##### Table of Contents



Securities and Exchange Commission
 Washington, D.C. 20549
 FORM 10-KSB/A
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2004
 o
    
    TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 333-86082
 SOUTHERN COMMUNITY BANCSHARES, INC.
 (Name of Small Business Issuer in Its Charter)
 Georgia
    
    58-2639705(State of Incorporation)
    
    (I.R.S. EmployerIdentification No.)
 525 North Jeff Davis Drive, Fayetteville, Georgia 30214  (Address of principal executive offices)(Zip Code)
 (770) 461-4365  (Issuers telephone number)
 (Title of Class)
 þ o
 o þ
 o
   o þ
 DOCUMENTS INCORPORATED BY REFERENCE




---



##### Table of Contents








---



TABLE OF CONTENTS  ITEM 7. FINANCIAL STATEMENTSPART IIIITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-KSIGNATURESEX-21 SUBSIDIARIES OF REGISTRANTEX-23 CONSENT OF MAULDIN & JENKINS, LLCEX-31.1 SECTION 302 CERTIFICATION OF CEOEX-31.2 SECTION 302 CERTIFICATION OF CFOEX-32.1 SECTION 906 CERTIFICATION OF CEOEX-32.2 SECTION 906 CERTIFICATION OF CFO    Table of Contents  
 ITEM 7. FINANCIAL STATEMENTS
         
 PART III
 
 ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
  Exhibit Number
    
    Description3.1
    
    Articles of Incorporation of the Registrant (incorporated
by reference to Exhibit 3.1 to the Registrants Form SB-2
filed with the Commission on April 12, 2002)3.2
    
    Bylaws of the Registrant (incorporated by reference to
Exhibit 3.2 to the Registrants Form SB-2 filed with the
Commission on April 12, 2002)10.1
    
    2001 Incentive Stock Option Plan for Key Employees
(incorporated by reference to Exhibit 10.2 to the
Registrants Form SB-2 filed with the Commission on April
12, 2002)*10.2
    
    Employment Agreement between Gary D. McGaha and Southern
Community Bank (incorporated by reference to Exhibit 10.3
to the Registrants Form SB-2 filed with the Commission
on April 12, 2002)*
 3




---



##### Table of Contents



Exhibit Number
    
    Description10.3
    
    Employment Agreement between Fred L. Faulkner and
Southern Community Bank (incorporated by reference to
Exhibit 10.4 to the Registrants Form SB-2 filed with the
Commission on April 12, 2002)*10.4
    
    Agreement for the Sale and Purchase of Real Estate
between Southern Community Bank and Peachtree City
Holdings, L.L.C. (incorporated by reference to Exhibit
10.5 to the Registrants Form SB-2 filed with the
Commission on April 12, 2002)21
    
    Subsidiaries of the Registrant23
    
    Consent of Mauldin & Jenkins, LLC31.1
    
    Certificate of CEO pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2
    
    Certificate of CFO pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    Certificate of CEO pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certificate of CFO pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    
    Denotes management contract or compensatory plan or arrangement.  4




---



##### Table of Contents



SIGNATURES
  SOUTHERN COMMUNITY BANCSHARES, INC.(Registrant)Date: November 15, 2005
    
    
    
    By:
    
    /s/ Gary D. McGahaPresident and ChiefExecutive Officer
  /s/Gary D. McGaha
    
    Date: November 15, 2005Gary D. McGahaChief Executive OfficerAnd Director[Principal Executive Officer]/s/Leslye L. Grindle
    
    Date: November 15, 2005Leslye L. GrindleChief Financial Officer[Principal Financial Officer andPrincipal Accounting Officer]/s/James S. Cameron
    
    Date: November 15, 2005James S. Cameron, Director/s/George R. Davis
    
    Date: November 15, 2005George R. Davis, Sr., Director/s/Robert B. Dixon, Jr.
    
    Date: November 15, 2005Robert B. Dixon, Jr., Director
 5




---



##### Table of Contents



/s/Richard J. Dumas
    
    Date: November 15, 2005Richard J. Dumas, DirectorWilliam Wayne Leslie, Director/s/Thomas D. Reese
    
    Date: November 15, 2005Thomas D. Reese, DirectorDan V. Stinchcomb, Director/s/William M. Strain
    
    Date: November 15, 2005William M. Strain, DirectorJackie L. Mask, Director
 6




---



##### Table of Contents



SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
 CONSOLIDATED FINANCIAL REPORT
DECEMBER 31, 2004
 TABLE OF CONTENTS
 PageINDEPENDENT AUDITORS REPORT
    
    
    F-1CONSOLIDATED FINANCIAL STATEMENTSConsolidated balance sheets
    
    
    F-2Consolidated statements of income
    
    
    F-3Consolidated statements of comprehensive income
    
    
    F-4Consolidated statements of shareholders equity
    
    
    F-5Consolidated statements of cash flows
    
    
    F-7Notes to consolidated financial statements
    
    
    F-8-27




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 To the Board of Directors
Southern Community Bancshares, Inc. and Subsidiary
Fayetteville, Georgia
 Southern Community Bancshares,
Inc. and subsidiary
   
 F - 1




---



##### Table of Contents



SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
 CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2004 AND 2003
 2004
    
    
    2003AssetsCash and due from banks
    
    $
    3,644,669
    
    
    $
    3,806,961Interest bearing deposits in banks
    
    
    2,038,231
    
    
    
    Federal funds sold
    
    
    18,378,000
    
    
    
    616,000Securities available for sale, at fair value
    
    
    50,615,684
    
    
    
    59,799,452Restricted equity securities, at cost
    
    
    1,471,300
    
    
    
    750,000Loans
    
    
    186,737,227
    
    
    
    125,201,122Less allowance for loan losses
    
    
    2,016,557
    
    
    
    1,419,479Loans, net
    
    
    184,720,670
    
    
    
    123,781,643Premises and equipment
    
    
    7,777,049
    
    
    
    5,210,422Other assets
    
    
    2,599,675
    
    
    
    1,681,265Total assets
    
    $
    271,245,278
    
    
    $
    195,645,743Liabilities and Shareholders EquityDeposits:Noninterest-bearing
    
    $
    21,423,600
    
    
    $
    22,113,953Interest-bearing
    
    
    194,340,635
    
    
    
