SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended.................................................. 09-30-96
Commission File Number................................................. 2-83157
SOUTHEASTERN BANKING CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in 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
---------------------------
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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
-------------------------------------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS SHARES OUTSTANDING
- ----- -------------------
Common Stock $1.25 Par Value 3,580,797 Shares at 10-31-96
THIS DOCUMENT CONSISTS OF 14 PAGES.
THE EXHIBIT INDEX IS LOCATED AT PAGE 13.
<PAGE>
SOUTHEASTERN BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
(UNAUDITED)
ASSETS 9/30/96 12/31/95
------------- ------------
Cash and due from banks $ 13,884,108 $ 17,257,615
Federal funds sold 3,740,000 8,030,000
------------- ------------
Cash and cash equivalents 17,624,108 25,287,615
Investment securities:
Held to maturity (market value of approximately
$23,779,000 at September 30, 1996 and
$24,363,000 at December 31, 1995) 23,004,415 23,180,696
Available for sale, at market value 88,519,745 70,964,992
------------- ------------
Total investment securities 111,524,160 94,145,688
Loans, gross 188,855,331 169,227,586
Unearned income (3,661,754) (3,842,284)
Allowance for loan losses (4,277,495) (3,531,872)
------------- ------------
Loans, net 180,916,082 161,853,430
Premises and equipment, net 8,553,443 7,123,150
Intangible assets 3,474,074 2,995,981
Other assets 6,314,193 5,549,918
------------- ------------
Total assets $ 328,406,060 $296,955,782
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing deposits $ 50,733,395 $ 55,584,441
Interest-bearing deposits 236,602,411 203,955,290
------------- ------------
Total deposits 287,335,806 259,539,731
U. S. Treasury demand note 2,550,018 448,054
Note payable 1,450,000 2,525,000
Other liabilities 4,373,723 3,670,871
------------- ------------
Total liabilities 295,709,547 266,183,656
------------- ------------
Stockholders' equity:
Common stock - $1.25 par value; authorized
10,000,000 shares; issued and outstanding 4,475,996 1,491,998
3,580,797 and 1,193,599 shares
Additional paid-in-capital 1,391,723 4,375,721
Retained earnings 27,582,812 24,690,512
------------- ------------
Realized stockholders' equity 33,450,531 30,558,231
Unrealized (losses) gains on investment
securities, net (754,018) 213,895
------------- ------------
Total stockholders' equity 32,696,513 30,772,126
------------- ------------
Total liabilities and stockholders' $ 328,406,060 $ 296,955,782
equity ============= =============
See notes to consolidated financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
SOUTHEASTERN BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
QUARTER ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
1996 1995 1996 1995
-------------------------- ------------------------------
<S> <C> <C> <C> <C>
Interest Income:
Loans, including fees $ 5,159,778 $ 4,691,130 $ 14,875,656 $ 13,662,308
Federal funds sold 52,075 105,349 394,144 415,586
Investment securities:
Taxable 1,452,539 1,075,422 4,015,644 3,175,395
Tax-exempt 328,330 337,341 966,616 1,040,249
-------------------------- ------------------------------
Total Interest Income 6,992,722 6,209,242 20,252,060 18,293,538
-------------------------- ------------------------------
Interest expense:
Deposits 2,923,461 2,474,499 8,498,696 7,161,407
U. S. Treasury demand note 16,611 28,923 42,411 59,283
Note payable to bank 28,859 61,820 106,585 198,013
-------------------------- ------------------------------
Total interest expense 2,968,931 2,565,242 8,647,692 7,418,703
-------------------------- ------------------------------
Net interest income 4,023,791 3,644,000 11,604,368 10,874,835
Provision for loan losses 310,000 300,000 910,000 900,000
-------------------------- ------------------------------
Net interest income after
provision for loan losses 3,713,791 3,344,000 10,694,368 9,974,835
-------------------------- ------------------------------
Other income:
Service charges on deposit acccounts 807,663 677,615 2,328,214 1,975,094
Other operating income 174,764 139,511 667,949 596,975
