The following narrative presents management's discussion and analysis of the Company and its subsidiaries' financial condition and results of operations as of and for the three-month periods ended March 31, 2009 and 2008. The historical financial statements of the Company are set forth elsewhere herein. This discussion should be read in conjunction with those financial statements and the other financial information included in this Quarterly Report on Form 10-Q.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains or incorporates by reference statements that are "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the Securities Act) and
Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Forward-looking statements discuss future expectations, describe future plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Forward-looking statements are generally identifiable by the use of forward-looking terminology such as "anticipate," "assume," "believe," "continue," "could," "would," "endeavor," "estimate," "expect," "forecast," "goal," "intend," "may," "objective," "plan," "potential," "predict," "project," "seek," "should," "target," "will" and other similar words and expressions of future intent.

Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. Factors that could cause actual results and performance to differ from those expressed in our forward-looking statements we make or incorporate by reference in this Quarterly Report on Form 10-Q include, but are not limited to:

• the effects of the current global economic crisis, including, without limitation, the dramatic deterioration of real estate values, the subprime mortgage, credit and liquidity markets, as well as the Federal Reserve's actions with respect to interest rates, may lead to a further deterioration in credit quality, thereby requiring continued increases in our provision for loan losses, or a reduced demand for credit, which will continue to negatively impact our earnings;

• the imposition of enforcement orders, capital directives or other enforcement actions by our regulators, including restrictions and limitations placed on the Banks pursuant to the Orders;

• possible changes in trade, monetary and fiscal policies, as well as legislative and regulatory changes, including changes in accounting standards and banking, securities and tax laws and regulations and governmental intervention in the U.S. financial system, as well as changes affecting financial institutions' ability to lend and otherwise do business with consumers;

• increases in our nonperforming assets, or our inability to recover or absorb losses created by such nonperforming assets;

• our ability to effectively manage liquidity risk, interest rate risk and other market risk, credit risk and operational risk

• our ability to manage negative developments and disruptions in the credit and lending markets, including the impact of the ongoing credit crisis on our business and on the businesses of our customers as well as other financial institutions with which we have commercial relationships;

• the continuation of the recent unprecedented volatility in the credit markets and overall economy;

• possible changes in the quality or composition of our loans or investment portfolios, including further adverse developments in the real estate markets, the borrowers' industries or in the repayment ability of individual borrowers or issuers;

• changes in the interest rate yield curve such as flat, inverted or steep yield curves, or changes in the interest rate environment that impact interest margins and may impact prepayments on the mortgage-backed securities portfolio;

• our ability to manage fluctuations in the value of assets and liabilities and off-balance sheet exposure so as to maintain sufficient capital and liquidity to support our business;

• the failure of our assumptions underlying the establishment of allowances for loan losses and other estimates, or dramatic changes in those underlying assumptions or judgments in future periods, that, in either case, render the allowance for loan losses inadequate or require that further provisions for loan losses be made;

• unexpected outcomes of existing or new litigation;

• management's ability to develop and execute plans to effectively respond to the Orders and any unexpected events in the future; and

• other factors and information contained in this Quarterly Report on Form 10-Q and other reports that we file with the Securities and Exchange Commission (SEC) under the Exchange Act.

The cautionary statements in this Quarterly Report on Form 10-Q also identify important factors and possible events that involve risk and uncertainties that could cause our actual results to differ materially from those contained in the forward-looking statements. These forward-looking statements speak only as of the date on which the statements were made. We do not intend, and undertake no obligation, to update or revise any forward-looking statements contained in this Quarterly Report on Form 10-Q, whether as a result of differences in actual results, changes in assumptions or changes in other factors affecting such statements, except as required by law.

Readers should carefully review all disclosures we file from time to time with the SEC.

Unless indicated otherwise, references in this Quarterly Report on Form 10-Q to "we," "us," "our," "SBKC" or the "Company" refer to Security Bank Corporation and its consolidated subsidiaries, Security Interim Holding Corporation, Security Bank of Bibb County, Security Bank of Houston County, Security Bank of Jones County, Security Bank of North Metro, Security Bank of North Fulton and Security Bank of Gwinnett County. Together, the consolidated subsidiary banks are referred to as "the Banks."