    137,661,115Total deposits
    
    
    215,764,235
    
    
    
    159,775,068Federal Home Loan Bank advances
    
    
    24,000,000
    
    
    
    15,000,000Securities sold under repurchase agreements
    
    
    4,752,914
    
    
    
    1,704,188Subordinated debentures
    
    
    5,774,000
    
    
    
    680,554Other liabilities
    
    
    697,849
    
    
    
    Total liabilities
    
    
    250,988,998
    
    
    
    177,159,810Commitments and contingencies (Note 13)Shareholders equity:Capital stock, no par value; 10,000,000 shares authorized;
2,580,526 and 1,934,777 shares issued and outstanding, respectively
    
    
    16,054,796
    
    
    
    16,050,433Retained earnings
    
    
    4,453,934
    
    
    
    2,773,611Accumulated other comprehensive income (loss)
    
    
    (252,450
    )
    
    
    (338,111
    )Total shareholders equity
    
    
    20,256,280
    
    
    
    18,485,933Total liabilities and shareholders equity
    
    $
    271,245,278
    
    
    $
    195,645,743
 See Notes to Consolidated Financial Statements.
 F - 2




---



##### Table of Contents



SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2004 AND 2003
 2004
    
    
    2003Interest income:Loans, including fees
    
    $
    11,215,484
    
    
    $
    7,660,995Taxable securities
    
    
    1,827,419
    
    
    
    1,151,862Nontaxable securities
    
    
    379,233
    
    
    
    223,179Federal funds sold
    
    
    130,289
    
    
    
    59,436Interest bearing deposits
    
    
    17,633
    
    
    
    Total interest income
    
    
    13,570,058
    
    
    
    9,095,472Interest expense:Deposits
    
    
    3,850,358
    
    
    
    2,928,728Other borrowings
    
    
    814,636
    
    
    
    177,041Total interest expense
    
    
    4,664,994
    
    
    
    3,105,769Net interest income
    
    
    8,905,064
    
    
    
    5,989,703Provision for loan losses
    
    
    1,031,121
    
    
    
    420,000Net interest income after provision for loan losses
    
    
    7,873,943
    
    
    
    5,569,703Other income:Service charges on deposit accounts
    
    
    461,262
    
    
    
    371,598Gain on sale of securities available for sale
    
    
    85,416
    
    
    
    269,629Gain on sale of loans
    
    
    
    
    
    
    21,113Other operating income
    
    
    66,766
    
    
    
    60,002Total other income
    
    
    613,444
    
    
    
    722,342Other expense:Salaries and employee benefits
    
    
    3,426,141
    
    
    
    2,143,731Equipment and occupancy expenses
    
    
    814,069
    
    
    
    510,735Other operating expenses
    
    
    1,805,418
    
    
    
    1,249,076Total other expense
    
    
    6,045,628
    
    
    
    3,903,542Income before income taxes
    
    
    2,441,759
    
    
    
    2,388,503Income taxes
    
    
    761,436
    
    
    
    796,900Net income
    
    $
    1,680,323
    
    
    $
    1,591,603Basic earnings per share
    
    
    0.65
    
    
    
    0.62Diluted earnings per share
    
    $
    0.63
    
    
    $
    0.61
 See Notes to Consolidated Financial Statements.
 F - 3




---



##### Table of Contents



SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 2004 AND 2003
 2004
    
    
    2003Net income
    
    $
    1,680,323
    
    
    $
    1,591,603Other comprehensive income (loss):Unrealized holding gains (losses) on securities available for sale arising
during period, net of tax (benefits) of $84,959 and $(170,583), respectively
    
    
    138,619
    
    
    
    (278,321
    )Reclassification adjustment for gains realized in net income,
net of taxes of $32,458 and $102,459, respectively
    
    
    (52,958
    )
    
    
    (167,170
    )Other comprehensive loss
    
    
    85,661
    
    
    
    (445,491
    )Comprehensive income
    
    $
    1,765,984
    
    
    $
    1,146,112
 F - 4




---



##### Table of Contents



SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
YEARS ENDED DECEMBER 31, 2004 AND 2003
 AccumulatedOther
    
    
    TotalCapital Stock
    
    
    Retained
    
    
    Comprehensive
    
    
    Shareholders'Shares
    
    
    Amount
    
    
    Earnings
    
    
    Income (Loss)
    
    
    EquityBalance, December 31, 2002
    
    
    1,394,567
    
    
    
    15,342,615
    
    
    
    1,182,008
    
    
    
    107,380
    
    
    
    16,632,003Net income
    
    
    
    
    
    
    
    
    
    
    1,591,603
    
    
    
    
    
    
    
    1,591,603Issuance of common stock
    
    
    56,876
    
    
    
    713,940
    
    
    
    
    
    
    
    
    
    
    
    713,940Four-for- three stock split
    
    
    483,334
    
    
    
    (6,122
    )
    
    
    
    
    
    
    
    
    
    
    (6,122
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (445,491
    )
    
    
    (445,491
    )Balance, December 31, 2003
    
    
    1,934,777
    
    
    
    16,050,433
    
    
    
    2,773,611
    
    
    
    (338,111
    )
    
    
    18,485,933Net income
    
    
    
    
    
    
    
    
    
    
    1,680,323
    
    
    
    
    
    
    
    1,680,323Issuance of common stock
    
    
    1,049
    
    
    
    8,425
    
    
    
    
    
    
    
    
    
    
    
    8,425Four- for- three stock split
    
    
    644,700
    
    
    
    (4,062
    )
    
    
    
    
    
    
    
    
    
    
    (4,062
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    85,661
    
    
    
    85,661Balance, December 31, 2004
    
    
    2,580,526
    
    
    
    16,054,796
    
    
    
    4,453,934
    
    
    
    (252,450
    )
    
    
    20,256,280
  F - 5




---



##### Table of Contents



SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2004 AND 2003
 2004
    
    
    2003OPERATING ACTIVITIESNet income
    
    $
    1,680,323
    
    
    $
    1,591,603Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation
    
    
    401,041
    
    
    
    292,659Provision for loan losses
    
    
    1,031,121
    
    
    
    420,000Gain on sale of securities available-for-sale
    
    
    (85,416
    )
    
    
    (269,629
    )Deferred income taxes
    
    
    (144,428
    )
    
