SNB 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. SNB was incorporated on February 10, 1994 at the instruction of management of SB-Bibb. At a special meeting of the shareholders of SB-Bibb on August 2, 1994, the shareholders of SB-Bibb voted in favor of a plan of reorganization and agreement of merger pursuant to which SB-Bibb became a wholly owned subsidiary of SNB. The reorganization was effective on September 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 SNB. SB-Bibb has operated as a wholly owned subsidiary of SNB 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 4, 1988. The bank now operates six full service offices in Macon, Georgia, and has mortgage loan offices in Warner Robins and Macon, 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, SNB acquired a 100% 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 interests stock swap transaction, and accordingly, all prior financial information shown below has been restated as if this business combination had always existed. 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 SNB.

Substantially all of the business of SNB is conducted through its two subsidiary banks. Both banks offer a full range of deposit products, lending services including a specialized mortgage division, Internet banking, automated teller machines, safe deposit, credit cards, night depositories, and other services for the convenience of its customers, who mainly reside in Bibb and Houston Counties. As of December 31, 1999, SNB had 130 employees on a full-time equivalent basis.

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

Consolidated total assets of $283.5 million at December 31, 1999 were up by $30.5 million, or 12.0%, over total assets at December 31, 1998. Total assets of $253.0 million at December 31, 1998 were up by $36.6 million, or 16.9%, over total consolidated assets at December 31, 1997. On average the balance sheet grew by 14.2% during 1999 and 11.2% during 1998. These growth rates are generally higher than the economic growth statistics for the company's middle Georgia market area. SNB's above average growth trends are attributed to recent industry consolidations and restructuring efforts of the larger super regional banks in the area, SNB's broader coverage of the geographic area through its expanded branch network, and the momentum and synergies from the 1998 merger transaction with SB-Houston.

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

Loans net of unearned income of $207.4 million and $179.2 million at December 31, 1999 and 1998 amounted to 73.2% and 70.8% of total assets, and 87.4% and 82.3% of deposits. The average yields generated by interest and fees from the loan portfolio amounted to 9.38% during 1999, compared to 10.02% during 1998, and 10.52% during 1997. SNB's reserve for loan losses as a percentage of outstanding loans amounted to 1.12% at December 31, 1999, compared to 1.16% and 1.28% December 31, 1998 and 1997.

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

The following table provides information on the maturity distribution of selected categories of the loan portfolio and certain interest sensitivity data as of December 31, 1999.

As of December 31, 1999, the securities portfolio amounted to $45.1 million, or 15.9% of total assets, compared to $39.3 million, or 15.5% of assets at December 31, 1998. The minimal change in investment portfolio size relative to the balance sheet reflects the general growth in the balance sheet. Over recent years, more assets have been deployed in the loan portfolio rather than in investment securities to produce greater yields.

The average tax equivalent yield on the portfolio, excluding the impact of SFAS No. 115 market value adjustments for unrealized gains and losses on Available For Sale securities, was 6.36% for the year 1999 versus 6.27% in 1998. During the year 1999, the investment securities portfolio, excluding unrealized gains and losses, represented 16.1% of average earning assets and 14.7% of average total assets. During 1998, the portfolio averaged 17.9% of earning assets and 16.4% of total assets. This decrease is attributable to the growth in overall earning assets, particularly loan growth.

The following table summarizes the Available for Sale and Held to Maturity investment securities portfolios as of December 31, 1999, 1998 and 1997. Available for Sale securities are shown at fair value, while Held to Maturity securities are shown at amortized or accreted cost.

The following tables illustrate the contractual maturities and weighted average yields of investment securities held at December 31, 1999. Expected maturities will differ from contractual maturities because certain issuers have the right to call or prepay obligations with or without call or prepayment penalties. No prepayment assumptions have been estimated in the table. The weighted average yields are calculated on the basis of the amortized cost and effective yields of each security weighted for the scheduled maturity of each security. The yield on state, county and municipal securities is computed on a taxable equivalent basis using a statutory federal income tax rate of 34%.

As of December 31, 1999 and 1998, SNB had no holdings of securities of a single issuer in which the aggregate book value and aggregate market value of the securities exceeded ten percent of stockholders' equity, with the exception of U. S. Treasury and U. S. Government Agencies securities.

SNB holds additional earning assets in overnight Federal Funds Sold. These balances amounted to $6.1 million and $10.7 million as of December 31, 1999 and 1998, respectively. Balances in non-earning assets are comprised of cash and correspondent bank balances, fixed assets, income receivable on loans and investments and other miscellaneous assets. Management works to minimize non-earning asset balances in order to maximize profit potential. Non-earning assets represented 9.6% of the balance sheet as of December 31, 1999, and 10.2% as of December 31, 1998.