Overview

Security Bank Corporation was incorporated on February 10, 1994 for the purpose of becoming a bank holding company. We are subject to extensive federal and state banking laws and regulations, including the Bank Holding Company Act of 1956, as amended, and the bank holding company laws of Georgia. We own six subsidiary banks-Security Bank of Bibb County, Security Bank of Houston County, Security Bank of Jones County, Security Bank of North Metro, Security Bank of North Fulton and Security Bank of Gwinnett County. We also own Security Real Estate Services, Inc. (SRES), an interim real estate and development lender, which functions as an operating subsidiary of Security Bank of Bibb County. Through 2007, we offered land acquisition and development and construction loans from SRES, but SRES no longer offers these loans. SRES did continue to originate residential mortgage loans until the fourth quarter of 2008, when we contracted with Envoy Mortgage, an independent residential mortgage company based in Houston, Texas, to offer mortgage loans to our customers. As part of the agreement, all employees of SRES's traditional residential mortgage origination business were retained by Envoy Mortgage and continue to originate mortgages in the Company's offices. The Banks are also subject to various federal and state banking laws and regulations. SBKC Interim, a wholly owned subsidiary of Security Bank Corporation, was formed in April 2008 for the purpose of issuing $40.0 million of subordinated notes and conducts no operations. On March 30, 2009, the Company announced a definitive agreement to sell two Glynn County branches, located in Brunswick and St. Simons Island, to The Heritage Bank. Following the closing of the transaction, the Brunswick and St. Simons branches of Security Bank of Bibb County would become branch offices of The Heritage Bank. The transaction is subject to regulatory approval and other closing conditions and is expected to be completed in the second quarter of 2009.

The Banks each operate as a separate legal entity under the corporate umbrella of the Company. As a result, each Bank has its own board of directors and management comprised of persons known in the local community in which each Bank operates. We provide significant assistance and oversight to the Banks in areas such as budgeting, marketing, human resource management, credit administration, operations and funding.

As of March 31, 2009 we had 388 employees on a full-time equivalent basis.

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

Recent Events

As a result of these unprecedented and difficult times, the regulatory capital level of our Banks has decreased significantly and our sources of funding have diminished. Currently, the Company is making all efforts to retain and increase its capital ratios and liquidity. As part of those efforts, in the first quarter of 2009, we exercised our rights under all three of our trust preferred securities agreements to extend the interest payment periods and therefore did not make the payments due for the first payment periods of 2009. We presently anticipate that we will exercise this right on the remaining interest payments in 2009 as well. Also, in February 2009, the Company notified the affiliates of the FSI Group, LLC that it would defer the March 31, 2009 interest payment on the Notes issued in April 2008. The deferred interest was added to the principal balance and future interest payments will be calculated on the increased principal balance.

In addition, the Company has retained the services of investment bankers to review all strategic opportunities available to the Company and the Banks. As part of such plan of action, in January 2009, the Company applied to the FDIC to consolidate its six banking charters into a single banking charter. Subsequent to the filing of the application, the Company received notice that several of our Banks were undercapitalized as of December 31, 2008. In April 2009, we withdrew the application to consolidate our banking charters.

Several of the Banks are subject to Section 337 of the FDIC Rules and Regulations. Under this section, these banks may no longer accept, renew or rollover maturing brokered deposits. During the quarter ended March 31, 2009, $66.1 million in brokered deposits matured which decreased our liquidity position. During the remainder of 2009, another $603.4 million in brokered deposits will mature. If we are unable to replace these matured brokered deposits, then our liquidity position will be negatively and severely impacted and we likely will not be able to fund our operations in the future.

