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.................................................06-30-97
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 7-31-97
THIS DOCUMENT CONSISTS OF 14 PAGES.
THE EXHIBIT INDEX IS LOCATED AT PAGE 13.
<PAGE>
<TABLE>
<CAPTION>
SOUTHEASTERN BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(UNAUDITED)
ASSETS 6/30/97 12/31/96
------- ------------- -------------
<S> <C> <C>
Cash and due from banks $ 13,383,930 $ 15,415,525
Federal funds sold 12,070,000 17,090,000
------------- -------------
Cash and cash equivalents 25,453,930 32,505,525
Investment securities:
Held-to-maturity (market value of approximately
$21,004,000 and $23,172,000 at June 30, 1997
and December 31, 1996) 20,365,510 22,321,326
Available-for-sale, at market value 89,844,027 83,576,219
------------- -------------
Total investment securities 110,209,537 105,897,545
Loans, gross 191,983,718 187,380,335
Unearned income (3,705,486) (3,641,146)
Allowance for loan losses (3,655,462) (3,734,527)
------------- -------------
Loans, net 184,622,770 180,004,662
Premises and equipment, net 8,020,298 8,500,387
Intangible assets 3,212,519 3,395,889
Other assets 5,757,715 5,521,610
------------- -------------
Total assets $ 337,276,769 $ 335,825,618
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Liabilities:
Noninterest-bearing deposits $ 51,493,149 $ 54,751,222
Interest-bearing deposits 243,217,123 239,601,758
------------- -------------
Total deposits 294,710,272 294,352,980
U. S. Treasury demand note 3,051,896 1,800,366
Note payable 600,000 1,450,000
Other liabilities 3,247,876 4,218,645
------------- -------------
Total liabilities 301,610,044 301,821,991
------------- -------------
Stockholders' equity:
Common stock - $1.25 par value; authorized
10,000,000 shares; issued and outstanding 4,475,996 4,475,996
3,580,797 shares
Additional paid-in-capital 1,391,723 1,391,723
Retained earnings 30,015,625 28,409,683
------------- -------------
Realized stockholders' equity 35,883,344 34,277,402
Unrealized losses on investment securities, net (216,619) (273,775)
------------- -------------
Total stockholders' equity 35,666,725 34,003,627
------------- -------------
Total liabilities and stockholders' equity $ 337,276,769 $ 335,825,618
============= =============
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
SOUTHEASTERN BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
QUARTER ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
1997 1996 1997 1996
-------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Interest Income:
Loans, including fees $ 5,170,820 $ 4,964,238 $10,206,646 $ 9,715,878
Federal funds sold 139,611 182,678 373,586 342,069
Investment securities:
Taxable 1,435,166 1,400,612 2,792,537 2,563,105
Tax-exempt 279,218 322,653 565,152 638,286
-------------------------------- ---------------------------------
Total interest income 7,024,815 6,870,181 13,937,921 13,259,338
-------------------------------- ---------------------------------
Interest expense:
Deposits 2,899,688 2,957,637 5,767,669 5,575,235
U. S. Treasury demand note 18,729 10,912 33,216 25,800
Note payable to bank 13,854 36,346 35,000 77,726
-------------------------------- ---------------------------------
Total interest expense 2,932,271 3,004,895 5,835,885 5,678,761
-------------------------------- ---------------------------------
Net interest income 4,092,544 3,865,286 8,102,036 7,580,577
Provision for loan losses 430,000 300,000 1,055,000 600,000
-------------------------------- ---------------------------------
Net interest income after
provision for loan losses 3,662,544 3,565,286 7,047,036 6,980,577
-------------------------------- ---------------------------------
Other income:
Service charges on deposit accounts 757,618 807,247 1,508,241 1,520,551
Investment securities gains (losses), net 2,000 (12,819) 13,327 (12,038)
Other operating income 139,086 248,985 380,433 493,185
-------------------------------- ---------------------------------
Total other income 898,704 1,043,413 1,902,001 2,001,698
-------------------------------- ---------------------------------
Other expense:
Salaries and employee benefits 1,661,741 1,631,957 3,300,682 3,204,193
Net occupancy and equipment 515,010 504,604 1,028,986 989,119
Other operating expense 831,044 779,374 1,596,393 1,447,783
-------------------------------- ---------------------------------
Total other expense 3,007,795 2,915,935 5,926,061 5,641,095
-------------------------------- ---------------------------------
Income before income taxes 1,553,453 1,692,764 3,022,976 3,341,180
Income tax expense 499,661 517,553 963,704 1,029,256
-------------------------------- ---------------------------------
Net income $ 1,053,792 $ 1,175,211 $ 2,059,272 $ 2,311,924
