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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended...............................................12-31-96
Commission File Number...................................................2-83157
SOUTHEASTERN BANKING CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
GEORGIA 58-1423423
- --------------------------------- --------------------------------------
(State or other jurisdiction of (I. R. S. Employer Identification No.)
incorporation or organization)
1010 NORTHWAY STREET
DARIEN, GEORGIA 31305
- --------------------------------------- --------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (912) 437-4141
-----------------------------
Securities registered pursuant to Section 12(b) of the Act:
NONE
----------------
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
NONE
-----------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
As of January 31, 1997, 3,580,797 shares of the $1.25 par value common
stock of Southeastern Banking Corporation (the Company) were issued and
outstanding, and the aggregate market value of the shares of $1.25 par value
common stock of the Company held by nonaffiliates was approximately $39,467,608
(based on a per share price of $17.00 which is based on over-the-counter trades
executed by a principal market-maker).
This Document consists of 53 pages.
The Exhibit Index is located at page 51.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
PART NUMBER AND ITEM
DOCUMENT INCORPORATED NUMBER OF FORM 10-K INTO
BY REFERENCE WHICH INCORPORATED
- -------------------------- ------------------------
The Company's Annual Report Part IV - Item 14
on Form 10-K for the Year
Ended December 31, 1990
ii
PART I
ITEM 1. BUSINESS.
1. HISTORY AND ORGANIZATION. Southeastern Banking Corporation (the
Company) is a two-bank holding company headquartered in Darien, Georgia. The
Company's subsidiary banks, Southeastern Bank (SEB) and Southeastern Bank of
Florida (SEBF), operate seventeen(1) full-service banking offices in southeast
Georgia and northeast and central Florida. The Company's corporate offices are
located at 1010 Northway Street, Darien, Georgia.
The Company was formed in 1980 to serve as the parent holding company of
its then sole subsidiary bank, The Citizens Bank, Folkston, Georgia, which later
changed its name to SEB. In 1983, the Company acquired The Darien Bank, Darien,
Georgia. Since 1983, the Company has acquired three additional financial
institutions in the southeast Georgia market. These acquisitions were
consummated by merging the acquired bank with SEB; the acquired banks were
subsequently converted to branches of SEB. In this manner, the Company acquired
The Camden County State Bank, Woodbine, Georgia, in 1984; the Jeff Davis Bank,
Hazlehurst, Georgia, in 1986; and the Nicholls State Bank, Nicholls, Georgia, in
1988. In 1990, SEB merged with and into The Darien Bank, with The Darien Bank
being the surviving bank in the merger operating under its 1888 Charter.
Immediately, The Darien Bank changed its name to "Southeastern Bank". SEB is a
state banking association incorporated under the laws of the State of Georgia.
In 1991, the Company acquired the Folkston, St. Marys, and Douglas,
Georgia, offices of First Georgia Savings Bank, a savings bank in Brunswick,
Georgia. Offices located in St. Marys and Douglas are now operating as branches
of SEB, but the First Georgia office in Folkston was closed and merged into the
existing Folkston branch. In 1993, the Company acquired the Folkston and St.
Marys offices of Bank South, N.A., Atlanta, Georgia. Both of the acquired
offices were closed and merged into existing offices of the Company.
On October 14, 1994, the Company acquired 100% of the outstanding common
stock of United Citizens Bank of Alachua County, Alachua, Florida under the name
SEBF. The acquisition was consummated by means of the merger of Alachua Interim
Corp., a wholly owned subsidiary of the Company, with and into SEBF under the
Charter and Bylaws of SEBF. The aggregate consideration paid by the Company for
SEBF pursuant to the transaction was approximately $5,139,000, payable in cash
to the shareholders of Alachua. On February 15, 1996, the Company acquired the
Callahan, Hilliard, and Yulee offices of Compass Bank in North Florida's Nassau
County; the Company received approximately $22,982,000 in assets and assumed
approximately $23,709,000 in deposit and other liabilities. These Nassau County
offices became branches of SEBF. See Note 2 to the Consolidated Financial
Statements for information regarding business combinations. SEBF is a state
banking association incorporated under the laws of the State of Florida.
2. BUSINESS. The Company provides full banking services through its
subsidiaries, SEB & SEBF. SEB operates from its main office in Darien and its
branch offices in Douglas, Eulonia, Folkston, Hazlehurst, Hoboken, Kingsland,
Nahunta, Nicholls, St. Marys, and Woodbine. At December 31, 1996, SEB had total
assets of approximately $263,238,000.(2) SEBF operates from its main office in
Alachua and its branch offices in Callahan, Gainesville, Hilliard, Jonesville,
and Yulee. At December 31, 1996, SEBF had total assets of approximately
$73,092,000.(1)(2) Both banks provide traditional deposit and credit services to
individual and corporate customers. Deposit services offered include NOW and
money market accounts as well as savings, time deposits, and individual
retirement accounts. Credit services offered include commercial and installment
loans. Commercial loans are made primarily to fund real estate purchases and
construction and to meet the needs of customers employed in the agriculture,
timber, seafood, and other industries. Installment loans are made for both
consumer and non-consumer purposes. In addition to deposit and credit services,
both banks also provide official check services, wire transfer services, and
safe deposit box rentals.
(1) SEBF's Hawthorne Road office in Gainesville was closed on January 31, 1997.
This closing had minimal impact on our financial position.
(2) Stand-alone basis
1
The Federal Reserve Bank of Atlanta is the principal correspondent of the
Company's subsidiaries. The Company's subsidiaries also maintain accounts with
other correspondent banks in Georgia, Florida, and Alabama.
At December 31, 1996, the Company and its subsidiaries had 176 and 25 full
and part-time employees.
3. COMPETITION. The diversity of the Company's trade area results in
a varying amount of competition in each of its Georgia and Florida markets. With
the exception of Brantley and McIntosh counties in Georgia, the Company has
direct competition with other commercial banks, savings and loan associations,
and credit unions in each market area. In April 1997, a national bank is
scheduled to open in McIntosh County; this national bank will result in
increased competition in this market area.
Previously, the Georgia legislature imposed restrictions on intrastate
branching. In 1996, the Georgia General Assembly passed an intrastate branching
bill that relaxes these restrictions: Effective July 1, 1996, Georgia banks were
permitted to branch into three additional counties, and effective July 1, 1998,
all branching restrictions will be removed. The intrastate branching bill will
give the Company opportunities for growth in its Georgia markets as well as
intensify competition. The Florida legislature does not have any restrictions on
intrastate branching.
The Company also competes with numerous other providers of financial
services such as securities brokerage firms, insurance companies, and money
market funds for deposit dollars. Because these other providers of financial
services and nonbanking financial institutions are not subject to the same
regulatory restrictions as banks and bank holding companies, they can often
operate with greater flexibility.
4. SUPERVISION AND REGULATION. As a bank holding company, the Company
is subject to the supervision and regulation of the Federal Reserve Board. The
Company's subsidiaries are also subject to supervision and regulation by
applicable state and federal banking agencies: SEB, an insured state non-member
bank chartered by the Georgia Department of Banking and Finance (GDBF), is
subject to supervision and regulation by the GDBF and the Federal Deposit
Insurance Corporation. SEBF, an insured state member bank chartered by the
Florida Department of Banking and Finance (FDBF), is subject to supervision and
examination by the FDBF and the Federal Reserve Board. Various federal and state
laws also regulate the operations of the banks, requiring the maintenance of
reserves against deposits, limiting the nature of loans and interest that may be
charged thereon, and restricting investments and other activities. The
operations of the subsidiary banks are also affected by numerous consumer laws
and regulations. In addition to the impact of regulation, commercial banks are
also significantly affected by the actions of the Federal Reserve Board as it
attempts to control the money supply and credit availability in order to
influence the economy.
The Bank Holding Company Act previously prohibited the Federal Reserve
Board from approving an application from a bank holding company to acquire
shares of a bank holding company outside the state in which the operations of
the holding company's banking subsidiaries were principally conducted, unless
such an acquisition was specifically authorized by statute of the state in which
the bank whose shares were to be acquired was located. However, under recently
enacted federal legislation, the restriction on interstate acquisitions was
abolished effective September 1995, and bank holding companies from any state
can acquire banks and bank holding companies located in any other state, subject
to certain conditions, including nationwide and state imposed concentration
limits. Banks also will be able to branch across state lines by acquisition,
merger, or de novo, effective June 1, 1997 (unless state law would permit such
interstate branching at an earlier date), provided certain conditions are met
including that applicable state law must expressly permit de novo interstate
branching.
The Company is expected to act as a source of financial strength to, and
commit resources to support, its subsidiaries. Under the Federal Deposit
Insurance Corporation Improvement Act of 1991 (FDICIA), federal
2
banking regulators are required to take prompt corrective action in respect of
depository institutions that do not meet minimum capital requirements. Capital
adequacy is measured with a framework that makes capital requirements sensitive
to the risk profiles of individual banking companies. Regulatory guidelines
define capital as either Tier 1 (primarily stockholders' equity) or Tier 2
(certain debt instruments and a portion of the allowance for loan losses). The
Company and its subsidiaries are subject to a minimum Tier 1 capital to
risk-weighted assets ratio of 4% and a total capital (Tier 1 plus Tier 2) to
risk-weighted assets ratio of 8%. Additionally, the Company is subject to a Tier
1 leverage ratio that measures the ratio of Tier 1 capital to average quarterly
assets. The regulatory agencies have defined "well-capitalized" institutions as
those whose capital ratios equal or exceed the following minimum ratios: Tier 1
capital ratio of 6%, total risk-based capital ratio of 10%, and Tier 1 leverage
ratio of 5%. At December 31, 1996, the Company's Tier 1 capital, total
risk-based capital, and Tier 1 leverage ratios were 16.18%, 17.44%, and 9.42%.
See Note 15 to the Consolidated Financial Statements and the Capital Resources
section of Management's Discussion and Analysis of Financial Condition and
Results of Operations.
