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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..............................................12-31-97
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
incorporation or organization) Identification No.)
1010 NORTHWAY STREET
DARIEN, GEORGIA 31305
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(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, 1998, 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 $39,652,900
(based on a per share price of $17.50 which is based on over-the-counter trades
executed by a principal market-maker).
This Document consists of 54 pages.
The Exhibit Index is located at page 52.
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 full-service banking offices in southeast Georgia and northeast
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 northeast Florida's
Nassau County; the Company received approximately $22,982,000 in assets and
assumed approximately $23,709,000 in deposit and other liabilities.
Geographically, Nassau County borders Camden and Charlton Counties in southeast
Georgia where SEB has offices. 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.
On January 16, 1998, SEBF sold its three offices in central Florida to
First National Bank of Alachua. Assets sold and deposits and other liabilities
divested by SEBF on January 16 totaled approximately $32,171,000 and
$33,646,000. The sale of these locations enables the Company to concentrate its
resources and strengthen its presence in its northeast Florida and southeast
Georgia markets. The Company has also filed applications with its regulators to
merge SEBF into SEB. Provided all necessary regulatory approvals are obtained,
the merger is expected to be completed during 1998. The merger of these two
subsidiaries will reduce the duplicative overhead costs associated with two
separate entities. See Note 18 to the Consolidated Financial Statements.
2. BUSINESS. The Company provides full banking services through its
subsidiary banks. 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, 1997, SEB had total assets of
approximately $272,328,000. (1) SEBF operates from its main office in Yulee and
its branch offices in Callahan and Hilliard. Prior to January 16, 1998, SEBF
also had offices in Alachua, Gainesville, and Jonesville. As noted in the
History and Organization section above, these three offices were sold on January
16. Including the Alachua
1
County locations, SEBF had total assets of approximately $75,675,000(1) at
December 31, 1997. 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, credit cards, and letters of credit. 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 transfers, and safe deposit box rentals.
(1) Stand-alone basis
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, 1997, the Company and its subsidiaries had 172 and 21 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 County in Georgia, the Company has direct competition
with other commercial banks, savings and loan associations, and credit unions in
each 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 gives
the Company opportunities for growth as well as intensifies 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 Board of Governors of the
Federal Reserve System (Federal Reserve). 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. 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 as it attempts to control the money supply and
credit availability in order to influence the economy.
Pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994, bank holding companies from any state may now acquire banks located in
any other state, subject to certain conditions, including concentration limits.
A bank may establish branches across state lines by merging with a bank in
another state, beginning June 1, 1997 (unless applicable state law permitted
such interstate mergers at an earlier date or prohibits such interstate mergers
entirely), provided certain conditions are met. A bank may also establish a de
novo branch in a state in which the bank does not maintain a branch if the state
expressly permits such interstate de novo branching and certain other conditions
are met.
2
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 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, 1997, the Company's Tier 1 capital, total
risk-based capital, and Tier 1 leverage ratios were 17.91%, 19.16%, and 10.31%.
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:
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GEORGIA Branch Location
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---------------------- ---------------------------------
620 S. Peterson Street Highway 40 East
Coffee County Camden County
DOUGLAS, GEORGIA 31533 KINGSLAND, GEORGIA 31548
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Highway 17 110 Bacon Street
McIntosh County Brantley County
EULONIA, GEORGIA 31331 NAHUNTA, GEORGIA 31553
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3
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GEORGIA, cont. BRANCH LOCATION
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101 Love Street 100 S. Liberty Street
Charlton County Coffee County
FOLKSTON, GEORGIA 31537 NICHOLLS, GEORGIA 31554
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110-112 Hinson Street 2512 Osborne Road
Jeff Davis County Camden County
HAZLEHURST, GEORGIA 31539 ST. MARYS, GEORGIA 31558
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107 E. Main Street Bedell Avenue & Highway 17
Brantley County Camden County
HOBOKEN, GEORGIA 31542 WOODBINE, GEORGIA 31569
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SEBF's main office is located at 1376 East State Road 200, Yulee, Florida.
Additional offices are located in the following communities:
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FLORIDA BRANCH LOCATION
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305 South Kings Road 104 West 2nd Street
Nassau County Nassau County
CALLAHAN, FLORIDA 32011 HILLIARD, FLORIDA 32046
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As noted in the History and Organization section of Part I, Item 1, SEBF's
offices at 1010 South Highway 441, Alachua; 4000 North Main Street, Gainesville;
and 14009 Highway 26 East, Jonesville were sold on January 16, 1998, and,
accordingly, are not listed in the table above. At December 31, 1997, the
Company owned all of its banking facilities with the exception of its offices in
Alachua and Gainesville, which were 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 1997 and 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, markdown, and/or
commission.(1)
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.
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CASH
MARKET SALES PRICE & SALES PRICE DIVIDENDS
DIVIDENDS DECLARED QUARTER HIGH LOW DECLARED
----------------------------------------------------------------------
1997 4th $18.38 $17.00 $0.1300
3rd 18.50 17.50 0.0633
2nd 18.50 17.00 0.0633
1st 18.50 17.00 0.0633
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
(1) In late 1997, a second market-maker began trading the Company's stock. This
market-maker did not complete any trades prior to year-end 1997.
At January 31, 1998, 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 1998 without such prior approval is approximately $2,190,000.
5
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
- - ----------------------------------------------------------------------------------------------
FINANCIAL DATA
(AMOUNTS IN THOUSANDS EXCEPT PER 1997 1996 1995 1994 1993
SHARE DATA)
- - ----------------------------------------------------------------------------------------------
AT DECEMBER 31:
Total assets $347,898 $335,826 $296,956 $283,814 $234,195
Deposits 302,369 294,353 259,540 251,030 203,470
Loans, net(1) 186,823 183,739 165,385 156,272 114,413
Long-term debt 0 1,450 2,525 3,500 0
Realized stockholders' equity 37,854 34,277 30,558 27,298 24,614
SUMMARY OF OPERATIONS:
Net interest income $ 16,391 $ 15,636 $ 14,617 $ 12,601 $ 11,245
Provision for loan losses 1,715 1,475 1,200 1,130 1,050
Net income 4,722 4,805 4,287 3,651 3,525
PER SHARE DATA:
Basic earnings $ 1.32 $ 1.34 $ 1.20 $ 1.02 $ 0.98
Cash dividends declared(2) 0.32 0.30 0.29 0.27 0.25
Book value 10.57 9.57 8.53 7.62 6.87
- - ----------
(1)Net of unearned income
(2)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 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, 1997, SEB had total assets of approximately $272,328,000.(1)
Southeastern Bank of Florida (SEBF), a state banking association incorporated
under the laws of the State of Florida, operates from its main office in Yulee
and its branch offices in Callahan and Hilliard. SEBF acquired the Callahan,
Hilliard, and Yulee offices of Compass Bank in north Florida's Nassau County on
February 15, 1996. Geographically, Nassau County borders Camden and Charlton
Counties in south Georgia where SEB has offices. SEBF received approximately
$22,982,000 in assets and assumed approximately $23,709,000 in deposit and other
liabilities. Prior to January 16, 1998, SEBF also had offices in Alachua,
Gainesville, and Jonesville. On January 16, 1998, SEBF sold its three offices in
central Florida to First National Bank of Alachua. Assets sold and deposits and
other liabilities divested by SEBF on January 16 totaled approximately
$32,171,000 and $33,646,000. The Company recognized a pretax gain but after tax
loss on the sale of these branches. The sale of these locations enables the
Company to concentrate its resources and strengthen its presence in its
northeast Florida and southeast Georgia markets. Including the Alachua County
locations, SEBF had total assets of approximately $75,675,000(1) at December 31,
1997. See Note 18 to the Consolidated Financial Statements.
Total assets grew an aggregate $12,072,215 or 3.59% since year-end 1996.