    
    (112,765
    )Decrease in taxes payable
    
    
    (124,244
    )
    
    
    (86,727
    )Increase in interest receivable
    
    
    (170,649
    )
    
    
    (348,784
    )Increase in interest payable
    
    
    47,340
    
    
    
    142,090Net other operating activities
    
    
    (55,875
    )
    
    
    96,246Net cash provided by operating activities
    
    
    2,579,273
    
    
    
    1,724,693INVESTING ACTIVITIESIncrease in interest-bearing deposits in banks
    
    
    (1,954,357
    )
    
    
    (83,874
    )Purchase of securities available-for-sale
    
    
    (3,854,402
    )
    
    
    (67,770,612
    )Proceeds from maturities of securities available-for-sale
    
    
    4,956,824
    
    
    
    12,887,333Proceeds from sales of securities available-for-sale
    
    
    8,304,924
    
    
    
    17,433,612Purchase of restricted equity securities
    
    
    (721,300
    )
    
    
    (608,200
    )Net increase in federal funds sold
    
    
    (17,762,000
    )
    
    
    (616,000
    )Net increase in loans
    
    
    (61,970,148
    )
    
    
    (34,421,159
    )Purchase of premises and equipment
    
    
    (2,566,627
    )
    
    
    (1,791,679
    )Net cash used in investing activities
    
    
    (76,166,947
    )
    
    
    (74,970,579
    )FINANCING ACTIVITIESNet increase in deposits
    
    
    55,989,167
    
    
    
    60,266,323Proceeds from issuance of capital stock
    
    
    8,425
    
    
    
    713,940Payment for fractional shares
    
    
    (4,062
    )
    
    
    (6,122
    )Proceeds from issuance of trust preferred securities
    
    
    5,467,000
    
    
    
    Net decrease in federal funds purchased
    
    
    
    
    
    
    (719,000
    )Net Increase in Federal Home Loan Bank advances
    
    
    9,000,000
    
    
    
    15,000,000Net Increase (decrease) in repurchase agreements
    
    
    3,048,726
    
    
    
    (2,075,825
    )Net cash provided by financing activities
    
    
    73,509,256
    
    
    
    73,179,316Net increase (decrease) in cash and due from banks
    
    
    (78,418
    )
    
    
    (66,570
    )Cash and due from banks at beginning of year
    
    
    3,723,087
    
    
    
    3,789,657Cash and due from banks at end of period
    
    $
    3,644,669
    
    
    $
    3,723,087
 F - 6




---



##### Table of Contents



SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
 CONSOLIDATED STATEMENTS OF CASH FLOWS
Twelve Months Ended December 31, 2004 and 2003
 2004
    
    2003SUPPLEMENTAL DISCLOSURECash paid for interest
    
    $
    4,617,654
    
    
    $
    2,963,679Cash paid for taxes
    
    $
    1,044,013
    
    
    $
    996,392NONCASH TRANSACTIONSForeclosed assets acquired in settlement of loans
    
    $
    198,760
    
    
    $
    
 See Notes to Consolidated Financial Statements.
 F - 7




---



##### Table of Contents



SOUTHERN COMMUNITY BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Business
 Southern Community Bancshares, Inc. (the Company) is a bank holding company whose
business is conducted by its wholly-owned commercial bank, Southern Community Bank
(the Bank). Southern Community Bank is located in Fayetteville, Fayette County,
Georgia with branches located in Peachtree City, Newnan, Jonesboro and Locust Grove,
Georgia. The Bank provides a full range of banking services in its primary market
area of Fayette County and the surrounding counties.
 Basis of Presentation and Accounting Estimates
 The consolidated financial statements include the accounts of the Company and its
subsidiary. Significant intercompany transactions and balances have been eliminated
in consolidation.In preparing the consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America, management is
required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities as of
the balance sheet date and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.Material estimates that are particularly susceptible to significant changes related
to the determination of the allowance for loan losses, the valuation of foreclosed
real estate and contingent assets and liabilities. The determination of the
adequacy of the allowance for loan losses is based on estimates that are susceptible
to significant changes in the economic environment and market conditions. In
connection with the determination of the estimated losses on loans and the valuation
of foreclosed real estate, management obtains independent appraisals for significant
collateral.
 Cash, Due From Banks and Cash Flows
 For purposes of reporting cash flows, cash and due from banks includes cash on hand,
cash items in process of collection and amounts due from banks. Cash flows from
loans, federal funds sold, federal funds purchased, securities sold under repurchase
agreements and deposits are reported net.The Bank is required to maintain reserve balances in cash or on deposit with the
Federal Reserve Bank, based on a percentage of deposits. The total of those reserve
balances was approximately $1,119,000 and $775,000 at December 31, 2004 and 2003,
respectively.
 Securities
 F - 8




---



##### Table of Contents



Debt securities that management has the positive intent and ability to hold to
maturity are classified as held to maturity and recorded at amortized cost.
Securities not classified as held to maturity, including equity securities with
readily determinable fair values, are classified as
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Securities (Continued)
 available for sale and recorded at fair value with unrealized gains and losses
excluded from earnings and reported in accumulated other
comprehensive income (loss), net of the related deferred tax effect. Equity securities, including restricted equity securities
without a readily determinable fair value, are classified as
available for sale and recorded at cost. Purchase premiums and discounts are
recognized in interest income using the interest method over the terms of the
securities. Gains and losses on the sale of securities are determined using the
specific identification method and included in earnings on the settlement date.
Declines in the fair value of securities below their cost that are deemed to be
other than temporary are reflected in earnings as realized losses.
 Loans
 Loans are reported at their outstanding principal balances less deferred loan fees
and the allowance for loan losses. Interest income is accrued on the outstanding
principal balance. Loan origination fees, net of direct loan origination costs, are
deferred and recognized as an adjustment of the yield over the life of the loans
using a method which approximates a level yield.The accrual of interest on loans is discontinued when, in managements opinion, the
borrower may be unable to meet payments as they become due, unless the loan is
well-secured. All interest accrued but not collected for loans that are placed on
nonaccrual or charged off is reversed against interest income, unless management
believes that the accrued interest is recoverable through the liquidation of
collateral. Interest income on nonaccrual loans is recognized on the cash-basis or
cost-recovery method, until the loans are returned to accrual status. Loans are
returned to accrual status when all the principal and interest amounts are brought
current and future payments are reasonably assured.A loan is considered impaired when it is probable, based on current information and
events, the Company will be unable to collect all principal and interest payments
due in accordance with the contractual terms of the loan agreement. Impaired loans
are measured by either the present value of expected future cash flows discounted at
the loans effective interest rate, the loans obtainable market price, or the fair
value of the collateral if the loan is collateral dependent. The amount of
impairment, if any, and any subsequent changes are included in the allowance for
loan losses. Interest on accruing impaired loans is recognized as long as such
loans do not meet the criteria for nonaccrual status.
 Allowance for Loan Losses
 The allowance for loan losses is established through a provision for loan losses
charged to expense. Loan losses are charged against the allowance when management
believes the collectibility of the principal is unlikely. Subsequent recoveries are
credited to the allowance.
 F - 9