FDICIA also amends the bank regulatory insurance coverage, imposes
substantial new audit and reporting requirements on insured depository
institutions, and increases the role of independent accountants and outside
directors. Additionally, FDICIA requires each regulatory agency to prescribe
standards covering internal controls, loan documentation, credit underwriting,
interest rate exposure, asset growth, compensation, operational and managerial
standards, asset quality, earnings, and stock valuation standards for preserving
a minimum ratio of market value to book value for publicly traded shares (if
feasible), and other standards as the agency deems appropriate.
There are various legal and regulatory limits on the amount of dividends
the subsidiary banks may pay the Company. Additionally, federal and state
regulatory agencies also have the authority to prevent a bank or bank holding
company from engaging in any activity that, in the opinion of the agency, would
constitute an unsafe or unsound practice. See Note 15 to the Consolidated
Financial Statements.
There have been a number of legislative and regulatory proposals that
would have an impact on the operation of bank holding companies and their
subsidiaries. It is impossible to predict whether or in what form these
proposals may be adopted in the future and, if adopted, what their effect will
be on the Company.
ITEM 2. PROPERTIES.
COMPANY PROPERTY. The Company's executive offices are located in
SEB's main banking office at 1010 Northway Street, Darien, Georgia.
BANKING FACILITIES. Besides its main office in Darien, SEB has offices
in the following communities:
GEORGIA BRANCH LOCATION
------------------------------------------------------------------------
620 S. Peterson Street Highway 40
Coffee County Camden County
DOUGLAS, GEORGIA 31533 KINGSLAND, GEORGIA 31548
----------------------------------------------------------
Highway 17 Highway 301 North
McIntosh County Brantley County
EULONIA, GEORGIA 31331 NAHUNTA, GEORGIA 31553
----------------------------------------------------------
101 Love Street Liberty Street at Birmingham
Charlton County Coffee County
FOLKSTON, GEORGIA 31537 NICHOLLS, GEORGIA 31554
----------------------------------------------------------
3
GEORGIA, CONT. BRANCH LOCATION
------------------------------------------------------------------------
110-112 Hinson Street 2512 Osborne Road
Jeff Davis County Camden County
HAZLEHURST, GEORGIA 31539 ST. MARYS, GEORGIA 31558
----------------------------------------------------------
Highway 82, Main Street Highway 17
Brantley County Camden County
HOBOKEN, GEORGIA 31542 WOODBINE, GEORGIA 31569
----------------------------------------------------------
SEBF's main office is located at 1010 South Highway 441, Alachua,
Florida. Additional offices are located in the following communities:(1)
FLORIDA BRANCH LOCATION
------------------------------------------------------------------------
305 South Kings Road 14009 Highway 26 East
Nassau County Alachua County
CALLAHAN, FLORIDA 32011 JONESVILLE, FLORIDA 32669
---------------------------------------------------------
4000 North Main Street 1376 East State Road 200
Alachua County Nassau County
GAINESVILLE, FLORIDA 32609 YULEE, FLORIDA 32097
---------------------------------------------------------
104 West 2nd Street
Nassau County
HILLIARD, FLORIDA 32046
---------------------------------------------------------
(1)SEBF's Hawthorne Road office in Gainesville was closed on January 31, 1997
and is not listed in the table above.
The Company owns all of its banking facilities with the exception of its
offices at 1010 South Highway 441, Alachua, and 4000 North Main Street,
Gainesville, which are being leased from third parties for various terms.
See Note 6 to the Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS.
The Parent Company and its subsidiaries are parties to claims and lawsuits
arising in the course of their normal business activities. Although the ultimate
outcome of these suits cannot be ascertained at this time, it is the opinion of
management and counsel that none of these matters, when resolved, will have a
material effect on the Company's consolidated results of operations or financial
position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
NONE
4
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Prior to November 1996, the Company's stock was not traded publicly and no
specific market prices could be quoted. Sales prices were obtained from
information volunteered by stockholders and the Company's service as transfer
agent. In November 1996, a principal market-maker began trading the Company's
stock publicly over-the-counter under the symbol "SEBC." Sales prices are being
posted to a variety of electronic bulletin boards by the market-maker. The high
and low sales prices for the fourth quarter of 1996 are based on information
being posted to these bulletin boards by the market-maker, as applicable. These
market prices may include dealer mark-up, mark-down, and/or commission.
The table below sets forth the high and low sales prices and the cash
dividends declared on the Company's common stock during the periods indicated.
The market price and dividend data have been restated to give retroactive effect
to the stock split paid on August 9, 1996.
SALES PRICE CASH
MARKET SALES PRICE & ------------------- DIVIDENDS
DIVIDENDS DECLARED QUARTER HIGH LOW DECLARED
-------------------- ------- ------- ------- ---------
1996 4th $16.00 $12.67 $0.1233
3rd 12.67 12.67 0.0600
2nd 12.00 10.33 0.0600
1st 10.33 10.33 0.0600
1995 4th No Sales No Sales 0.1167
3rd 10.00 10.00 0.0567
2nd 10.00 9.00 0.0567
1st 9.33 9.00 0.0567
1994 4th 9.00 9.00 0.1100
3rd 9.00 8.67 0.0533
2nd 8.33 8.33 0.0533
1st 8.00 7.67 0.0533
At January 31, 1997, there were approximately 426 holders of record of the
Company's common stock.
The Company has paid regular cash dividends on a quarterly basis every
year since its inception. Additionally, in recent years, the Company has
declared a special dividend in the fourth quarter of each year. Management
anticipates that the Company will continue to pay regular and special cash
dividends.
The Company is a legal entity separate and distinct from its subsidiaries,
and its revenues depend primarily on the payment of dividends from its
subsidiaries. State banking regulations limit the amount of dividends the
Company's subsidiaries may pay without prior approval of the regulatory
agencies. The amount of cash dividends available from the subsidiary banks for
payment in 1997 without such prior approval is approximately $2,322,000.
5
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
FINANCIAL DATA(1)
(AMOUNTS IN THOUSANDS EXCEPT
PER SHARE DATA) 1996 1995 1994 1993 1992
- ---------------------------- -------- -------- -------- -------- --------
AT DECEMBER 31:
Total assets $335,826 $296,956 $283,814 $234,195 $205,779
Deposits 294,353 259,540 251,030 203,470 179,259
Loans, net(2) 183,739 165,385 156,272 114,413 101,051
Long-term debt 1,450 2,525 3,500 0 0
Realized stockholders' equity 34,277 30,558 27,298 24,614 21,998
SUMMARY OF OPERATIONS:
Net interest income $ 15,636 $ 14,617 $ 12,601 $ 11,245 $ 9,950
Provision for loan losses 1,475 1,200 1,130 1,050 800
Net income 4,805 4,287 3,651 3,525 2,981
PER SHARE DATA:
Net income $ 1.34 $ 1.20 $ 1.02 $ 0.98 $ 0.83
Cash dividends declared(3) 0.30 0.29 0.27 0.25 0.21
Book value 9.57 8.53 7.62 6.87 6.14
(1) Certain reclassifications were made to conform with current year
presentation.
(2) Net of unearned income
(3) Fractional dividends declared have been rounded to the nearest 1/100th. See
Part II, Item 5, for additional information regarding dividends.
The per share data has been restated to give retroactive effect to the
stock split paid on August 9, 1996. The book value per share excludes the
effects of mark-to-market accounting for investment securities.
See Note 2 to the Consolidated Financial Statements for information
regarding business combinations.
(REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.)
6
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Southeastern Banking Corporation (the Company) is a bank holding company
headquartered in Darien, Georgia. Its two subsidiaries, Southeastern Bank and
Southeastern Bank of Florida, operate full-service banking offices in southeast
Georgia and northeast and central Florida. Southeastern Bank (SEB), a state
banking association incorporated under the laws of the State of Georgia,
operates from its main office in Darien and its branch offices in Douglas,
Eulonia, Folkston, Hazlehurst, Hoboken, Kingsland, Nahunta, Nicholls, St. Marys,
and Woodbine. At December 31, 1996, Southeastern Bank had total assets of
approximately $263,238,000.(2) Southeastern Bank of Florida (SEBF), a state
banking association incorporated under the laws of the State of Florida,
operates from its main office in Alachua and its branch offices in Callahan,
Gainesville, Hilliard, Jonesville, and Yulee. At December 31, 1996, Southeastern
Bank of Florida had total assets of approximately $73,092,000.(1)(2) Both banks
provide traditional deposit and credit services to individual and corporate
customers.
On October 14, 1994, the Company acquired 100% of the outstanding common
stock of United Citizens Bank of Alachua County, Alachua, Florida under the name
Southeastern Bank of Florida (SEBF). The aggregate consideration paid for SEBF
was approximately $5,139,000.00. The results of operations of SEBF have been
included in the consolidated financial statements from the date of acquisition
forward.
On February 15, 1996, the Company acquired the Callahan, Hilliard, and
Yulee offices of Compass Bank in North Florida's Nassau County. Geographically,
Nassau County borders Camden and Charlton Counties in South Georgia where the
Company has existing offices. The Company received approximately $22,982,000 in
assets and assumed approximately $23,709,000 in deposit and other liabilities.
Total assets grew $38,869,836 or 13.09% at December 31, 1996 compared to
year-end 1995. Earning assets represented approximately 90% of total assets at
December 31, 1996 versus 89% a year ago. The acquisition of the Nassau County
branches and deposit growth were the main factors in the current period
increase. The Company received a considerable amount of funds from the Nassau
County branches because of their low net loans to deposit ratio. The excess
funds from these branches and funds from other deposit growth were invested
primarily in federal funds sold and investment securities. (See the Operations
section of this Discussion and Analysis for more details.) Investment securities
grew $12,490,750(3)since December 31, 1995; virtually all of the securities
purchased were U. S. Treasury and Agency obligations. Total assets increased
4.63% at December 31, 1995 compared to 1994.