Loans and investment securities as a percent of earning assets remained
consistent with 1996 levels, comprising 59% and 35% of earning assets at
December 31, 1997. During the year-ago period, total assets grew $38,869,836 or
13.09%. The acquisition of the Nassau County branches and deposit growth were
the main factors in the increase last year. The Company received a considerable
amount of funds from the Nassau County branches because of their low net loans
to deposits ratio. The excess funds from these branches and funds from other
deposit growth were invested primarily in federal funds sold and U.S. Treasury &
Agency obligations.
(1) Stand-alone basis
LOANS
Net loans grew $3,083,670 or 1.68% to $186,822,859 at December 31, 1997
compared to year-end 1996. The net loans to deposits ratio was 61.79% at
December 31, 1997 versus 62.42% at year-end 1996 and 64.19% at September 30,
1997. During 1996, net loans grew $18,353,887 or 11.10%. Loans acquired from
Compass accounted for approximately 11% of the 1996 increase.
Nonperforming loans comprised 0.62% of net loans at year-end compared to
0.60% and 0.38% at December 31, 1996 and 1995. The ratio of nonperforming assets
to net loans plus foreclosed real estate increased 2 basis points to 1.01% at
December 31, 1997 from 0.99% a year ago. Approximately $1,010,000 or 87% of
nonperforming loans pertained to five borrowers at December 31, 1997.
Additionally, approximately 24% of loans past due 90 days or more pertained to
four separate borrowers. Management is unaware of any other material
concentrations within nonperforming loans. The table on the next page provides
information about nonperforming loans and other assets.
7
- - -------------------------------------------- --------------------------
AT DECEMBER 31
NONPERFORMING ASSETS --------------------------
(AMOUNTS IN THOUSANDS) 1997 1996 1995
- - -------------------------------------------- ------ ------ ------
Nonaccrual loans $ 775 $ 686 $ 632
Restructured loans(1) 389 418
------ ------ ------
Total nonperforming loans 1,164 1,104 632
Foreclosed real estate(2) 722 726 1,393
------ ------ ------
Total nonperforming assets $1,886 $1,830 $2,025
====== ====== ======
Accruing loans past due 90 days or more $1,767 $1,100 $1,245
====== ====== ======
(1)Does not include restructured loans that yield a market rate. At December
31, 1997 and 1996, such loans totaled $0 and $102.
(2)Includes only other 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 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. Foreclosed 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. All known potential problem
loans were included in nonperforming loans for all periods presented except
December 31, 1996. Potential problem loans not included in nonperforming loans
at December 31, 1996 totaled approximately $1,400,000. Subsequent to year-end
1996, these potential problem loans were placed on nonaccrual status and
charged-off to their estimated collectible values. The Company had no
concentration of loans to borrowers engaged in any single industry that exceeded
10% of total loans for any of the periods presented. A significant portion of
the Company's loans are collateralized by real estate; at December 31, 1997 and
1996, loans secured by real estate aggregated approximately $125,460,000 and
$113,158,000.
The Company maintains an allowance for loan losses available to absorb potential
losses in the loan portfolio. The allowance to net loans ratio was 1.98% at
year-end versus 2.03% last year. The provision provided from income totaled
$1,715,000, an increase of $240,000 or 16.27% from 1996. The increased provision
was necessary to cover higher charge-offs in the commercial loan portfolio. Net
charge-offs totaled $1,745,000, up substantially from 1996 levels. 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 table on the next page.
8
YEAR ENDED DECEMBER 31
ALLOWANCE FOR LOAN LOSSES ---------- ---------- ----------
(AMOUNTS IN THOUSANDS) 1997 1996 1995
- - -------------------------- -------- -------- --------
Allowance for loan losses at beginning of
year $ 3,735 $ 3,532 $ 3,257
Provision for loan losses 1,715 1,475 1,200
Charge-offs:
Commercial, financial, and agricultural 1,187 996 752
Real estate - construction 0 0 0
Real estate - mortgage 202 167 135
Consumer, including credit cards 845 791 589
-------- -------- --------
Total charge-offs 2,234 1,954 1,476
-------- -------- --------
Recoveries:
Commercial, financial, and agricultural 99 388 156
Real estate - construction 0 0 0
Real estate - mortgage 6 16 34
Consumer, including credit cards 384 278 361
-------- -------- --------
Total recoveries 489 682 551
-------- -------- --------
Net charge-offs 1,745 1,272 925
-------- -------- --------
Allowance for loan losses at December 31 $ 3,705 $ 3,735 $ 3,532
======== ======== ========
Net loans outstanding(1) at December 31 $186,823 $183,739 $165,385
======== ======== ========
Average loans $186,174 $177,522 $160,679
======== ======== ========
Ratios:
Allowance to net loans 1.98% 2.03% 2.14%
======== ======== ========
Net charge-offs to average loans 0.94% 0.72% 0.58%
======== ======== ========
Provision to average loans 0.92% 0.83% 0.75%
======== ======== ========
- - ----------
(1) Net of unearned income
Management believes the allowance was adequate at December 31, 1997 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 estimates that the provision will total
approximately $1,260,000 during 1998. Net charge-offs are expected to be
substantially lower in 1998 than 1997.
OTHER ASSETS
Adjusted for the transfer of the Hawthorne Road real property values to
other real estate, gross premises and equipment increased $179,487 in 1997.
Southeastern Bank of Florida's Hawthorne Road office was closed on January 31,
1997 due to its low deposit and loan volumes and poor growth prospects; this
closing had minimal impact on our financial position. Gross premises and
equipment increased last year 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; and the
equipment and preparatory costs associated with the installation of automatic
teller machines at each Nassau County location.
Other assets increased $192,499 or 3.49% during 1997. The current period
increase resulted primarily from the repossession of inventory collateralizing
several large commercial loans and the transfer of the Hawthorne Road real
property to other real estate. As shown in the nonperforming assets table on the
previous page, foreclosed real estate balances remained virtually unchanged at
December 31, 1997 compared to year-end 1996. The increase in other assets at
year-end 1997 was partially offset by a $149,000 decline in the deferred tax
effects of mark-to-market accounting for investment securities. Other assets
declined a mere 0.51% in 1996. Intangible assets increased during 1996 due to
the deposit premium associated with the Nassau County branches.
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 been
structured to meet liquidity needs prior to asset maturity when necessary.
