | 6,642    
|                                                    |  |      |           |      |   |          
|Provision for Loan Losses                           |  |      | 718       |      |   | 857      
|                                                    |  |      |           |      |   |          
|Net Interest Income After Provision for Loan Losses |  |      | 9,045     |      |   | 5,785    
|                                                    |  |      |           |      |   |          
|Noninterest Income                                  |  |      |           |      |   |          
|Service Charges on Deposits                         |  |      | 1,634     |      |   | 1,161    
|Other Service Charges, Commissions and Fees         |  |      | 8         |      |   | 169      
|Securities Gains                                    |  |      |          |      |   | 35       
|Mortgage Banking Income                             |  |      | 1,284     |      |   | 2,927    
|Other                                               |  |      | 714       |      |   | 441      
|                                                    |  |      |           |      |   |          
|                                                    |  |      | 3,640     |      |   | 4,733    
|                                                    |  |      |           |      |   |          
|Noninterest Expense                                 |  |      |           |      |   |          
|Salaries and Employee Benefits                      |  |      | 4,621     |      |   | 4,679    
|Occupancy and Equipment                             |  |      | 855       |      |   | 743      
|Office Supplies and Printing                        |  |      | 174       |      |   | 176      
|Telephone Expense                                   |  |      | 180       |      |   | 103      
|Data Processing                                     |  |      | 138       |      |   | 314      
|Marketing Expense                                   |  |      | 241       |      |   | 259      
|Other                                               |  |      | 1,737     |      |   | 1,151    
|                                                    |  |      |           |      |   |          
|                                                    |  |      | 7,946     |      |   | 7,425    
|                                                    |  |      |           |      |   |          
|Income Before Income Taxes                          |  |      | 4,739     |      |   | 3,093    
|                                                    |  |     
|Income Taxes                                        |  |      | 1,729     |      |   | 1,204    
|                                                    |  |      |           |      |   |          
|Net Income                                          |  | $    | 3,010     |      | $ | 1,889    
|                                                    |  |      |           |      |   |          
|Basic Earnings Per Share                            |  | $    | .54       |      | $ | .47      
|                                                    |  |      |           |      |   |          
|Diluted Earnings Per Share                          |  | $    | .53       |      | $ | .46      
|                                                    |  |      |           |      |   |          
|Weighted Average Common Shares Outstanding          |  |      | 5,578,706 |      |   | 3,983,174
|                                                    |  |      |           |      |   |          



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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED JUNE 30

(UNAUDITED)

($ IN THOUSANDS)



|                                              |  |      |        |   |      |   |       |  
|--------------------------------------------- |  | ---- | ------ | - | ---- | - | ----- | -
|                                              |  | 2004 |        |   | 2003 |  
|Net Income                                    |  | $    | 3,010  |   |      | $ | 1,889 |  
|                                              |  |     
|Other Comprehensive Income, Net of Income Tax |  |      |        |   |      |   |       |  
|Unrealized Holding Losses                     |  |      | (1,558 | ) |      |   | (118  | )
|                                              |  |      |        |   |      |   |       |  
|Comprehensive Income                          |  | $    | 1,452  |   |      | $ | 1,771 |  
|                                              |  |      |        |   |      |   |       |  



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



4



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)



Financial Information



SECURITY BANK CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

FOR THE SIX MONTHS ENDED JUNE 30

(UNAUDITED)

(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)



|                                                    |  |      |           |      |   |          
|--------------------------------------------------- |  | ---- | --------- | ---- | - | ---------
|                                                    |  | 2004 |           | 2003
|Interest Income                                     |  |      |           |      |   |          
|Loans, Including Fees                               |  | $    | 23,428    |      | $ | 17,068   
|Federal Funds Sold                                  |  |      | 48        |      |   | 24       
|Investment Securities                               |  |      | 1,888     |      |   | 968      
|Other                                               |  |      | 20        |      |   | 73       
|                                                    |  |      |           |      |   |          
|                                                    |  |      | 25,384    |      |   | 18,133   
|                                                    |  |      |           |      |   |          
|Interest Expense                                    |  |      |           |      |   |          
|Deposits                                            |  |      | 5,337     |      |   | 4,608    
|Federal Funds Purchased                             |  |      | 34        |      |   | 25       
|Demand Notes Issued to the U.S. Treasury            |  |      |          |      |   | 3        
|FHLB Loans                                          |  |      | 682       |      |   | 831      
|Repurchase Agreements                               |  |      | 17        |      |   | 24       
|Subordinated Debentures                             |  |      | 422       |      |   | 424      
|Other                                               |  |      | 76        |      |   | 34       
|                                                    |  |      |           |      |   |          
|                                                    |  |      | 6,568     |      |   | 5,949    
|                                                    |  |      |           |      |   |          
|Net Interest Income                                 |  |      | 18,816    |      |   | 12,184   
|                                                    |  |      |           |      |   |          
|Provision for Loan Losses                           |  |      | 1,438     |      |   | 1,346    
|                                                    |  |      |           |      |   |          
|Net Interest Income After Provision for Loan Losses |  |      | 17,378    |      |   | 10,838   
|                                                    |  |      |           |      |   |          
|Noninterest Income                                  |  |      |           |      |   |          
|Service Charges on Deposits                         |  |      | 3,110     |      |   | 2,167    
|Other Service Charges, Commissions and Fees         |  |      | 12        |      |   | 326      
|Securities Gains                                    |  |      | 10        |      |   | 35       
|Mortgage Banking Income                             |  |      | 2,487     |      |   | 5,137    
|Other                                               |  |      | 1,392     |      |   | 1,014    
|                                                    |  |      |           |      |   |          
|                                                    |  |      | 7,011     |      |   | 8,679    
|                                                    |  |      |           |      |   |          
|Noninterest Expense                                 |  |      |           |      |   |          
|Salaries and Employee Benefits                      |  |      | 8,954     |      |   | 8,742    
|Occupancy and Equipment                             |  |      | 1,648     |      |   | 1,423    
|Office Supplies and Printing                        |  |      | 348       |      |   | 305      
|Telephone Expense                                   |  |      | 360       |      |   | 208      
|Data Processing                                     |  |      | 247       |      |   | 557      
|Marketing Expense                                   |  |      | 567       |      |   | 525      
|Other                                               |  |      | 3,382     |      |   | 2,209    
|                                                    |  |      |           |      |   |          
|                                                    |  |      | 15,506    |      |   | 13,969   
|                                                    |  |      |           |      |   |          
|Income Before Income Taxes                          |  |      | 8,883     |      |   | 5,548    
|                                                    |  |     
|Income Taxes                                        |  |      | 3,191     |      |   | 2,091    
|                                                    |  |      |           |      |   |          
|Net Income                                          |  | $    | 5,692     |      | $ | 3,457    
|                                                    |  |      |           |      |   |          
|Basic Earnings Per Share                            |  | $    | 1.07      |      | $ | .93      
|                                                    |  |      |           |      |   |          
|Diluted Earnings Per Share                          |  | $    | 1.04      |      | $ | .90      
|                                                    |  |      |           |      |   |          
|Weighted Average Common Shares Outstanding          |  |      | 5,333,947 |      |   | 3,698,629
|                                                    |  |      |           |      |   |          



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



5



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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

FOR SIX MONTHS ENDED JUNE 30

(UNAUDITED)

($ IN THOUSANDS)



|                                              |  |      |        |   |      |   |       |  
|--------------------------------------------- |  | ---- | ------ | - | ---- | - | ----- | -
|                                              |  | 2004 |        |   | 2003 |  
|Net Income                                    |  | $    | 5,692  |   |      | $ | 3,457 |  
|                                              |  |     
|Other Comprehensive Income, Net of Income Tax |  |      |        |   |      |   |       |  
|Unrealized Holding Losses                     |  |      | (1,111 | ) |      |   | (138  | )
|                                              |  |      |        |   |      |   |       |  
|Comprehensive Income                          |  | $    | 4,581  |   |      | $ | 3,319 |  
|                                              |  |      |        |   |      |   |       |  



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



6



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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 SIX MONTHS ENDED JUNE 30

(UNAUDITED)

($ IN THOUSANDS)



|                                                                                   |  |      |         |   |      |   |         |  
|---------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                   |  | 2004 |         |   | 2003 |  
|Cash Flows from Operating Activities                                               |  |      |         |   |      |   |         |  
|Net Income                                                                         |  | $    | 5,692   |   |      | $ | 3,457   |  
|Adjustments to Reconcile Net Income to Net Cash Provided from Operating Activities |  |      |         |   |      |   |         |  
|Stock Options                                                                      |  |      | 69      |   |      |   |        |  
|Depreciation                                                                       |  |      | 680     |   |      |   | 617     |  
|Amortization and Accretion                                                         |  |      | 89      |   |      |   | 284     |  
|Provision for Loan Losses                                                          |  |      | 1,438   |   |      |   | 1,346   |  
|Securities Gains                                                                   |  |      | (10     | ) |      |   | (35     | )
|Loss on Sale of Other Real Estate                                                  |  |      | 13      |   |      |   | 31      |  
|Unrealized Loss on Other Real Estate                                               |  |      | 30      |   |      |   | 90      |  
|Loss on Sale of Premises and Equipment                                             |  |      | 5       |   |      |   |        |  
|Net Change in Loans Held for Sale                                                  |  |      | 2,566   |   |      |   | (6,353  | )
|Net Change in Other                                                                |  |      | (210    | ) |      |   | 1,220   |  
|                                                                                   |  |      |         |   |      |   |         |  
|                                                                                   |  |      | 10,362  |   |      |   | 657     |  
|                                                                                   |  |      |         |   |      |   |         |  
|Cash Flows from Investing Activities                                               |  |      |         |   |      |   |         |  
|Interest-Bearing Deposits with Other Banks                                         |  |      | (929    | ) |      |   | (1,190  | )
|Purchase of Investment Securities Available for Sale                               |  |      | (33,072 | ) |      |   | (12,398 | )
|Proceeds from Disposition of Investment Securities                                 |  |      |         |   |      |   |         |  
|Available for Sale                                                                 |  |      | 26,515  |   |      |   | 25,502  |  
|Held to Maturity                                                                   |  |      |        |   |      |   | 12,700  |  
|Federal Home Loan Bank Stock, Net                                                  |  |      | 399     |   |      |   | 340     |  
|Loans to Customers, Net                                                            |  |      | (85,654 | ) |      |   | (66,933 | )
|Premises and Equipment, Net                                                        |  |      | (1,676  | ) |      |   | (672    | )
|Other Real Estate                                                                  |  |      | 2,918   |   |      |   | 299     |  
|Goodwill Resulting from Contingent Cash Payments                                   |  |      | (1,868  | ) |      |   | (1,871  | )
|Cash Received in Business Acquisition, Net                                         |  |      |        |   |      |   | 2,249   |  
|                                                                                   |  |      |         |   |      |   |         |  
|                                                                                   |  |      | (93,367 | ) |      |   | (41,974 | )
|                                                                                   |  |      |         |   |      |   |         |  
|Cash Flows from Financing Activities                                               |  |      |         |   |      |   |         |  
|Interest-Bearing Customer Deposits                                                 |  |      | 48,356  |   |      |   | 50,073  |  
|Noninterest-Bearing Customer Deposits                                              |  |      | 1,727   |   |      |   | 2,991   |  
|Demand Note to the U.S. Treasury                                                   |  |      |        |   |      |   | (531    | )
|Dividends Paid                                                                     |  |      | (1,204  | ) |      |   | (843    | )
|Federal Funds Purchased and Repurchase Agreements                                  |  |      | 758     |   |      |   | 1,087   |  
|Federal Home Loan Bank Notes                                                       |  |      | 6,367   |   |      |   | 1,204   |  
|Issuance of Common Stock                                                           |  |      | 19,343  |   |      |   | 850     |  
|                                                                                   |  |      |         |   |      |   |         |  
|                                                                                   |  |      | 75,347  |   |      |   | 54,831  |  
|                                                                                   |  |      |         |   |      |   |         |  
|Net Increase (Decrease) in Cash and Cash Equivalents                               |  |      | (7,658  | ) |      |   | 13,514  |  
|                                                                                   |  |     
|Cash and Cash Equivalents, Beginning                                               |  |      | 49,894  |   |      |   | 33,267  |  
|                                                                                   |  |      |         |   |      |   |         |  
|Cash and Cash Equivalents, Ending                                                  |  | $    | 42,236  |   |      | $ | 46,781  |  
|                                                                                   |  |      |         |   |      |   |         |  



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) Basis of Presentation



The consolidated financial statements include Security Bank Corporation (the Company) and its wholly-owned subsidiaries, Security Bank of Bibb County (formerly Security
National Bank), located in Macon, Georgia; Security Bank of Houston County (formerly Crossroads Bank of Georgia), located in Perry, Georgia and Security Bank of Jones County (formerly Bank of Gray) located in Gray, Georgia (the Banks). The financial
statements of Security Bank of Bibb County include its wholly-owned subsidiary, Fairfield Financial Services, Inc. since its formation on August 1, 2000. All intercompany accounts have been eliminated in consolidation.