(1) SEBF's Hawthorne Road office in Gainesville was closed on January 31, 1997.
This closing had minimal impact on our financial position.
(2) Stand-alone basis
(3) At amortized cost
LOANS
Net loans grew $18,353,887 or 11.10% during 1996 after increasing
$9,113,573 or 5.83% during 1995. Loans acquired from Compass accounted for
approximately 11% of the 1996 increase. The net loans to deposit ratio declined
to 62.42% from 63.72% at December 31, 1995. Nonperforming loans represented
0.60% of net loans at year-end compared to 0.38% last year. The ratio of
nonperforming assets to net loans plus other real estate
7
totaled 0.99% and 1.21% at December 31, 1996 and 1995. At December 31, 1996,
approximately $790,000 or 72% of nonperforming loans pertained to three
borrowers. Management is unaware of any other material concentrations within
nonperforming loans. The following table provides information about
nonperforming assets:
AT DECEMBER 31
NONPERFORMING ASSETS ----------------------
(AMOUNTS IN THOUSANDS) 1996 1995 1994
--------------------- ------ ----- ------
Nonaccrual loans $ 686 $ 632 $2,214
Restructured loans(1) 418
------ ----- ------
Total nonperforming loans 1,104 632 2,214
Other real estate(2) 726 1,393 534
------ ----- ------
Total nonperforming assets $1,830 $2,025 $2,748
====== ====== ======
Accruing loans past due 90 days or more $1,100 $1,245 $1,009
====== ====== ======
(1) Does not include restructured loans that yield a market rate. At December
31, 1996, such loans totaled $102.
(2) Includes only real estate acquired through foreclosure or in settlement
of debts previously contracted. Any real estate held for resale by the
Parent Company is excluded; such real estate totaled $0 at December 31,
1996.
Nonperforming loans include loans classified as nonaccrual when it appears that
future collection of principal or interest according to contractual terms is
doubtful and loans whose terms have been restructured to provide for a reduction
or deferral of either interest or principal because of a deterioration in the
financial position of the borrower. Other real estate represents real property
acquired by actual foreclosure or directly by title or deed transfer in
settlement of debt. The Company continues to accrue interest on consumer loans
that are contractually past due 90 days or more, if in management's opinion the
interest is collectible, up to the time of repossessing the underlying
collateral or charging the loan amount against the allowance for loan losses.
The Company changes the status of loans categorized as commercial, financial,
agricultural, and real estate to nonaccrual when the loan becomes past due 90
days or more and management determines that the ultimate collectibility of the
loan is doubtful or the borrower has declared bankruptcy. All nonaccrual loans
are reduced to the lesser of the market value of the underlying real estate or
other collateral as determined by an independent appraisal or the principal
balance of the loan being placed on nonaccrual status. Accrued interest on any
loan switched to nonaccrual status is reversed. Potential problem loans not
included in nonperforming loans at December 31, 1996 totaled approximately
$1,400,000; all known potential problem loans were included in nonperforming
loans for the other periods presented. At year-end 1996 and 1995, the Company
had no concentration of loans to borrowers engaged in any single industry that
exceeded 10% of total loans. A significant portion of the Company's loans are
secured by real estate; at year-end 1996 and 1995, loans secured by real estate
totaled approximately $113,158,000 and $107,462,000.
The Company maintains an allowance for loan losses available to absorb
potential losses in the loan portfolio. The allowance to net loans ratio was
2.03% at year-end versus 2.14% at December 31, 1995. The provision provided from
income totaled $1,475,000, up $275,000 from 1995. Net charge-offs totaled
approximately $1,272,000 in 1996 compared to $925,000 in 1995. The increase in
net charge-offs in 1996 resulted from substantial charge-offs of commercial
loans during the fourth quarter. Changes to the allowance as a percent of total
nonperforming assets were not significant for the periods presented. Activity in
the allowance for the last three years is presented in the following table:
8
YEAR ENDED DECEMBER 31
ALLOWANCE FOR LOAN LOSSES --------------------------------
(AMOUNTS IN THOUSANDS) 1996 1995 1994
- ------------------------- -------- -------- --------
Allowance for loan losses - Begginning of year $ 3,532 $ 3,257 $ 2,475
Allowance of purchased bank 458
Provision for loan losses 1,475 1,200 1,130
Charge-offs:
Commercial, financial, and agricultural 996 752 744
Real estate - construction 0 0 0
Real estate - mortgage 167 135 50
Consumer, including credit cards 791 589 533
-------- -------- --------
Total charge-offs 1,954 1,476 1,327
-------- -------- --------
Recoveries:
Commercial, financial, and agricultural 388 156 161
Real estate - construction 0 0 0
Real estate - mortgage 16 34 14
Consumer, including credit cards 278 361 346
-------- -------- --------
Total recoveries 682 551 521
-------- -------- --------
Net charge-offs 1,272 925 806
-------- -------- --------
Allowance for loan losses - End of year $ 3,735 $ 3,532 $ 3,257
======== ======== ========
Net loans outstanding(1) - End of year $183,739 $165,385 $156,272
======== ======== ========
Average loans $177,522 $160,679 $131,579
======== ======== ========
Ratios:
Allowance to year-end net loans 2.03% 2.14% 2.08%
======== ======== ========
Net charge-offs to average loans 0.72% 0.58% 0.61%
======== ======== ========
Provision to average loans 0.83% 0.75% 0.86%
======== ======== ========
Recoveries to total charge-offs 34.90% 37.33% 39.26%
======== ======== ========
- ----------
(1)Net of unearned income
Management believes the allowance was adequate at December 31, 1996 based
on conditions reasonably known to management; however, the allowance may
increase or decrease based on loan growth, changes in internally generated
credit ratings, changes in general economic conditions of the Company's trade
areas, or historical loan loss experience. These factors are analyzed and
reviewed on a continual basis to determine if any changes to the provision for
loan losses should be made. Management does not anticipate any material changes
in charge-off activity in 1997.
OTHER ASSETS
Gross premises and equipment increased during 1996 due to the acquisition
of the Nassau County branches; the purchase of the Jonesville office which was
previously leased; the purchase of additional proof equipment for the
centralized proof center; the purchase of real estate for the planned relocation
of the Nicholls office; and the equipment and preparatory costs associated with
the installation of automatic teller machines and security devices at each
Nassau County location.
Intangible assets increased during 1996 due to the deposit premium
associated with the Nassau County branches. Other assets declined a mere .51%.
Declines in other real estate balances were largely offset by increases in
accrued interest receivables on loans and investment securities and increases in
the deferred tax effects of mark-to-market accounting for securities.
9
LIQUIDITY
Liquidity is managed to ensure sufficient cash flow to satisfy demands for
credit, deposit withdrawals, and other corporate needs. The Company meets most
of its daily liquidity needs through the management of cash and federal funds
sold. Additional liquidity is provided by payments and maturities of the loan
and investment securities portfolios. The investment portfolio has also been
structured to meet liquidity needs prior to asset maturity when necessary.
The Company's core deposit base is the foundation for its liquidity
position. Deposits grew $34,813,249 or 13.41% at December 31, 1996 compared to
year-end 1995. Interest-bearing deposits grew $35,646,468 or 17.48%,
representing 81.40% of total deposits at December 31, 1996 versus 78.58% at
year-end 1995, while noninterest-bearing deposits declined $833,219 or 1.50%.
Savings were the largest-growing component of interest-bearing deposits,
increasing $37,905,077. The growth in savings deposits resulted primarily from
our new SMARTSAVER account which has paid an annual percentage yield of 5.40% to
6.00% since its March 1996 introduction. Certificates of deposit represented
52.50% of interest-bearing deposits at year-end, declining $150,639, while
interest-bearing demand deposits declined $2,107,970. SEBF's deposits grew
$30,196,039, up 86.20% on a stand-alone basis, while SEB's deposits grew 1.53%;
approximately 78% and 22% of year-end deposits were attributable to SEB & SEBF,
respectively. Deposits assumed from the Nassau County branches accounted for
most of the growth in SEBF's deposits during 1996. Deposits grew $8,509,836 or
3.39% during 1995; approximately $224,508,000 and $35,032,000 of year-end 1995
deposits were attributable to SEB & SEBF, increases of $5,537,000 and $2,973,000
from 1994.
In addition to deposits and the other liquidity sources mentioned above,
the Company's capital position has enabled it to make arrangements with
correspondent banks to handle any unusual short-term liquidity needs.
The Company continued to prepay on its note payable, paying $1,075,000
during 1996. Principal payments of $425,000 are due annually. Besides assuming
deposit liabilities, the Company did not incur any debt in connection with its
acquisition of the Nassau County branches.
INTEREST RATE SENSITIVITY
The objective of interest rate sensitivity management is to minimize the
effect of interest rate changes on net interest margin while maintaining net
interest income at acceptable levels. The Company attempts to accomplish this
objective by structuring the balance sheet so that repricing opportunities exist
for both assets and liabilities in roughly equivalent amounts at approximately
the same time intervals. Imbalances in these repricing opportunities at any time
constitute interest rate sensitivity. An indicator of interest rate sensitivity
is the difference between interest rate sensitive assets and interest rate
sensitive liabilities; this difference is known as the interest rate sensitivity
gap.