YEAR-END DEPOSITS
The Company's core deposit base is the foundation for its liquidity
position. Deposits grew $8,015,719 or 2.72% in 1997. Interest-bearing deposits
grew $5,942,662 or 2.48%, representing 81.21% of year-end deposits, while
noninterest-bearing deposits increased $2,073,057 or 3.79%. Consistent with 1996
levels, approximately $235,556,000 and $66,813,000 of year-end 1997 deposits
were attributable to SEB and SEBF, respectively. During 1996,
noninterest-bearing deposits declined $833,219 or 1.50%, while interest-bearing
deposits increased $35,646,468 or 17.48%. Savings were the largest-growing
component of interest-bearing deposits, comprising 26.60% of interest-bearing
deposits at year-end 1996 versus 12.67% at December 31, 1995. The $37,905,077
growth in savings deposits resulted mainly from the SmartSaver account that was
introduced in March 1996. SEBF's deposits grew $30,196,039 in 1996, up 86.20% on
a stand-alone basis, while SEB's deposits grew 1.53%. Deposits assumed from the
Nassau County branches was the primary factor in SEBF's deposit growth last
year.
AVERAGE DEPOSITS
Average deposits grew approximately $10,288,000 to $294,519,000 in 1997.
Interest-bearing deposits totaled 82.00% of average deposits in 1997 versus
81.85% in 1996. Savings balances, continuing the increase that began in 1996
with the introduction of the SmartSaver account, averaged balances approximately
35.83% or $19,111,000 higher in 1997 than 1996. The growth in savings deposits
offset declines of approximately $5,481,000 and $4,753,000 in interest-bearing
demand and time deposits. Average deposits grew approximately $32,725,000 in
1996 compared to 1995; these 1996 averages do not reflect an entire year of
increased savings deposits or deposits assumed from the Nassau County branches.
The composition of average deposits for the last two years is shown in the table
below:
------------------------------ --------------------- ---------------------
12/31/97 12/31/96
---------- ---------- ----------- ---------
DEPOSITS AVERAGE PERCENT AVERAGE PERCENT
(AMOUNTS IN THOUSANDS) BALANCES OF TOTAL BALANCES OF TOTAL
------------------------------ -------- -------- -------- --------
Noninterest-bearing deposits $ 53,005 18.00% $ 51,594 18.15%
Interest-bearing demand
deposits(1) 42,766 14.52% 48,247 16.97%
Savings 72,453 24.60% 53,342 18.77%
Time deposits 126,295 42.88% 131,048 46.11%
-------- ------ -------- ------
Total $294,519 100.00% $284,231 100.00%
======== ====== ========= ======
(1) Includes NOW and money market accounts.
In addition to deposits and the other liquidity sources above, the Company
utilizes short-term borrowings as needed in the form of U.S. Treasury demand
notes and federal funds purchased. The Company has unsecured lines of credit for
federal funds purchased from correspondent banks totaling $11,500,000. At
December 31, 1997 and 1996, the Company had no amounts outstanding under these
lines.
The term loan incurred in 1994 was fully paid during the fourth quarter of
1997; our prepayments, including $1,450,000 in 1997, accelerated the redemption
of this debt by approximately seven years. Besides assuming deposit liabilities,
the Company did not incur any debt in connection with its acquisition of the
Nassau County branches in 1996.
10
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, 1997 is
presented below:
DECEMBER 31, 1997
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 $ 18,365 $ 18,365
Securities(1) 6,770 15,784 74,127 10,918 107,599
Loans(3) 73,874 18,751 55,912 41,143 189,680
--------- --------- --------- --------- ---------
Total interest rate sensitive assets 99,009 34,535 130,039 52,061 315,644
--------- --------- --------- --------- ---------
INTEREST RATE SENSITIVE LIABILITIES:
Deposits (2) 152,784 65,515 27,146 99 245,544
U. S. Treasury demand note 3,771 3,771
--------- --------- --------- --------- ---------
Total interest rate sensitive
liabilities 156,555 65,515 27,146 99 249,315
--------- --------- --------- --------- ---------
Interest rate sensitivity gap $ (57,546) $ (30,980) $ 102,893 $ 51,962 $ 66,329
========= ========= ========= ========= =========
CUMULATIVE INTEREST RATE SENSITIVITY GAP $ (57,546) $ (88,526) $ 14,367 $ 66,329
========= ========= ========= =========
Ratio of cumulative gap to total
interest rate sensitive assets (18.23)% (28.05)% 4.55% 21.01%
========= ========= ========= =========
Ratio of cumulative interest rate
sensitive assets to interest rate
sensitive liabilities 63.24% 60.14% 105.76% 126.60%
========= ========= ========= =========
Cumulative gap at December 31, 1996(3) $ (37,567) $ (63,773) $ 28,934 $ 67,670
========= ========= ========= =========
- - ----------
(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 average lives 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)At December 31, 1996, distribution of maturities for installment loans was
based on scheduled contractual payments. At December 31, 1997, no cash flow
assumptions other than final contractual maturities were made for installment
loans. Nonaccrual loans have been excluded from the 1997 totals.
The Company's cumulative gap position remained negative through the one
year time interval at year-end 1997. A negative gap position indicates that the
Company's rate sensitive liabilities will reprice faster than its rate sensitive
assets. Increases in our gap position through the one year time interval since
1996 have resulted largely from growth in savings deposits and a decline in
remaining maturities of certificates of deposits.
The interest rate sensitivity table presumes that all loans(3) 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
11
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 grew $3,576,397 or 10.43% since year-end
1996, an increase in book value of $1.00 per share. Dividends declared, restated
to reflect the three-for-one stock split paid in 1996, increased 5.50% from
$0.30 1/3 in 1996 to $0.32 in 1997. Unrealized stockholders' equity improved
$288,633 to a net gain of $14,858 at year-end. Unrealized stockholders' equity
measures the impact of market interest rates on investment securities classified
as available-for-sale. Total stockholders' equity increased $3,231,501 or 10.50%
at December 31, 1996 compared to 1995.
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 shown in the table below, the decline in our capital ratios that resulted
from our acquisition of the Nassau County branches in 1996 has been reversed;
current capital ratios now exceed pre-acquisition levels.
------------------------------------ ---------------------------------------
AT DECEMBER 31
CAPITAL RATIOS ---------------------------------------
(AMOUNTS IN THOUSANDS) 1997 1996 1995
------------------------------------ --------- --------- ---------
Tier 1 capital:
Realized stockholders' equity $ 37,854 $ 34,277 $ 30,558
Intangible assets and other
adjustments (3,075) (3,434) (3,040)
--------- --------- ---------
Total Tier 1 capital 34,779 30,843 27,518
--------- --------- ---------
Tier 2 capital:
Portion of allowance for loan
losses 2,444 2,400 2,133
Allowable long-term debt -- -- --
--------- --------- ---------
Total Tier 2 capital 2,444 2,400 2,133
--------- --------- ---------
Total risk-based capital $ 37,223 $ 33,243 $ 29,651
========= ========= =========
Risk-weighted assets $ 194,224 $ 190,630 $ 169,222
========= ========= =========
Risk-based ratios:
Tier 1 capital 17.91% 16.18% 16.26%
========= ========= =========
Total risk-based capital 19.16% 17.44% 17.52%
========= ========= =========
Tier 1 leverage ratio 10.31% 9.42% 9.67%
========= ========= =========
Realized stockholders' equity
to assets 10.88% 10.20% 10.30%
========= ========= =========
Due to the elimination of certain intangible assets, the sale of the Alachua
County locations will not have a negative impact on our 1998 capital ratios.