New Accounting Standards



SEC Staff Accounting Bulletin (SAB) No. 105,Application of Accounting Principles to Loan
Commitments. SAB 105 summarizes the views of the staff of the SEC regarding the application of generally accepted accounting principles to loan commitments accounted for as derivative instruments. SAB 105 provides that the fair value of recorded
loan commitments that are accounted for as derivatives under SFAS 133, Accounting for Derivative Instruments and Hedging Activities, should not incorporate the expected future cash flows related to the associated servicing of the future loan.
In addition, SAB 105 requires registrants to disclose their accounting policy for loan commitments. The provisions of SAB 105 must be applied to loan commitments accounted for as derivatives that are entered into after March 31, 2004. The adoption
of this accounting standard did not have a material impact on the Corporations financial statements.



Segment Reporting



Reportable segments
are business units which offer different products and services and require different management and marketing strategies. Management of Security Bank Corporation considers all banking operations to be 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 increased significantly with the July 2000 acquisition of Fairfield Financial Services, Inc. (Fairfield).
Consolidated other income for the six-month period ended June 30, 2004 includes approximately $2,487,000 of Fairfield fee income. Such income may fluctuate significantly with increases or decreases in mortgage rates.



The financial information included herein is unaudited; however, such information reflects
all adjustments which are, in the opinion of management, necessary to fairly state the financial position and results of operations for the interim periods presented.



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)



Financial Information



(2) Loans



Loans as of June 30, 2004 are comprised of the following:



|                                                           |  |                  |         |  
|---------------------------------------------------------- |  | ---------------- | ------- | -
|                                                           |  | ($ in Thousands) |        
|Commercial                                                 |  | $                | 66,668  |  
|Real Estate-Construction                                   |  |                  | 321,320 |  
|Real Estate-Mortgage                                       |  |                  | 351,945 |  
|Installment Loans to Individuals for Personal Expenditures |  |                  | 36,158  |  
|All Other                                                  |  |                  | 6,605   |  
|                                                           |  |                  |         |  
|                                                           |  |                  | 782,696 |  
|Allowance for Loan Losses                                  |  |                  | (10,096 | )
|Unearned Interest and Fees                                 |  |                  | (987    | )
|                                                           |  |                  |         |  
|                                                           |  | $                | 771,613 |  
|                                                           |  |                  |         |  



Loans are generally reported at
principal amount less unearned interest and fees. Impaired loans are recorded under Statement of Financial Accounting Standards (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.



Other 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.



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)



Financial Information



(3) Earnings Per Share



SFAS No. 128 establishes standards for computing and presenting basic and diluted earnings per share. Basic earnings per share is calculated and presented based on income available to common stockholders divided by
the weighted average number of shares outstanding during the reporting periods. Diluted earnings per share reflects the potential dilution that would occur if warrants and options were exercised and converted into common stock. The following
presents earnings per share for the three and six months ended June 30, 2004 under the requirements of SFAS No. 128:



|                               |  |                               |           |                                  |   |          
|------------------------------ |  | ----------------------------- | --------- | -------------------------------- | - | ---------
|                               |  | Six Months EndedJune 30, 2004 |           | Three Months Ended June 30, 2004
|Basic Earnings Per Share       |  |                               |           |                                  |   |          
|Net Income Per Common Share    |  | $                             | 1.07      |                                  | $ | 0.54     
|Weighted Average Common Shares |  |                               | 5,333,947 |                                  |   | 5,578,706
|                               |  |                              
|Diluted Earnings Per Share     |  |                               |           |                                  |   |          
|Net Income Per Common Share    |  | $                             | 1.04      |                                  | $ | 0.53     
|Weighted Average Common Shares |  |                               | 5,495,703 |                                  |   | 5,702,453



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 $32.0858 and $31.8444 for the three- and six-month periods. The Companys
stock is quoted on the NASDAQ market under the symbol SBKC.



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)



Financial Information



(3) Earnings Per Share (Continued)



Effective January 1, 2002, the Company adopted the fair value-based method of recording stock-based compensation contained in SFAS No. 123, Accounting for Stock-Based
Compensation, which is considered the preferable accounting method for stock-based employee compensation. Prior to that date, the Company had applied the intrinsic value method permitted under SFAS No. 123, as defined in Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for stock-based compensation plans. Accordingly, no compensation expense has been recognized for the Companys stock option plans prior to January 1, 2002. In
adopting SFAS 123, the Company is allowed to choose from three alternative transition methods. The Company elected to apply SFAS 123 prospectively to all new awards. Stock-based compensation awards granted in previous years will continue to be
accounted for under Opinion 25. During the second quarter of 2004 and 2003, there were options granted prior to 2002 which vested. If compensation expense for these awards were determined on the basis of SFAS 123, net income and earnings per share
would have been reduced as shown in the proforma information presented hereafter:



|                           |  |                               |       |                                 |   |       |  |      |       |  |   |      
|-------------------------- |  | ----------------------------- | ----- | ------------------------------- | - | ----- |  | ---- | ----- |  | - | -----
|                           |  | Six Months Endedas of June 30 |       | Three Months Endedas of June 30
|                           |  | 2004                          |       | 2003                            |   | 2004  |  | 2003
|Net Income                 |  |                               |       |                                 |   |       |  |      |       |  |   |      
|As Reported                |  | $                             | 5,692 |                                 | $ | 3,457 |  | $    | 3,010 |  | $ | 1,889
|Proforma                   |  |                               | 5,638 |                                 |   | 3,403 |  |      | 2,956 |  |   | 1,834
|                           |  |                               |       |                                
|Basic Earnings Per Share   |  |                               |       |                                 |   |       |  |      |       |  |   |      
|As Reported                |  |                               | 1.07  |                                 |   | 0.93  |  |      | 0.54  |  |   | 0.47 
|Proforma                   |  |                               | 1.06  |                                 |   | 0.92  |  |      | 0.53  |  |   | 0.46 
|                           |  |                               |       |                                
|Diluted Earnings Per Share |  |                               |       |                                 |   |       |  |      |       |  |   |      
|As Reported                |  |                               | 1.04  |                                 |   | 0.90  |  |      | 0.53  |  |   | 0.46 
|Proforma                   |  |                               | 1.03  |                                 |   | 0.89  |  |      | 0.52  |  |   | 0.44 



(4) 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.



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)



Financial Information



(4) Allowance for Loan Losses (Continued)



The following table presents the Companys loan loss experience on all loans for the three months ended June 30:



|                                          |  |                  |        |    |      |   |        |   
|----------------------------------------- |  | ---------------- | ------ | -- | ---- | - | ------ | --
|                                          |  | ($ in Thousands) |       
|                                          |  | 2004             |        |    | 2003 |  
|Allowance for Loan Losses, April 1        |  | $                | 9,612  |    |      | $ | 5,812  |   
|                                          |  |                  |        |    |      |   |        |   
|Charge-Offs                               |  |                  |        |    |      |   |        |   
|Commercial, Financial and Agricultural    |  |                  | 32     |    |      |   | 770    |   
|Real Estate - Mortgage                    |  |                  | 126    |    |      |   | 518    |   
|Consumer                                  |  |                  | 295    |    |      |   | 128    |   
|                                          |  |                  |        |    |      |   |        |   
|                                          |  |                  | 453    |    |      |   | 1,416  |   
|                                          |  |                  |        |    |      |   |        |   
|Recoveries                                |  |                  |        |    |      |   |        |   
|Commercial, Financial and Agricultural    |  |                  | 57     |    |      |   | 20     |   
|Real Estate - Mortgage                    |  |                  | 44     |    |      |   | 275    |   
|Consumer                                  |  |                  | 118    |    |      |   | 38     |   
|                                          |  |                  |        |    |      |   |        |   
|                                          |  |                  | 219    |    |      |   | 333    |   
|                                          |  |                  |        |    |      |   |        |   
|Net Charge-Offs                           |  |                  | (234   | )  |      |   | (1,083 | ) 
|                                          |  |                  |        |    |      |   |        |   
|Business Combination, Bank of Gray        |  |                  |       |    |      |   | 2,889  |   
|                                          |  |                  |        |    |      |   |        |   
|Provision for Loan Losses                 |  |                  | 718    |    |      |   | 857    |   
|                                          |  |                  |        |    |      |   |        |   
|Allowance for Loan Losses, June 30        |  | $                | 10,096 |    |      | $ | 8,475  |   
|                                          |  |                  |        |    |      |   |        |   
|Ratio of Net Charge-Offs to Average Loans |  |                  | (0.03  | )% |      |   | (0.16  | )%
|                                          |  |                  |        |    |      |   |        |   



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)



Financial Information



(4) Allowance for Loan Losses (Continued)



The following table presents the Companys loan loss experience on all loans for the six months ended June 30:



|                                          |  |                  |        |    |      |   |        |   
|----------------------------------------- |  | ---------------- | ------ | -- | ---- | - | ------ | --
|                                          |  | ($ in Thousands) |       
|                                          |  | 2004             |        |    | 2003 |  
|Allowance for Loan Losses, January 1      |  | $                | 9,407  |    |      | $ | 5,479  |   
|                                          |  |                  |        |    |      |   |        |   
|Charge-Offs                               |  |                  |        |    |      |   |        |   
|Commercial, Financial and Agricultural    |  |                  | 49     |    |      |   | 781    |   
|Real Estate  Mortgage                    |  |                  | 496    |    |      |   | 629    |   
|Consumer                                  |  |                  | 635    |    |      |   | 221    |   
|                                          |  |                  |        |    |      |   |        |   
|                                          |  |                  | 1,180  |    |      |   | 1,631  |   
|                                          |  |                  |        |    |      |   |        |   
|Recoveries                                |  |                  |        |    |      |   |        |   
|Commercial, Financial and Agricultural    |  |                  | 61     |    |      |   | 22     |   
|Real Estate  Mortgage                    |  |                  | 45     |    |      |   | 294    |   
|Consumer                                  |  |                  | 325    |    |      |   | 76     |   
|                                          |  |                  |        |    |      |   |        |   
|                                          |  |                  | 431    |    |      |   | 392    |   
|                                          |  |                  |        |    |      |   |        |   
|Net Charge-Offs                           |  |                  | (749   | )  |      |   | (1,239 | ) 
|                                          |  |                  |        |    |      |   |        |   
|Business Combination, Bank of Gray        |  |                  |       |    |      |   | 2,889  |   
|                                          |  |                  |        |    |      |   |        |   
|Provision for Loan Losses                 |  |                  | 1,438  |    |      |   | 1,346  |   
|                                          |  |                  |        |    |      |   |        |   
|Allowance for Loan Losses, June 30        |  | $                | 10,096 |    |      | $ | 8,475  |   
|                                          |  |                  |        |    |      |   |        |   
|Ratio of Net Charge-Offs to Average Loans |  |                  | (0.10  | )% |      |   | (0.20  | )%
|                                          |  |                  |        |    |      |   |        |   



(5) Derivative Financial
Instruments



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



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)



Financial Information



(5) Derivative Financial Instruments (Continued)



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, 2004 as the effects did not have a material effect upon the consolidated financial statements.