---



##### Table of Contents



The allowance is an amount that management believes will be adequate to absorb
estimated losses relating to specifically identified loans, as well as probable
credit losses inherent in the
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Loans (Continued)
 balance of the loan portfolio, based on an evaluation of the collectibility of
existing loans and prior loss experience. This evaluation also takes into
consideration such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem loans,
concentrations and current economic conditions that may affect the borrowers
ability to pay. This evaluation does not include the effects of expected losses on
specific loans or groups of loans that are related to future events or expected
changes in economic conditions. While management uses the best information
available to make its evaluation, future adjustments to the allowance may be
necessary if there are significant changes in economic conditions. In addition,
regulatory agencies, as an integral part of their examination process, periodically
review the Banks allowance for loan losses, and may require the Bank to make
additions to the allowance based on their judgment about information available to
them at the time of their examinations.
 Premises and Equipment
 Land is carried at cost. Premises and equipment are carried at cost less
accumulated depreciation computed principally on the straight-line method over the
following estimated useful lives.
 Buildings and improvements
    
    15-40 yearsFurniture and equipment
    
    3-10 years
 Other Real Estate Owned
 Other real estate owned represents properties acquired through or in lieu of loan
foreclosure and is initially recorded at the lower of cost or fair value less
estimated costs to sell. Any write-down to fair value at the time of transfer to
other real estate owned is charged to the allowance for loan losses. Costs of
improvements are capitalized, whereas costs relating to holding other real estate
owned and subsequent adjustments to the value are expensed. At December 31, 2004
and 2003, the Company did not have any other real estate owned.
 Income Taxes
 Deferred income tax assets and liabilities are determined using the balance sheet
method. Under this method, the net deferred tax asset or liability is determined
based on the tax effects of the temporary differences between the book and tax bases
of the various balance sheet assets and liabilities and gives current recognition to
changes in tax rates and laws.
 Profit-Sharing Plan
 F - 10




---



##### Table of Contents



Profit-sharing plan costs are based on a percentage of individual employees salary,
not to exceed the amount that can be deducted for federal income tax purposes.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Stock-Based Compensation
 At December 31, 2004, the Company has two stock-based compensation plans, which are
described more fully in Note 9. The Company accounts for those plans under the
recognition and measurement principles of APB Opinion No. 25, Accounting for Stock
Issued to Employees, and related Interpretations. No stock-based employee
compensation cost is reflected in net income, as all options granted under these
plans have an exercise price equal to the market value of the underlying stock on
the date of grant. The following table illustrates the effect on net income and
earnings per share if the Company had applied the fair value recognition provisions
of SFAS Statement No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation.
 Years Ended December 31,2004
    
    
    2003Net income, as reported
    
    $
    1,680,323
    
    
    $
    1,591,603Deduct: Total stock-based employee compensation
expense determined under fair value based
method for all awards, net of related tax effects
    
    
    13,175
    
    
    
    25,571Pro forma net income
    
    $
    1,667,148
    
    
    $
    1,566,032Earnings per share:Basic  as reported
    
    $
    .65
    
    
    $
    .62Basic  pro forma
    
    $
    .65
    
    
    $
    .61Diluted  as reported
    
    $
    .63
    
    
    $
    .61Diluted  pro forma
    
    $
    .62
    
    
    $
    .61
 Earnings Per Share
 Basic earnings per share are computed by dividing net income by the weighted-average
number of shares of capital stock outstanding. Diluted earnings per share are
computed by dividing net income by the sum of the weighted-average number of shares
of capital stock outstanding and dilutive potential capital shares. Potential
capital shares consist of outstanding options to purchase capital stock.
 Comprehensive Income
 Accounting principles generally require that recognized revenue, expenses, gains and
losses be included in net income. Although certain changes in assets and
liabilities, such as unrealized gains and losses on available for sale securities,
are reported as a separate
 F - 11




---



##### Table of Contents



component of the equity section of the balance sheet,
such items, along with net income, are components of comprehensive income.
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
 Recent Accounting Standards
 In December 2004, the Financial Accounting Standards Board (FASB) published FASB
Statement No. 123 (revised 2004), Share-Based Payment (FAS 123® or the
Statement). FAS 123® requires that the compensation cost relating to
share-based payment transactions, including grants of employee stock options, be
recognized in financial statements. That cost will be measured based on the fair
value of the equity of liability instrument issued. FAS 123® covers a wide range
of share-based compensation arrangements including stock options, restricted share
plans, performance-based awards, share appreciation rights, and employee share
purchase plans. FAS 123® is a replacement of FASB Statement No. 123, Accounting
for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for
Stock Issued to Employees, and its related interpretive guidance.The effect of the Statement will be to require entities to measure the cost of
employee services received in exchange for stock options based on the grant-date
fair value of the award, and to recognize the cost over a period the employee is
required to provide services for the award. FAS 123® permits entities to use any
option-pricing model that meets the fair value objective in the Statement.The Company will be required to apply FAS 123® as of the beginning of its first
interim period that begins after December 15, 2005.The Company has not yes completed its study of the transition methods or made any
decisions about how it will adopt FAS 123®. The impact of this Statement on the
Company in fiscal 2005 and beyond will depend upon various factors, among them
being our future compensation strategy. The pro forma compensation costs
presented in the table above and in prior filings for the Company have been
calculated using a Black-Scholes option pricing model and may not be indicative of
amounts which should be expected in future years. No decisions have been made as
to which option-pricing model is most appropriate for the Company for future
awards.
 F - 12