-------------------------- ------------------------------
Total other income 982,427 817,126 2,996,163 2,572,069
-------------------------- ------------------------------
Other expense:
Salaries and employee benefits 1,652,497 1,496,777 4,856,690 4,464,176
Net occupancy and equipment 546,000 450,141 1,535,119 1,320,465
Other operating expense 718,342 626,710 2,166,125 2,223,973
Investment securities losses, net 5,197 1,630 17,235 40,614
-------------------------- ------------------------------
Total other expense 2,922,036 2,575,258 8,575,169 8,049,228
-------------------------- ------------------------------
Income before icome taxes 1,774,182 1,585,868 5,115,362 4,497,676
Income tax expense 549,262 478,554 1,578,518 1,326,881
-------------------------- ------------------------------
Net income $ 1,224,920 $ 1,107,314 $ 3,536,844 $ 3,170,795
========================== ==============================
Net income per share based on
3,580,797 shares outstanding $0.34 $0.31 $0.99 $0.89
========================== ==============================
Dividends per Share $0.06 $0.06 $0.18 $0.17
========================== ==============================
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
SOUTHEASTERN BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30
1996 1995
------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,536,844 $ 3,170,795
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 910,000 900,000
Depreciation 746,691 632,783
Amortization and accretion, net 241,069 182,010
Deferred income tax benefit (351,985) (170,411)
Investment securities losses, net 17,235 40,614
Net gains on sales of other real estate owned (109,381) (44,865)
Changes in assets and liabilities:
Increase in other assets (414,369) (161,148)
Increase in other liabilities 772,838 578,379
-----------------------------
Net cash provided by operating activities 5,348,942 5,128,157
-----------------------------
Cash flows from investing activities:
Proceeds from maturities of investment securities:
Held to maturity 2,490,700 1,619,300
Available for sale 23,503,724 17,241,634
Proceeds from sales of investment securities:
Available for sale 6,377,250 7,930,625
Proceeds from sales of other real estate owned 360,034 195,802
Purchases of investment securities:
Held to maturity (2,333,834) (352,792)
Available for sale (48,911,828) (25,837,828)
Net increase in loans (17,772,119) (9,769,053)
Additions to premises and equipment, net (723,427) (414,895)
Net funds received in branch acquisitions 19,497,817
------------------------------
Net cash used in investing activities (17,511,683) (9,387,207)
------------------------------
Cash flows from financing activities:
Net increase (decrease) in demand, NOW, and
savings deposits 12,598,605 (16,945,017)
Net (decrease) increase in certificates of deposit (8,278,880) 12,297,813
Net increase in U. S. Treasury demand note 2,101,964 2,123,043
Payments on note payable (1,075,000) (475,000)
Cash dividends paid (847,455) (799,712)
-----------------------------
Net cash provided by (used in) financing activities 4,499,234 (3,798,873)
-----------------------------
Net decrease in cash and cash equivalents (7,663,507) (8,057,923)
Cash and cash equivalents at beginning of year 25,287,615 23,243,647
------------------------------
Cash and cash equivalents at September 30 $17,624,108 $15,185,724
==============================
See notes to consolidated financial statements.
</TABLE>
3
<PAGE>
SOUTHEASTERN BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(UNAUDITED)
1. ACCOUNTING AND REPORTING POLICY FOR INTERIM PERIODS
All adjustments necessary to a fair statement of the results for the
interim periods presented have been made. These adjustments include
estimated accruals for various fringe benefit and other transactions
normally determined or settled at year-end. These adjustments are of a
normal recurring nature.
2. ACQUISITIONS
On February 15, 1996, the Company acquired three branches of Compass
Bank in North Florida's Nassau County. The Company received cash,
loans, and property and equipment with fair values of approximately
$22,982,000 while assuming deposit and other liabilities totaling
approximately $23,709,000. The excess of liabilities assumed over net
assets acquired was recorded as a deposit premium.