The Company's interest rate sensitivity position at December 31, 1996 is
set forth in the following table:
10
AT DECEMBER 31, 1996
INTEREST RATE SENSITIVITY -----------------------------------------------------
(AMOUNTS IN THOUSANDS) REPRICING WITHIN
- ------------------------- -----------------------------------------------------
More
0 - 3 4 - 12 One - Five Than Five
Months Months Years Years Total
-------- -------- ---------- --------- --------
INTEREST RATE SENSITIVE ASSETS:
Federal funds sold $ 17,090 $ 17,090
Securities(1) 7,453 8,507 74,629 15,463 106,052
Loans 84,494 24,018 55,490 23,378 187,380
-------- -------- ------- ------- --------
Total interest rate sensitive assets 109,037 32,525 130,119 38,841 310,522
-------- -------- ------- ------- --------
INTEREST RATE SENSITIVE
LIABILITIES:
Deposits(2) 143,354 58,731 37,412 105 239,602
U. S. Treasury demand note 1,800 1,800
Note payable 1,450 1,450
-------- -------- ------- ------- --------
Total interest rate sensitive
liabilities 146,604 58,731 37,412 105 242,852
-------- -------- ------- ------- --------
Interest rate sensitivity gap $(37,567) $(26,206) $92,707 $38,736 $ 67,670
-------- -------- ------- ------- --------
CUMULATIVE INTEREST RATE SENSITIVITY GAP $(37,567) $(63,773) $28,934 $67,670
-------- -------- ------- -------
Ratio of cumulative gap to total interest
rate sensitive assets (12.10)% (20.54)% 9.32% 21.79%
-------- -------- ------- -------
Ratio of cumulative interest rate sensitive
assets to interest rate sensitive
liabilities 74.38% 68.94% 111.92% 127.87%
-------- -------- ------- -------
Cumulative gap at December 31, 1995(3) $(12,581) $(26,712) $27,748 $64,152
-------- -------- ------- -------
- ----------
(1) Distribution of maturities for available-for-sale securities is based on
amortized cost. Additionally, distribution of maturities for mortgage-backed
securities is based on expected final maturities which may be different from
the contractual terms. Equity securities are excluded.
(2) NOW, money market, and savings account balances are included in the 0-3
months repricing category.
(3) Certain reclassifications were made to conform with current year
presentation.
At December 31, 1996, the gap analysis indicates a negative cumulative gap
position through the one year time interval. A negative gap position indicates
that the Company's rate sensitive liabilities will reprice faster than its rate
sensitive assets, with 85% of rate sensitive liabilities and 46% of rate
sensitive assets subject to repricing within one year. The increase in our gap
position at December 31, 1996 compared to 1995 resulted primarily from growth in
savings deposits.
The interest rate sensitivity table presumes that all loans and
securities(1) will perform according to their contractual maturities when, in
many cases, actual loan terms are much shorter than the original terms and
securities are subject to early redemption. In addition, the table does not
necessarily indicate the impact of general interest rate movements on net
interest margin since the repricing of various categories of assets and
liabilities is subject to competitive pressures, customer needs, and other
external factors. The Company monitors and adjusts its exposure to interest rate
risks within specific policy guidelines based on its view of current and
expected market conditions.
CAPITAL RESOURCES
Realized stockholders' equity increased $3,719,171 during 1996. Book
value per share, restated to reflect
11
the three-for-one stock split paid in August 1996, increased $1.04 or 12.19% to
$9.57 at December 31, 1996. Unrealized stockholders' equity declined $487,670
since year-end 1995; this decline reflects the impact of market interest rates
on investment securities classified as available-for-sale. Consistent with our
objectives, the Company maintains capital ratios well above regulatory
requirements. Our capital ratios for the last three years are presented in the
table below.
Capital adequacy is measured with a framework that makes capital
requirements sensitive to the risk profiles of individual banking companies.
Regulatory guidelines define capital as either Tier 1 (primarily stockholders'
equity) or Tier 2 (certain debt instruments and a portion of the allowance for
loan losses). The Company and its subsidiaries are subject to a minimum Tier 1
capital to risk-weighted assets ratio of 4% and a total capital (Tier 1 plus
Tier 2) to risk-weighted assets ratio of 8%. Additionally, the Company is
subject to a Tier 1 leverage ratio that measures the ratio of Tier 1 capital to
average quarterly assets. Unrecognized gains and losses on investment securities
are excluded from the calculation of risk-based capital.
The regulatory agencies have defined "well-capitalized" institutions as
those whose capital ratios equal or exceed the following ratios: Tier 1 capital
ratio of 6%, total risk-based capital ratio of 10%, and Tier 1 leverage ratio of
5%. As expected, our capital ratios have declined slightly since December 31,
1995 due to our acquisition of the Nassau County branches.
AT DECEMBER 31
CAPITAL RATIOS -------------------------------------
(AMOUNTS IN THOUSANDS) 1996 1995 1994
---------------------- --------- ---------- ---------
Tier 1 capital:
Realized stockholders' equity $ 34,277 $ 30,558 $ 27,298
Intangible assets and other
adjustments (3,434) (3,040) (3,435)
--------- --------- ---------
Total Tier 1 capital 30,843 27,518 23,863
--------- --------- ---------
Tier 2 capital:
Portion of allowance for
loan losses 2,400 2,133 1,995
Allowable long-term debt -- -- --
--------- --------- ---------
Total Tier 2 capital 2,400 2,133 1,995
--------- --------- ---------
Total risk-based capital $ 33,243 $ 29,651 $ 25,858
========= ========= =========
Risk-weighted assets $ 190,630 $ 169,222 $ 158,348
========= ========= =========
Risk-based ratios:
Tier 1 capital 16.18% 16.26% 15.07%
========= ========= =========
Total risk-based capital 17.44% 17.52% 16.33%
========= ========= =========
Tier 1 leverage ratio 9.42% 9.67% 8.79%
========= ========= =========
Realized stockholders' equity
to assets 10.20% 10.30% 9.56%
========= ========= =========
RESULTS OF OPERATIONS
Net income increased $518,317 in 1996, up 12.09% over 1995 which was up
$636,214 or 17.43% over 1994. On a per share basis, net income was $1.34, $1.20,
and $1.02 in 1996, 1995, and 1994. The return on beginning equity was 15.72%
versus 15.70% and 14.83% in 1995 and 1994. The return on average assets for the
same periods was 1.49%, 1.50%, and 1.47%. The growth in earnings resulted from
improved net interest and noninterest income results. The loan portfolio was
again the main factor in our interest income improvement, growing $1,520,711 or
8.22%. The growth in interest earnings on loans resulted from a 10.48% increase
in average balances, because loan yields declined to 11.30% in 1996. Because the
loans acquired from Compass were
12
not significant to the total loan portfolio, they had minimal impact on our 1996
operating results. Interest and fees on loans were up $4,185,857 or 29.23% in
1995. SEBF, whose operating results were included in the consolidated financial
statements from the date of acquisition forward, added $1,869,323 in interest
and fees on loans during 1995; the remaining increase was attributable to higher
average balances and yields at SEB.
Interest earnings on taxable investment securities grew $1,189,848 or
28.31% in 1996. The 1996 growth resulted from a 23.14% increase in average
balances and a 25 basis point improvement in yield. The higher average balances
were a direct result of the excess funds received from the Nassau County
branches and funds generated by other deposit growth. The yield on taxable
securities was 6.13% in 1996 versus 5.88% in 1995. Interest income on tax-exempt
investment securities declined $70,028 or 5.13% in 1996 compared to 1995. The
taxable-equivalent yield on tax-exempt securities fell 11 basis points to 9.06%
in 1996. Interest income on investment securities increased $318,299 or 6.06% in
1995. SEBF accounted for all of the 1995 increase, because SEB's interest
earnings on investment securities declined $160,525 or 3.13%; the SEB decline
was due to a 7.68% drop in average balances outstanding.
Though the average balances of federal funds sold increased 7.02%,
interest income on federal funds sold declined $24,017 or 4.51% in 1996. This
decline resulted from a 63 basis point drop in yield . After giving effect to
the increase in interest income on federal funds sold attributable to SEBF,
interest income on federal funds sold grew $228,515 during 1995; the 1995
increase was marked by higher average balances and rates at SEB. The yield on
federal funds sold was 5.86% in 1995.
Interest expense on deposits increased $1,736,487 or 17.97% in 1996. The
average interest paid on deposits was 4.90%, up 12 basis points from 1995.
Approximately 63% of the increase was due to SEBF, including the Nassau County
branches. Certificates of deposit and savings were the largest-growing
components of interest expense on deposits. The increase in interest expense on
savings deposits resulted mainly from the SMARTSAVER deposit program that was
introduced in March 1996. Interest expense on deposits increased $2,547,878 or
35.82% in 1995 compared to 1994; approximately $1,108,000 or 43% of the 1995
increase was attributable to SEBF. Interest expense on the term loan declined
$120,714 or 47.49% in 1996 due to continued prepayment of the principal balance.
The average interest paid on the term loan was 7.39%, down 55 basis points from
1995.
In summary, net interest income grew $1,019,632 or 6.98% in 1996.
Approximately $528,000 of the improvement in interest income was attributable to
SEBF. Net interest income increased $2,016,305 or 16.00% in 1995. Approximately
65% and 35% of the prior year results were attributable to SEBF and SEB,
respectively.
The table below presents interest income on a taxable-equivalent basis and
summarizes the average interest earned and average interest paid on
interest-earning assets and interest-bearing liabilities:
TAXABLE - EQUIVALENT YEAR ENDED DECEMBER 31(1)(2)
INTEREST INCOME & RATIOS ----------------------------
(AMOUNTS IN THOUSANDS) 1996 1995 1994
------------------------ ------- ------- -------
Total interest income $27,916 $25,356 $20,640
Total interest expense 11,587 9,990 7,198
Net interest income 16,329 15,366 13,442
Average interest earned 9.41% 9.62% 8.99%
Average interest paid 4.92% 4.83% 3.96%
Net interest spread 4.49% 4.79% 5.03%
Net interest margin 5.50% 5.83% 5.86%
(1) Interest income on tax-exempt loans and securities is presented on a
taxable-equivalent basis, using the federal income tax rate of 34%.
(2) Certain reclassifications were made to conform with current year
presentation.