12
RESULTS OF OPERATIONS
Net income totaled $4,721,895 in 1997, down $83,332 or 1.73% from 1996, but
up $434,985 or 10.15% over 1995. On a per share basis, earnings were $1.32,
$1.34, and $1.20 in 1997, 1996, and 1995. The return on average assets declined
6.04% to 1.40% in 1997 from 1.49% a year ago. The return on beginning equity was
13.78% in 1997 versus 15.72% in 1996. A $240,000 increase in our provision for
loan losses was the most significant factor in our 1997 earnings decline. The
increased provision was necessary to cover higher charge-offs in our commercial
loan portfolio. See the Financial Condition section of this Discussion and
Analysis for additional details on the loan portfolio and the increased
provision.
NET INTEREST INCOME
Interest income grew 4.01% or $1,091,426 in 1997 compared to 1996. Interest
and fees on loans remained the largest-growing component of interest income,
increasing $790,107 or 3.95%. The 1997 growth was fueled by a 4.87% jump in
average balances, because loan yields(1) declined to 11.21% from 11.30% a year
ago. SEB & SEBF contributed approximately 56% and 44% of the 1997 improvement.
Interest and fees on loans rose $1,520,711 or 8.22% in 1996. The prior year
results were also attributable to higher average balances, because loan
yields(1) declined 25 basis points in 1996. Because the loans acquired from
Compass were not significant to the total loan portfolio, they had minimal
impact on our 1996 results.
Interest income on taxable investment securities was up $158,968 or 2.95%
in 1997 compared to 1996. Average balances rose 1.74% while yields increased 9
basis points. The yield on taxable securities was 6.22% in 1997 versus 6.13% in
1996. Interest income on tax-exempt securities declined $191,845 or 14.80% in
1997 as redemptions of these securities continued to exceed purchases. The
yield(1) on tax-exempt securities was 8.73% in 1997. In 1996, interest earnings
on taxable investment securities grew $1,189,848 or 28.31%. The 1996 results
were the product of a 25 basis point increase in yield and a 23.14% rise in
average balances. The higher average balances in 1996 were a direct result of
the excess funds received from the Nassau County branches and funds generated by
other deposit growth. Interest income on tax-exempt securities declined 5.13% or
$70,028 in 1996.
Interest earnings on federal funds sold increased $334,196 or 65.76% in
1997. All but $31,517 of the 1997 increase occurred during the second half of
1997. The Company increased its federal funds holdings during the last half of
1997 due to anticipated liquidity needs for various purposes, including the sale
of the Alachua County branches. The 1997 yield on federal funds sold was 5.42%,
up 19 basis points from 1996. Though the average balance of federal funds sold
increased 7.02% in 1996, interest income on federal funds sold declined 4.51% or
$24,017 from 1995 due to a 63 basis point drop in yield.
Interest expense on deposits increased 3.68% or $419,203 in 1997. The
current results were entirely due to savings deposits, because interest expense
on time and interest-bearing demand deposits declined in 1997 compared to 1996.
The increase in interest expense on savings deposits resulted primarily from the
SmartSaver promotion. The average rates paid on interest-bearing demand,
savings, and time deposits in 1997 were 2.89%, 4.55%, and 5.77%. In 1996, the
average rates paid on these deposits were 2.94%, 4.31%, and 5.86%. Overall, the
average rate paid on deposits during 1997 was 4.89%, virtually unchanged from
1996's 4.90%. SEBF added approximately $288,000 and SEB, $131,000, in interest
expense during 1997. In 1996, interest expense on deposits increased 17.97% or
$1,736,487. Approximately 63% of the 1996 increase was attributable to SEBF,
including the Nassau County locations. Because the Company prepaid and
subsequently retired the principal balance on its long-term debt, interest
expense associated with that debt declined 69.03% or $92,111 in 1997. The
average rate paid on the term loan in 1997 was 7.48%.
In summary, net interest income grew $754,728 or 4.83% in 1997. Net
interest income increased $1,019,632 or 6.98% in 1996. Approximately $291,000
and $528,000 of the 1997 and 1996 improvements in net interest income were
attributable to SEBF.
13
Taxable-equivalent interest income and ratios for measurement of interest
income and expense are presented below:
------------------------------------------------------------------------
TAXABLE - EQUIVALENT INTEREST YEAR ENDED DECEMBER 31(1)
INCOME & RATIOS --------------------------------
(AMOUNTS IN THOUSANDS) 1997 1996 1995
------------------------------------------------------------------------
Total interest income $28,928 $27,916 $25,356
Total interest expense 11,924 11,587 9,990
Net interest income 17,004 16,329 15,366
Average interest earned 9.33% 9.41% 9.62%
Average interest paid 4.90% 4.92% 4.83%
Net interest spread 4.43% 4.49% 4.79%
Net interest margin 5.48% 5.50% 5.83%
-----------------------------
(1)Interest income on tax-exempt loans and securities is presented on a
taxable-equivalent basis, using a federal income tax rate of 34%.
NONINTEREST INCOME
After adjusting for gains versus losses on investment securities,
noninterest income declined $289,664 or 7.04% in 1997 compared to 1996.
Approximately 48.14% of the noninterest income decline in 1997 resulted from a
$139,437 drop in service charges on deposit accounts. The entire decline in
service charges was attributable to SEB, because SEBF's service charges rose
$40,829. In 1996, service charges on deposit accounts were the largest-growing
component of noninterest income, increasing $509,744. Aided by deposits assumed
from the Nassau County locations, SEBF contributed approximately 73% or $370,000
to the service charge improvement in 1996. Other operating income declined
$150,227 or 16.49% in 1997 after increasing 16.19% in 1996 compared to 1995.
Reduced gains on sales of other real estate and declines in commissions on the
sale of credit life insurance were major factors in the 1997 results.
NONINTEREST EXPENSE
Salaries and employee benefits were up $85,699 or 1.34% in 1997. When
compared to 1995 results, salaries and employee benefits were up $590,966 or
10.15% in 1996. Approximately $236,000 or 40% of the 1996 increase was due to
SEBF, including the Nassau County locations. Net occupancy and equipment expense
increased a mere $20,999 or 1.02% in 1997. In 1996, net occupancy and equipment
expense rose $255,971 or 14.15%. The 1996 increase resulted largely from higher
computer maintenance costs and the additional depreciation and other occupancy
expenses on the Nassau County locations for the post-acquisition period. Other
operating expense was up $246,681 in 1997. Increased legal and accounting fees
and losses on deposit accounts were the chief factors in the 1997 results. Other
operating expense declined $212,124 or 6.84% in 1996 versus 1995. The $290,724
reduction in FDIC insurance premiums partially offset the start-up and other
costs associated with the Nassau County locations. The Company's computer
hardware and software are configured to operate effectively in the year 2000 and
beyond; as such, the Company has not incurred and does not expect to incur any
significant costs in regards to the year 2000.
RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 1997, the Company adopted Statement of Financial Accounting
Standards No. 125 (SFAS 125), "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." After financial assets
have been transferred, SFAS 125 requires recognition of the financial and
servicing assets controlled and liabilities incurred, removal of financial
assets when control has been surrendered, and removal of liabilities when they
have been extinguished. SFAS 125 applies to transfers and servicing of financial
assets and extinguishment of liabilities that occurred after December 31, 1996.
Adoption of this statement did not have a significant impact on the Company's
financial condition or results of operations.
14
In 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share." SFAS
128 establishes accounting standards for computation, presentation, and
disclosure requirements for earnings per share for entities with publicly held
common stock. This statement is effective for financial statements issued for
periods ending after December 15, 1997. Adoption of this statement had no impact
on the Company's reported earnings per share.
In 1997, the FASB issued Statement of Financial Accounting Standards No.
130 (SFAS 130), "Reporting Comprehensive Income," and Statement of Financial
Accounting Standards No. 131 (SFAS 131), "Disclosures About Segments of an
Enterprise and Related Information." SFAS 130 establishes standards for the
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. SFAS 131 establishes standards for the
disclosure of segment information about services, geographic areas, and major
customers. These standards are required to be adopted in 1998. The Company is
currently evaluating these standards but does not anticipate that either SFAS
130 or SFAS 131 will have a significant impact on its consolidated financial
statements.
FORWARD-LOOKING STATEMENTS
The foregoing analysis reviews important factors affecting the financial
condition and results of operations of the Company for the periods shown. The
Company has made, and may continue to make, various forward-looking statements
with respect to business and financial matters. These forward-looking statements
are identified by their use of terms and phrases such as "anticipates,"
"intends," "goal," "continued," "estimates," "expects," "projects," "potential,"
"plans," "should," "believe," and "scheduled." Although these statements are
made in good faith and are believed to have a reasonable basis, the Company
cautions that these forward-looking statements are subject to numerous
assumptions, risks, and uncertainties, all of which may change over time. Actual
results could vary significantly from forward-looking statements. This analysis
should be read in conjunction with the Consolidated Financial Statements and
related notes.
ITEM 7A. INTEREST RATE AND MARKET RISK
The normal course of business activity exposes the Company to interest rate
risk. Fluctuations in interest rates may result in changes in the fair market
value of the Company's financial instruments, cash flows, and net interest
income. The Company attempts to maintain a relatively neutral interest rate
sensitivity position. The gap analysis on page 11 provides a snapshot of the
Company's balance sheet structure at year-end 1997. This analysis does not fully
reflect the complexities of the Company's interest rate sensitivity position and
the impact of interest rate movements on the Company's financial position, cash
flows, and net interest income.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The response to this Item commences on page 25. Selected Statistical
Information begins on page 16.
15
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 Southeastern 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
- - --------------------------------------------------------------------------
1997 1996
------------------------------------- ------------------------------------
TABLE 1 AVERAGE INCOME/ YIELDS/ AVERAGE INCOME/ YIELDS/
(AMOUNTS IN THOUSANDS) BALANCES EXPENSE RATES BALANCES EXPENSE RATES
- - ---------------------------------------------- ------------------------------------- ------------------------------------
ASSETS
Cash and due from banks $ 13,229 $ 13,355
Interest-earning assets:
Loans, net(1),(2),(3) 186,174 $ 20,866 11.21% 177,522 $ 20,059 11.30%
Federal funds sold 15,571 842 5.42% 9,722 508 5.23%
Taxable investment securities 89,508 5,552 6.22% 87,974 5,393 6.13%
Tax-exempt investment securities(3) 19,107 1,668 8.73% 21,593 1,956 9.06%
--------- --------- ----- --------- --------- -----
Total interest-earning assets 310,360 28,928 9.33% 296,811 27,916 9.41%
--------- --------- ----- --------- --------- -----
Allowance for loan losses (3,727) (3,828)
Premises and equipment, net 8,062 8,444
Intangible and other assets 8,610 9,074
Unrealized losses on investment
securities (401) (567)
--------- --------- ----- --------- --------- -----
TOTAL ASSETS $ 336,133 $ 323,289
========= ========= ===== ========= ========= =====
LIABILITIES AND
STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 53,005 $ 51,594
Interest-bearing liabilities:
Interest-bearing demand deposits(4) 42,766 $ 1,237 2.89% 48,247 $ 1,419 2.94%
Savings 72,453 3,296 4.55% 53,342 2,299 4.31%
Time deposits 126,295 7,284 5.77% 131,048 7,680 5.86%
U. S. Treasury demand note 1,269 66 5.20% 1,080 56 5.19%
Note payable 553 41 7.48% 1,804 133 7.39%
--------- --------- ----- --------- --------- -----
Total interest-bearing liabilities 243,336 11,924 4.90% 235,521 11,587 4.92%
--------- --------- ----- --------- --------- -----
Other liabilities 3,834 3,919
Realized stockholders' equity 36,223 32,629
Unrealized losses on investment
securities, net of tax (265) (374)
--------- --------- ----- --------- --------- -----
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 336,133 $ 323,289
========= ========= ===== ========= ========= =====
Excess of interest-earning assets over
interest-bearing liabilities $ 67,024 $ 61,290
========= ========= ===== ========= ========= =====
Interest rate spread 4.43% 4.49%
========= ========= ===== ========= ========= =====
NET INTEREST INCOME $ 17,004 $ 16,329
========= ========= ===== ========= ========= =====
NET INTEREST MARGIN 5.48% 5.50%
========= ========= ===== ========= ========= =====
1995
------------------------------------
AVERAGE INCOME/ YIELDS/
BALANCES EXPENSE RATES
--------- ---------- -------
ASSETS
Cash and due from banks $ 11,491
Interest-earning assets:
Loans, net(1),(2),(3) 160,679 $ 18,559 11.55%
Federal funds sold 9,084 532 5.86%
Taxable investment securities 71,444 4,203 5.88%
Tax-exempt investment securities(3) 22,482 2,062 9.17%
--------- --------- -----
Total interest-earning assets 263,689 25,356 9.62%
--------- --------- -----
Allowance for loan losses (3,551)
Premises and equipment, net 7,195
Intangible and other assets 8,292
Unrealized losses on investment
securities (1,058)
--------- --------- -----
TOTAL ASSETS $ 286,058
========= ========= =====
LIABILITIES AND
STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 47,671
Interest-bearing liabilities:
Interest-bearing demand deposits(4) 53,010 $ 1,758 3.32%
Savings 27,557 806 2.92%
Time deposits 121,566 7,097 5.84%
U. S. Treasury demand note 1,386 75 5.41%
Note payable 3,200 254 7.94%
--------- --------- -----
Total interest-bearing liabilities 206,719 9,990 4.83%
========= ========= =====
Other liabilities 3,091
Realized stockholders' equity 29,275
Unrealized losses on investment
securities, net of tax (698)
--------- --------- -----
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 286,058
========= ========= =====
Excess of interest-earning assets over
interest-bearing liabilities $ 56,970
========= ========= =====
Interest rate spread 4.79%
========= ========= =====
NET INTEREST INCOME $ 15,366
========= ========= =====
NET INTEREST MARGIN 5.83%
========= ========= =====
- - ----------
(1) Average loans are shown net of unearned income. Nonperforming loans are
included.