2. STOCKHOLDERS' EQUITY
On June 11, 1996, the Board of Directors declared a three-for-one stock
split distributable on August 9, 1996 to stockholders of record at the
close of business on July 26, 1996. All per share amounts have been
restated to reflect the stock split. The issuance of the stock split
increased the Company's outstanding common stock from 1,193,599 shares
to 3,580,797 shares.
4
<PAGE>
SOUTHEASTERN BANKING CORPORATION AND SUBSIDIARIES
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 September 30, 1996, Southeastern Bank had total assets of
approximately $257,086,000.* 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 September 30, 1996,
Southeastern Bank of Florida had total assets of approximately $71,524,000.*
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 approximately $31,450,000 or 10.59% at September 30,
1996 compared to year-end 1995. 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 for the year-to-date period. (See the
Operations section of this Discussion and Analysis for more details.) Investment
securities grew $18,845,007** since December 31, 1995; virtually all of the
securities purchased were U.S. Treasury and Agency obligations. Total assets
increased $1,591,060 or .56% at September 30, 1995 compared to December 31,
1994. At September 30, 1996 and 1995, earning assets represented approximately
90% of total assets.
LOANS
Net loans grew $19,808,275 or 11.98% at September 30,1996 compared to
December 31, 1995 after increasing $8,634,237 or 5.53% during the same period
last year. Loans acquired from Compass accounted for approximately $2,000,000 of
the nine month increase. The net loans to deposit ratio was 64.45% at September
30, 1996 versus 63.72% at December 31, 1995. Nonaccrual loans represented .32%
of net loans at September 30, 1996 compared to .38% at December 31, 1995 and
.77% at September 30, 1995. Total nonperforming loans represented 1.51% of net
loans at September 30, 1996 compared to 1.13% at December 31, 1995 and 1.72% at
September 30, 1995. At September 30, 1996, approximately $250,000 or 42% of
nonaccrual loans pertained to a single borrower and approximately $421,000 of
restructured loans pertained to a separate single borrower. Management is
unaware of any other material concentrations within nonperforming loans. The
following table provides information about nonperforming loans and foreclosed
real estate.
5
<PAGE>
<TABLE>
<CAPTION>
RISK ELEMENTS OF LOANS (AMOUNTS IN THOUSANDS) 9/30/96 12/31/95 9/30/95 12/31/94
------- -------- ------- --------
<S> <C> <C> <C> <C>
Nonaccrual loans $ 590 $ 632 $ 1,274 $ 2,214
Loans past due 90 days or more and still accruing 1,647 1,245 1,564 1,009
Restructured loans 561
------- -------- ------- --------
Total nonperforming loans 2,798 1,877 2,838 3,223
Foreclosed real estate 920 1,393 747 534
------- -------- ------- --------
Total nonperforming loans and forclosed real estate $ 3,718 $ 3,270 $ 3,585 $ 3,757
======= ======== ======= ========
</TABLE>
Nonperforming loans include loans classified as nonaccrual when it appears that
future collection of principal or interest according to contractual terms is
doubtful; loans which are contractually past due 90 days or more as to interest
or principal; 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 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 expensed. Potential problem loans not included in
nonperforming loans at September 30, 1996 totaled approximately $800,000; all
known potential problems loans were included in nonperforming loans for the
other periods presented. At September 30, 1996 and December 31, 1995, the
Company had no concentration of loans to borrowers engaged in any single
industry that exceeded 10% of total loans.
The Company maintains an allowance for loan losses, available to absorb
potential losses in the loan portfolio, at a level determined by management
based on review of all loans, general economic conditions of the Company's trade
areas, and historical loan loss experience. These factors are analyzed and
reviewed on a continual basis to determine if any changes to the monthly
provision for loan losses should be made. The allowance to net loans ratio was
2.31% at September 30, 1996 versus 2.14% at December 31, 1995. The provision
provided from income totaled $310,000 and $910,000 for the quarter and nine
months ended September 30, 1996. Net charge-offs totaled approximately $165,000
for the nine months ended September 30, 1966 compared to $725,000 at September
30, 1995. The decline in net charge-offs at September 30, 1996 resulted from
substantial recoveries during the third quarter. Management anticipates that
charge-offs will increase moderately during the fourth quarter of 1996. Changes
to the allowance as a percent to total nonperforming assets were not significant
for the periods presented. Activity in the allowance for the year-to-date period
is presented below.