Deposits are SNB's primary liability and funding source. Total deposits as of December 31, 1999 were $237.4 million, up 9.0% from $217.8 million at December 31, 1998. Average deposits in 1999 were $217.2 million, up 13.6% from $191.2 million during 1998. The average cost of deposits, with non-interest checking accounts factored in, was 3.69% during 1999, down from 3.96% during 1998 and 4.10% in 1997. The decreases are attributed to an improved deposit mix, with more relative balances in NOW accounts and non-interest checking, plus declining rates paid on interest checking and savings account balances.

During 1999, 18.1% of average deposits were held in non-interest bearing checking accounts, 26.8% were in lower yielding interest bearing transaction and savings accounts, and 55.1% were in time certificates with higher yields. Comparable average deposit mix percentages during 1998 were 18.1%, 27.6% and 54.3%, respectively. The banks' total interest expense on deposits and borrowed funds as a percentage of average earning assets was 3.61% during 1999, down from 3.83% during 1998 and 4.00% during 1997.

The following tables reflect average balances of deposit categories for the years 1999, 1998 and 1997.

The following table summarizes the maturities of time deposits of $100,000 or more as of December 31, 1999, 1998 and 1997. SNB's large denomination time deposits are generally from customers within the local market area, therefore providing a greater degree of stability than is typically associated with this source of funds. SNB holds no foreign deposits and has no brokered deposits.

Other interest bearing sources of funds at December 31, 1998 totaled $6.4 million, up from $2.6 million at December 31, 1997. Of the 1998 balance, $3.1 million consisted of FHLB notes, $0.3 million was in treasury, tax and loan note balances, $2.8 million was in federal funds purchased and securities sold under agreements to repurchase, and $0.2 million was in capital lease obligations.

Other liabilities of $2.8 million at December 31, 1999 and $3.1 million at December 31, 1998 consist of interest payable on deposits, federal income taxes payable and other accrued but unpaid expenses.

SNB, primarily through the actions of its subsidiary banks, engages in liquidity management to ensure adequate cash flow for deposit withdrawals and credit commitments. 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 or the renewal of maturing deposits. Management monitors deposit flow and evaluates alternate pricing structures to retain and grow deposits as needed. Through various asset / liability management strategies, a balance is maintained among goals of liquidity, safety and earnings potential. Balances held in cash and correspondent banks are reviewed daily to maximize the federal funds investment position. Internal policies that are consistent with regulatory liquidity guidelines are monitored and enforced by the banks.

The investment portfolio provides a ready means to raise cash without loss if liquidity needs arise. As of December 31, 1999, SNB held $42.9 million in bonds, at amortized or accreted cost, in the Available for Sale portfolio, and $8.1 million of these bonds mature, or are callable, within a one-year period. At December 31, 1998, the Available for Sale portfolio amounted to $34.8 million, with $16.5 million maturing or callable within one year. Only marketable investment grade bonds are purchased. The banks from time to time invest in short term CDs at other banks, and generally maintain a net sold position in overnight federal funds.

Management continually monitors the relationship of loans to deposits as it relates to SNB's liquidity posture. SNB had ratios of loans to deposits of 87.4% as of December 31, 1999 and 82.3% at December 31, 1998, which were considered by management to be satisfactory levels for liquidity purposes. The stability of the banks' core deposit base is an important factor in the SNB's liquidity position. A heavy percentage of the deposit base is comprised of accounts of individuals and small businesses with comprehensive banking relationships and limited volatility. The banks have no brokered deposits. Additionally, only 50.0% of SNB's portfolio of investment securities was pledged at December 31, 1999 to secure deposits of public and governmental entities and for other purposes which require a pledge of the banks' assets, leaving almost half of the portfolio unencumbered for liquidity management.

At December 31, 1999 and 1998, the banks had $31.9 million and $27.1 million in certificates of deposit of $100,000 or more. Although these deposits represented 13.4% and 12.4% of respective total deposits, the majority of these large CDs are stable deposits of local individuals and small businesses. Management works to avoid reliance on volatile deposits that might lead to liquidity pressures. The parent company has an unsecured line of credit and the banks have established borrowing lines for federal funds through correspondent banks. The parent company has a large excess cash position from past common stock issues. Borrowing capacity also exists through the membership of the banks in the Federal Home Loan Bank program, and both banks have established access to national CD markets for deposit gathering through a bulletin board service if needed. Management believes that the various funding sources discussed above are adequate to meet the company's liquidity needs in the future without any material adverse impact on operating results.

SNB has always placed great emphasis on maintaining a strong capital base and continues to exceed all minimum capital requirements. SNB's equity capital of $27.5 million at December 31, 1999 amounts to 9.7% of total assets, compared to 10.2% at December 31, 1998, and 10.5% at December 31, 1997. On average, the equity capital was 10.5% of assets during 1999, compared to 11.1% for 1998 and 10.6% for 1997.