13
NONINTEREST INCOME
Noninterest income grew $666,772 or 19.39% in 1996. After giving effect to
the $337,909 increase in noninterest income attributable to SEBF, noninterest
income grew $179,775 or 6.15% during 1995. Service charges on deposit accounts
were again the primary factor in the noninterest income improvement, increasing
$509,744. Approximately $370,000 of the 1996 service charge increase was
attributable to SEBF; service charges on deposits assumed from the Nassau County
branches accounted for 86% of the SEBF results. In 1996 and 1995, the Company
realized net losses on sales of investment securities; various investment
securities were sold to enable the Company to maintain its liquidity position
and to increase the overall rates of return of the investment portfolio. Other
operating income increased $126,887 or 16.19% during 1996. Increases in mortgage
origination fees and book gains on sales of other real estate, particularly at
SEBF, offset declines in commissions on the sale of credit life insurance.
NONINTEREST EXPENSE
Salaries and employee benefits were up $590,966 or 10.15% in 1996 compared
to 1995. Approximately $236,000 or 40% of the increase was due to SEBF,
including the Nassau County locations. When compared to 1994 results, salaries
and employee benefits were up $730,474 or 14.35% in 1995. SEBF accounted for
approximately $582,000 or 80% of the prior year increase. Net occupancy and
equipment expense rose $255,971 or 14.15% in 1996. Increased computer
maintenance costs and the additional depreciation and other occupancy expenses
associated with the Nassau County locations were the primary factors in the 1996
increase. Net occupancy and equipment expense increased $285,274 or 18.73% in
1995 compared to 1994; SEBF accounted for virtually all of the 1995 increase.
Other operating expense declined $212,124 or 6.84% in 1996 versus 1995. The
$290,724 reduction in FDIC insurance premiums largely offset the start-up and
other costs associated with the Nassau County locations. Other operating expense
was up $172,871 or 5.90% in 1995. The $462,120 increase attributable to SEBF was
largely offset by declines in legal and accounting fees and the effective
reduction in SEB's FDIC insurance premiums due to the recapitalization refunds
received on assessments paid during the second and third quarters of 1995. Due
to legislation enacted in the third quarter of 1996, assessment fees will again
increase in 1997; these new assessments are well below pre-1996 levels and will
not have a significant impact on our 1997 results of operations.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this Item commences on page 24. Selected Statistical
Information begins on page 15.
14
SELECTED STATISTICAL INFORMATION
The following tables set forth selected statistical information and should be
read in conjunction with the consolidated financial statements and accompanying
management discussion of Souheastern Banking Corporation and its subsidiaries.
Averages presented in the following statistical information generally represent
average daily balances.
AVERAGE BALANCES, INCOME/EXPENSE, AND AVERAGE YIELDS EARNED AND RATES PAID(1)
- -----------------------------------------------------------------------------
1996 1995 1994
---------------------------- ---------------------------- ----------------------------
TABLE 1 AVERAGE INCOME/ YIELDS/ AVERAGE INCOME/ YIELDS/ AVERAGE INCOME/ YIELDS/
(AMOUNTS IN THOUSANDS) BALANCES EXPENSE RATES BALANCES EXPENSE RATES BALANCES EXPENSE RATES
- -------------------------------------- -------- ------- ------- -------- ------- ------- -------- ------- -------
ASSETS
Cash and due from banks $ 13,355 $ 11,491 $ 9,549
Interest-earning assets:
Loans, net(2)(3)(4) 177,522 $20,059 11.30% 160,679 $18,559 11.55% 131,579 $14,395 10.94%
Federal funds sold 9,722 508 5.23% 9,084 532 5.86% 5,407 227 4.20%
Taxable investment securities 87,974 5,393 6.13% 71,444 4,203 5.88% 68,480 3,739 5.46%
Tax-exempt investment securities(4) 21,593 1,956 9.06% 22,482 2,062 9.17% 24,109 2,279 9.45%
-------- ------- ----- -------- ------- ------ -------- ------- ------
Total interest-earning assets 296,811 27,916 9.41% 263,689 25,356 9.62% 229,575 20,640 8.99%
-------- ------- ----- -------- ------- ------ -------- ------- ------
Allowance for loan losses (3,828) (3,551) (2,873)
Premises and equipment, net 8,444 7,195 6,480
Intangible and other assets 9,074 8,292 6,343
Unrealized losses on investment
securities (567) (1,058) (972)
======== ======= ===== ======== ======= ====== ======== ======= ======
TOTAL ASSETS $323,289 $286,058 $248,102
======== ======= ===== ======== ======= ====== ======== ======= ======
LIABILITIES AND
STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 51,594 $47,671 $ 38,146
Interest-bearing liabilities:
Interest-bearing demand deposits(5) 48,247 $ 1,419 2.94% 53,010 $ 1,758 3.32% 54,713 $ 1,631 2.98%
Savings 53,342 2,299 4.31% 27,557 806 2.92% 30,694 911 2.97%
Time deposits 131,048 7,680 5.86% 121,566 7,097 5.84% 94,614 4,571 4.83%
U. S. Treasury demand note 1,080 56 5.19% 1,386 75 5.41% 1,051 41 3.90%
Note payable 1,804 133 7.39% 3,200 254 7.94% 587 44 7.42%
-------- ------- ----- -------- ------- ------ -------- ------- ------
Total interest-bearing
liabilities 235,521 11,587 4.92% 206,719 9,990 4.83% 181,659 7,198 3.96%
-------- ------- ----- -------- ------- ------ -------- ------- ------
Other liabilities 3,919 3,091 2,744
Realized stockholders' equity 32,629 29,275 26,195
Unrealized losses on investment
securities, net of tax (374) (698) (642)
-------- ------- ----- -------- ------- ------ -------- ------- ------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $323,289 $286,058 $248,102
======== ======= ===== ======== ======= ====== ======== ======= ======
Excess of interest-earning assets
over interest-bearing liabilities $ 61,290 $ 56,970 $ 47,916
======== ======= ===== ======== ======= ====== ======== ======= ======
Interest rate spread 4.49% 4.79% 5.03%
======== ======= ===== ======== ======= ====== ======== ======= ======
NET INTEREST INCOME $16,329 $15,366 $13,442
======== ======= ===== ======== ======= ====== ======== ======= ======
NET INTEREST MARGIN 5.50% 5.83% 5.86%
======== ======= ===== ======== ======= ====== ======== ======= ======
- --------------------
(1) Certain reclassifications were made to conform with current year
presentation.
(2) Average loans are shown net of unearned income. Nonperforming loans are
included.
(3) Interest income includes loan fees of approximately $922,000, $827,000, and
$640,000 in 1996, 1995, and 1994.
(4) Interest income on tax-exempt loans and securities is presented on a
taxable-equivalent basis, using a federal income tax rate of 34%. The
taxable-equivalent amounts included in the above table aggregated
approximately $692,000, $749,000, and $842,000 in 1996, 1995, and 1994.
(5) NOW and money market accounts.
15
SELECTED STATISTICAL INFORMATION, CONTINUED
ANALYSIS OF CHANGES IN NET INTEREST INCOME
- ------------------------------------------
Table 2 summarizes the changes in interest income and interest expense
attributable to volume and rates for 1996 and 1995. Table 1 contains more
detailed information concerning average balances, yields earned, and rates paid.
- ---------------------------------- -------------------------------------------------------
1996 COMPARED TO 1995 1995 COMPARED TO 1994
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
TABLE 2 - INTEREST DIFFERENTIAL(1) -------------------------- --------------------------
(AMOUNTS IN THOUSANDS) VOLUME(2) RATE(2) NET VOLUME(2) RATE(2) NET
- ---------------------------------- --------- ------- ------ --------- ------ ------
INTEREST INCOME:
Loans(3)(4) $1,945 $(445) $1,500 $3,184 $ 980 $4,164
Federal funds sold 37 (61) (24) 154 151 305
Taxable investment securities 972 218 1,190 162 302 464
Tax-exempt investment securities(4) (82) (24) (106) (154) (63) (217)
------ ----- ------ ------ ------ ------
Total interest income 2,872 (312) 2,560 3,346 1,370 4,716
------ ----- ------ ------ ------ ------
INTEREST EXPENSE:
Interest-bearing demand deposits (158) (181) (339) (51) 178 127
Savings 753 740 1,493 (93) (12) (105)
Time deposits 554 29 583 1,302 1,224 2,526
U. S. Treasury demand note (17) (2) (19) 13 21 34
Note payable (111) (10) (121) 194 16 210
------ ----- ------ ------ ------ ------
Total interest expense 1,021 576 1,597 1,365 1,427 2,792
------ ----- ------ ------ ------ ------
NET INTEREST INCOME $1,851 $(888) $ 963 $1,981 $ (57) $1,924
====== ===== ====== ====== ====== ======
- --------------------
(1) Certain reclassifications were made to conform with current year
presentation.
(2) Changes in net interest income are attributed to either changes in average
balances (volume change) or changes in average rates (rate change) for
earning assets and sources of funds on which interest is received or paid.
Volume change is calculated as change in volume times the old rate while
rate change is change in rate times the old volume. The rate/volume change,
change in rate times change in volume, has been allocated to the change in
rate.
(3) Includes loan fees as described in Table 1.
(4) Interest income on tax-exempt loans and securities is presented on a
taxable-equivalent basis, using a federal income tax rate of 34%.
16
SELECTED STATISTICAL INFORMATION, CONTINUED
INVESTMENT SECURITIES
- ---------------------
Investment securities available-for-sale (carried at estimated fair value) and
held-to-maturity (carried at amortized cost) for each of the last three years
are presented in Table 3. The maturity distribution of these securites and
their weighted average yields are presented in Table 4.