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN LOSSES (AMOUNTS IN THOUSANDS) 9/30/96 9/30/95
------- -------
<S> <C> <C>
Allowance for loan losses at beginning of year $ 3,532 $ 3,257
Loans charged-off during period:
Commercial, financial, and agricultural 130 625
Real estate - construction 0 0
Real estate - mortgage 152 134
Consumer, including credit cards 429 362
------- -------
Total loans charged-off during period 711 1,121
Recoveries during period of loans previously charged-off
Commercial, financial, and agricultural 331 86
Real estate - construction 0 0
Real estate - mortgage 11 33
Consumer, including credit cards 204 276
------- -------
Total loans recovered during period 546 395
------- -------
Net loans charged-off during period 165 726
------- -------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Provision charged to operating expense during period 910 900
-------- --------
Allowance for loan losses at September 30 $ 4,277 $ 3,431
======== ========
Amount of net loans outstanding at September 30 $185,194 $164,906
======== ========
Average amount of net loans outstanding at September 30 $175,502 $159,459
======== ========
Ratio of net loans charged-off during period to average net
loans outstanding (Annualized) .13% .61%
======== ========
</TABLE>
At September 30, 1996, approximately $2,866,000 of the allowance for loan losses
was allocated to the loan categories itemized above: the remaining $1,411,000
was unallocated.
OTHER ASSETS
Gross premises and equipment increased during the first nine months of
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; 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 since year-end 1995 due to the deposit
premium associated with the Nassau County branches. Other assets increased
$764,275 or 13.77%. Increases in accrued interest receivables on loans and
investment securities and increases in the deferred tax effects of
mark-to-market accounting for securities were partially offset by declines in
foreclosed and other real estate owned.
*Stand-alone basis
**At amortized cost
7
<PAGE>
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 $27,796,075 or 10.71% at September 30, 1996 compared to
December 31, 1995. Noninterest-bearing deposits declined $4,851,046 or 8.73%,
representing 17.66% of deposits at September 30, 1996 vs. 21.42% at December 31,
1995, while interest-bearing deposits increased $32,647,121 or 16.01%. Savings
were the largest-growing component of interest-bearing deposits, increasing
$38,226,324. The growth in savings deposits resulted primarily from the March
1996 introduction of our SMARTSAVER account which has paid an annual percentage
yield of 5.40% to 6.00% during the year-to-date period. Certificates of deposit
grew $2,093,335, representing 54.12% of interest-bearing deposits at quarter-end
while interest-bearing demand deposits declined $7,672,538. SEBF's deposits grew
approximately $28,800,000, up 82.18% on a stand-alone basis, while SEB's
deposits declined approximately $1,000,000; approximately 78% and 22% of
quarter-end deposits were attributable to SEB and SEBF, respectively.
8
<PAGE>
Deposits assumed from the Nassau County branches accounted for most of the
growth in SEBF's deposits since year-end 1995. During the first nine months of
1995, deposits declined $4,647,204 or 1.85%. The loss of several political
subdivision accounts accounted for most of this decline.