(6) 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, 2004 are summarized as follows:



|                              |  |                  |         |                      |   |                       |  |   |            |   |  |   |        
|----------------------------- |  | ---------------- | ------- | -------------------- | - | --------------------- |  | - | ---------- | - |  | - | -------
|                              |  | AmortizedCost    |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  |   | Fair Value
|                              |  | ($ in Thousands)
|Securities Available for Sale |  |                  |         |                      |   |                       |  |   |            |   |  |   |        
|U.S. Treasuries               |  | $                | 813     |                      | $ | 20                    |  | $ |           |   |  | $ | 833    
|U.S. Government Agencies      |  |                  |         |                      |   |                       |  |   |            |   |  |   |        
|Mortgage Backed               |  |                  | 59,989  |                      |   | 291                   |  |   | (613       | ) |  |   | 59,667 
|Other                         |  |                  | 26,408  |                      |   | 131                   |  |   | (647       | ) |  |   | 25,892 
|State, County and Municipal   |  |                  | 14,604  |                      |   | 480                   |  |   | (9         | ) |  |   | 15,075 
|Other Securities              |  |                  | 671     |                      |   |                      |  |   |           |   |  |   | 671    
|                              |  |                  |         |                      |   |                       |  |   |            |   |  |   |        
|                              |  | $                | 102,485 |                      | $ | 922                   |  | $ | (1,269     | ) |  | $ | 102,138
|                              |  |                  |         |                      |   |                       |  |   |            |   |  |   |        
|Securities Held to Maturity   |  |                  |         |                      |   |                       |  |   |            |   |  |   |        
|State, County and Municipal   |  | $                | 1,392   |                      | $ | 45                    |  | $ |           |   |  | $ | 1,437  
|                              |  |                  |         |                      |   |                       |  |   |            |   |  |   |        



Unrealized holding losses, net of tax,
on securities available for sale in the amount of $224,000 have been charged to stockholders equity as of June 30, 2004.



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)



Financial Information



(7) Borrowed Money



Borrowed money is comprised of the following as of June 30, 2004:



|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                  |       
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  | ($ in Thousands)
|Advances from the Federal Home Loan Bank (FHLB) with Maturities in Varying Amounts Through March 23, 2011 and Interest Rates Ranging from 1.42 Percent to 4.55 Percent. Under the Blanket
Agreement for Advances and Security Agreement with the FHLB, Residential First Mortgage Loans and Certain Investment Securities are Pledged as Collateral for the FHLB Advances Outstanding.                                                                                                                                                                                                                                                                                      |  | $                | 62,400
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 
|Advances under the Warehouse Line with the FHLB matures July 28, 2004 and has an interest rate of 2.20 percent. Loans held for sale are pledged as collateral for the Warehouse Line.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  |                  | 3,046 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 
|Advances under the line of credit with The Bankers Bank mature March 21, 2015 and have an interest rate of prime minus 100 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 line of credit. The Company had available line of credit totaling $17,000,000, of which $17,000,000 was available.                                                                                                                                                                                                                                    |  |                  |      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 
|During the fourth quarter of 2002, the Company formed a subsidiary whose sole purpose was to issue Trust Preferred Securities through a pool sponsored by FTN Financial Capital Markets. The Trust
Preferred Securities have a maturity of 30 years and are redeemable after five years with certain exceptions. At June 30, 2004, the floating-rate securities had a 4.84 percent interest rate, which will reset quarterly at the three-month LIBOR rate
plus 3.25 percent. The Trust Preferred Securities are recorded as subordinated debentures on the balance sheets, but, subject to certain limitations, qualify as Tier 1 capital for regulatory capital purposes. |  |                  | 18,557
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 
|Federal Funds Purchased                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |  |                  | 3,276 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 
|Securities Sold Under Agreement to Repurchase                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                  | 5,832 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                  |       
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 
|Total Borrowed Money                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |  | $                | 93,111
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |  |                  |       



Maturities of all FHLB and The Bankers
Bank advances for each of the ensuing years are as follows:



|           |  |        |       
|---------- |  | ------ | ------
|Year       |  | Amount
|2004       |  | $      | 16,846
|2005       |  |        | 20,150
|2006       |  |        | 18,450
|2007       |  |        |      
|Thereafter |  |        | 10,000
|           |  |        |       
|           |  | $      | 65,446
|           |  |        |       



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)



Financial Information



(7) Borrowed Money (Continued)



On December 31, 2003, the Company retroactively implemented FASB Interpretation No. 46R, Consolidation of Variable Interest Entities, an interpretation of ARB No.
51, resulting in the deconsolidation of Security Bank Statutory Trust I. The implementation of this interpretation resulted in SBKCs $557,000 investment in the common equity of the trust being included in the consolidated balance sheets as
other assets and the interest income and interest expense received from and paid to the trust, respectively, being included in the consolidated statements of income as interest income and interest expense. The increase to other interest income and
interest expense totaled $12,429 and $13,456 as of June 30, 2004 and 2003, respectively.



(8) Deposits



Components of deposits as
of June 30, 2004 are as follows:



|                        |  |                |        
|----------------------- |  | -------------- | -------
|                        |  | $ in Thousands
|Demand                  |  | $              | 109,261
|Interest-Bearing Demand |  |                | 172,971
|Savings                 |  |                | 19,794 
|Time, $100,000 and Over |  |                | 193,209
|Other Time              |  |                | 297,809
|                        |  |                |        
|                        |  | $              | 793,044
|                        |  |                |        



Brokered deposits are third-party time
deposits placed by or through the assistance of a deposit broker. As of June 30, 2004, the Company had $90,229,000 in brokered deposits compared to $70,501,000 at December 31, 2003.



(9) Stockholders Equity



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



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



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)



Financial Information



(9) Stockholders Equity (Continued)



An additional 25,500 options were granted at $13.00 per share in August 2000 under this same plan. The terms of the 1999 incentive stock option plan are essentially the
same as the 1996 incentive stock option plan.



During the first quarter of
2002, the board of directors of Security Bank Corporation adopted a performance-based incentive stock option plan. Under this plan, 105,000 options were granted in May 2002 at $19.51 per share, 7,500 were granted at $22.80 in November 2002, 5,000
options were granted at $23.50 in December 2002, and an additional 3,500 options were granted at $33.00 in August 2003. The nonforfeitable provisions for these options are two-tiered. Options in the first tier are nonforfeitable over three years
based on a 12 percent increase in earnings per share over the base year diluted earnings per share of $1.03 each year. If the maximum diluted earnings per share of $1.45 is reached during the three-year period, the nonforfeitable shares are doubled.
Under the second tier, additional shares shall become nonforfeitable for two executive officers based on the same requirements except the diluted earnings per share must increase 15 percent a year to a maximum of $1.57 during the three-year period.
The first year of nonforfeiture for this plan is based on the Companys performance for 2001. One-third of the nonforfeitable options vest on each anniversary of the stock option agreements.



During the second quarter of 2004, the stockholders of Security Bank Corporation approved the
2004 Omnibus Stock Ownership and Long Term Incentive Plan. Under this plan a total of 300,000 shares are available for granting to key employees. In April 2004 the board granted key employees the right to purchase 218,000 shares of common stock at
the price of $31.43 per share. Similar to the 2002 Plan, the nonforfeitable provisions for these options are two-tiered. Under tier one, one-sixth of the options granted become nonforfeitable in 2004, 2005 and 2006 based on a 12 percent increase in
diluted earnings per share each year. The remaining one-half of the options granted become nonforfeitable if the increase in diluted earnings per share for 2004, 2005 and 2006 average to 12 percent. Under tier two, options become nonforfeitable on
the same schedule as tier one options; however, diluted earnings per share must increase 15 percent. The nonforfeitable options vest evenly over three years starting on April 29, 2005.



A summary of option transactions for the six months ended June 30, 2004 follows:



|                                        |  |                       |  
|--------------------------------------- |  | --------------------- | -
|                                        |  | IncentiveStockOptions |  
|Outstanding, December 31, 2003          |  | 247,185               |  
|Granted                                 |  | 218,000               |  
|Canceled                                |  | (2,668                | )
|Exercised                               |  | (55,217               | )
|                                        |  |                       |  
|Outstanding, June 30, 2004              |  | 407,300               |  
|                                        |  |                       |  
|Eligible to be Exercised, June 30, 2004 |  | 84,578                |  
|                                        |  |                       |  



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)



Financial Information



(9) Stockholders Equity (Continued)



Also during the second quarter of 2004, stockholders of Security Bank Corporation approved the 2004 Employee Stock Purchase Plan. Fifty 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 will begin in August 2004.



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.



The Companys actual ratios as of June 30, 2004 are as follows:



|                     |  |                             |   |  |                                |   |  |                              |   |  |                                        |  
|-------------------- |  | --------------------------- | - |  | ------------------------------ | - |  | ---------------------------- | - |  | -------------------------------------- | -
|                     |  | Actual                      |  
|                     |  | Security Bank ofBibb County |   |  | Security Bank ofHouston County |   |  | Security Bank ofJones County |   |  | Security BankCorporation(Consolidated) |  
|Tier 1 Capital Ratio |  | 9.05                        | % |  | 9.38                           | % |  | 11.81                        | % |  | 10.73                                  | %
|Total Capital Ratio  |  | 10.17                       | % |  | 10.58                          | % |  | 13.07                        | % |  | 11.89                                  | %
|Leverage Ratio       |  | 9.21                        | % |  | 8.31                           | % |  | 8.68                         | % |  | 9.69                                   | %



(10) Noncash Investing Activities



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



|                                                    |  |      |       |      |   |      
|--------------------------------------------------- |  | ---- | ----- | ---- | - | -----
|                                                    |  | 2004 |       | 2003
|Acquisition of Real Estate through Loan Foreclosure |  | $    | 1,368 |      | $ | 1,477
|                                                    |  |      |       |      |   |      



18



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)



Financial Information



(11) Other Comprehensive Income



For the six months ended June 30, 2004, other comprehensive income is comprised of the following:



|                              |  |                  |        |   |            |   |      |            |  |   |        |  
|----------------------------- |  | ---------------- | ------ | - | ---------- | - | ---- | ---------- |  | - | ------ | -
|                              |  | Before Tax       |        |   | Tax Effect |   |      | Net of Tax | 
|                              |  | ($ in Thousands) |       
|Unrealized Loss on Securities |  |                  |        |   |            |   |      |            |  |   |        |  
|Losses Arising During Quarter |  | $                | (1,673 | ) |            | $ | (569 | )          |  | $ | (1,104 | )
|Reclassification Adjustment   |  |                  | (10    | ) |            |   | (3   | )          |  |   | (7     | )
|                              |  |                  |        |   |            |   |      |            |  |   |        |  
|Net Unrealized Loss           |  | $                | (1,683 | ) |            | $ | (572 | )          |  | $ | (1,111 | )
|                              |  |                  |        |   |            |   |      |            |  |   |        |  



(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.
Fairfield Financial is primarily engaged in residential real estate mortgage lending in the state of Georgia. The results of operations of Fairfield Financial are included in the accompanying consolidated financial statements since the date of
acquisition. The initial purchase price approximated $1,400,000, which consists of approximately $1,000,000 in cash and 32,345 shares of Security Bank Corporation stock valued at $388,140 at closing. The initial cost of the acquisition exceeded the
fair value of the assets of Fairfield Financial by $988,000. The excess is recorded as goodwill and was amortized on the straight-line method over 10 years through December 31, 2001. As a result of the issuance of SFAS No. 142, the goodwill is no
longer amortized but is reviewed for impairment.