Information discussed below has been adjusted for stock splits. In August, 1998, 846,743 new shares of the company's common stock were issued in connection with the pooling of interests stock swap merger with Crossroads Bancshares, Inc. Additionally, 1998 marked the expiration of the outstanding stock warrants held by the company's organizing directors and executive officers. During the past three years, the holders have completed the exercise of 449,700 warrants, generating a total of $1.5 million in new capital. There are no remaining founders' warrants outstanding.

Capital levels in 1996 and 1997 reflect an influx of $5.4 million in proceeds from the issuance of new stock in two different events. In September 1996, SNB issued a stock offering for the sale of 340,700 new shares of the company's common stock. The issue, which generated $3.6 million in new capital, was fully subscribed and successfully completed by February 1997. At the beginning of 1996, SNB issued an additional 203,500 shares of its common stock, primarily to newly elected directors and executive officers of the company. This action produced $1.8 million in new capital.

Principal uses of the strong capital base in recent years have been (a) sustaining the capital adequacy of the banks as they continue to grow at a steady pace, (b) expanding the company's presence in Macon and middle Georgia with more physical locations and improved delivery systems, (c) expanding into contiguous Houston County through the merger with SB-Houston and development of a mortgage loan division, and (d) enhancing corporate infrastructure support systems to manage SNB's new multi-bank environment. Additional acquisitions may occur in the future.

Regulators use a risk-adjusted calculation to aid them in their determination of capital adequacy by weighting assets based on the degree of risk associated with on- and off-balance sheet assets. The majority of these risk-weighted assets for the company are on-balance sheet assets in the form of loans. Small portions of risk-weighted assets are considered off-balance sheet assets comprised of letters of credit and loan commitments. Capital is categorized as either core (Tier 1) capital or supplementary (Tier 2) capital. Tier 1 capital consists primarily of stockholders' equity minus any intangible assets, while Tier 2 capital can consist of the reserve for loan losses up to certain limits, certain short term and other preferred stock and certain debt instruments.

Current regulatory standards require bank holding companies to maintain a minimum risk based capital ratio of qualifying total capital to risk weighted assets of 8.0%, with at least 4.0% of the capital consisting of Tier 1 capital, and a Tier 1 leverage ratio of at least 4.0%. Additionally, the regulatory agencies define a well-capitalized bank as one that has a leverage ratio of at least 5%, a Tier 1 capital ratio of at least 6%, and a total risk based capital ratio of at least 10%. SNB's capital ratios under these guidelines as of December 31, 1999 and 1998 are well above the levels for a well-capitalized bank as shown in the following table.

Cash dividends of $851,862, or $.26 per weighted average common share, were declared and paid during 1999, up from $704,126, or $.22 per share during 1998, and $467,897, or $.16 per share in 1997. The ratios of cash dividends paid to net income for these years were 26.3%, 30.3% and 18.0%, respectively. Since the commencement of cash dividend payments in 1992, the SNB Board of Directors has consistently declared and paid dividends on a quarterly basis.

On June 1, 1996, a 100% stock split was issued and effected in the form of a dividend, and on September 25, 1997, a 25% stock split was issued and effected in the form of a dividend. Per share data for all periods presented has been retroactively restated to reflect the additional shares resulting from these stock splits.

Management is not aware of any trends, events, or uncertainties that will have, or that are reasonably likely to have a material impact on SNB's liquidity, capital resources, or operations. Further, management is aware of no current recommendations by regulatory authorities that, if they were to be implemented, would have such an effect.

On January 29, 1998, SNB entered into an Agreement and Plan of Merger with Crossroads Bancshares, Inc. in Perry, Georgia, pursuant to which Crossroads would be merged with and become a wholly owned subsidiary of SNB. On August 8, 1998, the merger was completed in a 100% stock pooling of interests transaction, and 846,743 shares of SNB common stock were issued to effect the merger. On June 3, 1999, the bank name was changed from Crossroads Bank to Security Bank of Houston County. SB-Houston operates four offices in Houston County - one in Perry, Georgia and three in Warner Robins, Georgia. The merger allowed SNB to establish an immediate presence in its primary targeted market for expansion. Houston County is included in the same Macon-Warner Robins metropolitan statistical area as SNB's principal Bibb County market. The Warner Robins Air Force Base is the largest employer in the middle Georgia area and helps to make the two counties a common market.