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 the first three quarters of 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.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]
9
<PAGE>
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 September 30, 1996
is set forth in the table below:
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY
(AMOUNTS IN THOUSANDS) REPRICING WITHIN
---------------------------------------------------------------------
MORE
0-3 4-12 ONE -FIVE THAN FIVE
MONTHS MONTHS YEARS YEARS TOTAL
=====================================================================
<S> <C> <C> <C> <C> <C>
Interest Rate Sensitive Assets:
Federal Funds Sold $3,740 $3,740
Securities* 2,823 10,631 82,252 16,438 112,144
Loans 87,263 28,264 54,625 18,703 188,855
---------------------------------------------------------------------
Total Interest Rate Sensitive $93,826 $38,895 $136,877 $35,141 $304,739
Assets
Interest Rate Sensitive Liabilities:
Deposits $68,382 $63,174 $40,830 $150 $172,536
U. S. Treasury Demand Note 2,550 2,550
Note Payable 1,450 1,450
---------------------------------------------------------------------
Total Interest Rate Sensitive
Liabilities $72,382 $63,174 $40,830 $150 $176,536
---------------------------------------------------------------------
INTEREST RATE SENSITIVITY GAP $21,444 $(24,279) $96,047 $34,991 $128,203
=====================================================================
CUMULATIVE INTEREST RATE SENSITIVITY $21,444 $ (2,835) $93,212 $128,203
GAP
=====================================================================
CUMULATIVE GAP AS A % OF TOTAL
ASSETS-SEPTEMBER 30, 1996 6.36% (.84)% 27.65% 38.03%
=====================================================================
Cumulative GAP as a % of Total
Assets-December 31, 1995 4.36% (.29)% 17.62% 29.59%
=====================================================================
Cumulative GAP as a % of Total Assets-
September 30, 1995 3.52% (.89)% 18.53% 29.59%
=====================================================================
</TABLE>
* 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.
At September 30, 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 77% of rate sensitive liabilities and 44% of
rate sensitive assets repricing within one year. Overall changes in the
Company's gap position were not significant at September 30, 1996 compared to
December 31, 1995 and September 30, 1995.
10
<PAGE>
The interest rate sensitivity table presumes that all loans and
securities* 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 and customer needs. 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 $1,010,072 during the current
quarter or $2,892,300 since year-end 1995. Book value per share, restated to
reflect the three-for-one stock split distributed in August 1996, increased
9.50% during the nine month period to $9.34. Unrealized stockholders' equity
declined $967,913 since December 31, 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 most recent periods 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%. Our Tier 1 capital, total risk-based capital, and Tier 1 leverage ratios
increased to 15.75%, 17.01%, and 9.22% at September 30, 1996 after declining
during the first two quarters of 1996 due to our acquisition of the Nassau
County branches.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOUTHEASTERN BANKING CORPORATION 9/30/96 12/31/95 9/30/95 12/31/94
------------------------------------------------------------------------------------------------------------
Tier 1 Capital Ratio 15.75% 16.26% 16.08% 15.07%
------------------------------------------------------------------------------------------------------------
Total Risk-Based Capital Ratio 17.01% 17.52% 17.34% 16.33%
------------------------------------------------------------------------------------------------------------
Tier 1 Leverage Ratio 9.22% 9.67% 9.42% 8.79%
------------------------------------------------------------------------------------------------------------
Realized Shareholders' Equity
to Assets 10.16% 10.30% 10.46% 9.56%
------------------------------------------------------------------------------------------------------------
</TABLE>
RESULTS OF OPERATIONS
Net income for the third quarter totaled $1,224,920 or $0.34 per share,
up $117,606 or 10.62% over the same period in 1995. Year-to-date earnings
totaled $3,536,844 or $0.99 per share, up $366,049 or 11.54% over the same
period in 1995 which was up $535,978 or 20.34% over 1994. The return on
beginning equity was 15.43% at September 30, 1996 versus 15.49% at September 30,
1995 and 15.13% at June 30, 1996. The growth in earnings for the quarter and
year-to-date periods resulted from increases in net interest and other income.
The loan portfolio remained the primary factor in the interest income
improvement, increasing $1,213,348 or 8.88% during the nine month period. The
growth in interest and fees on loans was attributable to higher average
balances, because consolidated loan yields declined 15 basis points to 11.57%
at September 30, 1996. Because the
11
<PAGE>
loans acquired from Compass were not significant to the total loan portfolio,
they had minimal impact on the growth in loan earnings during the current
period. During the first three quarters of 1995, interest and fees on loans
increased $3,612,816 or 35.95%. SEBF, whose operating results were included in
the consolidated financial statements from the date of acquisition forward,
added $1,672,350 in interest and fees on loans during the 1995 period; the
remaining increase resulted from higher average balances and yields at SEB.