================================ =================================
Net income per share based on
3,580,797 shares outstanding $ 0.30 $ 0.33 $ 0.58 $ 0.65
================================ ==================================
Dividends per share $ 0.06 1/3 $ 0.06 $ 0.12 2/3 $ 0.12
================================ =================================
</TABLE>
2
See notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
SOUTHEASTERN BANKING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
SIX MONTHS ENDED JUNE 30
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,059,272 $ 2,311,924
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,055,000 600,000
Depreciation 526,929 520,002
Amortization and accretion, net 140,574 159,288
Deferred income tax benefit (16,032) (280,934)
Investment securities (gains) losses, net (13,327) 12,038
Net gains on sales of other real estate owned (22,158) (97,623)
Changes in assets and liabilities:
Increase in other assets (215,642) (731,717)
(Decrease) increase in other liabilities (755,921) 99,898
------------ ------------
Net cash provided by operating activities 2,758,695 2,592,876
------------ ------------
Cash flows from investing activities:
Proceeds from maturities of investment securities:
Held-to-maturity 2,961,900 1,784,600
Available-for-sale 12,870,461 19,056,558
Proceeds from sales of investment securities:
Available-for-sale 2,985,000
Proceeds from sales of other real estate owned 311,456 344,978
Purchases of investment securities:
Held-to-maturity (1,006,354) (1,568,834)
Available-for-sale (19,023,984) (48,912,029)
Net increase in loans (5,868,784) (13,391,468)
Additions to premises and equipment, net (145,630) (537,547)
Net funds received in branch acquisitions 19,594,317
------------ ------------
Net cash used in investing activities (9,900,935) (20,644,425)
------------ ------------
Cash flows from financing activities:
Net increase in demand, NOW, and
savings deposits 335,261 11,919,389
Net increase in certificates of deposit 22,031 5,707,161
Net increase in U.S. Treasury demand note 1,251,530 1,845,353
Payments on note payable (850,000) (625,000)
Cash dividends paid (668,177) (632,607)
------------ ------------
Net cash provided by financing activities 90,645 18,214,296
------------ ------------
Net (decrease) increase in cash and cash equivalents (7,051,595) 162,747
Cash and cash equivalents at beginning of year 32,505,525 25,287,615
------------ ------------
Cash and cash equivalents at June 30 $ 25,453,930 $ 25,450,362
============ ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
SOUTHEASTERN BANKING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(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. STOCKHOLDERS' EQUITY
On August 9, 1996, the Board of Directors paid a three-for-one stock
split to stockholders of record at the close of business on July 26,
1996. The issuance of the stock split increased the Company's
outstanding common stock from 1,193,599 shares to 3,580,797 shares. All
per share amounts have been restated to reflect the stock split.
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 June 30, 1997, SEB had total assets of approximately
$263,422,000.(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 Alachua and its branch offices in Callahan, Gainesville,
Hilliard, Jonesville, and Yulee. 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. At June
30, 1997, SEBF had total assets of approximately $74,300,000.(1) Both SEB and
SEBF provide traditional deposit and credit services to individual and corporate
customers.
Total assets remained virtually unchanged at June 30, 1997 compared to
March 31, growing an aggregate $1,451,151 or 0.43% since year-end 1996. Earning
assets represented approximately 92% of total assets at June 30, 1997 versus 90%
at year-end 1996. Loans and investment securities comprised a larger portion and
federal funds sold, a smaller portion, of earning assets at June 30, 1997
compared to March 31, 1997 and December 31, 1996. During the first half of 1996,
total assets grew $43,093,228 or 14.51%. The acquisition of the Nassau County
branches and deposit growth were the main factors in the increase a year ago.
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 U. S. Treasury and Agency obligations.
(1) Stand-alone basis
LOANS
Net loans grew $4,539,043 or 2.47% at June 30, 1997 compared to
year-end 1996. All of the growth occurred during the second quarter because net
loans declined at March 31, 1997. The net loans to deposit ratio was 63.89% at
June 30, 1997 versus 62.42% at year-end 1996 and 60.12% at June 30, 1996. During
the year-ago period, net loans grew $15,434,256 or 9.33%. Loans acquired from
Compass accounted for approximately 13% of the 1996 increase.