(2) Interest income includes loan fees of approximately $1,074,00, $922,000, and
$827,000 in 1997, 1996, and 1995.
(3) 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 $613,000, $692,000, and $749,000 in 1997, 1996, and 1995.
(4) NOW and money market accounts.
16
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 1997 and 1996. Table 1 contains more
detailed information concerning average balances, yields earned, and rates paid.
- - -----------------------------------------------------------------------------------------------------------------------
1997 COMPARED TO 1996 1996 COMPARED TO 1995
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
TABLE 2 - INTEREST DIFFERENTIAL -----------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS) VOLUME(1) RATE(1) NET VOLUME(1) RATE(1) NET
- - -----------------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
Loans(2),(3) $ 978 $(171) $ 807 $1,945 $(445) $1,500
Federal funds sold 306 28 334 37 (61) (24)
Taxable investment securities 94 65 159 972 218 1,190
Tax-exempt investment securities(3) (225) (63) (288) (82) (24) (106)
-----------------------------------------------------------------------------
Total interest income 1,153 (141) 1,012 2,872 (312) 2,560
-----------------------------------------------------------------------------
INTEREST EXPENSE:
Interest-bearing demand deposits (161) (21) (182) (158) (181) (339)
Savings 824 173 997 753 740 1,493
Time deposits (279) (117) (396) 554 29 583
U. S. Treasury demand note 10 0 10 (17) (2) (19)
Note payable (93) 1 (92) (111) (10) (121)
-----------------------------------------------------------------------------
Total interest expense 301 36 337 1,021 576 1,597
-----------------------------------------------------------------------------
NET INTEREST INCOME $ 852 $(177) $ 675 $1,851 $(888) $ 963
=============================================================================
- - ----------
(1) Changes in net interest income are attributed to either changes in average
balance(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.
(2) Includes loan fees as described in Table 1.
(3) Interest income on tax-exempt loans and securities is presented on a
taxable-equivalent basis, using a federal income tax rate of 34%.
17
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 securities 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:
1997 $ 81,730 $ 81,760 $ 195 $ 165
1996 75,669 75,330 203 542
1995 60,863 61,181 492 174
Mortgage-backed securities:
1997 6,520 6,513 33 40
1996 8,062 7,986 39 115
1995 9,564 9,570 80 74
Equity securities:
1997 1,050 1,050
1996 260 260
1995 214 214
------------------------------------------------------
Total available-for-sale:
1997 89,300 89,323 228 205
1996 83,991 83,576 242 657
1995 70,641 70,965 572 248
HELD-TO-MATURITY:
States and political subdivisions:
1997 19,349 20,158 818 9
1996 22,321 23,172 888 37
1995 22,780 23,961 1,196 15
Other securities:
1995 401 402 1
------------------------------------------------------
Total held-to-maturity:
1997 19,349 20,158 818 9
1996 22,321 23,172 888 37
1995 23,181 24,363 1,197 15
------------------------------------------------------
TOTAL INVESTMENT SECURITIES:
1997 $108,649 $109,481 $ 1,046 $ 214
1996 106,312 106,748 1,130 694
1995 93,822 95,328 1,769 263
======================================================
18
SELECTED STATISTICAL INFORMATION, CONTINUED
Table 4 shows the distribution of maturities and the weighted average yields of
debt securities at December 31, 1997:
TABLE 4 - MATURITY DISTRIBUTION AT DECEMBER 31, 1997
OF INVESTMENT SECURITIES --------------------------------------------------------
(AMOUNTS IN THOUSANDS) 1 YEAR 1-5 5-10 AFTER 10
OR LESS YEARS YEARS YEARS TOTAL
- - ------------------------------- -------- -------- -------- -------- --------
DISTRIBUTION OF MATURITIES:
AMORTIZED COST:
U.S. Treasury and
U.S. Government agencies $ 18,984 $ 61,494 $ 1,000 $ 252 $ 81,730
Mortgage-backed securities(1) 759 5.761 -- -- 6,520
States and political subdivisions 2,313 7,369 6,139 3,528 19,349
-------- -------- -------- -------- --------
Total debt securities $ 22,056 $ 74,624 $ 7,139 $ 3,780 $107,599
======== ======== ======== ======== ========
FAIR VALUE:
U.S. Treasury and
U.S. Government agencies $ 19,007 $ 61,526 $ 1,001 $ 226 $ 81,760
Mortgage-backed securities(1) 763 5,750 -- -- 6,513
States and political subdivisions 2,330 7,524 6,541 3,763 20,158
-------- -------- -------- -------- --------
Total debt securities $ 22,100 $ 74,800 $ 7,542 $ 3,989 $108,431
======== ======== ======== ======== ========
WEIGHTED AVERAGE YIELD:
U.S. Treasury and
U.S. Government agencies 5.96% 6.11% 7.00% 4.76% 6.08%
Mortgage backed securities(1) 6.84% 6.30% -- -- 6.36%
States and political subdivisions(2) 9.26% 7.83% 9.04% 8.69% 8.54%
-------- -------- -------- -------- --------
Total debt securities 6.33% 6.30% 8.76% 8.43% 6.54%
======== ======== ======== ======== ========
- - ---------
(1) Distribution of maturities for mortgage-backed securities is based on
expected average lives 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 had no investments in the obligations of any state or municipality
which exceeded 10% of its stockholders' equity at December 31, 1997.
19
SELECTED STATISTICAL INFORMATION, CONTINUED
LOANS
Loans outstanding are presented by type below:
- - -----------------------------------------------------------------------------------------------------------------------------
TABLE 5 - LOANS BY CATEGORY AT DECEMBER 31
(AMOUNTS IN THOUSANDS) ------------------------------------------------------------
1997 1996 1995 1994 1993
- - -----------------------------------------------------------------------------------------------------------------------------
Commercial, financial, and agricultural $ 92,587 $ 88,899 $ 76,453 $ 69,574 $ 36,191
Real estate - construction 4,029 3,416 6,260 5,944 2,463
Real estate - mortgage 59,652 59,515 53,509 52,954 49,849
Consumer, including credit cards 34,187 35,550 33,006 31,750 30,196
----------------------------------------------------------------------------------
Loans, gross 190,455 187,380 169,228 160,222 118,699
Unearned income 3,632 3,641 3,843 3,950 4,286
----------------------------------------------------------------------------------
Loans, net $186,823 $183,739 $165,385 $156,272 $114,413
==================================================================================
The amount of gross loans outstanding at December 31, 1997, based on remaining
contractual repayments of principal, are shown by maturity and interest rate
sensitivity in Table 6:
- - -----------------------------------------------------------------------------
AT DECEMBER 31, 1997
--------------------------------
INTEREST RATE SENSITIVITY
TABLE 6 - LOAN MATURITY AND --------------------------------
INTEREST RATE SENSITIVITY PREDETERMINED FLOATING
(AMOUNTS IN THOUSANDS) RATE RATE
- - -----------------------------------------------------------------------------
Within one year $ 32,295 $ 60,330
After one year but within five years 55,912
After five years 41,143
--------------------------------
Total loans $129,350 $ 60,330
================================
The above maturity schedule is not necessarily indicative of future principal
reductions since each loan is evaluated at maturity and, in may instances, is
renewed in part or in total. Nonaccrual loans totaling approximately $775 are
excluded.