Interest income on taxable investment securities was up $377,117 or
35.07% during the third quarter of 1996 compared to 1995. For the nine month
period, interest earnings on taxable investment securities increased $840,249 or
26.46%. The improvement in interest income on taxable securities resulted from a
21.50% increase in average balances and a 24 basis point improvement in yield.
The increased average balances resulted from the excess funds received from the
Nassau County branches and funds generated by other deposit growth. The yield on
taxable securities was 6.10% at September 30, 1996. Interest income on
tax-exempt investment securities continued to drop, declining $73,633 or 7.08%
during the nine months ended September 30, 1996 compared to 1995. The
taxable-equivalent yield on tax-exempt securities fell 18 basis points to 9.07%
at September 30, 1996 compared to September 30, 1995. During the first nine
months of 1995, interest income on investment securities increased $282,887 or
7.19%. SEBF accounted for all of the prior year increase, because SEB's interest
earnings on investments declined $159,036 or 4.04%; the SEB decline was
attributable to an 8.31% drop in average balances.
Interest income on federal funds sold for the third quarter totaled
$52,075 versus $159,391 and $182,678 for the first and second quarters of 1996.
The considerable decline in quarterly interest income on federal funds sold
since the first half of 1996 resulted from the continual placement of excess
funds in the loan and investment securities portfolios. For the year-to-date
period, interest income on federal funds sold declined $21,442 or 5.16% at
September 30, 1996 compared to 1995. The yield on federal funds sold for the
nine month period was 5.22%, down 66 basis points from 1995. After giving effect
to the increase in interest income on federal funds sold attributable to SEBF,
interest income on federal funds sold grew $175,681 during the first nine months
of 1995; the prior year increase was marked by higher average balances and rates
at SEB.
Interest expense on deposits increased $448,962 or 18.14% during the
third quarter of 1996 compared to 1995. For the nine month period, interest
expense on deposits increased $1,337,289 or 18.67%. Approximately 60% of the
year-to-date increase was due to SEBF, including the Nassau County branches.
Certificates of deposits 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 the first quarter of 1996. The average interest paid on deposits for the nine
month period was 4.89%, up 19 basis points from 1995. During the first nine
months of 1995, interest expense on deposits increased $2,089,405 or 41.19%;
approximately 47% of the increase a year ago was attributable to SEBF. Because
the Company continues to prepay the principal balance on its long-term debt,
interest expense on the term loan declined 46.17% during the first three
quarters of 1996. The average interest paid on the term loan during the first
nine months of 1995 was 7.38%.
Net interest income grew an additional $379,791 since June 30, 1996,
growing an aggregate $729,533 or 6.71% year-to-date. Approximately $376,000 of
the nine month growth in net interest income resulted from SEBF. Net interest
income increased $1,858,914 or 20.62% during the same period in 1995.
Approximately 66% and 34% of the prior year results were attributable to SEBF
and SEB, respectively.
OTHER INCOME
Other income grew $165,301 or 20.23% during the third quarter of 1996
compared to 1995. For the nine month period, other income increased $424,094 or
16.49%. For the quarter and year-to-date periods, service charges on deposit
accounts were again the largest-growing component of noninterest income.
Service charges on deposit accounts rose $353,120 during the first nine months
of 1996 compared to 1995. Approximately $221,000 or 63% of the current period
improvement was attributable to the Nassau County branches; the Alachua County
and SEB locations accounted for the remaining 14% and 23% improvement. Other
operating income increased $70,974 or 11.89% during the first nine months of
1996 compared to 1995. Increases in mortgage origination fees and book gains on
sales of foreclosed and other real estate owned, particularly at SEBF, offset
declines in commissions on the sale of credit life insurance.