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2. SECURITIES
 The amortized cost and fair value of securities are summarized as follows:
 Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    FairCost
    
    
    Gains
    
    
    Losses
    
    
    ValueDecember 31, 2004:U.S. Government and
agency securities
    
    $
    21,974,664
    
    
    $
    6,941
    
    
    $
    (160,139
    )
    
    $
    21,821,466State and municipal securities
    
    
    11,085,413
    
    
    
    141,225
    
    
    
    (77,304
    )
    
    
    11,149,334Corporate bonds
    
    
    1,474,000
    
    
    
    27,900
    
    
    
    
    
    
    
    1,501,900Mortgage-backed securities
    
    
    16,488,785
    
    
    
    508
    
    
    
    (346,309
    )
    
    
    16,142,984$
    51,022,862
    
    
    $
    176,574
    
    
    $
    (583,752
    )
    
    $
    50,615,684December 31, 2003:U.S. Government and
agency securities
    
    $
    26,171,525
    
    
    $
    38,228
    
    
    $
    (193,380
    )
    
    $
    26,016,373State and municipal securities
    
    
    9,251,794
    
    
    
    79,356
    
    
    
    (144,226
    )
    
    
    9,186,924Corporate bonds
    
    
    1,000,000
    
    
    
    25,380
    
    
    
    
    
    
    
    1,025,380Mortgage-backed securities
    
    
    23,921,473
    
    
    
    68,973
    
    
    
    (419,671
    )
    
    
    23,570,775$
    60,344,792
    
    
    $
    211,937
    
    
    $
    (757,277
    )
    
    $
    59,799,452
 Securities with a carrying value of $32,366,496 and $22,091,393 at December 31,
2004 and 2003, respectively, were pledged to secure public deposits and for other
purposes as required or permitted by law.The amortized cost and fair value of securities as of December 31, 2004 by contractual
maturity are shown below. Actual maturities may differ from contractual maturities in
mortgage-backed securities because the mortgages underlying the securities may be
called or repaid without penalty. Therefore, these securities are not included in the
maturity categories in the following summary.
 Amortized
    
    
    FairCost
    
    
    ValueDue from one to five years
    
    $
    3,993,375
    
    
    $
    3,967,604Due from five to ten years
    
    
    4,748,279
    
    
    
    4,744,302Due after ten years
    
    
    25,792,423
    
    
    
    25,760,794Mortgage-backed securities
    
    
    16,488,785
    
    
    
    16,142,984$
    51,022,862
    
    
    $
    50,615,684
 F - 13




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 2. SECURITIES (continued)
 Gains and losses on sales of securities consist of the following:
 Years Ended December 31,2004
    
    
    2003Gross gains
    
    $
    88,303
    
    
    $
    269,629Gross losses
    
    
    (2,887
    )
    
    
    Net realized gains
    
    $
    85,416
    
    
    $
    269,629
 The following table shows the gross unrealized losses and fair value of
securities, aggregated by category and length of time that securities have been in a
continuous unrealized loss position at December 31, 2004 and 2003.
 Less Than 12 Months
    
    
    12 Months or MoreDescription of Securities:
    
    Fair
    
    
    Unrealized
    
    
    Fair
    
    
    UnrealizedDecember 31, 2004
    
    Value
    
    
    Losses
    
    
    Value
    
    
    LossesU.S.
Government and agency securities
    
    $
    18,358,554
    
    
    $
    (122,673
    )
    
    $
    1,959,219
    
    
    $
    (37,466
    )State and municipal securities
    
    
    3,162,594
    
    
    
    (32,315
    )
    
    
    1,664,104
    
    
    
    (44,989
    )Mortgage-backed securities
    
    
    2,165,701
    
    
    
    (27,328
    )
    
    
    13,155,357
    
    
    
    (318,981
    )Total temporarily impaired securities
    
    $
    23,686,849
    
    
    $
    (182,316
    )
    
    $
    16,778,680
    
    
    $
    (401,436
    )December 31, 2003U.S.
Government and agency securities
    
    $
    21,275,200
    
    
    $
    (193,380
    )
    
    $
    
    
    
    $
    State and municipal securities
    
    
    3,994,654
    
    
    
    (137,737
    )
    
    
    607,460
    
    
    
    (6,489
    )Mortgage-backed securities
    
    
    17,689,131
    
    
    
    (417,396
    )
    
    
    513,948
    
    
    
    (2,275
    )Total temporarily impaired securities
    
    $
    42,958,985
    
    
    $
    (748,513
    )
    
    $
    1,121,408
    
    
    $
    (8,764
    )
   F - 14




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 3.
    
    LOANSThe composition of loans is summarized as follows:
 December 31,2004
    
    
    2003Commercial
    
    $
    24,752,777
    
    
    $
    19,233,927Real estate  construction
    
    
    56,787,690
    
    
    
    34,847,650Real estate  mortgage
    
    
    101,150,702
    
    
    
    66,883,975Consumer installment and other
    
    
    4,408,758
    
    
    
    4,455,438187,099,927
    
    
    
    125,420,990Deferred loan fees
    
    
    (362,700
    )
    
    
    (219,868
    )Allowance for loan losses
    
    
    (2,016,557
    )
    
    
    (1,419,479
    )Loans, net
    
    $
    184,720,670
    
    
    $
    123,781,643
 Changes in the allowance for loan losses are as follows:
 Years Ended December 31,2004
    
    
    2003Balance, beginning of year
    
    $
    1,419,479
    
    
    $
    1,141,095Provision for loan losses
    
    
    1,031,121
    
    
    
    420,000Loans charged off
    
    
    (434,428
    )
    
    
    (141,616
    )Recoveries of loans previously charged off
    
    
    385
    
    
    
    Balance, end of year
    
    $
    2,016,557
    
    
    $
    1,419,479
 The following is a summary of information pertaining to impaired loans:
 As of and for the Years EndedDecember 31,2004
    
    
    2003Impaired loans without a valuation allowance
    
    $
    
    
    
    $
    Impaired loans with a valuation allowance
    
    
    4,811,853
    
    
    
    464,724Total impaired loans
    
    $
    4,811,853
    
    
    $
    464,724Valuation allowance related to impaired loans
    
    $
    533,496
    
    
    $
    139,063Average investment in impaired loans
    
    $
    1,760,363
    
    
    $
    355,434Interest income recognized on impaired loans
    
    $
    38
    
    
    $
    303Nonaccrual loans
    
    $
    4,811,853
    
    
    $
    443,558Loans past due ninety days or more and still accruing interest
    
    $
    26,300
    
    
    $
    67,000
 F - 15




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 3.
    