In April 2009, five of our Banks entered into Orders with the FDIC and the Department. The Orders set forth requirements for the Banks to take actions to address capital levels and lending policies, and place restrictions on the issuance of dividends by the Banks to the Company and restrictions on brokered deposits, among other items. Four of the Orders entered into by Security Bank of Gwinnett County, Security Bank of Bibb County, Security Bank of Jones County and Security Bank of North Metro, assert that the Banks are: operating with a Board that has failed to provide adequate supervision over and direction to the management of the Bank; operating with management whose policies and practices are detrimental to the Bank and jeopardize the safety of its deposits; operating with a large volume of poor quality loans; following hazardous lending and tax collection policies and practices; operating in such a manner as to produce operating losses; operating with inadequate equity capital in relation to the volume and quality of assets held by the Bank; operating with inadequate provisions for liquidity and funds management; operating with inadequate allowance for loan and lease losses; and operating in violation of laws and/or regulations, and in contravention of statements of policy. The fifth Order entered into by Security Bank of Houston County asserts that the Bank is:
operating with inadequate supervision and direction over the financial affairs of the Bank; operating with an inadequate level of capital based upon the level of risk identified; operating with an excessive volume of assets subject to adverse classification, resulting from engaging in inadequate credit administration and underwriting practices; operating with an excessive volume of credit concentrations which reflect a lack of diversity in the loan portfolio; operating with an excessive volume of nonearning assets; operating with marginal liquidity; and engaging in violations of applicable federal and state regulations.

The Orders entered into by Security Bank of Jones County and Security Bank of North Metro require the Banks to increase their capital to a minimum Tier 1 Capital Ratio of 8.0% and a minimum Total Risk Based Capital Ratio of at least 10.0% within 30 days of the effective date of the Order. The Orders entered into by Security Bank of Bibb County and Security Bank of Gwinnett County require the Banks to increase their capital to a minimum Tier 1 Capital Ratio of 8.0% within 30 days of the effective date of the Order. The Order entered into by Security Bank of Houston County requires the Bank to increase its capital to a minimum Tier 1 Capital Ratio of 8.0% within 90 days of the effective date of the Order. Each Bank consented to the Orders without admitting to or denying the allegations.

Pursuant to the Orders, the Banks have created a Directors Committee to ensure compliance with the Orders and report to the Board of Directors. In addition, each Bank is required to provide a quarterly written progress report to the Department and the FDIC detailing the form and manner of any actions taken and the results of such actions, to secure compliance with the Orders.

On November 14, 2008, the Company filed an application to participate in the Capital Purchase Program administered by the U.S. Department of the Treasury under the Troubled Asset Relief Program. Because of the issuance of the Orders and the changes in the Capital Purchase Program, the Company withdrew its application to participate in the Capital Purchase Program on April 23, 2009.

On May 6, 2009, Security Bank Corporation and Security Interim Holding Corporation (the "Companies") entered into a Written Agreement with the Federal Reserve Bank of Atlanta (the "Federal Reserve") and the Georgia Department of Banking and Finance (the "Department"). The Written Agreement contains several provisions intended to increase the financial soundness of the Companies so that the Companies may serve as a source of strength to the Banks.

The summary description of the Written Agreement set forth below is qualified in its entirety by the actual Written Agreement, which is attached as Exhibit 10.6 and is incorporated by reference herein.

Under the terms of the Written Agreement, each of the Companies has agreed to the following provisions (among others detailed in the Written Agreement):

• Submit a written plan to strengthen risk management practices and assist the Banks in meeting the requirements of supervisory actions imposed on them by their federal or state regulators.

• Refrain from paying dividends or receiving dividends from the Banks without the prior written approval of the Federal Reserve and the Department.

• Refrain from making payments of interest or principal on subordinated debt or trust preferred securities without the prior written approval of the Federal Reserve and the Department.

• Refrain from incurring, increasing or guaranteeing any debt without the prior written approval of the Federal Reserve and the Department.

• Submit a written plan to maintain sufficient capital at the Companies and each of the Banks.

• Refrain from increasing or imposing any new fees on the Banks without prior written approval of the Federal Reserve.