The Asset Purchase Agreement
provides for additional contingent payments of purchase price for years ended 2002-2005 based on the earnings of Fairfield Financial Services, Inc. The additional payments, if any, are to be payable in cash and stock. Cash payments for 2003 were
equated to 40 percent of Fairfield Financial Services, Inc.s earnings for the year. Stock payments for 2003 were based on 60 percent of 2003 earnings utilizing a specific formula for determining number of shares. The number of shares issued
during any year cannot exceed 75,000. The maximum number of shares under the agreement cannot exceed 300,000 for years 2002-2005. All additional payments of cash and stock will be charged to goodwill. If Fairfield Financial sustains losses, no
additional purchase price payments are due. The contingent payment made in 2004 as a result of 2003 earnings is a combination of cash and stock totaling approximately $3,700,000.



19



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)



Financial Information



(12) Acquisition of Assets (Continued)



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



The excess of the purchase price over book value has been
allocated to the fair value of premises and equipment, the fair value of deposits and core deposits intangibles in the amounts of $1,168,000, $2,044,983 and $855,809, respectively. As of June 30, 2004, $340,830 of the deposit premium was accreted to
interest expense. The Company amortized $8,833 of the premises and equipment premium and $85,581 of the core deposit intangibles during the six months ended June 30, 2004. Goodwill of $20,964,250 was recorded as a result of this acquisition. The
goodwill will not be deductible for tax purposes.



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



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



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



|                   |  |                          |        |                            |   |        |  |      |        |  |   |      
|------------------ |  | ------------------------ | ------ | -------------------------- | - | ------ |  | ---- | ------ |  | - | -----
|                   |  | Six Months EndedJune 30, |        | Three Months EndedJune 30,
|                   |  | 2004                     |        | 2003                       |   | 2004   |  | 2003
|Interest Income    |  | $                        | 25,384 |                            | $ | 18,133 |  | $    | 13,057 |  | $ | 9,794
|                   |  |                          |        |                           
|Net Income         |  |                          | 5,692  |                            |   | 3,457  |  |      | 3,010  |  |   | 1,889
|                   |  |                          |        |                           
|Earnings Per Share |  |                          |        |                            |   |        |  |      |        |  |   |      
|Basic              |  | $                        | 1.07   |                            | $ | 0.93   |  | $    | 0.54   |  | $ | 0.47 
|Diluted            |  |                          | 1.04   |                            |   | 0.90   |  |      | 0.53   |  |   | 0.46 



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##### Table of Contents

PART I, ITEM 1 (CONTINUED)



Financial Information



(13) Restricted Stock-Unearned Compensation



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



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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, 2004 and 2003. 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 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.



SB-Bibb is a state-chartered bank that engages in the commercial banking business primarily in Bibb County, Georgia. SB-Bibb commenced operations on November 8, 1988. The
bank operates eight full service banking offices and one limited service office in Macon, Georgia. The bank also operates one full service banking office in Brunswick, Georgia. On March 1, 1999, the bank converted its banking charter from a national
to a state charter, and changed its name from Security National Bank to Security Bank of Bibb County.



On August 8, 1998, SBKC acquired a 100 percent interest in Crossroads Bancshares, Inc., the parent holding company of Crossroads Bank of Georgia in Perry and Warner Robins, Georgia. The two companies merged in a
pooling of interest stock swap transaction. The parent company of Crossroads Bank was subsequently dissolved. On June 3, 1999, Crossroads Bank changed its name to Security Bank of Houston County (SB-Houston) and now operates as a wholly-owned
subsidiary of SBKC, with four full service-banking offices in Perry and Warner Robins. Construction began in January 2004 on a new branch in Warner Robins with an anticipated completion date of September 2004.



On July 31, 2000, SB-Bibb 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 SB-Bibb incorporated as Fairfield Financial Services, Inc. (Fairfield). The purchase transaction involved a combination of SBKC
stock and cash consideration. Fairfield is a well-established real estate mortgage lending company with a number of production locations throughout Georgia and the Southeast, including offices in Macon, Warner Robins, Richmond Hill, Stockbridge,
Fayetteville and St. Simons Island. The Company functions as a subsidiary of SB-Bibb.



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##### Table of Contents

PART I, ITEM 2 (CONTINUED)



Financial Information



Overview (Continued)



On May 30, 2003, SBKC acquired all outstanding shares of the Bank of Gray located in Gray, Georgia. The two companies merged in a business combination accounted for as a purchase. The stockholders of the Bank of Gray
received a combination of SBKC stock and cash consideration. On the acquisition date the Bank of Gray officially changed its name to Security Bank of Jones County (SB-Jones).



As of June 30, 2004, SBKC had 313 employees on a full-time equivalent basis.



Substantially all of the business of SBKC is conducted through our three subsidiary banks. Each bank offers a full range of lending services
including the specialized Fairfield mortgage subsidiary, deposit products, Internet banking, automated teller machines, safe deposit boxes, credit cards, night depositories, and other services for the convenience of its customers, who mainly reside
in Bibb, Jones and Houston Counties.



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.



SBKCs net income for the three-month and six-month
periods ended June 30, 2004 was $3,010,000 or $0.53 diluted earnings per share and $5,692,000 or $1.04 diluted earnings per share, respectively, compared to $1,889,000 or $0.46 and $3,457,000 or $0.90 in the same periods of the preceding year. The
increase in net income for the three-month and six-month periods ended June 30, 2004 primarily relates to the growth in the loan portfolio and core deposits in addition to our success in maintaining net interest margins as well as controlling
expenses.



Annualized return on average assets of 1.22 percent and 1.12 percent
was recorded for the six-month periods ended June 30, 2004 and 2003. Return on average equity of 13.34 percent was recorded for the six-month period ended June 30, 2004 compared to 14.57 percent for the same period in 2003.



At June 30, 2004, total assets were $993,038,000 compared to $911,269,000 at December 31,
2003. At June 30, 2003, total assets were $883,702,000 compared to $581,319,000 at December 31, 2002. Total interest-earning assets increased $92,220,000 or 11.20 percent to $915,781,000 at June 30, 2004 from $823,561,000 at December 31, 2003. The
increases in total assets and interest-earning assets compared to December 31, 2003 are primarily due to increases in loan volumes, mainly in the real estateconstruction loans.



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##### Table of Contents

PART I, ITEM 2 (CONTINUED)



Financial Information



Financial Condition



Cash and Cash Equivalents



Cash
and due from banks and interest-bearing deposits decreased approximately $12,347,000 or 31 percent to $27,592,000 at June 30, 2004 from $39,939,000 at December 31, 2003. Federal funds sold increased by $5,618,000 or 54 percent, to $16,105,000 at
June 30, 2004 from $10,487,000 at December 31, 2003. The causes of these decreases are most evident in the analysis of cash flows from investing activities, which reports cash outflows from loans of approximately $85,654,000.



Investment Securities



Investment securities have increased $4,610,000 or 4.66 percent since December 31, 2003 when
investment securities totaled $98,920,000. As of June 30, 2004, investment securities were $103,530,000. Our Companys investment in securities is largely comprised of U.S. Government Agency securities.



Loans Receivable, Net



Loans receivable, excluding loans held for sale, were $781,709,000 at June 30, 2004, an
increase of $84,027,000 or 12.04 percent (24 percent on an annualized basis) from $697,682,000 at December 31, 2003. Our Company continues to experience good growth in its loan portfolio, particularly in the real estate construction loans. Loans
held for sale decreased $2,566,000 or 22 percent from $11,448,000 at December 31, 2003 to $8,882,000 at June 30, 2004, primarily as a result of a decline in mortgage refinance activity.



Nonperforming Assets



Our Companys total nonperforming assets were $6,694,000 or 0.67 percent of total assets at June 30, 2004 compared to $8,188,000 or 0.90 percent at December 31,
2003. Nonperforming loans increased $590,000 or 14.11 percent to $4,771,000 from $4,181,000 at December 31, 2003. The amount of other real estate owned that was held by our Company on June 30, 2004 totaled $1,923,000, a decrease of $2,084,000 since
December 31, 2003. Of the balance in other real estate owned, 21 percent of the total is related to the foreclosure on one relationship.



24



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##### Table of Contents

PART I, ITEM 2 (CONTINUED)



Financial Information



Financial Condition (Continued)



Nonperforming Assets (Continued)



The following table presents our nonperforming assets as of June 30, 2004:



|                                                           |  |                  |      
|---------------------------------------------------------- |  | ---------------- | -----
|                                                           |  | ($ in Thousands)
|Impaired and Other Nonaccrual Loans                        |  | $                | 4,748
|Loans Past Due 90 Days or More and Still Accruing Interest |  |                  | 23   
|Restructured Loans not Included in the Above               |  |                  |     
|                                                           |  |                  |      
|Total Nonperforming Loans                                  |  |                  | 4,771
|                                                           | 
|Other Real Estate Owned                                    |  |                  | 1,923
|                                                           |  |                  |      
|Total Nonperforming Assets                                 |  | $                | 6,694
|                                                           |  |                  |      



Deposits



Total deposits increased $49,743,000 or 6.69 percent (13.38 percent on an annualized basis)
from $743,301,000 at December 31, 2003 to $793,044,000 at June 30, 2004. This increase is due to an increase of $11,476,000 in interest-bearing demand and savings accounts and $2,905,000 in local certificates of deposit. Brokered and wholesale
certificates of deposit increased $33,635,000 over balances held at December 31, 2003. 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.



Borrowed Money



Borrowed money totaled $93,111,000 as of June 30, 2004, an increase of 8.29 percent (16.58
percent on an annualized basis) since December 31, 2003 when borrowed money totaled $85,985,000. Borrowings from the FHLB amounted to $65,446,000 or 70 percent of total borrowed money as of June 30, 2004. Management utilized the majority of these
borrowings to fund additional loan requests. A line of credit at The Bankers Bank, with available credit totaling $17,000,000, had no outstanding balance at June 30, 2004. This line of credit is primarily used to provide capital injections as
necessary to our subsidiary banks.