OTHER EXPENSE
Salaries and employee benefits were up $392,514 or 8.79% during the
year-to-date period ended September 30, 1996. SEBF accounted for approximately
$160,000 or 40% of the current period increase, including the Nassau County
locations. A year ago, salaries and employee benefits were up $839,654 or
23.17%. Approximately $580,000 or 69% of the nine month increase at September
30, 1995 was attributable to SEBF; increased benefit accruals at SEB accounted
for the remaining 31% increase. Net occupancy and equipment expense increased at
September 30, 1996 due largely to increases in computer maintenance costs and
the additional depreciation and other occupancy expenses associated with the
Nassau County locations. When compared to the results for the first nine months
of 1994, net occupancy and equipment expense was up $277,003 or 26.55% at
September 30, 1995. SEBF accounted for virtually all of the increase in net
occupancy and equipment expense last year. Other operating expense declined
$57,848 or 2.60% during the first nine months of 1996 compared to 1995. The
$264,721 reduction in FDIC insurance premiums partially offset the start-up and
other costs associated with the Nassau County locations. During the same period
in 1995, other operating expense increased $111,361 or 5.27%. The $412,580
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.
12
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(NOT APPLICABLE)
ITEM 2. CHANGES IN SECURITIES
(NOT APPLICABLE)
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(NOT APPLICABLE)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(NOT APPLICABLE)
ITEM 5. OTHER INFORMATION
(NOT APPLICABLE)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits:
EXHIBIT TABLE PAGE
-------------------------------- ----
Exhibit 27 Financial Data Schedule
Submitted in electronic format only.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K on August 16,
1996, amended August 22, 1996, announcing a change in its
certifying accountant. On August 13, 1996, the Company
dismissed its prior independent certifying accountants,
Deloitte & Touche. Effective August 13, 1996, the Audit
Committee also appointed Bricker & Melton, P.A., to replace
Deloitte & Touche as the independent certifying accountants
for the Company's financial statements.
13
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SOUTHEASTERN BANKING CORPORATION
(REGISTRANT)
By: /s/ S. MICHAEL LITTLE
---------------------------------
S. Michael Little, Vice-President
By: /s/ WANDA D. PITTS
---------------------------------
Wanda D. Pitts, Secretary
Date: NOVEMBER 12, 1996
---------------------
14
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 13,884
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,740
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 88,520
<INVESTMENTS-CARRYING> 23,004
<INVESTMENTS-MARKET> 23,779
<LOANS> 185,194
<ALLOWANCE> 4,277
<TOTAL-ASSETS> 328,406
<DEPOSITS> 287,336
<SHORT-TERM> 2,550
<LIABILITIES-OTHER> 4,374
<LONG-TERM> 1,450
0
0
<COMMON> 4,476
<OTHER-SE> 28,220
<TOTAL-LIABILITIES-AND-EQUITY> 328,406
<INTEREST-LOAN> 14,876
<INTEREST-INVEST> 4,982
<INTEREST-OTHER> 394
<INTEREST-TOTAL> 20,252
<INTEREST-DEPOSIT> 8,499
<INTEREST-EXPENSE> 8,648
<INTEREST-INCOME-NET> 11,604
<LOAN-LOSSES> 910
<SECURITIES-GAINS> (17)
<EXPENSE-OTHER> 8,558
<INCOME-PRETAX> 5,115
<INCOME-PRE-EXTRAORDINARY> 3,537
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,537
<EPS-PRIMARY> 0.99
<EPS-DILUTED> 0.99
<YIELD-ACTUAL> 5.55
<LOANS-NON> 590
<LOANS-PAST> 1,647
<LOANS-TROUBLED> 561
<LOANS-PROBLEM> 800
<ALLOWANCE-OPEN> 3,532
<CHARGE-OFFS> 711
<RECOVERIES> 546
<ALLOWANCE-CLOSE> 4,277
<ALLOWANCE-DOMESTIC> 2,866
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,411
</TABLE>