• Furnish quarterly progress reports to the regulators.

The restrictions and reporting obligations under the Written Agreement are similar to the restrictions placed on the Banks pursuant to the previously reported enforcement actions.

Liquidity Plan

Our Liquidity Task Force continues to meet weekly to review liquidity-related issues such as forecasted sources and uses of funds, loan pipelines, deposit pricing and deposit and borrowing maturities, among others. The Company's investment portfolio

provides a ready means to raise cash if liquidity needs arise. As of March 31, 2009, we held $390.9 million in bonds at current market value in our available for sale portfolio with $298.7 million or 76% pledged to secure various public funds deposits, federal funds lines and repurchase agreements and for other purposes.

We have established multiple borrowing sources to augment our funds management. Borrowing capacity exists through the membership of our Banks in the FHLB program. Our Banks have also established overnight borrowing lines for federal funds purchased through various correspondent banks. At March 31, 2009, the Company had availability from these borrowing sources of $91.5 million. In February 2009, the Company received notice from the FHLB of Atlanta that the FHLB had frozen our borrowing availability for four of our Banks (Security Bank of Bibb County, Security Bank of North Metro, Security Bank of North Fulton and Security Bank of Gwinnett County) to the amount outstanding. Advances that mature may be renewed; however, no new advances may be obtained.

Financial Condition

At March 31, 2009, our total assets were $2.79 billion compared to $2.85 billion at December 31, 2008. The decrease in total assets compared to December 31, 2008 is primarily due to decreases in loans receivable, interest-bearing deposits with other banks and investment securities offset by increases in other real estate and other assets.

Assets

The composition of our assets is as follows:



                                               March 31,      December 31,
(In Thousands)                                   2009             2008          $ Change       % Change
Cash and Due From Banks                       $    34,955    $       37,216    $   (2,261 )        -6.1 %
Federal Funds Sold                                    525             1,508          (983 )       -65.2 %
Interest-Bearing Deposits With Other Banks        251,664           275,964       (24,300 )        -8.8 %
Investment Securities                             390,924           393,681        (2,757 )        -0.7 %
Federal Home Loan Bank Stock                       13,765            13,662           103           0.8 %
Loans Receivable, Net                           1,789,137         1,922,039      (132,902 )        -6.9 %
Loans Held For Sale                                86,076                -         86,076         100.0 %
Premises and Equipment                             41,235            43,215        (1,980 )        -4.6 %
Premises and Equipment Held For Sale                2,054                -          2,054         100.0 %
Other Real Estate                                 105,581            94,717        10,864          11.5 %
Core Deposit Intangible, net                        3,038             3,241          (203 )        -6.3 %
Accrued Interest Receivable                        12,701            13,457          (756 )        -5.6 %
Other Assets                                       54,494            47,354         7,140          15.1 %

                                              $ 2,786,149    $    2,846,054    $  (59,905 )        -2.1 %

Cash and Cash Equivalents

The decrease of $27.5 million is due primarily to the reduction in deposit balances related to maturing brokered deposits and deteriorating economic conditions, offset by the proceeds from the sale of other real estate. See the Condensed Consolidated Statement of Cash Flows for a detail of the sources and uses of cash and cash equivalents during the three months ended March 31, 2009 and 2008.

Investment Securities

The composition of the investment securities portfolio reflects our investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of revenue. The investment securities portfolio also provides a balance to interest rate risk and credit risk in other categories of the balance sheet while providing a vehicle for the investment of available funds, furnishing liquidity, and supplying securities to pledge as required collateral for certain deposits.

During the three-month period ended March 31, 2009, in an effort to maintain capital levels, the Company sold U.S. Government Agency securities and reinvested the proceeds into similar U.S. Government Agency securities. Compared to December 31, 2008, investment securities remained relatively consistent, as the balance decreased $2.8 million or 0.7%. At March 31, 2009 and December 31, 2008, the securities portfolio accounted for approximately 14.0% and 13.8%, respectively, of total assets.