    LOANS (Continued)In the ordinary course of business, the Company has granted loans to certain related
parties, including directors, executive officers, and their affiliates. The interest
rates on these loans were substantially the same as rates prevailing at the time of
the transaction and repayment terms are customary for the type of loan. Changes in
related party loans for the year ended December 31, 2004 are as follows:
 Balance, beginning of year
    
    $
    7,531,362Advances
    
    
    3,304,625Repayments
    
    
    (1,827,351
    )Balance, end of year
    
    $
    9,008,636
 NOTE 4.
    
    PREMISES AND EQUIPMENTPremises and equipment are summarized as follows:
 December 312004
    
    
    2003Land and improvements
    
    $
    1,804,954
    
    
    $
    1,358,544Buildings
    
    
    4,252,366
    
    
    
    3,064,715Furniture and equipment
    
    
    2,505,593
    
    
    
    1,527,266Construction in progress (estimated
costs to complete $512,000)
    
    
    412,908
    
    
    
    57,5688,975,821
    
    
    
    6,008,093Accumulated depreciation
    
    
    (1,198,772
    )
    
    
    (797,671
    )$
    7,777,049
    
    
    $
    5,210,422
 NOTE 5.
    
    DEPOSITSThe aggregate amount of time deposits in denominations of $100,000 or more at
December 31, 2004 and 2003 was $70,670,219 and $36,886,120, respectively. The
scheduled maturities of time deposits at December 31, 2004 are as follows:
 2005
    
    $
    69,548,0492006
    
    
    40,148,4302007
    
    
    12,089,3552008
    
    
    6,731,0022009
    
    
    7,514,861$
    136,031,697
 The Company had brokered time deposits at December 31, 2004 of $26,932,000.At December 31, 2004 and 2003, overdraft demand deposits and savings accounts
reclassified to loans totaled $9,098 and $23,507, respectively.
 F - 16




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 6.
    
    SECURITIES SOLD UNDER REPURCHASE AGREEMENTSSecurities sold under repurchase agreements, which are secured borrowings, generally
mature within one to four days from the transaction date. Securities sold under
repurchase agreements are reflected at the amount of cash received in connection with
the transactions. The Company may be required to provide additional collateral based
on the fair value of the underlying securities. The Company monitors the fair value
of the underlying securities on a daily basis. Securities sold under repurchase
agreements at December 31, 2004 and 2003 were $4,752,914 and $1,704,188, respectively.NOTE 7.
    
    FEDERAL HOME LOAN BANK ADVANCESFederal Home Loan Bank advances consist of the following:
 December 31,2004
    
    
    2003Advance with interest due quarterly at 3.01% and
principal due on September 5, 2008.
    
    $
    15,000,000
    
    
    $
    15,000,000Advance with variable interest (2.62% at December 31,
2004) maturing on February 9, 2005.
    
    
    9,000,000
    
    
    
    $
    24,000,000
    
    
    $
    15,000,000
 The advances from the Federal Home Loan Bank are secured by certain qualifying loans of
approximately $17,708,000, Federal Home Loan Bank stock of $1,471,300, and securities of
$23,215,473.NOTE 8.
    
    SUBORDINATED DEBENTURESIn 2004, the Company formed a wholly-owned grantor trust to issue floating rate cumulative
trust preferred securities in a private placement offering. The grantor trust has invested the
proceeds of the trust securities in subordinated debentures of the Company. The trust
preferred securities can be redeemed, in whole or in part, from time to time, prior to maturity at the
option of the Company on or after June 30, 2009. The sole assets of the guarantor trust are
the floating rate Subordinated Debentures of the Company (the Debentures) The Company has the
right to defer interest payments on the Debentures up to ten consecutive semi-annual periods
(five years), so long as the Company is not in default under the subordinated debentures. No
deferral period may extend beyond the maturity date.The preferred securities are subject to redemption, in whole or in part, upon repayment of the
subordinated debentures at maturity on June 30, 2034 or their earlier redemption.
Company has the right to redeem the debentures, in whole or in part, from time to time, on or
after June 30, 2009, at a redemption price equal to 100% of the principal amount to be
redeemed plus any accrued and unpaid interest.
 F - 17




---



##### Table of Contents



The Company has guaranteed the payment of all distributions the Trust is obligated to make,
but only to the extent the Trust has sufficient funds to satisfy those payments. The Company and
the Trust believe that, taken together, the obligations of the
Company under the Guarantee
Agreement, the Trust Agreement, the Subordinated Debentures, and the indenture provide, in the
aggregate, a full, irrevocable and unconditional guarantee of all of the obligations of the
trust under the Preferred Securities on a subordinated basis.NOTE 8.
    
    SUBORDINATED DEBENTURES (Continued)The Company is required by the Federal Reserve Board to maintain certain levels of capital for
bank regulatory purposes. The Federal Reserve Board has determined that certain cumulative
preferred securities having the characteristics of trust preferred securities qualify as minority
interest, which is included in Tier 1 capital for bank and financial holding companies. In
calculating the amount of Tier 1 qualifying capital, the trust preferred securities can only
be included up to the amount constituting 25% of total Tier 1 capital elements (including trust
preferred securities). Such Tier 1 capital treatment provides the Company with a more cost-
effective means of obtaining capital for bank regulatory purposes than if the Company were
to issue preferred stock.The trust preferred securities and the related Debentures were issued on April 28, 2004.
Both financial instruments bear an identical annual rate of interest of 4.875 at December
31, 2004. Distributions on the trust preferred securities are paid quarterly on March 31,
June 30, September 30 and December 31 of each year, beginning June 30, 2004. Interest
on the Debentures is paid on the corresponding dates. The aggregate principal amount of
trust preferred certificates outstanding at December 31.2004 was $5,600,000. The aggregate
principal amount of Debentures outstanding at December 31, 2004 was $5,774,000.NOTE 9.
    