TABLE 3 - INVESTMENT SECURITIES BY CATEGORY AMORTIZED FAIR UNREALIZED UNREALIZED
(AMOUNTS IN THOUSANDS) COST VALUE GAINS LOSSES
- ------------------------------------------- --------- -------- ---------- ----------
AVAILABLE-FOR-SALE:
U. S. Treasury and
U.S. Government agencies:
1996 $ 75,669 $ 75,330 $ 203 $ 542
1995 60,863 61,181 492 174
1994 58,803 56,611 1 2,193
Mortgage-backed securities:
1996 8,062 7,986 39 115
1995 9,564 9,570 80 74
1994 10,569 9,922 15 662
Equity securities:
1996 260 260
1995 214 214
1994 154 154
Total available-for-sale: -------- -------- ------ ------
1996 83,991 83,576 242 657
1995 70,641 70,965 572 248
1994 69,526 66,687 16 2,855
HELD-TO-MATURITY:
States and political subdivisions:
1996 22,321 23,172 888 37
1995 22,780 23,961 1,196 15
1994 24,257 24,011 393 639
Other securities:
1995 401 402 1
1994 404 403 1
Total held-to-maturity: -------- -------- ------ ------
1996 22,321 23,172 888 37
1995 23,181 24,363 1,197 15
1994 24,661 24,414 393 640
TOTAL INVESTMENT SECURITIES: -------- -------- ------ ------
1996 $106,312 $106,748 $1,130 $ 694
1995 93,822 95,328 1,769 263
1994 94,187 91,101 409 3,495
======== ======== ====== ======
17
SELECTED STATISTICAL INFORMATION, CONTINUED
Table 4 shows the distribution of maturities and the weighted average yields of
debt securities at December 31, 1996:
- ----------------------------------------------------------------------------------------------
AT DECEMBER 31, 1996
TABLE 4 - MATURITY DISTRIBUTION ------------------------------------------------------
OF INVESTMENT SECURITIES 1 YEAR 1-5 5-10 AFTER 10
(AMOUNTS IN THOUSANDS) OR LESS YEARS YEARS YEARS TOTAL
- ----------------------------------------------------------------------------------------------
DISTRIBUTION OF MATURITIES:
AMORTIZED COST:
U.S. Treasury and
U.S. Government agencies $ 12,488 $ 60,919 $ 2,000 $ 262 $ 75,669
Mortgage-backed securities(1) 113 6,091 1,858 8,062
States and political subdivisions 2,862 8,117 7,287 4,055 22,321
-------- -------- -------- -------- --------
Total debt securities $ 15,463 $ 75,127 $ 11,145 $ 4,317 $106,052
======== ======== ======== ======== ========
FAIR VALUE:
U.S. Treasury and
U.S. Government agencies $ 12,533 $ 60,637 $ 1,958 $ 202 $ 75,330
Mortgage-backed securities(1) 114 6,036 1,836 7,986
States and political subdivisions 2,883 8,312 7,665 4,312 23,172
-------- -------- -------- -------- --------
Total debt securities $ 15,530 $ 74,985 $ 11,459 $ 4,514 $106,488
======== ======== ======== ======== ========
WEIGHTED AVERAGE YIELD:
U.S. Treasury and 6.33% 6.16% 6.06% 4.58% 6.18%
U.S. Government agencies 8.39% 6.26% 6.41% 6.32%
Mortgage-backed securities(1) 9.92% 8.50% 8.97% 9.23% 8.97%
-------- -------- -------- -------- --------
States and political
subdivisions(2) 7.01% 6.42% 8.02% 8.95% 6.78%
======== ======== ======== ======== ========
Total debt securities
- ------------
(1) Distribution of maturities for mortgage-backed securities is based on
expected final maturities which may be different from the contractual terms.
(2) The weighted average yields for tax-exempt securities have been calculated
on a taxable-equivalent basis, using a federal income tax rate of 34%. No
adjustments have been made for any state income tax effects or the nondeductible
portion of interest expense pertaining to tax-exempt income.
The Company has no investments in the obligations of any state or municipality
which exceed 10% of its stockholders' equity at December 31, 1996.
18
SELECTED STATISTICAL INFORMATION, CONTINUED
LOANS
- -----
Loans outstanding are presented by type below:
AT DECEMBER 31
TABLE 5 - LOANS BY CATEGORY(1) ----------------------------------------------------
(AMOUNTS IN THOUSANDS) 1996 1995 1994 1993 1992
- ---------------------- -------- -------- -------- -------- --------
Commercial, financial, and agricultural $ 88,899 $ 76,453 $ 69,574 $ 36,191 $ 35,972
Real estate - construction 3,416 6,260 5,944 2,463 2,011
Real estate - mortgage 59,515 53,509 52,954 49,849 40,361
Consumer, including credit cards 35,550 33,006 31,750 30,196 27,842
------- ------- ------- ------- -------
Loans, gross 187,380 169,228 160,222 118,699 106,186
Unearned income 3,641 3,843 3,950 4,286 5,135
-------- -------- -------- -------- --------
Loans, net $183,739 $165,385 $156,272 $114,413 $101,051
======== ======== ======== ======== ========
- -------------------
(1) Certain reclassifications were made to conform with current year
presentation.
The amount of total loans outstanding at December 31, 1996, based on remaining
contractual repayments of principal, are shown by maturity and interest rate
sensitivity in Table 6:
AT DECEMBER 31, 1996
-------------------------
INTEREST RATE SENSITIVITY
TABLE 6 - LOAN MATURITY AND -------------------------
INTEREST RATE SENSITIVITY PREDETERMINED FLOATING
(AMOUNTS IN THOUSANDS) RATE RATE
- --------------------------- ------------- ---------
Within one year $ 41,458 $67,054
After one year but within five years 55,490
After five years 23,378
-------- -------
Total loans $120,326 $67,054
======== =======
The above maturity schedule is not necessarily indicative of future principal
reductions since each loan is evaluated at maturity and, in many instances, is
renewed in part or in total. Nonperforming loans are included.
19
SELECTED STATISTICAL INFORMATION, CONTINUED
NONPERFORMING ASSETS
- --------------------
Table 7 presents information concerning nonperforming assets for each of the
last five years:
AT DECEMBER 31
TABLE 7 - NONPERFORMING ASSETS(1) --------------------------------------
(AMOUNTS IN THOUSANDS) 1996 1995 1994 1993 1992
- --------------------------------- ------ ------ ------ ------ ------
Nonaccrual loans $ 686 $ 632 $2,214 $1,628 $1,626
Restructured loans(2) 418
------ ------ ------ ------ ------
Total nonperforming loans 1,104 632 2,214 1,628 1,626
Other real estate(3) 726 1,393 534 723 977
------ ------ ------ ------ ------
Total nonperforming assets $1,830 $2,025 $2,748 $2,351 $2,603
====== ====== ====== ====== ======
Accruing loans past due 90 days or more $1,100 $1,245 $1,009 $ 962 $1,233
====== ====== ====== ====== ======
Ratios:
Nonperforming loans to net loans 0.60% 0.38% 1.42% 1.42% 1.61%
====== ====== ====== ====== ======
Nonperforming assets to net loans
plus other real estate 0.99% 1.21% 1.75% 2.04% 2.55%
====== ====== ====== ====== ======
(1) Certain reclassifications were made to conform with current year
presentation.
(2) Does not include restructured loans that yield a market rate. At December
31, 1996, restructured loans yielding a market rate totaled $102. No
restructured loans were reportable for the other periods presented.
(3) Includes only real estate acquired through foreclosure or in settlement of
debts previously contracted.
Nonperforming loans include loans classified as nonaccrual when it appears that
future collection of principal or interest according to contractual terms may be
doubtful and loans whose terms have been restructured to provide for a reduction
or deferral of either interest or principal because of a deterioration in the
financial position of the borrower. Other real estate represents real property
acquired by actual foreclosure or directly by title or deed transfer in
settlement of debt. The Company continues to accrue interest on consumer loans
that are contractually past due 90 days or more, if in management's opinion the
interest is collectible, up to the time of repossessing the underlying
collateral or charging the loan amount against the allowance for loan losses.
The Company changes the status of commercial, financial, agricultural, and real
estate loans to nonaccrual when the loan becomes past due 90 days or more and
management determines that the ultimate collectibility of the loan is doubtful
or the borrower has declared bankruptcy. All nonaccrual loans are reduced to the
lesser of the market value of the underlying real estate or other collateral as
determined by an independent appraisal or the principal balance of the loan
before being placed on nonaccrual status. Accrued interest on any loan switched
to nonaccrual status is reversed. Unrecognized income on nonaccrual and
restructured loans totaled approximately $71,000, $137,000, $194,000, $168,000,
and $133,000 in 1996, 1995, 1994, 1993, and 1992.
Potential problem loans not included in nonperforming loans at December 31, 1996
totaled approximately $1,400,000; all known potential problem loans were
included in nonperforming loans for the other periods presented. At December 31,
1996, the Company had no concentration of loans to borrowers engaged in any
single industry that exceeded 10% of total loans. A significant portion of the
Company's loans are secured by real estate; at year-end 1996, loans secured by
real estate totaled approximately $113,158,000.
20
SELECTED STATISTICAL INFORMATION, CONTINUED
ALLOWANCE FOR LOAN LOSSES
- -------------------------
The Company maintains an alllowance for loan losses available to absorb
potential losses in the loan portfolio. The allowance may increase or decrease
based on loan growth, changes in internally generated credit ratings, changes in
general economic conditions of the Company's trade areas, or historical loan
loss experience. These factors are analyzed and reviewed on a continual basis to
determine if any changes to the provision for loan losses should be made.