Nonperforming loans represented 0.96% of net loans at June 30, 1997
compared to 0.60% and 0.41% at December 31, 1996 and June 30, 1996. The current
increase in nonperforming loans resulted from the placement of several large
commercial loans on nonaccrual status since year-end 1996. Approximately
$1,690,000 or 93% of nonperforming loans pertained to seven borrowers at June
30, 1997. Additionally, approximately 28% of loans past due 90 days or more
pertained to five separate borrowers. Management is unaware of any other
material
5
<PAGE>
concentrations within nonperforming loans. The table below provides information
about nonperforming loans and other assets:
NONPERFORMING ASSETS
(Amounts in thousands) 6/30/97 12/31/96 6/30/96 12/31/95
- - ------------------------------- ------- -------- ------- --------
Nonaccrual loans $1,414 $ 686 $ 732 $ 632
Restructured loans (1) 395 418 -- --
------ ------ ------ ------
Total nonperforming loans 1,809 1,104 732 632
Foreclosed real estate (2) 570 726 731 1,393
------ ------ ------ ------
Total nonperforming assets $2,379 $1,830 $1,463 $2,025
====== ====== ====== ======
Accruing loans past due 90 days
or more $1,578 $1,100 $1,848 $1,245
====== ====== ====== ======
(1) Does not include restructured loans that yield a market rate. At June 30,
1997, such loans totaled $97.
(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. These particular loans
accounted for virtually all of the increase in nonperforming loans at June 30,
1997. 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 June 30, 1997, loans secured by real estate totaled
approximately $121,006,000.
The Company maintains an allowance for loan losses available to absorb
potential losses in the loan portfolio. The allowance to net loans ratio was
1.94% at June 30, 1997 versus 2.03% at year-end 1996. The provision provided
from income totaled $430,000 and $1,055,000 for the quarter and six months ended
June 30, 1997, increases of $130,000 and $455,000 from the comparable periods in
1996. The increased provision was necessary to cover higher charge-offs in the
commercial loan portfolio. Net charge-offs totaled $1,135,000 at June 30, 1997,
up substantially from 1996 levels. Activity in the allowance is presented in the
following table:
6
<PAGE>
<TABLE>
<CAPTION>
ALLOWANCE FOR LOAN LOSSES SIX MONTHS ENDED JUNE 30
(AMOUNTS IN THOUSANDS) --------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Allowance for loan losses at beginning of year $ 3,735 $ 3,532 $ 3,257
Provision for loan losses 1,055 600 600
Charge-offs:
Commercial, financial, and agricultural 1,029 82 139
Real estate - construction 0 0 0
Real estate - mortgage 2 90 7
Consumer, including credit cards 390 315 194
-------- -------- --------
Total charge-offs 1,421 487 340
-------- -------- --------
Recoveries:
Commercial, financial, and agricultural 63 37 70
Real estate - construction 0 0 0
Real estate - mortgage 1 5 27
Consumer, including credit cards 222 122 190
-------- -------- --------
Total recoveries 286 164 287
-------- -------- --------
Net charge-offs 1,135 323 53
-------- -------- --------
Allowance for loan losses at June 30 $ 3,655 $ 3,809 $ 3,804
======== ======== ========
Net loans outstanding(1) at June 30 $188,278 $180,820 $162,640
======== ======== ========
Average loans outstanding at June 30 $184,168 $172,043 $157,836
======== ======== ========
Ratios:
Allowance to net loans 1.94% 2.11% 2.34%
======== ======== ========
Net charge-offs to average loans (annualized) 1.23% 0.38% 0.07%
======== ======== ========
Provision to average loans (annualized) 1.15% 0.70% 0.76%
======== ======== ========
<FN>
- - ----------
(1) Net of unearned income
</FN>
</TABLE>
Management believes the allowance was adequate at June 30, 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
$660,000 during the second half of 1997. No material charge-off activity is
anticipated during the remainder of 1997.
OTHER ASSETS
Gross premises and equipment declined during the first six months of
1997 due largely to the transfer of the Hawthorne Road real property values to
other real estate. 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 $236,105 or 4.28% during the first half of 1997.
The current period increase resulted primarily from the repossession of
inventory collateralizing several large commercial loans. The increase in other
real estate attributable to the Hawthorne Road property was minimized by a
decline in foreclosed real estate balances at June 30, 1997. During the year-ago
period, other assets increased $994,357 or 17.92%. Increases in accrued interest
receivables on loans and investment securities and increases in the deferred tax
effects
7
<PAGE>
of mark-to-market accounting for securities were partially offset by a $662,021
decline in foreclosed real estate. Intangible assets increased during 1996 due
to the deposit premium associated with the Nassau County branches.
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.
QUARTER-END DEPOSITS
The Company's core deposit base is the foundation for its liquidity
position. Deposits grew $357,292 or 0.12% at June 30, 1997 compared to year-end
1996. Interest-bearing deposits increased $3,615,365 or 1.51%, representing
82.53% of quarter-end deposits at June 30, while noninterest-bearing deposits
declined $3,258,073 or 5.95%. Approximately $228,722,000 and $65,988,000 of
quarter-end deposits were attributable to SEB and SEBF, respectively. During the
first half of 1996, deposits grew $41,202,900 or 15.88%; SEB and SEBF accounted
for approximately 29% and 71% of the 1996 growth. Deposits assumed from the
Nassau County branches was the primary factor in SEBF's deposit growth last
year. Noninterest-bearing deposits declined $5,434,714 or 9.78%, while
interest-bearing deposits increased $46,637,614 or 22.87%. Savings were the
largest-growing component of interest-bearing deposits, comprising 23.65% of
interest-bearing deposits at June 30, 1996 versus 12.67% at December 31, 1995.