    EMPLOYEE BENEFIT PLANThe Company has a 401(k) Profit Sharing Plan available to all eligible employees,
subject to certain minimum age and service requirements. The contributions expensed
were $99,702 and $33,129 for the years ended December 31, 2004 and 2003, respectively.NOTE 10.
    
    STOCK OPTIONSThe Company has a stock option plan reserving 88,889 shares of capital stock for the
granting of options to key employees. The Company also has a stock option plan
reserving 160,000 shares of capital stock for the granting of options to directors.
Option prices reflect the fair market value of the Companys capital stock on the
dates the options are granted. The options may be exercised over a period of ten
years in accordance with vesting schedules determined by the Board of Directors.
 F - 18




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 10. STOCK OPTIONS (Continued)
  2004
    
    
    2003Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at beginning of year
    
    
    219,555
    
    
    $
    6.94
    
    
    
    203,370
    
    
    $
    6.89Granted
    
    
    
    
    
    
    
    
    
    
    17,185
    
    
    
    7.55Exercised
    
    
    (684
    )
    
    
    7.29
    
    
    
    
    
    
    
    Terminated
    
    
    (5,333
    )
    
    
    6.89
    
    
    
    
    
    
    
    Outstanding at end of year
    
    
    213,538
    
    
    $
    6.94
    
    
    
    219,555
    
    
    $
    6.94Options exercisable at end of year
    
    
    202,180
    
    
    $
    6.91
    
    
    
    188,244
    
    
    $
    6.89Weighted average fair value of
options granted during the year
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    2.30Weighted average life of
options outstanding
    
    
    
    
    
    7.0  years
    
    
    
    
    
    8.0 years
   2003Dividend yield
    
    
    0.00
    %Expected life
    
    10 yearsExpected volatility
    
    
    9.20
    %Risk-free interest rate
    
    
    4.55
    %
 F - 19




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 11. INCOME TAXES
  Years Ended December 31,2004
    
    
    2003Current
    
    $
    905,864
    
    
    $
    909,665Deferred
    
    
    (144,428
    )
    
    
    (112,765
    )$
    761,436
    
    
    $
    796,900
  Years Ended December 31,2004
    
    
    2003Income tax at statutory federal rate
    
    $
    830,199
    
    
    $
    812,091Tax-exempt interest
    
    
    (128,550
    )
    
    
    (75,881
    )Disallowed interest
    
    
    12,857
    
    
    
    10,160State tax
    
    
    32,298
    
    
    
    61,709Other items
    
    
    14,632
    
    
    
    (11,179
    )Income tax expense
    
    $
    761,436
    
    
    $
    796,900
  December 31,2004
    
    
    2003Deferred tax assets:Loan loss reserves
    
    $
    683,852
    
    
    $
    428,700Preopening and organization expenses
    
    
    25,032
    
    
    
    60,302Deferred loan fees
    
    
    136,868
    
    
    
    82,969Nonaccrual loans
    
    
    43,528
    
    
    
    Securities available for sale
    
    
    154,728
    
    
    
    207,228779,199
    
    
    
    779,199Deferred tax liabilities:Depreciation
    
    
    352,696
    
    
    
    147,533Cash basis adjustment for income tax reporting purposes
    
    
    64,563
    
    
    
    96,845232,978
    
    
    
    232,978Net deferred tax assets
    
    $
    546,221
    
    
    $
    546,221
 F - 20




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 12. EARNINGS PER SHARE
  Years Ended December 31,2004
    
    
    2003Net income
    
    $
    1,680,323
    
    
    $
    1,591,603Weighted average number of
common shares outstanding
    
    
    2,579,523
    
    
    
    2,571,685Effect of dilutive options
    
    
    88,806
    
    
    
    15,589Weighted average number of common
shares outstanding used to calculate
dilutive earnings per share
    
    
    2,668,329
    
    
    
    2,587,274
 NOTE 13. COMMITMENTS AND CONTINGENCIES
 Loan Commitments
   December 31,2004
    
    
    2003Commercial letters of credit
    
    $
    1,620,569
    
    
    $
    1,228,119Commitments to extend credit
    
    
    33,064,785
    
    
    
    26,593,668$
    34,685,354
    
    
    $
    27,821,787
  F - 21




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 13. COMMITMENTS AND CONTINGENCIES (Continued)
 Loan Commitments (Continued)
  Contingencies
  NOTE 14. CONCENTRATIONS OF CREDIT
   NOTE 15. REGULATORY MATTERS
    F - 22




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 15. REGULATORY MATTERS (Continued)
  To Be WellFor Capital
    
    Capitalized UnderAdequacy
    
    Prompt CorrectiveActual
    
    Purposes
    
    Action ProvisionsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(Dollars in Thousands)December 31, 2004:Total Capital to Risk Weighted AssetsConsolidated
    
    $
    28,125
    
    
    
    13.67
    %
    
    $
    16,465
    
    
    
    8
    %
    
    $
    N/A
    
    
    
    N/ASouthern Community Bank
    
    $
    21,363
    
    
    
    10.39
    %
    
    $
    16,443
    
    
    
    8
    %
    
    $
    20,554
    
    
    
    10
    %Tier I Capital to Risk Weighted AssetsConsolidated
    
    $
    26,108
    
    
    
    12.69
    %
    
    $
    8,232
    
    
    
    4
    %
    
    $
    N/A
    
    
    
    N/ASouthern Community Bank
    
    $
    19,346
    
    
    
    9.41
    %
    
    $
    8,222
    
    
    
    4
    %
    
    $
    12,332
    
    
    
    6
    %Tier I Capital to Average AssetsConsolidated
    
    $
    26,108
    
    
    
    9.84
    %
    
    $
    10,612
    
    
    
    4
    %
    
    $
    N/A
    
    
    
    N/ASouthern Community Bank
    
    $
    19,346
    
    
    
    7.29
    %
    
    $
    10,612
    
    
    
    4
    %
    
    $
    13,266
    
    
    
    5
    %December 31, 2003:Total Capital to Risk Weighted AssetsConsolidated
    
    $
    20,243
    
    
    
    14.22
    %
    
    $
    11,391
    
    
    
    8
    %
    
    $
    N/A
    
    
    
    N/ASouthern Community Bank
    
    $
    14,359
    
    
    
    10.09
    %
    
    $
    11,383
    
    
    
    8
    %
    
    $
    14,229
    
    
    