20
SELECTED STATISTICAL INFORMATION, CONTINUED
NONPERFORMING ASSETS
Table 7 presents information concerning nonperforming assets for each of the
last five years:
TABLE 7 - NONPERFORMING ASSETS AT DECEMBER 31
(AMOUNTS IN THOUSANDS) -----------------------------------------------
1997 1996 1995 1994 1993
- - ------------------------------ -----------------------------------------------
Nonaccrual loans $ 775 $ 686 $ 632 $2,214 $1,628
Restructured loans(1) 389 418 -- -- --
------ ------ ------ ------ ------
Total nonperforming loans 1,164 1,104 632 2,214 1,628
Foreclosed real estate(2) 722 726 1,393 534 723
------ ------ ------ ------ ------
Total nonperforming assets $1,886 $1,830 $2,025 $2,748 $2,351
====== ====== ====== ====== ======
Accruing loans past due 90 days or more $1,767 $1,100 $1,245 $1,009 $ 962
====== ====== ====== ====== ======
Ratios:
Nonperforming loans to net loans 0.62% 0.60% 0.38% 1.42% 1.42%
====== ====== ====== ====== ======
Nonperforming assets to net loans
plus foreclosed real estate 1.01% 0.99% 1.21% 1.75% 2.04%
====== ====== ====== ====== ======
- - -------------------
(1) Does not include restructured loans that yield a market rate. At December
31, 1997 and 1996, restructured loans yielding a market rate totaled $0 and
$102. no restructured loans were reportablbe for the other periods
presented.
(2) Includes only other 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. Foreclosed 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 staus 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 staus is reversed. Unrecognized income on nonaccrual and
restructured loans totaled approximately $143,000, $71,000, $137,000, $194,000,
and $168,000 in 1997, 1996, 1995, 1994, and 1993.
All known potential problem loans were included in nonperforming loans for all
periods presented except December 31, 1996. Potential problem loans not included
in nonperforming loans at year-end 1996 aggregated approximately $1,400,000.
Subsequent to year-end 1996, these potential problem loans were placed on
nonaccrual status and charged-off to their estimated collectible values. The
Company had no concentration of loans to borrowers engaged in any single
industry that exceeded 10% of total loans for any of the periods presented. A
significant portion of the Company's loans are secured by real estate; at
year-end 1997, loans secured by real estate totaled approximately $125,460,000.
21
SELECTED STATISTICAL INFORMATION, CONTINUED
ALLOWANCE FOR LOAN LOSSES
The Company maintains an allowance 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 --------------------------------------------------------
(AMOUNTS IN THOUSANDS) 1997 1996 1995 1994 1993
- - -----------------------------------------------------------------------------------------------------------
Allowance for loan losses at beginning of year $ 3,735 $ 3,532 $ 3,257 $ 2,475 $ 1,904
Allowance of purchased bank 458
Provision for loan losses 1,715 1,475 1,200 1,130 1,050
Charge-offs:
Commercial, financial, and agricultural 1,187 996 752 744 220
Real estate - construction 0 0 0 0 0
Real estate - mortgage 202 167 135 50 46
Consumer, including credit cards 845 791 589 533 728
-------- -------- -------- -------- --------
Total charge-offs 2,234 1,954 1,476 1,327 994
-------- -------- -------- -------- --------
Recoveries:
Commercial, financial, and agricultural 99 388 156 161 99
Real estate - construction 0 0 0 0 0
Real estate - mortgage 6 16 34 14 21
Consumer, including credit cards 384 278 361 346 395
-------- -------- -------- -------- --------
Total recoveries 489 682 551 521 515
-------- -------- -------- -------- --------
Net charge-offs 1,745 1,272 925 806 479
-------- -------- -------- -------- --------
Allowance for loan losses at December 31 $ 3,705 $ 3,735 $ 3,532 $ 3,257 $ 2,475
======== ======== ======== ======== ========
Net loans outstanding(1) at December 31 $186,823 $183,739 $165,385 $156,272 $114,413
======== ======== ======== ======== ========
Average loans $186,174 $177,522 $160,679 $131,579 $111,669
======== ======== ======== ======== ========
Ratios:
Allowance to net loans 1.98% 2.03% 2.14% 2.08% 2.16%
======== ======== ======== ======== ========
Net charge-offs to average loans 0.94% 0.72% 0.58% 0.61% 0.43%
======== ======== ======== ======== ========
Provision to average loans 0.92% 0.83% 0.75% 0.86% 0.94%
======== ======== ======== ======== ========
Recoveries to total charge-offs 21.89% 34.90% 37.33% 39.26% 51.81%
======== ======== ======== ======== ========
- - -------------------
(1) Net of unearned income.
Table 9 on the next page contains additional information on the allowance for
loan losses.
22
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) 1997 1996 1995 1994 1993
- - -----------------------------------------------------------------------------------------
ALLOCATION OF ALLOWANCE FOR
LOAN LOSSES BY LOAN CATEGORY
Commercial, financial, and agricultural $1,132 $1,217 $1,236 $1,377 $ 766
Real estate - construction 71 56 50
Real estate - mortgage 368 589 353 842 743
Consumer, including credit cards 553 394 706 982 916
Unallocated(1) 1,652 1,535 1,166
------ ------ ------ ------ ------
Total $3,705 $3,735 $3,532 $3,257 $2,475
====== ====== ====== ====== ======
ALLOCATION OF ALLOWANCE FOR
LOAN LOSSES AS A PERCENT
OF TOTAL ALLOWANCE
Commercial, financial, and agricultural 30% 33% 35% 42% 31%
Real estate - construction 2% 2% 2%
Real estate - mortgage 10% 16% 10% 26% 30%
Consumer, including credit cards 15% 10% 20% 30% 37%
Unallocated(1) 45% 41% 33%
------ ------ ------ ------ ------
Total 100% 100% 100% 100% 100%
====== ====== ====== ====== ======
YEAR-END LOAN CATEGORIES AS
A PERCENT OF TOTAL LOANS
Commercial, financial, and agricultural 49% 47% 45% 43% 30%
Real estate - construction 2% 2% 4% 4% 2%
Real estate - mortgage 31% 32% 32% 33% 42%
Consumer, including credit cards 18% 19% 19% 20% 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 types. No portion of the
allowance was shown as unallocated.