As the company grows, it continues to add physical office locations and delivery channels to serve its existing middle Georgia market. SNB is adequately capitalized to meet all anticipated capital expenditure needs. During 1999, the company introduced an Internet banking product for its customers. In 1998 the Hartley Bridge Road branch was constructed and opened in southwest Bibb County by the lead bank. This is Security Bank's sixth full service location in Macon. Security Bank purchased an existing facility and opened its fifth full service office at 3945 Pio Nono Avenue in south Macon in August, 1997. Security Bank's existing Shurling Drive branch was relocated to a larger and more convenient major intersection at 614 Shurling Drive. In February 1997, the bank relocated its in-house data processing facility and operational support functions to a leased operations center on Riverside Drive near the bank's main office. Platformation and other improvements to the company's internal information technology were made in 1997. During 1996, a remote ATM/night depository facility was established on Forsyth Road in northwest Macon. In October, 1996, Security Bank converted its data processing software to a new advanced system. These additional fixed asset purchases were financed through the equity base and retained earnings of the company with no external borrowing.

During the first quarter of 2000, SB-Houston's fourth full service office in Houston County was established on Houston Lake Road in Warner Robins. In October 1997, prior to the SB-Houston merger, SB-Bibb made its first expansion move into neighboring Houston County. A mortgage loan production office was established in Warner Robins, Georgia under the management of a veteran mortgage originator from the area. In conjunction, the mortgage lending function was strengthened in Bibb County as well. The mortgage division in Houston County has now been relocated from leased space into the new branch office on Houston Lake Road.

Information for all prior periods in the following discussion has been retroactively adjusted for the pooling of interests combination with Crossroads Bancshares, Inc., which occurred on August 8, 1998. All share and per share data have been restated to reflect a 25% stock split effected in the form of a dividend on September 25, 1997.

SNB's net income was $3,245,174, $2,326,967, and $2,607,379 for the years 1999, 1998 and 1997, respectively. Diluted earnings per share amounted to $0.96 in 1999, $0.69 in 1998, and $0.80 in 1997. The company's return on average assets amounted to 1.27% for 1999, 1.04% for 1998, and 1.30% for 1997. The return on average equity was 12.08%, 9.41%, and 12.17%, respectively. Earnings have returned to an upward trend after several factors decreased the earnings during 1998 and 1997. Among these factors were $532,484 in one-time pre-tax costs of the1998 acquisition in Houston County and associated name changes for the banks, the establishment of a more extensive branch network, and increased technological costs associated with setting up a multi-bank data processing center.

Net interest income (the difference between the interest earned on assets and the interest paid on deposits and liabilities) is the principal source of earnings for the company. SNB's average net interest rate margin, on a taxable equivalent basis, compares well with industry standards at 5.21% in 1999, 5.33% in 1998 and 5.38% in 1997. Net interest income before tax equivalency adjustments in 1999 amounted to $11,975,079, up 11.6% from $10,734,768 in 1998. The 1998 net interest income was up 11.5% from $9,624,365 posted in 1997.

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

Balances in average interest earning assets rose by 13.5% in 1999 over 1998. Growth in higher yielding loan balances accounted mainly for this increase. Average loan balances increased 19.4% and represented 75.1% of the average balance sheet in 1999, up from 71.8% of the average balance sheet in 1998. Investment securities and federal funds sold, on the other hand, were 16.3% of average 1999 assets, down from 20.2% during 1998. The overall yield on average interest earning assets, on a taxable equivalent basis, declined by 35 basis points from 9.17% in 1998 to 8.82% in 1999. The decline is attributed to a 64 basis point drop in average loan yields.

At the same time, the overall average cost of interest bearing liabilities has fallen 35 basis points, from 4.87% in 1998 to 4.52% in 1999. The mix of deposits has improved steadily over the past few years. The relative percentages of demand and low cost transaction accounts have increased. This is attributed to aggressive marketing in a period of flux for area super regional competition, growing consumer business due to the convenience of a larger branch network, and increases in business deposit relationships from larger commercial credit lines. Rates paid on interest bearing checking and savings accounts have trended downward over the periods to reflect current market pricing. The average cost of certificates of deposit also declined during 1999, after holding relatively steady for the previous three years.

Most patterns are similar when comparing 1998 margin results to 1997. Tax equivalent net interest income increased by $1,070,000 from 1997 to 1998. The increase is attributed to significant balance sheet growth and improvements in balance sheet mix. The average margin yield declined by 5 basis points, from 5.38% in 1997 to 5.33% in 1998. Average interest earning assets rose by 11.9% in 1998 over 1997. Loans became a more dominant asset, representing 71.8% of the average balance sheet in 1998, up from 67.5% in 1997. Lower yielding investment securities and federal funds sold dropped to 20.2% of average 1998 assets, down from 23.9% during 1997. The mix of deposits improved during 1998 as well. The costlier certificates of deposit totaled 54.3% of average 1998 deposits, down from 56.4% in 1997.

The table on the following pages summarizes average balance sheets, interest and yield information on a taxable equivalent basis for the years ended December 31, 1999, 1998, 1997.