Activity in the allowance for each of the last five years is presented in the
table below:
YEAR ENDED DECEMBER 31
TABLE 8 - ALLOWANCE FOR LOAN LOSSES(1) -----------------------------------------------------
(AMOUNTS IN THOUSANDS) 1996 1995 1994 1993 1992
- -------------------------------------- -------- --------- -------- -------- --------
Allowance for loan losses - Beginning of year $ 3,532 $ 3,257 $ 2,475 $ 1,904 $ 1,630
Allowance of purchased bank 458
Provision for loan losses 1,475 1,200 1,130 1,050 800
Charge-offs:
Commercial, financial, and agricultural 996 752 744 220 453
Real estate - construction 0 0 0 0 0
Real estate - mortgage 167 135 50 46 62
Consumer, including credit cards 791 589 533 728 586
-------- -------- -------- -------- --------
Total charge-offs 1,954 1,476 1,327 994 1,101
-------- -------- -------- -------- --------
Recoveries:
Commercial, financial, and agricultural 388 156 161 99 119
Real estate - construction 0 0 0 0 0
Real estate - mortgage 16 34 14 21 20
Consumer, including credit cards 278 361 346 395 436
-------- -------- -------- -------- --------
Total recoveries 682 551 521 515 575
-------- -------- -------- -------- --------
Net charge-offs 1,272 925 806 479 526
-------- -------- -------- -------- --------
Allowance for loan losses - End of year $ 3,735 $ 3,532 $ 3,257 $ 2,475 $ 1,904
======== ======== ======== ======== ========
Net loans outstanding(2) - End of year $183,739 $165,385 $156,272 $114,413 $101,051
======== ======== ======== ======== ========
Average loans $177,522 $160,679 $131,579 $111,669 $101,338
======== ========= ======== ======== ========
Ratios:
Allowance to year-end net loans 2.03% 2.14% 2.08% 2.16% 1.88%
========= ======== ========= ======== ========
Net charge-offs to average loans 0.72% 0.58% 0.61% 0.43% 0.52%
========= ======== ========= ======== ========
Provision to average loans 0.83% 0.75% 0.86% 0.94% 0.79%
========= ======== ========= ======== ========
Recoveries to total charge-offs 34.90% 37.33% 39.26% 51.81% 52.23%
========= ======== ========= ======== ========
- -------------------
(1) Certain reclassifications were made to conform with current year
presentation.
(2) Net of unearned income.
Table 9 on the next page contains additional information on the allowance for
loan losses.
21
SELECTED STATISTICAL INFORMATION, CONTINUED
The Company has allocated the allowance for loan losses according to the amount
deemed to be reasonably necessary to absorb potential losses within the loan
categories summarized in the table below:
TABLE 9 - ALLOCATION OF AT DECEMBER 31
ALLOWANCE FOR LOAN LOSSES ------------------------------------------
(AMOUNTS IN THOUSANDS) 1996 1995 1994 1993 1992
- ------------------------- ------ ------ ------ ------ ------
ALLOCATION OF ALLOWANCE FOR
LOAN LOSSES BY LOAN CATEGORY
Commercial, financial, and agricultural $1,217 $1,236 $1,377 $ 766 $ 609
Real estate - construction 71 56 50 38
Real estate - mortgage 589 353 842 743 666
Consumer, including credit cards 394 706 982 916 591
Unallocated(1) 1,535 1,166
------ ------ ------ ------ ------
Total $3,735 $3,532 $3,257 $2,475 $1,904
====== ====== ====== ====== ======
ALLOCATION OF ALLOWANCE FOR
LOAN LOSSES AS A PERCENT
OF TOTAL ALLOWANCE
Commercial, financial, and agricultural 33% 35% 42% 31% 32%
Real estate - construction 2% 2% 2% 2%
Real estate - mortgage 16% 10% 26% 30% 35%
Consumer, including credit cards 10% 20% 30% 37% 31%
Unallocated(1) 41% 33%
------ ------ ------ ------ -----
Total 100% 100% 100% 100% 100%
====== ====== ====== ====== =====
YEAR-END LOAN CATEGORIES AS
A PERCENT OF TOTAL LOANS
Commercial, financial, and agricultural 47% 45% 43% 30% 34%
Real estate - construction 2% 4% 4% 2% 2%
Real estate - mortgage 32% 32% 33% 42% 38%
Consumer, including credit cards 19% 19% 20% 26% 26%
------ ------ ------- ------ -----
Total 100% 100% 100% 100% 100%
====== ====== ======= ====== =====
- --------------
(1) In 1994 and prior years, management allocated the allowance for loan losses
based on historical net charge-offs and year-end loan types. No portion of
the allowance was shown as unallocated.
22
SELECTED STATISTICAL INFORMATION, CONTINUED
DEPOSITS
- --------
The composition of average deposits are presented in Table 10. The average rates
paid on these deposits are listed in Table 1.
YEAR ENDED DECEMBER 31 PERCENT OF TOTAL
TABLE 10 - DEPOSITS ---------------------------- -------------------------
(AMOUNTS IN THOUSANDS) 1996 1995 1994 1996 1995 1994
- --------------------------------- -------- -------- -------- ------ ------ ------
AVERAGE BALANCES:
Noninterest-bearing deposits $ 51,594 $ 47,671 $ 38,146 18.15% 19.08% 17.48%
Interest-bearing demand deposits 48,247 53,010 54,713 16.97% 21.22% 25.08%
Savings 53,342 27,557 30,694 18.77% 11.03% 14.07%
Time deposits 131,048 121,566 94,614 46.11% 48.67% 43.37%
-------- -------- -------- ------ ------ ------
Total $284,231 $249,804 $218,167 100.00% 100.00% 100.00%
======== ======== ======== ======= ====== ======
The maturities of certificates of deposit of $100,000 or more at December 31,
1996 are presented below:
AT DECEMBER 31, 1996
TABLE 11 - MATURITIES OF CERTIFICATES --------------------
OF DEPOSIT OF $100,000 OR MORE CERTIFICATES
(AMOUNTS IN THOUSANDS) OF DEPOSIT
- ------------------------------------- --------------------
Months to maturity:
3 or less $ 8,106
Over 3 through 6 6,654
Over 6 through 12 12,749
Over 12 9,675
--------
Total $ 37,184
========
SELECTED RATIOS FOR MEASUREMENT OF NET INCOME AND EQUITY
- --------------------------------------------------------
Selected ratios for measurement of net income and equity are presented below:
YEAR ENDED DECEMBER 31
-----------------------------
TABLE 12 - RETURN ON EQUITY AND ASSETS 1996 1995 1994
- -------------------------------------- ----- ----- -----
Return on average assets(2) 1.49% 1.50% 1.47%
Return on average equity(2) 14.73% 14.64% 13.94%
Dividend payout ratio(1) 22.60% 23.96% 26.47%
Average equity to average assets ratio(2) 10.09% 10.21% 10.53%
(1) The dividend payout ratio has been restated to give retroactive effect to
the stock split paid on August 9, 1996.
(2) These ratios exclude the effects of mark-to-market accounting for
investment securities.
23
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Southeastern Banking Corporation
Darien, Georgia
We have audited the accompanying consolidated balance sheet of Southeastern
Banking Corporation and subsidiaries as of December 31, 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit. The consolidated financial
statements of Southeastern Banking Corporation and subsidiaries as of December
31, 1995 and for the two years in the period then ended were audited by other
auditors whose report, dated January 19, 1996, expressed an unqualified opinion
on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Southeastern Banking Corporation
and subsidiaries as of December 31, 1996, and the results of their operations
and their cash flows for the year then ended, in conformity with generally
accepted accounting principles.
/s/ BRICKER & MELTON, P.A.
January 24, 1997
Duluth, Georgia
24
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Southeastern Banking Corporation
Darien, Georgia
We have audited the accompanying consolidated balance sheet of Southeastern
Banking Corporation and subsidiaries as of December 31, 1995 and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the two years in the period ended December 31, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Southeastern Banking Corporation
and subsidiaries as of December 31, 1995, and the results of their operations
and their cash flows for each of the two years in the period ended December 31,
1995 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Jacksonville, Florida
January 19, 1996
25
SOUTHEASTERN BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS 1996 1995
- ------ ------------ ------------
CASH AND DUE FROM BANKS, including reserve
requirements of approximately $2,830,000 and
$3,331,000 at December 31, 1996 and 1995 $ 15,415,525 $ 17,257,615
FEDERAL FUNDS SOLD
Cash and cash equivalents 17,090,000 8,030,000
------------ ------------
INVESTMENT SECURITIES: 32,505,525 25,287,615
Held-to-maturity (market value of
approximately $23,172,000 and
$24,363,000 at December 31, 1996 and 1995) 22,321,326 23,180,696
Available-for-sale, at market value 83,576,219 70,964,992
------------ ------------
Total investment securities 105,897,545 94,145,688
LOANS, GROSS 187,380,335 169,227,586
Unearned income (3,641,146) (3,842,284)
Allowance for loan losses (3,734,527) (3,531,872)
------------ ------------
Loans, net 180,004,662 161,853,430
PREMISES AND EQUIPMENT, net 8,500,387 7,123,150
INTANGIBLE ASSETS 3,395,889 2,995,981
OTHER ASSETS 5,521,610 5,549,918
------------ ------------
TOTAL ASSETS $335,825,618 $296,955,782
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
LIABILITIES:
Noninterest-bearing deposits $ 54,751,222 $ 55,584,441
Interest-bearing deposits 239,601,758 203,955,290
------------ ------------
Total deposits 294,352,980 259,539,731
U.S. TREASURY DEMAND NOTE 1,800,366 448,054
NOTE PAYABLE 1,450,000 2,525,000
OTHER LIABILITIES 4,218,645 3,670,871
------------ ------------
Total liabilities 301,821,991 266,183,656
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 16 and 17)
STOCKHOLDERS' EQUITY:
Common stock - $1.25 par value; authorized
10,000,000 shares; issued and outstanding
3,580,797 and 1,193,599 shares at
December 31, 1996 and 1995 4,475,996 1,491,998
Additional paid-in capital 1,391,723 4,375,721
Retained earnings 28,409,683 24,690,512
------------ ------------
Realized stockholders' equity 34,277,402 30,558,231
Unrealized (losses) gains on investment (273,775) 213,895
securities, net of tax ------------ ------------
Total stockholders' equity 34,003,627 30,772,126
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $335,825,618 $296,955,782
============ ============
See notes to consolidated financial statements.