    10
    %Tier I Capital to Risk Weighted AssetsConsolidated
    
    $
    18,824
    
    
    
    13.22
    %
    
    $
    5,695
    
    
    
    4
    %
    
    $
    N/A
    
    
    
    N/ASouthern Community Bank
    
    $
    12,940
    
    
    
    9.09
    %
    
    $
    5,692
    
    
    
    4
    %
    
    $
    8,537
    
    
    
    6
    %Tier I Capital to Average AssetsConsolidated
    
    $
    18,824
    
    
    
    9.93
    %
    
    $
    7,583
    
    
    
    4
    %
    
    $
    N/A
    
    
    
    N/ASouthern Community Bank
    
    $
    12,940
    
    
    
    6.83
    %
    
    $
    7,581
    
    
    
    4
    %
    
    $
    9,477
    
    
    
    5
    %
 F - 23




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS
 Disclosures about Fair Value of Financial
Instruments,
  Cash, Due From Banks,Interest-bearing Deposits in Banks and Federal Funds Sold:
 Securities:
 Loans:
 Deposits:
 Federal Funds Purchased, Repurchase Agreements and Federal Home Loan Bank Advances:
 Subordinated Debentures:
 Accrued Interest:
 Off-Balance Sheet Instruments:
 F - 24




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
  December
31, 2004
    
    December 31, 2004Carrying
    
    Fair
    
    Carrying
    
    FairAmount
    
    Value
    
    Amount
    
    ValueFinancial assets:Cash, due from banks,
and federal funds sold
    
    $
    24,060,900
    
    
    $
    24,060,900
    
    
    $
    4,422,961
    
    
    $
    4,422,961Securities
    
    
    52,086,984
    
    
    
    52,086,984
    
    
    
    60,549,452
    
    
    
    60,549,452Loans
    
    
    184,720,670
    
    
    
    125,234,706
    
    
    
    123,781,643
    
    
    
    12,523,470Accrued interest received
    
    
    1,099,466
    
    
    
    1,099,466
    
    
    
    928,817
    
    
    
    928,817Financial liabilities:Deposits
    
    
    215,764,233
    
    
    
    161,191,427
    
    
    
    159,775,068
    
    
    
    161,191,427Securities sold under
Repurchase agreements
    
    
    4,752,914
    
    
    
    4,752,914
    
    
    
    1,704,188
    
    
    
    1,704,188Federal Home Loan Bank advances
    
    
    24,000,000
    
    
    
    15,106,564
    
    
    
    15,000,000
    
    
    
    15,106,564Subordinated debentures
    
    
    5,774,000
    
    
    
    5,774,000
    
    
    
    
    
    
    
    Accrued interest payable
    
    
    491,263
    
    
    
    491,263
    
    
    
    443,923
    
    
    
    443,923
 NOTE 17. SUPPLEMENTAL FINANCIAL DATA
  Years Ended December 31,2004
    
    2003Professional fees
    
    $
    195,695
    
    
    $
    102,121Data processing expense
    
    
    249,176
    
    
    
    185,690
 F - 25




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 18. PARENT COMPANY FINANCIAL INFORMATION
  CONDENSED BALANCE SHEET
 2004
    
    
    2003AssetsCash
    
    $
    6,515,940
    
    
    $
    5,805,604Investment in subsidiary
    
    
    19,094,195
    
    
    
    12,602,382Securities available for sale
    
    
    174,000
    
    
    
    Other assets
    
    
    270,773
    
    
    
    94,402Total assets
    
    $
    26,054,908
    
    
    $
    18,502,388Subordinated Debentures
    
    $
    5,774,000
    
    
    $
    Other liabilities
    
    
    24,628
    
    
    
    16,455Total liabilities
    
    $
    5,798,628
    
    
    $
    16,455Shareholders equity
    
    
    20,256,280
    
    
    
    18,485,933Total liabilities and shareholders equity
    
    $
    26,054,908
    
    
    $
    18,502,388
 CONDENSED STATEMENT OF INCOME
 2004
    
    2003IncomeInterest income
    
    
    5,171
    
    
    
    Dividends from subsidiary
    
    
    
    
    
    
    Total income
    
    
    5,171
    
    
    
    Interest expense
    
    
    171,596
    
    
    
    Expenses, other
    
    
    197,815
    
    
    
    143,394Total expenses
    
    
    369,411
    
    
    
    143,394Loss before income tax benefits and equity
in undistributed income of subsidiary
    
    
    (364,240
    )
    
    
    (143,394
    )Income tax benefits
    
    
    (138,411
    )
    
    
    (54,489
    )Income (loss) before equity in
undistributed income
of subsidiary
    
    
    (225,829
    )
    
    
    (88,905
    )Equity in undistributed income of subsidiary
    
    
    1,906,152
    
    
    
    1,680,508Net income
    
    
    1,680,323
    
    
    
    1,591,603
 F - 26




---



##### Table of Contents



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 NOTE 18. PARENT COMPANY FINANCIAL INFORMATION (Continued)
 CONDENSED STATEMENT OF CASH FLOWS
 2004
    
    
    2003OPERATING
ACTIVITIESNet income
    
    $
    1,680,323
    
    
    $
    1,591,603Adjustments to reconcile net income to net
cash used in operating activities:Undistributed income of subsidiary
    
    
    (1,906,152
    )
    
    
    (1,680,508
    )Other operating activities
    
    
    (35,198
    )
    
    
    (46,034
    )Net cash used in operating activities
    
    
    (261,027
    )
    
    
    (134,939
    )INVESTING
ACTIVITIESCapital infusion in subsidiary
    
    
    (4,500,000
    )
    
    
    
    
    
    
    FINANCING
ACTIVITIESProceeds from issuance of long term debt
    
    
    5,467,000
    
    
    
    Proceeds from issuance of capital stock
    
    
    8,425
    
    
    
    713,940Payment for fractional shares
    
    
    (4,062
    )
    
    
    (6,122
    )Stock issuance costs
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    5,471,363
    
    
    
    707,818Net increase in cash
    
    
    710,336
    
    
    
    572,879Cash at beginning of year
    
    
    5,805,604
    
    
    
    5,232,725Cash at end of year
    
    $
    6,515,940
    
    
    $
    5,805,604
 NOTE 19. STOCK SPLIT
  F - 27