Subordinated debentures, issued December
2002, had an outstanding balance of $18,557,000. The proceeds from the offering were used to retire holding company debt and to fund the acquisition of the Bank of Gray. 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.



25



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##### Table of Contents

PART I, ITEM 2 (CONTINUED)



Financial Information



Financial Condition (Continued)



Equity



At June 30, 2004, total equity was $100,448,000 or 10.12 percent of total assets, an increase of $24,639,000, compared to $75,809,000 or 8.32 percent of total assets as of December 31, 2003. Total equity increased
$18,966,000 due to the secondary offering of common stock in early May. We sold 676,200 shares of which approximately two-thirds were sold to institutional investors and the remaining balance sold to retail investors in our local markets. Total
equity increased $1,688,000 due to the stock portion of the 2003 contingent payment for the July 31, 2000 acquisition of Fairfield Financial Services and the remaining increase is due to the retention of net income during the period, net of
dividends paid.



Results of Operations



Net Income



Our net income increased 65 percent to $5,692,000 for the six months ended June 30, 2004, compared to $3,457,000 recorded in the comparable
prior period. The increase in net income is primarily due to the increase in average total loans, from $524,450,000 at June 30, 2003 to $773,250,000 at June 30, 2004, coupled with our success in maintaining its net interest margin and controlling
expenses.



Net Interest Income



Our annualized net interest margin, net interest income divided by average earning assets,
was 4.42 percent for the six-month period ended June 30, 2004, an increase of 12 basis points from 4.30 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. SBKCs success is the result of our effective use of external debt and noncore deposits, coupled with focused marketing efforts to grow low-cost core deposits.



Total interest income increased to $25,384,000 for the six-month period ended June 30, 2004,
from $18,133,000 during the comparable prior year period. The increase is due to the increase in average loans primarily due to the growth experienced in 2004 in real estateconstruction loans and the impact of the loans from the Bank of Gray
acquisition at the end of May 2003.



Total interest expense increased 10.67
percent for the six months ended June 30, 2004 compared to the prior period ended June 30, 2003. The increase is primarily due to an increase in average interest-bearing liabilities of 49 percent compared to the prior period, most of which was a
result of the Bank of Gray acquisition. The increase due to volume variance was offset due to the lower interest rate environment which allowed SBKC to re-price interest-bearing liabilities at lower rates compared to the same periods in the prior
year.



26



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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:



|                                                               |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|-------------------------------------------------------------- |  | ------------------------------ | ------- | - | ------------------------------ | - | ------------ |  | ---- | ---------------- |  | - | -------------- | - | ------------- | - | ------ |  | ---- | -
|                                                               |  | Six Months Ended June 30, 2004 |         |   | Six Months Ended June 30, 2003 |  
|($ in thousands)                                               |  | AverageBalances                |         |   | Income/ Expense                |   | Yields/Rates |  |      | Average Balances |  |   | Income/Expense |   | Yields/ Rates |  
|Assets                                                         |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Interest-Earning Assets                                        |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Loans, Net of Unearned Income                                  |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Taxable                                                        |  | $                              | 743,305 |   |                                | $ | 23,224       |  | 6.25 | %                |  | $ | 483,339        |   |               | $ | 16,202 |  | 6.70 | %
|Loans Held for Sale                                            |  |                                | 6,968   |   |                                |   | 204          |  | 5.86 |                  |  |   | 33,093         |   |               |   | 865    |  | 5.23 |  
|                                                               |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Total Loans                                                    |  |                                | 750,273 |   |                                |   | 23,428       |  | 6.25 |                  |  |   | 516,432        |   |               |   | 17,067 |  | 6.61 |  
|                                                               |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Investment Securities                                          |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Taxable                                                        |  |                                | 81,956  |   |                                |   | 1,527        |  | 3.73 |                  |  |   | 40,499         |   |               |   | 793    |  | 3.92 |  
|Tax-Exempt, Tax Equivalent Basis                               |  |                                | 16,319  |   |                                |   | 547          |  | 6.70 |                  |  |   | 9,994          |   |               |   | 348    |  | 6.97 |  
|                                                               |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Total Investment Securities                                    |  |                                | 98,275  |   |                                |   | 2,074        |  | 4.22 |                  |  |   | 50,493         |   |               |   | 1,141  |  | 4.52 |  
|                                                               |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Interest-Bearing Deposits in Other Banks                       |  |                                | 1,428   |   |                                |   | 9            |  | 1.26 |                  |  |   | 895            |   |               |   | 5      |  | 1.12 |  
|                                                               |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Federal Funds Sold                                             |  |                                | 9,293   |   |                                |   | 48           |  | 1.03 |                  |  |   | 4,057          |   |               |   | 25     |  | 1.23 |  
|                                                               |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Other Interest-Earning Assets                                  |  |                                | 557     |   |                                |   | 12           |  | 4.31 |                  |  |   | 557            |   |               |   | 13     |  | 4.67 |  
|                                                               |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Total Interest-Earning Assets                                  |  |                                | 859,826 |   |                                |   | 25,571       |  | 5.95 |                  |  |   | 572,434        |   |               |   | 18,251 |  | 6.38 |  
|                                                               |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Noninterest-Earning Assets                                     |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Cash                                                           |  |                                | 24,581  |   |                                |   |              |  |      |                  |  |   | 20,046         |   |               |   |        |  |      |  
|Allowance for Loan Losses                                      |  |                                | (9,535  | ) |                                |   |              |  |      |                  |  |   | (6,129         | ) |               |   |        |  |      |  
|Other Assets                                                   |  |                                | 58,232  |   |                                |   |              |  |      |                  |  |   | 29,831         |   |               |   |        |  |      |  
|                                                               |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Total Noninterest-Earning Assets                               |  |                                | 73,278  |   |                                |   |              |  |      |                  |  |   | 43,748         |   |               |   |        |  |      |  
|                                                               |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Total Assets                                                   |  | $                              | 933,104 |   |                                |   |              |  |      |                  |  | $ | 616,182        |   |               |   |        |  |      |  
|                                                               |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Liabilities and Stockholders Equity                           |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Interest-Bearing Liabilities                                   |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Interest-Bearing Deposits                                      |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Interest-Bearing Demand and Savings                            |  | $                              | 183,159 |   |                                |   | 590          |  | 0.64 |                  |  | $ | 116,226        |   |               |   | 520    |  | 0.89 |  
|Other Time                                                     |  |                                | 469,845 |   |                                |   | 4,748        |  | 2.02 |                  |  |   | 284,392        |   |               |   | 4,088  |  | 2.87 |  
|                                                               |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Total Interest-Bearing Deposits                                |  |                                | 653,004 |   |                                |   | 5,338        |  | 1.63 |                  |  |   | 400,618        |   |               |   | 4,608  |  | 2.30 |  
|                                                               |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Other Interest-Bearing Liabilities                             |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Debt                                                           |  |                                | 58,767  |   |                                |   | 758          |  | 2.58 |                  |  |   | 69,502         |   |               |   | 867    |  | 2.49 |  
|Subordinated Debentures                                        |  |                                | 18,557  |   |                                |   | 422          |  | 4.55 |                  |  |   | 18,557         |   |               |   | 424    |  | 4.57 |  
|Funds Purchased and Securities Under Agreement to Repurchase   |  |                                | 10,135  |   |                                |   | 51           |  | 1.01 |                  |  |   | 8,646          |   |               |   | 49     |  | 1.13 |  
|                                                               |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Total Other Interest-Bearing Liabilities                       |  |                                | 87,459  |   |                                |   | 1,231        |  | 2.82 |                  |  |   | 96,705         |   |               |   | 1,340  |  | 2.77 |  
|                                                               |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Total Interest-Bearing Liabilities                             |  |                                | 740,463 |   |                                |   | 6,569        |  | 1.77 |                  |  |   | 497,323        |   |               |   | 5,948  |  | 2.39 |  
|                                                               |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Noninterest-Bearing Liabilities and Stockholders Equity       |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Demand Deposits                                                |  |                                | 102,395 |   |                                |   |              |  |      |                  |  |   | 68,580         |   |               |   |        |  |      |  
|Other Liabilities                                              |  |                                | 4,911   |   |                                |   |              |  |      |                  |  |   | 2,818          |   |               |   |        |  |      |  
|Stockholders Equity                                           |  |                                | 85,335  |   |                                |   |              |  |      |                  |  |   | 47,461         |   |               |   |        |  |      |  
|                                                               |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Total Noninterest-Bearing Liabilities and Stockholders Equity |  |                                | 192,641 |   |                                |   |              |  |      |                  |  |   | 118,859        |   |               |   |        |  |      |  
|                                                               |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Total Liabilities and Stockholders Equity                     |  | $                              | 933,104 |   |                                |   |              |  |      |                  |  | $ | 616,182        |   |               |   |        |  |      |  
|                                                               |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Interest Rate Spread                                           |  |                                |         |   |                                |   |              |  | 4.18 | %                |  |   |                |   |               |   |        |  | 3.98 | %
|                                                               |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Net Interest Income                                            |  |                                |         |   |                                | $ | 19,002       |  |      |                  |  |   |                |   |               | $ | 12,303 |  |      |  
|                                                               |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  
|Net Interest Margin                                            |  |                                |         |   |                                |   |              |  | 4.42 | %                |  |   |                |   |               |   |        |  | 4.30 | %
|                                                               |  |                                |         |   |                                |   |              |  |      |                  |  |   |                |   |               |   |        |  |      |  



27



---

##### 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, 2004 compared to the six months ended June 30, 2003.



|                                                             |  |                               |       |   |      |   |       |           |  |   |       |  
|------------------------------------------------------------ |  | ----------------------------- | ----- | - | ---- | - | ----- | --------- |  | - | ----- | -
|Rate/Volume Analysis                                         |  | Changes From 2003 to 2004 (1) |      
|                                                             |  | Volume                        |       |   | Rate |   |       | NetChange | 
|                                                             |  | ($ in Thousands)              |      
|Interest Income                                              |  |                               |       |   |      |   |       |           |  |   |       |  
|Loans, Net                                                   |  | $                             | 3,864 |   |      | $ | 2,497 |           |  | $ | 6,361 |  
|                                                             |  |                               |       |   |      |   |       |           |  |   |       |  
|Investment Securities                                        |  |                               |       |   |      |   |       |           |  |   |       |  
|Taxable                                                      |  |                               | 406   |   |      |   | 328   |           |  |   | 734   |  
|Tax-Exempt                                                   |  |                               | 110   |   |      |   | 88    |           |  |   | 198   |  
|                                                             |  |                               |       |   |      |   |       |           |  |   |       |  
|Total Investment Securities                                  |  |                               | 516   |   |      |   | 416   |           |  |   | 932   |  
|                                                             |  |                               |       |   |      |   |       |           |  |   |       |  
|Interest-Bearing Deposits in Other Banks                     |  |                               | 1     |   |      |   | 3     |           |  |   | 4     |  
|                                                             |  |                               |       |   |      |   |       |           |  |   |       |  
|Funds Sold                                                   |  |                               | 16    |   |      |   | 7     |           |  |   | 23    |  
|                                                             |  |                               |       |   |      |   |       |           |  |   |       |  
|Other Interest-Earning Assets                                |  |                               |      |   |      |   | (1    | )         |  |   | (1    | )
|                                                             |  |                               |       |   |      |   |       |           |  |   |       |  
|Total Interest Income                                        |  |                               | 4,397 |   |      |   | 2,922 |           |  |   | 7,319 |  
|                                                             |  |                               |       |   |      |   |       |           |  |   |       |  
|Interest Expense                                             |  |                               |       |   |      |   |       |           |  |   |       |  
|Interest-Bearing Demand and Savings Deposits                 |  |                               | 150   |   |      |   | (80   | )         |  |   | 70    |  
|Time Deposits                                                |  |                               | 1,333 |   |      |   | (673  | )         |  |   | 660   |  
|Other Interest-Bearing Liabilities                           |  |                               |       |   |      |   |       |           |  |   |       |  
|Funds Purchased and Securities Under Agreement to Repurchase |  |                               | 4     |   |      |   | (2    | )         |  |   | 2     |  
|Subordinated Debentures                                      |  |                               |      |   |      |   | (2    | )         |  |   | (2    | )
|Other Debt                                                   |  |                               | (67   | ) |      |   | (42   | )         |  |   | (109  | )
|                                                             |  |                               |       |   |      |   |       |           |  |   |       |  
|Total Interest Expense                                       |  |                               | 1,420 |   |      |   | (799  | )         |  |   | 621   |  
|                                                             |  |                               |       |   |      |   |       |           |  |   |       |  
|Net Interest Income                                          |  | $                             | 2,977 |   |      | $ | 3,721 |           |  | $ | 6,698 |  
|                                                             |  |                               |       |   |      |   |       |           |  |   |       |  