The investment securities portfolio primarily consists of U.S. Government sponsored agency mortgage-backed securities, non-agency mortgage-backed securities, and municipal securities. Mortgage-backed securities rely on the underlying pools of mortgage

loans to provide a cash flow of principal and interest. Substantially all of our mortgage-backed and collateralized mortgage obligation bonds are Government National Mortgage Association issued and we do not have any bonds secured by subprime mortgages. The actual maturities of these securities will differ from the contractual maturities because loans underlying the securities may prepay. Decreases in interest rates will generally cause an acceleration of prepayment levels. In a declining interest rate environment, we may not be able to reinvest the proceeds from these prepayments in assets that have comparable yields. In a rising rate environment, the opposite occurs. Prepayments tend to slowdown and the weighted average life extends. This is referred to as extension risk which can lead to lower levels of liquidity due to the delay of timing of cash receipts and can result in the holding of a below market yielding asset for a longer time period.

Loans Receivable, Net

Loans receivable, net (including loans held for sale) decreased approximately $46.8 million from December 31, 2008. Due to the substantial decline in real estate markets and the overall economy, we continue to significantly slow the growth of our loan portfolio. Furthermore, the Company's commitment to reduce the level of nonperforming assets in its loan portfolio has also contributed to the decline in the loan balance.

Assets Held For Sale

The balances of $86.1 million and $2.1 million represent the loans and premises and equipment, respectively, to be sold to The Heritage Bank in conjunction with the sale of our two Glynn County branches, located in Brunswick and St. Simons Island.

Risk Elements and Allowance for Loan Losses (ALL)

Nonperforming assets consist of nonaccrual loans, loans 90 days past due and accruing and other real estate, which is real estate acquired through foreclosure and repossession. Nonperforming assets increased significantly to $390.9 million or 14.0% of total assets at March 31, 2009 compared to $327.3 million or 11.5% of total assets at December 31, 2008.

The following table presents our nonperforming assets as of the dates indicated:

                                                March 31,     December 31,
          (In Thousands)                           2009           2008
          Nonaccrual Loans                      $  285,308   $      232,436
          Loans 90 Days Past Due and Accruing           -               146
          Other Real Estate                        105,581           94,717

          Total Nonperforming Assets            $  390,889   $      327,299

The increase in nonperforming assets is primarily attributable to the unprecedented economic and credit conditions that began in late summer of 2007 and has continued through the first quarter of 2009. A significant portion of the loan portfolios of our metropolitan Atlanta Banks and SRES is concentrated in loans to residential builders and developers. With the significant slowing of home and land sales, the prices of homes and land have declined precipitously. Therefore, many of our customers who develop and sell residential real estate cannot service their loans because they are not generating any revenue.

At March 31, 2009, the 10 largest nonaccrual loans comprise $126.7 million or 44.4% of the total. Of these 10 loans, six are residential development loans, three are commercial real estate loans and one loan is mixed use. A detail of the activity in nonperforming loans for the three-month periods ended March 31, 2009 and 2008 is as follows:

          (In Thousands)                              2009          2008
          Nonaccrual loans at beginning of period   $ 232,436     $  50,635
          Activity during the period:
          Additions, net                               91,417       173,600
          Foreclosures                                (19,142 )     (13,567 )
          Charge-offs, net                            (18,000 )     (24,148 )
          Principal collections                        (1,403 )          -

          Nonaccrual loans at end of period         $ 285,308     $ 186,520

At March 31, 2009, the 10 largest other real estate owned properties comprise $43.8 million or 41.5% of the total. Six of these properties are residential in nature, three of the properties are mixed use, and one property is commercial. Of total other real

estate owned, the largest component is residential lots at 37.1% followed by single family homes at 26.6%, raw land at 33.3% and commercial property at 3.0%. A detail of the activity in other real estate for the three-month periods ended March 31, 2009 and 2008 is as follows:

          (In Thousands)                               2009          2008
          Other real estate at beginning of period   $  94,717     $ 28,175
          Activity during the period:
. . .