23
SELECTED STATISTICAL INFORMATION, CONTINUED
DEPOSITS
The composition of average deposits is 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) 1997 1996 1995 1997 1996 1995
- - ----------------------------------------------------------------------------------------------------
AVERAGE BALANCES:
Noninterest-bearing deposits $ 53,005 $ 51,594 $ 47,671 18.00% 18.15% 19.08%
Interest-bearing demand deposits 42,766 48,247 53,010 14.52% 16.97% 21.22%
Savings 72,453 53,342 27,557 24.60% 18.77% 11.03%
Time deposits 126,295 131,048 121,566 42.88% 46.11% 48.67%
-------- -------- -------- ------ ------ ------
Total $294,519 $284,231 $249,804 100.00% 100.00% 100.00%
======== ======== ======== ====== ====== ======
The maturities of certificates of deposit of $100,000 or more at December 31,
1997 are presented below:
AT DECEMBER 31, 1997
TABLE 11 - MATURITIES OF CERTIFICATES --------------------
OF DEPOSIT OF $100,000 OR MORE CERTIFICATES
(AMOUNTS IN THOUSANDS) OF DEPOSIT
- - -----------------------------------------------------------------------
Months to maturity:
3 or less $ 12,404
Over 3 through 6 8,700
Over 6 through 12 14,268
Over 12 6,485
--------
Total $ 41,857
========
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 1997 1996 1995
- - -----------------------------------------------------------------------------------------
Return on average assets(2) 1.40% 1.49% 1.50%
Return on average equity(2) 13.04% 14.73% 14.64%
Dividend payout ratio(1) 24.26% 22.60% 23.96%
Average equity to average assets ratio(2) 10.77% 10.09% 10.21%
------ ------ -------
- - -------------------
(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.
24
[LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Southeastern Banking Corporation
Darien, Georgia
We have audited the accompanying consolidated balance sheets of Southeastern
Banking Corporation and subsidiaries as of December 31, 1997 and 1996 and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the two years in the period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The consolidated financial statements
of Southeastern Banking Corporation and subsidiaries as of December 31, 1995 and
for the year then ended, were audited by other auditors whose report, dated
January 19, 1996, expressed an unqualified opinion on those statements.
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 consolidated financial position of Southeastern Banking
Corporation and subsidiaries as of December 31, 1997 and 1996 and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ BRICKER & MELTON, P.A.
- - -------------------------
January 30, 1998
Duluth, Georgia
25
SOUTHEASTERN BANKING CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS 1997 1996
- - ------ --------------- ---------------
CASH AND DUE FROM BANKS, including reserve requirements of approximately
$3,218,000 and $2,830,000 at December 31, 1997 and 1996 $ 21,376,483 $ 15,415,525
FEDERAL FUNDS SOLD 18,365,000 17,090,000
--------------- ---------------
Cash and cash equivalents 39,741,483 32,505,525
INVESTMENT SECURITIES:
Held-to-maturity (market value of approximately $20,158,000 and
$23,172,000 at December 31, 1997 and 1996) 19,348,874 22,321,326
Available-for-sale, at market value 89,323,195 83,576,219
--------------- ---------------
Total investment securities 108,672,069 105,897,545
LOANS, GROSS 190,455,167 187,380,335
Unearned income (3,632,308) (3,641,146)
Allowance for loan losses (3,705,273) (3,734,527)
--------------- ---------------
Loans, net 183,117,586 180,004,662
PREMISES AND EQUIPMENT, net 7,594,389 8,500,387
INTANGIBLE ASSETS 3,058,197 3,395,889
OTHER ASSETS 5,714,109 5,521,610
--------------- ---------------
TOTAL ASSETS $ 347,897,833 $ 335,825,618
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Noninterest-bearing deposits $ 56,824,279 $ 54,751,222
Interest-bearing deposits 245,544,420 239,601,758
--------------- ---------------
Total deposits 302,368,699 294,352,980
U.S. TREASURY DEMAND NOTE 3,770,688 1,800,366
NOTE PAYABLE -- 1,450,000
OTHER LIABILITIES 3,889,789 4,218,645
--------------- ---------------
Total liabilities 310,029,176 301,821,991
--------------- ---------------
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 shares 4,475,996 4,475,996
Additional paid-in capital 1,391,723 1,391,723
Retained earnings 31,986,080 28,409,683
--------------- ---------------
Realized stockholders' equity 37,853,799 34,277,402
Unrealized gains (losses) on investment securities, net of tax 14,858 (273,775)
--------------- ---------------
Total stockholders' equity 37,868,657 34,003,627
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 347,897,833 $ 335,825,618
=============== ===============
See notes to consolidated financial statements.
26
SOUTHEASTERN BANKING CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
1997 1996 1995
------------ ------------ ------------
INTEREST INCOME:
Loans, including fees $ 20,817,146 $ 20,027,039 $ 18,506,328
Federal funds sold 842,405 508,209 532,226
Investment securities:
Taxable 5,551,514 5,392,546 4,202,698
Tax-exempt 1,104,117 1,295,962 1,365,990
------------ ------------ ------------
Total interest income 28,315,182 27,223,756 24,607,242
------------ ------------ ------------
INTEREST EXPENSE:
Deposits 11,816,802 11,397,599 9,661,112
U.S. Treasury demand note 65,814 56,208 75,099
Note payable to bank 41,339 133,450 254,164
------------ ------------ ------------
Total interest expense 11,923,955 11,587,257 9,990,375
------------ ------------ ------------
Net interest income 16,391,227 15,636,499 14,616,867
PROVISION FOR LOAN LOSSES 1,715,000 1,475,000 1,200,000
------------ ------------ ------------
Net interest income after provision
for loan losses 14,676,227 14,161,499 13,416,867
------------ ------------ ------------
NONINTEREST INCOME:
Service charges on deposit accounts 3,063,898 3,203,335 2,693,591
Investment securities gains (losses), net 51,176 (8,649) (38,790)
Other operating income 760,598 910,825 783,938
------------ ------------ ------------
Total noninterest income 3,875,672 4,105,511 3,438,739
------------ ------------ ------------
NONINTEREST EXPENSE:
Salaries and employee benefits 6,497,080 6,411,381 5,820,415
Occupancy and equipment, net 2,085,659 2,064,660 1,808,689
Other operating expense 3,135,808 2,889,127 3,101,251
------------ ------------ ------------
Total noninterest expense 11,718,547 11,365,168 10,730,355
------------ ------------ ------------
Income before income taxes 6,833,352 6,901,842 6,125,251
INCOME TAX EXPENSE 2,111,457 2,096,615 1,838,341
------------ ------------ ------------
Net income $ 4,721,895 $ 4,805,227 $ 4,286,910
============ ============ ============
BASIC EARNINGS PER COMMON SHARE $ 1.32 $ 1.34 $ 1.20
============ ============ ============
See notes to consolidated financial statements.
27
SOUTHEASTERN BANKING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1997
UNREALIZED
GAINS (LOSSES)
ADDITIONAL ON INVESTMENT
COMMON PAID-IN RETAINED SECU