---

|(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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



28



---

##### 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:



|                                                               |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|-------------------------------------------------------------- |  | -------------------------------- | ------- | - | -------------------------------- | - | ------------ |  | ---- | ---------------- |  | - | -------------- | - | ------------- | - | ----- |  | ---- | -
|                                                               |  | Three Months Ended June 30, 2004 |         |   | Three Months Ended June 30, 2003 |  
|($ in thousands)                                               |  | AverageBalances                  |         |   | Income/Expense                   |   | Yields/Rates |  |      | Average Balances |  |   | Income/Expense |   | Yields/ Rates |  
|Assets                                                         |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Interest-Earning Assets                                        |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Loans, Net of Unearned Income                                  |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Taxable                                                        |  | $                                | 773,250 |   |                                  | $ | 12,014       |  | 6.21 | %                |  | $ | 524,450        |   |               | $ | 8,745 |  | 6.67 | %
|Loans Held for Sale                                            |  |                                  | 7,650   |   |                                  |   | 113          |  | 5.91 |                  |  |   | 37,453         |   |               |   | 456   |  | 4.87 |  
|                                                               |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Total Loans                                                    |  |                                  | 780,900 |   |                                  |   | 12,127       |  | 6.21 |                  |  |   | 561,903        |   |               |   | 9,201 |  | 6.55 |  
|                                                               |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Investment Securities                                          |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Taxable                                                        |  |                                  | 79,611  |   |                                  |   | 720          |  | 3.62 |                  |  |   | 48,927         |   |               |   | 441   |  | 3.61 |  
|Tax-Exempt, Tax Equivalent Basis                               |  |                                  | 16,359  |   |                                  |   | 277          |  | 6.78 |                  |  |   | 11,238         |   |               |   | 195   |  | 6.96 |  
|                                                               |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Total Investment Securities                                    |  |                                  | 95,970  |   |                                  |   | 997          |  | 4.16 |                  |  |   | 60,165         |   |               |   | 636   |  | 4.23 |  
|                                                               |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Interest-Bearing Deposits in Other Banks                       |  |                                  | 1,471   |   |                                  |   | 5            |  | 1.36 |                  |  |   | 944            |   |               |   | 3     |  | 1.27 |  
|                                                               |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Federal Funds Sold                                             |  |                                  | 6,522   |   |                                  |   | 16           |  | 0.98 |                  |  |   | 4,979          |   |               |   | 14    |  | 1.12 |  
|                                                               |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Other Interest-Earning Assets                                  |  |                                  | 557     |   |                                  |   | 6            |  | 4.31 |                  |  |   | 557            |   |               |   | 6     |  | 4.31 |  
|                                                               |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Total Interest-Earning Assets                                  |  |                                  | 885,420 |   |                                  |   | 13,151       |  | 5.94 |                  |  |   | 628,548        |   |               |   | 9,860 |  | 6.28 |  
|                                                               |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Noninterest-Earning Assets                                     |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Cash                                                           |  |                                  | 23,287  |   |                                  |   |              |  |      |                  |  |   | 21,086         |   |               |   |       |  |      |  
|Allowance for Loan Losses                                      |  |                                  | (9,809  | ) |                                  |   |              |  |      |                  |  |   | (6,655         | ) |               |   |       |  |      |  
|Other Assets                                                   |  |                                  | 59,569  |   |                                  |   |              |  |      |                  |  |   | 35,985         |   |               |   |       |  |      |  
|                                                               |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Total Noninterest-Earning Assets                               |  |                                  | 73,047  |   |                                  |   |              |  |      |                  |  |   | 50,416         |   |               |   |       |  |      |  
|                                                               |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Total Assets                                                   |  | $                                | 958,467 |   |                                  |   |              |  |      |                  |  | $ | 678,964        |   |               |   |       |  |      |  
|                                                               |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Liabilities and Stockholders Equity                           |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Interest-Bearing Liabilities                                   |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Interest-Bearing Deposits                                      |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Interest-Bearing Demand and Savings                            |  | $                                | 189,619 |   |                                  |   | 307          |  | 0.65 |                  |  | $ | 128,485        |   |               |   | 289   |  | 0.90 |  
|Other Time                                                     |  |                                  | 473,274 |   |                                  |   | 2,351        |  | 1.99 |                  |  |   | 319,151        |   |               |   | 2,219 |  | 2.78 |  
|                                                               |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Total Interest-Bearing Deposits                                |  |                                  | 662,893 |   |                                  |   | 2,658        |  | 1.60 |                  |  |   | 447,636        |   |               |   | 2,508 |  | 2.24 |  
|                                                               |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Other Interest-Bearing Liabilities                             |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Debt                                                           |  |                                  | 59,335  |   |                                  |   | 386          |  | 2.60 |                  |  |   | 74,075         |   |               |   | 397   |  | 2.14 |  
|Subordinated Debentures                                        |  |                                  | 18,557  |   |                                  |   | 211          |  | 4.55 |                  |  |   | 18,557         |   |               |   | 219   |  | 4.72 |  
|Funds Purchased and Securities Under Agreement to Repurchase   |  |                                  | 14,448  |   |                                  |   | 39           |  | 1.08 |                  |  |   | 9,583          |   |               |   | 28    |  | 1.17 |  
|                                                               |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Total Other Interest-Bearing Liabilities                       |  |                                  | 92,340  |   |                                  |   | 636          |  | 2.76 |                  |  |   | 102,215        |   |               |   | 644   |  | 2.52 |  
|                                                               |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Total Interest-Bearing Liabilities                             |  |                                  | 755,233 |   |                                  |   | 3,294        |  | 1.74 |                  |  |   | 549,851        |   |               |   | 3,152 |  | 2.29 |  
|                                                               |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Noninterest-Bearing Liabilities and Stockholders Equity       |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Demand Deposits                                                |  |                                  | 104,558 |   |                                  |   |              |  |      |                  |  |   | 72,282         |   |               |   |       |  |      |  
|Other Liabilities                                              |  |                                  | 5,672   |   |                                  |   |              |  |      |                  |  |   | 2,245          |   |               |   |       |  |      |  
|Stockholders Equity                                           |  |                                  | 93,004  |   |                                  |   |              |  |      |                  |  |   | 54,586         |   |               |   |       |  |      |  
|                                                               |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Total Noninterest-Bearing Liabilities and Stockholders Equity |  |                                  | 203,234 |   |                                  |   |              |  |      |                  |  |   | 129,113        |   |               |   |       |  |      |  
|                                                               |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Total Liabilities and Stockholders Equity                     |  | $                                | 958,467 |   |                                  |   |              |  |      |                  |  | $ | 678,964        |   |               |   |       |  |      |  
|                                                               |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Interest Rate Spread                                           |  |                                  |         |   |                                  |   |              |  | 4.20 | %                |  |   |                |   |               |   |       |  | 3.98 | %
|                                                               |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Net Interest Income                                            |  |                                  |         |   |                                  | $ | 9,857        |  |      |                  |  |   |                |   |               | $ | 6,708 |  |      |  
|                                                               |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  
|Net Interest Margin                                            |  |                                  |         |   |                                  |   |              |  | 4.45 | %                |  |   |                |   |               |   |       |  | 4.27 | %
|                                                               |  |                                  |         |   |                                  |   |              |  |      |                  |  |   |                |   |               |   |       |  |      |  



29



---

##### 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, 2004 compared to the three months ended June 30, 2003.



|                                                             |  |                               |       |   |      |   |        |           |  |   |       |  
|------------------------------------------------------------ |  | ----------------------------- | ----- | - | ---- | - | ------ | --------- |  | - | ----- | -
|Rate/Volume Analysis                                         |  | Changes From 2003 to 2004 (1) |      
|                                                             |  | Volume                        |       |   | Rate |   |        | NetChange | 
|                                                             |  | ($ in Thousands)              |      
|Interest Income                                              |  |                               |       |   |      |   |        |           |  |   |       |  
|Loans, Net                                                   |  | $                             | 3,586 |   |      | $ | (660   | )         |  | $ | 2,926 |  
|                                                             |  |                               |       |   |      |   |        |           |  |   |       |  
|Investment Securities                                        |  |                               |       |   |      |   |        |           |  |   |       |  
|Taxable                                                      |  |                               | 277   |   |      |   | 2      |           |  |   | 279   |  
|Tax-Exempt                                                   |  |                               | 89    |   |      |   | (7     | )         |  |   | 82    |  
|                                                             |  |                               |       |   |      |   |        |           |  |   |       |  
|Total Investment Securities                                  |  |                               | 366   |   |      |   | (5     | )         |  |   | 361   |  
|                                                             |  |                               |       |   |      |   |        |           |  |   |       |  
|Interest-Bearing Deposits in Other Banks                     |  |                               | 2     |   |      |   |       |           |  |   | 2     |  
|                                                             |  |                               |       |   |      |   |        |           |  |   |       |  
|Funds Sold                                                   |  |                               | 4     |   |      |   | (2     | )         |  |   | 2     |  
|                                                             |  |                               |       |   |      |   |        |           |  |   |       |  
|Other Interest-Earning Assets                                |  |                               |      |   |      |   |       |           |  |   |      |  
|                                                             |  |                               |       |   |      |   |        |           |  |   |       |  
|Total Interest Income                                        |  |                               | 3,958 |   |      |   | (667   | )         |  |   | 3,291 |  
|                                                             |  |                               |       |   |      |   |        |           |  |   |       |  
|Interest Expense                                             |  |                               |       |   |      |   |        |           |  |   |       |  
|Interest-Bearing Demand and Savings Deposits                 |  |                               | 138   |   |      |   | (120   | )         |  |   | 18    |  
|Time Deposits                                                |  |                               | 1,072 |   |      |   | (940   | )         |  |   | 132   |  
|Other Interest-Bearing Liabilities                           |  |                               |       |   |      |   |        |           |  |   |       |  
|Funds Purchased and Securities Under Agreement to Repurchase |  |                               | 14    |   |      |   | (3     | )         |  |   | 11    |  
|Subordinated Debentures                                      |  |                               |      |   |      |   | (8     | )         |  |   | (8    | )
|Other Debt                                                   |  |                               | (79   | ) |      |   | 68     |           |  |   | (11   | )
|                                                             |  |                               |       |   |      |   |        |           |  |   |       |  
|Total Interest Expense                                       |  |                               | 1,145 |   |      |   | (1,003 | )         |  |   | 142   |  
|                                                             |  |                               |       |   |      |   |        |           |  |   |       |  
|Net Interest Income                                          |  | $                             | 2,813 |   |      | $ | 336    |           |  | $ | 3,149 |  
|                                                             |  |                               |       |   |      |   |        |           |  |   |       |  

---

|(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.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

PART I, ITEM 2 (CONTINUED)



Financial Information



Results of Operations (Continued)



Provision for Loan Losses



We established a provision for loan losses, which is charged to operations, in order to maintain the allowance for loan losses at a level which 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 our Company, industry standards, past due loans, economic conditions of our
Companys market area and other factors related to the collectibility of our loan portfolio. For the six-month period ended June 30, 2004, the provision for loan losses totaled $1,438,000 compared to $1,346,000 for the same period ended June
30, 2003.