26
SOUTHEASTERN BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
1996 1995 1994
----------- ----------- -----------
INTEREST INCOME:
Loans, including fees $20,027,039 $18,506,328 $14,320,471
Federal funds sold 508,209 532,226 227,218
Investment securities:
Taxable 5,392,546 4,202,698 3,739,159
Tax-exempt 1,295,962 1,365,990 1,511,230
----------- ----------- -----------
Total interest income 27,223,756 24,607,242 19,798,078
----------- ----------- -----------
INTEREST EXPENSE:
Deposits 11,397,599 9,661,112 7,113,234
U.S. Treasury demand note 56,208 75,099 40,657
Note payable to bank 133,450 254,164 43,625
----------- ----------- -----------
Total interest expense 11,587,257 9,990,375 7,197,516
----------- ----------- -----------
Net interest income 15,636,499 14,616,867 12,600,562
PROVISION FOR LOAN LOSSES 1,475,000 1,200,000 1,130,000
----------- ----------- -----------
Net interest income after
provision for loan losses 14,161,499 13,416,867 11,470,562
----------- ----------- -----------
NONINTEREST INCOME:
Service charges on deposit accounts 3,203,335 2,693,591 2,225,619
Investment securities (losses)
gains, net (8,649) (38,790) 61,261
Other operating income 910,825 783,938 634,175
----------- ----------- -----------
Total noninterest income 4,105,511 3,438,739 2,921,055
----------- ----------- -----------
NONINTEREST EXPENSE:
Salaries and employee benefits 6,411,381 5,820,415 5,089,941
Occupancy and equipment, net 2,064,660 1,808,689 1,523,415
Other operating expense 2,889,127 3,101,251 2,928,380
----------- ----------- -----------
Total noninterest expense 11,365,168 10,730,355 9,541,736
----------- ----------- -----------
Income before income taxes 6,901,842 6,125,251 4,849,881
INCOME TAX EXPENSE 2,096,615 1,838,341 1,199,185
----------- ----------- -----------
Net income $ 4,805,227 $ 4,286,910 $ 3,650,696
=========== =========== ===========
NET INCOME PER COMMON SHARE $ 1.34 $ 1.20 $ 1.02
=========== =========== ===========
See notes to consolidated financial statements.
27
SOUTHEASTERN BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
UNREALIZED
GAINS
(LOSSES) ON
ADDITIONAL INVESTMENT
COMMON PAID-IN RETAINED SECURITIES,
STOCK CAPITAL EARNINGS NET OF TAX TOTAL
---------- ---------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1993 $1,491,998 $4,375,721 $18,746,215 $ 477,927 $25,091,861
Net income 3,650,696 3,650,696
Cash dividends declared
($.27 per share) (966,815) (966,815)
Change in unrealized
gains (losses) on investment
securities, net of tax (2,351,292) (2,351,292)
---------- ---------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1994 1,491,998 4,375,721 21,430,096 (1,873,365) 25,424,450
Net income 4,286,910 4,286,910
Cash dividends declared
($.29 per share) (1,026,494) (1,026,494)
Change in unrealized
gains (losses) on investment
securities, net of tax 2,087,260 2,087,260
---------- ---------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1995 1,491,998 4,375,721 24,690,512 213,895 30,772,126
Net income 4,805,227 4,805,227
Declaration of
three-for-one stock split 2,983,998 (2,983,998)
Cash dividends declared
($.30 per share) (1,086,056) (1,086,056)
Change in unrealized
gains (losses) on investment
securities, net of tax (487,670) (487,670)
---------- ---------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1996 $4,475,996 $1,391,723 $28,409,683 $ (273,775) $34,003,627
========== ========== =========== =========== ===========
See notes to consolidated financial statements.
28
SOUTHEASTERN BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
1996 1995 1994
------------ ------------ ------------
OPERATING ACTIVITIES:
Net income $ 4,805,227 $ 4,286,910 $ 3,650,696
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 1,475,000 1,200,000 1,130,000
Depreciation 993,040 897,034 822,880
Amortization and accretion, net 319,237 252,328 275,983
Deferred income tax benefit (82,587) (70,511) (80,107)
Investment securities losses (gains), net 8,649 38,790 (61,261)
Net gain on sales of other real estate
owned (145,653) (75,292) (132,116)
Changes in assets and liabilities:
(Increase) decrease in other assets (333,087) (158,667) 85,494
Increase (decrease) in other liabilities 391,095 422,538 (25,697)
------------ ------------ ------------
Net cash provided by operating activities 7,430,921 6,793,130 5,665,872
------------ ------------ ------------
INVESTING ACTIVITIES:
Proceeds from maturities of investment
securities:
Held-to-maturity 3,493,600 1,806,300 3,229,100
Available-for-sale 29,181,620 24,795,787 17,676,153
Proceeds from sales of investment securities:
Available-for-sale 6,377,250 7,930,625 4,991,719
Proceeds from sales of other real estate owned 379,476 217,472 576,250
Purchases of investment securities:
Held-to-maturity (2,651,768) (352,792) (2,192,459)
Available-for-sale (48,911,828) (33,836,891) (15,645,788)
Net increase in loans (17,235,619) (11,054,896) (22,625,222)
Additions to premises and equipment, net (895,467) (599,686) (819,300)
Cash and cash equivalents received in
purchase of branches from Compass Bank 19,497,817
Cash and cash equivalents paid in excess of
cash acquired for purchase of United
Citizens Bank of Alachua County (28,924)
------------ ------------ ------------
Net cash used in investing activities (10,764,919) (11,094,081) (14,838,471)
------------ ------------ ------------
FINANCING ACTIVITIES:
Net increase (decrease) in demand, NOW, and
savings deposits 21,859,755 (5,381,983) 12,554,658
Net (decrease) increase in certificates of
deposit (10,522,856) 13,891,819 2,520,467
Net increase (decrease) in U.S. Treasury
demand note 1,352,312 (187,293) (2,002,298)
Proceeds from issuance of note payable 3,500,000
Payments on note payable (1,075,000) (975,000)
Cash dividends paid (1,062,303) (1,002,624) (942,943)
------------ ------------ ------------
Net cash provided by financing activities 10,551,908 6,344,919 15,629,884
------------ ------------ ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 7,217,910 2,043,968 6,457,285
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 25,287,615 23,243,647 16,786,362
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 32,505,525 $ 25,287,615 $ 23,243,647
============ ============ ============
See notes to consolidated financial statements.
29
SOUTHEASTERN BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
Southeastern Banking Corporation and subsidiaries, Southeastern Bank and
Southeastern Bank of Florida, (collectively the "Company") provide a full
range of banking services to individual and corporate customers in southeast
Georgia and northeast and central Florida. The consolidated financial
statements include the accounts of Southeastern Banking Corporation and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The financial statements have been prepared in conformity with generally
accepted accounting principles within the banking industry. The preparation
of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the reported amounts of revenues and expenses for the reporting period.
Actual results could vary from these estimates. A summary of the more
significant accounting and reporting policies follows:
CASH EQUIVALENTS - Cash equivalents include due from banks and Federal funds
sold. Generally, Federal funds are sold for one-day periods.
INVESTMENT SECURITIES - Investment securities are classified as
held-to-maturity or available-for-sale. Securities which the Company has the
positive intent and ability to hold to maturity are classified as
held-to-maturity and are carried at amortized cost. Securities not
classified as held-to-maturity are classified as available-for-sale and are
carried at market value with unrealized gains and losses excluded from
earnings and reported net of tax as a separate component of stockholders'
equity until realized. Gains and losses on sales of investment securities
are recognized based on the adjusted cost of the specific security at
disposition.
LOANS - Loans are reported at the principal amount outstanding, net of
unearned income and the allowance for loan losses. Interest income on loans
is generally recognized on a level-yield basis. Interest income on loans
which are made on the discount basis is recognized using the
sum-of-the-months-digits method which does not differ materially from the
level-yield basis.
Loans are changed to nonaccrual status when the full timely collection of
principal or interest becomes doubtful or the loans become contractually
past due 90 days or more as to either principal or interest, unless the
loans are both well-secured and in the process of collection. Accrued
interest on any loan changed to nonaccrual status is reversed. Cash receipts
on nonaccrual loans are applied first to outstanding principal balances and
then to interest.
30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
ALLOWANCE FOR LOAN LOSSES - Additions to the allowance for loan losses are
based on management's evaluation of the loan portfolio under current
economic conditions, past loan loss experience, value of underlying
collateral, and other factors which, in management's judgment, deserve
recognition in estimating loan losses. Loans are charged-off when, in the
opinion of management, such loans are deemed to be uncollectible. Recognized
losses are charged to the allowance and subsequent recoveries are added.
Although the Company believes it has a sound basis for estimating the amount
needed for the allowance for loan losses, actual charge-offs are highly
dependent upon future events, including the economies of the areas in which
the Company lends.
In 1993, the Company adopted Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan (SFAS 114)." SFAS 114
addresses the accounting by creditors for impairment of certain loans and
requires that certain impaired loans be measured based on the present value
of expected future cash flows discounted at the loan's effective interest
rate, observable market price, or the fair value of the collateral, if the
loan is collateral dependent. Statement of Financial Accounting Standards
No. 118, "Accounting by Creditors for Impairment of a Loan--Income
Recognition and Disclosures (SFAS 118)," amends SFAS 114 to allow a creditor
to use existing methods for recognizing interest income on an impaired loan
and to require additional disclosures about how a creditor recognizes
interest income related to impaired loans. Adoption of these statements did
not have a material effect on results of operations.
PREMISES AND EQUIPMENT - Premises and equipment are reported at cost less
accumulated depreciation and amortization. Depreciation is computed using
the straight-line and declining balance methods over the estimated useful
lives of the related assets. Expenditures for maintenance and repairs are
charged to operations as incurred, while betterments are capitalized.
OTHER REAL ESTATE - O