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 six months ended June 30, 2004 totaled $7,011,000 compared to $8,679,000 for the comparable prior period. Mortgage banking income for the six
months ended June 30, 2004 totaled $2,487,000 compared to $5,137,000 for the comparable prior period. This decrease was directly related to the increase in long-term mortgage interest rates and the resulting slow down of mortgage refinancing that
followed. Service charges on deposits increased 44 percent for the six-month period ended June 30, 2004 compared to the prior period ended June 30, 2003. The increase is primarily in fees generated from our courtesy overdraft product for protection
from bounced checks.



Noninterest expenses increased $1,537,000 or 11.0 percent
for the six months ended June 30, 2004 over the same period in 2003. Approximately $1,807,000 of this increase is the result of six months of noninterest expense from Security Bank of Jones County recorded in 2004 versus one month recorded in 2003.
As a direct result of the decline in mortgage refinancing and the resulting decline in income, a decline in mortgage commissions paid have also declined $1,080,000 for the six months ended June 30, 2004 over the same period in 2003. Additionally,
salaries and employee benefits represent $567,000 with the balance of the increases spread over various expense categories.



Income Taxes



Income tax expense totaled $3,191,000 for the six-month period ended June 30, 2004, compared to $2,091,000 for the same period ended June 30, 2003. These amounts resulted in the effective tax rates of approximately
35.92 percent and 37.69 percent for 2004 and 2003, respectively. 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.



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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 $100,448,000 due to the retention of earnings, net of dividends paid and additional stock purchases. Unrealized losses on
investment securities available for sale, net of taxes, totaled $224,000 at June 30, 2004. 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 11.89 percent at June 30, 2004. Our Companys Tier 1 risk-based capital ratio was 10.73 percent at June 30, 2004.



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 9.69 percent at June 30, 2004.



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, 2004, each of the subsidiary banks were in compliance with 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.



32



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##### Table of Contents

PART I, ITEM 2 (CONTINUED)



Financial Information



Results of Operations (Continued)



Liquidity and Capital Adequacy (Continued)



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. The falling interest rate environment during 2001 and 2002 accelerated both new and
refinancing mortgage activity, placing added pressure on prudent liquidity management. More liquidity measurement tools have been developed for use on a consolidated basis. Internal policies have been updated to monitor the use of various core and
noncore 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 without
loss if liquidity needs arise. As of June 30, 2004, SBKC held $102,138,000 in bonds (excluding FHLB stock), at current market value in the available for sale portfolio. At December 31, 2003, the available for sale bond portfolio totaled $97,527,000.
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.



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 for sale to deposits of 99.69 percent, as of June 30, 2004 and 95.40 percent
at December 31, 2003. The purchase of the Fairfield mortgage company has increased managements emphasis on maintaining adequate resources for liquidity. Management employs alternative funding sources when deposit balances will not meet loan
demands. The ratios of loans and loans for sale to all funding sources (including Trust Preferred Securities) at June 30, 2004 and December 31, 2003 were 89.22 percent and 85.51 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 business with comprehensive banking relationships and limited volatility. At June 30, 2004 and December 31, 2003, the banks had $193,209,000 and $164,884,000 in certificates of deposit of $100,000 or more. These larger
deposits represented 24 percent and 22 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 our overall cost of funds.



33



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##### Table of Contents

PART I, ITEM 2 (CONTINUED)



Financial Information



Results of Operations (Continued)



Liquidity and Capital Adequacy (Continued)



Local market deposit sources proved 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, 2004, the banks reported $90,229,000, or 11.38 percent of total deposits, 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 help focus the staff on the generation of local low-cost core deposits, we instituted a comprehensive
marketing program during 2002 called High Performance Checking.



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 our liquidity needs in the future without any material adverse impact on operating results.



Contractual Obligations



As of June 30, 2004, 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   |  | $                      | 65,446,383 |                  | $ | 27,846,383 |  | $         | 27,600,000 |                   | $ |        |  | $ | 10,000,000
|Correspondent Bank Line of Credit |  |                        |           |                  |   |            |  |           |            |                   |   |         |  |   |          
|Subordinated Debentures           |  |                        | 18,557,000 |                  |   |            |  |           |            |                   |   |         |  |   | 18,557,000
|Capital Lease Obligations         |  |                        |           |                  |   |           |  |           |           |                   |   |        |  |   |          
|Operating Leases                  |  |                        | 2,078,281  |                  |   | 236,424    |  |           | 705,791    |                   |   | 552,019 |  |   | 584,047   
|Purchase Obligations              |  |                        |           |                  |   |           |  |           |           |                   |   |        |  |   |          
|Deferred Compensation             |  |                        | 798,780    |                  |   |           |  |           |           |                   |   |        |  |   | 798,780   
|                                  |  |                        |            |                  |   |            |  |           |            |                   |   |         |  |   |           
|                                  |  | $                      | 86,880,444 |                  | $ | 28,082,807 |  | $         | 28,305,791 |                   | $ | 552,019 |  | $ | 29,939,827
|                                  |  |                        |            |                  |   |            |  |           |            |                   |   |         |  |   |           



The FHLB Advances consists of two
separate programs. The first program is a Blanket Agreement for Advances and Security Agreement with the FHLB, under which our subsidiaries have pledged residential first-mortgage loans and investment securities as collateral to secure available
lines of credit. The second program allows for advances under a Warehouse Line secured by our loans held for sale.



34



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##### Table of Contents

PART I, ITEM 2 (CONTINUED)



Financial Information



Results of Operations (Continued)



Contractual Obligations (Continued)



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



Subordinated Debentures relate to the December 2002 offering of trust preferred securities, the proceeds of which were used to retire
holding company debt and to fund the acquisition of Security Bank of Jones County.



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



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



Off-Balance Sheet Arrangements



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, 2004 and December 31, 2003 approximated $164,546,000 and $192,987,000, 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 $2,628,000
as of June 30, 2004 and $3,243,000 as of December 31, 2003 and commitments under performance standby letters of credit of $7,172,000 and $4,834,000 for the corresponding periods.



35



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##### Table of Contents

PART I, ITEM 2 (CONTINUED)



Financial Information



Results of Operations (Continued)



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



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



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



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



36



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



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, the required impairment testing of goodwill was performed and no impairment existed as of the valuation date, as the fair value of our net
assets exceeded their carrying value. If for any future period we determine that there has been impairment in the carrying value of our goodwill balances, we will record a charge to our earnings, which could have a material adverse effect on our net
income.



Stock-Based Compensation



In accordance with SFAS No. 148, Accounting for Stock-Based
Compensation, management has elected to expense 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.



37



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##### Table of Contents

PART I, ITEM 2 (CONTINUED)



Financial Information



Results of Operations (Continued)



Other Information



In connection with its planned combinations with R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Corp. (B&W) announced plans in October 2003 to close its
plant in Macon, Georgia. Wednesday, July 28, 2004, ninety-nine percent of the R.J. Reynolds shareholders voted to approve the merger. The shareholder vote was the final hurdle to the merger. The merger was closed Friday, July 30th, 2004. The Macon plant closing is currently projected to occur no earlier than August 2005. The plant currently employs
approximately 2,100 workers, of which approximately 1,500 are expected to get job offers at the R.J. Reynolds facility in North Carolina. The Macon MSA has a nonagricultural employment base of approximately 148,000, of which approximately 1.4
percent of the total are at the B&W plant. We cannot quantify the potential impact of the plants closure on the local economy, but believe the impact will be substantial. We are currently reviewing the potential impact of the closure on
our results of operations and financial condition, including the potential impact on credit quality. Management believes there are a number of factors that will reduce or mitigate the impact of the closure on our results of operations and financial
conditions. We have extensive operations in markets outside of Macon in Houston, Jones and Glynn Counties, Georgia. These counties are currently experiencing significant growth. In addition, the lending operations of Fairfield are in large measure
geographically dispersed outside the Macon market area.



Forward Looking
Statements



Within these financial statements 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.



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. SBKC does not use derivatives to mitigate credit risk, relying instead on a loan review process and the provision for loan losses. See Provision for Loan Losses
herein.



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##### Table of Contents

PART I, ITEM 3 (CONTINUED)



Quantitative and Qualitative Disclosures About Market Risk (Continued)



The management of interest rate risk is the primary goal of SBKCs asset/liability
management function. 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. SBKCs asset/liability mix is sufficiently balanced so that the effect on net interest income of interest rate moves in either direction is not expected to be significant over time.



|                                                                                                  |  |                                         |         |    |               |   |          |                 |  |   |             |    |  |             |         |   |       |   |         |   |  |   |        
|------------------------------------------------------------------------------------------------- |  | --------------------------------------- | ------- | -- | ------------- | - | -------- | --------------- |  | - | ----------- | -- |  | ----------- | ------- | - | ----- | - | ------- | - |  | - | -------
|Interest Rate Sensitivity                                                                         |  | June 30, 2004                          
|                                                                                                  |  | Assets and Liabilities Repricing Within
|($ in Thousands)                                                                                  |  | 3 Monthsor Less                         |         |    | 4 to 12Months |   |          | Subtotal 1 Year |  |   | 1 to 5Years |    |  | Over 5Years |         |   | Total
|Earning Assets                                                                                    |  |                                         |         |    |               |   |          |                 |  |   |             |    |  |             |         |   |       |   |         |   |  |   |        
|Interest-Bearing Due from Banks                                                                   |  | $                                       | 1,461   |    |               | $ |         |                 |  | $ | 1,461       |    |  | $           |        |   |       | $ |        |   |  | $ | 1,461  
|Federal Funds Sold                                                                                |  |                                         | 16,105  |    |               |   |         |                 |  |   | 16,105      |    |  |             |        |   |       |   |        |   |  |   | 16,105 
|Investment Securities                                                                             |  |                                         | 1,973   |    |               |   | 2,538    |                 |  |   | 4,511       |    |  |             | 48,293  |   |       |   | 50,726  |   |  |   | 103,530
|Loans, Net of Unearned Income                                                                     |  |                                         | 314,925 |    |               |   | 161,484  |                 |  |   | 476,409     |    |  |             | 290,601 |   |       |   | 23,581  |   |  |   | 790,591
|Other Earning Assets                                                                              |  |                                         |        |    |               |   |         |                 |  |   |            |    |  |             |        |   |       |   | 4,094   |   |  |   | 4,094  
|                                                                                                  |  |                                         |         |    |               |   |          |                 |  |   |             |    |  |             |         |   |       |   |         |   |  |   |        
|Total Interest Earning Assets                                                                     |  |                                         | 334,464 |    |               |   | 164,022  |                 |  |   | 498,486     |    |  |             | 338,894 |   |       |   | 78,401  |   |  |   | 915,781
|                                                                                                  |  |                                         |         |    |               |   |          |                 |  |   |             |    |  |             |         |   |       |   |         |   |  |   |        
|Interest-Bearing Liabilities                                                                      |  |                                         |         |    |               |   |          |                 |  |   |             |    |  |             |         |   |       |   |         |   |  |   |        
|Interest-Bearing Demand Deposits (1)                                                              |  |                                         | 172,971 |    |               |   |         |                 |  |   | 172,971     |    |  |             |        |   |       |   |        |   |  |   | 172,971
|Savings (1)                                                                                       |  |                                         | 19,794  |    |               |   |          |                 |  |   | 19,794      |    |  |             |         |   |       |   |         |   |  |   | 19,794 
|Time Deposits                                                                                     |  |                                         | 113,647 |    |               |   | 287,973  |                 |  |   | 401,620     |    |  |             | 89,398  |   |       |   |        |   |  |   | 491,018
|Federal Funds Purchased, Repurchase Agreements and Demand Notes to US Treasury                    |  |                                         | 9,108   |    |               |   |          |                 |  |   | 9,108       |    |  |             |         |   |       |   |         |   |  |   | 9,108  
|Other Borrowings                                                                                  |  |                                         | 8,046   |    |               |   | 24,800   |                 |  |   | 32,846      |    |  |             | 22,600  |   |       |   | 10,000  |   |  |   | 65,446 
|Subordinated Debentures                                                                           |  |                                         | 18,557  |    |               |   |         |                 |  |   | 18,557      |    |  |             |        |   |       |   |        |   |  |   | 18,557 
|                                                                                                  |  |                                         |         |    |               |   |          |                 |  |   |             |    |  |             |         |   |       |   |         |   |  |   |        
|Total Interest-Bearing Liabilities                                                                |  |                                         | 342,123 |    |               |   | 312,773  |                 |  |   | 654,896     |    |  |             | 111,998 |   |       |   | 10,000  |   |  |   | 776,894
|                                                                                                  |  |                                         |         |    |               |   |          |                 |  |   |             |    |  |             |         |   |       |   |         |   |  |   |        
|Interest Sensitivity Gap                                                                          |  | $                                       | (7,659  | )  |               | $ | (148,751 | )               |  | $ | (156,410    | )  |  | $           | 226,896 |   |       | $ | 68,401  |   |  | $ | 138,887
|                                                                                                  |  |                                         |         |    |               |   |          |                 |  |   |             |    |  |             |         |   |       |   |         |   |  |   |        
|Cumulative Interest Sensitivity Gap                                                               |  | $                                       | (7,659  | )  |               | $ | (156,410 | )               |  | $ | (156,410    | )  |  | $           | 70,486  |   |       | $ | 138,887 |   |  | $ | 138,887
|                                                                                                  |  |                                         |         |    |               |   |          |                 |  |   |             |    |  |             |         |   |       |   |         |   |  |   |        
|Cumulative Interest Sensitivity Gap as a Percentage of Total Interest Earnings Assets             |  |                                         | (0.84   | )% |               |   | (17.08   | )%              |  |   | (17.08      | )% |  |             | 7.70    | % |       |   | 15.17   | % |  |   |        
|                                                                                                  |  |                                         |         |    |               |   |          |                 |  |   |             |    |  |             |         |   |       |   |         |   |  |   |        
|Cumulative Interest Sensitive Assets as a Percentage of Cumulative Interest Sensitive Liabilities |  |                                         | 97.76   | %  |               |   | 76.12    | %               |  |   | 76.12       | %  |  |             | 109.19  | % |       |   | 117.88  | % |  |   |        
|                                                                                                  |  |                                         |         |    |               |   |          |                 |  |   |             |    |  |             |         |   |       |   |         |   |  |   |        

---

|(1) | Interest-bearing Demand and Savings Accounts for repricing purposes are considered to reprice within six months or less.
|--- | ------------------------------------------------------------------------------------------------------------------------



39



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##### Table of Contents

PART I,
ITEM 4



Controls and Procedures



After evaluating the Companys disclosure controls and procedures
designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 (the Act) is recorded, processed, summarized and reported within the time
period specified by the Act, the Chief Executive Officer, H. Averett Walker, and Chief Financial and Accounting Officer, James R. McLemore, Jr. have concluded that the Companys controls are effective in accumulating and communicating the
information to the Companys management as appropriate to allow timely decisions regarding disclosures. This evaluation was conducted as of the end of the period covered by this report. In addition, there have been no significant changes in the
Companys internal controls or other factors that could significantly effect these controls subsequent to the dates of Mr. Walkers and Mr. McLemores evaluations, and there have been no corrective actions with regard to significant
deficiencies or material weaknesses.



PART II

Other Information



ITEM 1



Legal Proceedings



Not Applicable.



ITEM 2



Changes in Securities (Limitations
Upon Payment of Dividends)



The information required for limitations upon
payment of dividends is incorporated herein by reference to the Companys annual report of 10-K Exhibit 99(a) footnote 23, filed with the Securities and Exchange Commission for the year ended December 31, 2003 (File No. 000-23261).



ITEM 3



Defaults Upon Senior Securities



Not Applicable.



40



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##### Table of Contents

PART II (CONTINUED)



Other Information



ITEM 4



Submission of Matters to a Vote of
Security Holders



The annual shareholders meeting of the Company was held
on April 29, 2004. At the annual meeting, the following matters were submitted to a vote:



|(I) | Proposal No. 001-P  Election of Directors
|--- | ------------------------------------------



|                          |  |           |  |         
|------------------------- |  | --------- |  | --------
|                          |  | For       |  | Withheld
|Class of 2005             |  |           |  |         
|Thad G. Childs, Jr.       |  | 4,478,205 |  | 37,824  
|                          |  |          
|Class of 2006             |  |           |  |         
|Frank H. Childs, Jr.      |  | 4,507,212 |  | 8,817   
|                          |  |          
|Class of 2007             |  |           |  |         
|Benjamin W. Griffith, III |  | 4,510,712 |  | 5,317   
|Ruthie G. McMichael       |  | 4,510,712 |  | 5,317   
|Ben G. Porter             |  | 4,510,712 |  | 5,317   
|H. Averett Walker         |  | 4,470,535 |  | 45,494  
|Larry C. Walker           |  | 4,503,254 |  | 12,775  



|(II) | Proposal No. 002-C  Approve the Security Bank Corporation 2004 Omnibus Stock Ownership and Long Term Incentive Plan
|---- | --------------------------------------------------------------------------------------------------------------------



|          |  |         |  |         |  |                
|--------- |  | ------- |  | ------- |  | ---------------
|For       |  | Against |  | Abstain |  | Broker Non-Vote
|3,769,425 |  | 163,975 |  | 38,551  |  | 544,078        



|(III) | Proposal No. 003-C  Approve the Security Bank Corporation 2004 Employee Stock Purchase Plan
|----- | --------------------------------------------------------------------------------------------



|          |  |         |  |         |  |                
|--------- |  | ------- |  | ------- |  | ---------------
|For       |  | Against |  | Abstain |  | Broker Non-Vote
|3,831,990 |  | 116,272 |  | 23,689  |  | 544,078        



|(IV) | Proposal No. 004-M  Approve the Amendment to the Articles of Incorporation of Security Bank Corporation which would allow two-thirds of the Companys Board of Directors
to approve small merger transactions without shareholder approval
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|          |  |         |  |         |  |                
|--------- |  | ------- |  | ------- |  | ---------------
|For       |  | Against |  | Abstain |  | Broker Non-Vote
|3,675,845 |  | 275,393 |  | 20,713  |  | 544,078        



41



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##### Table of Contents

PART II (CONTINUED)



Other Information



ITEM 5



Other Information



Not Applicable.



ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K



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



|     |  |                                                                                                                                                                                                                          
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Articles of Incorporation (incorporated by reference to Exhibit 3(a) to the registrants Registration Statement on Form S-4 (File No. 33-80076), filed with the Commission on June 13,
1994).                            
|     | 
|3.2  |  | Amendment to Articles of Incorporation, as amended (incorporated by reference to Exhibit 3.2 to the registrants Registration Statement on Form S-4 (File No. 333-49977) filed with the
Commission on April 13, 1998).   
|     | 
|3.3  |  | Bylaws, as amended (incorporated by reference to Exhibit 3.2 to SBKCs Registration Statement on Form S-4 (File No. 333-49977) filed with the Commission on April 13,
1998).                                             
|     | 
|4.1  |  | See Exhibits 3.1, 3.2, 3.3 and 3.4 for provisions of Articles of Incorporation and Bylaws, as amended, which define the rights of its shareholders.                                                                      
|     | 
|4.2  |  | Form of Stock Certificate (incorporated herein by reference as Exhibit 4.1 to the registrants Registration Statement on Form S-4 (File No. 333-49977) filed with the Commission on April
13, 1998).                     
|     | 
|4.3  |  | SNB Bancshares, Inc. 2003 Restricted Stock Bonus Plan (incorporated by reference as Exhibit 4.1 to the Registrants Form S-8 Registration Statement filed on June 17, 2004, File No.
333-116592).                        
|     | 
|4.4  |  | Security Bank Corporation 2004 Omnibus Stock Ownership and Long Term Incentive Plan (incorporated by reference as Appendix B to the Registrants Definitive Proxy Statement filed on April
25, 2004, File No. 000-23261).
|     | 
|4.5  |  | Security Bank Corporation 2004 Employee Stock Purchase Plan (incorporated by reference as Appendix D to the Registrants Definitive Proxy Statement filed on April 25, 2004, File No.
000-23261).                        
|     | 
|10.1 |  | 1996 Incentive Stock Option Plan (incorporated by reference as Exhibit 10(c) to the registrants Form SB-2 (File No. 333-11371) filed with the Commission on September 4,
1996).                                         
|     | 
|10.2 |  | 1999 Incentive Stock Option Plan (incorporated by reference as Appendix to the registrants definitive proxy statement (File No. 000-23261) filed on March 30, 1999).                                                    



42



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##### Table of Contents

PART II (CONTINUED)



Other Information



ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K (Continued)



|     |  |                                                                                                                                                                                                                                                                                           
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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 2 to registrants Form 10-Q (Commission File No. 000-23261) filed on August 10,
2000).                                                                                                               
|     | 
|10.8 |  | Employment Agreement between Security Bank Corporation, Security Interim Bank and Thad G. Childs, Jr. dated May 30, 2003 (incorporated herein by reference as Exhibit 10.7 to SBKCs
Registration Statement on Form S-4 (File No. 333-103554) filed with the Commission on March 3, 2003).
|     | 
|11   |  | 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 and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                      
|     | 
|32.1 |  | Certificate of the Chief Executive Officer and Chief Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                          



|(b) | Reports on Form 8-K:
|--- | --------------------



On April 12, 2004, Security Bank Corporation filed Form 8-K (Item 12  Results of Operations and Financial Condition) to report the press release
issued on April 12, 2004. The press release announced results for the quarter ended March 4, 2004.



43



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##### Table of Contents

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: 8/9/04                                                 
|                                                             
|/s/ James R. McLemore, Jr.                                   
|James R. McLemore, Jr. Chief Financial and Accounting Officer
|                                                             
|Date: 8/9/04                                                 



44