The growth in savings deposits resulted mainly from the SMARTSAVER account that
was introduced in March 1996.
AVERAGE DEPOSITS
Total interest-bearing deposit balances remained consistent with
year-end 1996 balances, averaging approximately $239,798,000 or 81.99% of
deposits year-to-date. Savings balances continued the increase that began in
March 1996 with the introduction of the SMARTSAVER account, growing an average
$6,038,152 since year-end 1996. Growth in savings deposits offset declines of
$768,366 and $5,073,404 in average time and interest-bearing demand deposits.
Average deposits grew approximately $20,080,000 at June 30, 1996 compared to
December 31, 1995; these 1996 averages do not fully reflect the impact of
increased savings deposits or deposits assumed from the Nassau County branches.
The composition of average deposits at June 30, 1997 and 1996 is shown in the
table below:
<TABLE>
<CAPTION>
6/30/97 6/30/96
---------------------- -----------------------
DEPOSITS AVERAGE PERCENT AVERAGE PERCENT
(AMOUNTS IN THOUSANDS) BALANCES OF TOTAL BALANCES OF TOTAL
-------------------------------- --------- -------- -------- --------
<S> <C> <C> <C> <C>
Noninterest-bearing deposits $ 52,684 18.01% $ 51,289 18.34%
Interest-bearing demand deposits 44,981 15.38% 51,488 18.41%
Savings 69,783 23.86% 43,391 15.52%
Time deposits 125,034 42.75% 133,452 47.73%
-------- ------ -------- ------
Total $292,482 100.00% $279,620 100.00%
======== ====== ======== ======
</TABLE>
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
8
<PAGE>
lines of credit for federal funds purchased from correspondent banks totaling
$3,000,000. At June 30, 1997 and December 31, 1996, the Company had no amounts
outstanding under these lines.
The Company continued to prepay on its note payable, paying $400,000
during the second quarter and $850,000 year-to-date. 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 in 1996.
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 June 30, 1997 is
presented below:
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY AT JUNE 30, 1997
(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:
Loans $ 83,009 $ 29,674 $ 59,776 $ 19,525 $ 191,984
Securities(1) 4,721 16,309 78,656 10,329 110,015
Federal funds sold 12,070 12,070
--------- --------- --------- --------- ---------
Total interest rate sensitive assets 99,800 45,983 138,432 29,854 314,069
--------- --------- --------- --------- ---------
INTEREST RATE SENSITIVE LIABILITIES:
Deposits(2) 142,042 71,208 29,858 109 243,217
U. S. Treasury demand note 3,052 3,052
Note payable 600 600
--------- --------- --------- --------- ---------
Total interest rate sensitive
liabilities 145,694 71,208 29,858 109 246,869
--------- --------- --------- --------- ---------
Interest rate sensitivity gap $ (45,894) $ (25,225) $ 108,574 $ 29,745 $ 67,200
========= ========= ========= ========= =========
CUMULATIVE INTEREST RATE SENSITIVITY GAP $ (45,894) $ (71,119) $ 37,455 $ 67,200
========= ========= ========= =========
Ratio of cumulative gap to total interest
rate sensitive assets (14.61)% (22.64)% 11.93% 21.40%
========= ========= ========= =========
Ratio of cumulative interest rate sensitive
assets to interest rate sensitive
liabilities 68.50% 67.21% 115.18% 127.22%
========= ========= ========= =========
Cumulative gap at December 31, 1996 $ (37,567) $ (63,773) $ 28,934 $ 67,670
========= ========= ========= =========
Cumulative gap at June 30, 1996(3) $ (43,469) $ (66,890) $ 28,635 $ 62,675
========= ========= ========= =========
<FN>
- - ----------
(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.
9
<PAGE>
(2) NOW, money market, and savings account balances are included in the 0-3
months repricing category.
(3) Certain reclassifications were made to conform with current year
presentation.
</FN>
</TABLE>
At June 30, 1997, 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 88% of rate sensitive liabilities and 46% of rate
sensitive assets subject to repricing within one year. Increases in our gap
position through the one year time interval since June 30, 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 and
securities(1) will perform according to their contractual maturities when, in
many cases, actual loan terms are much shorter than the original terms and
securities are subject to early redemption. In addition, the table does not
necessarily indicate the impact of general interest rate movements on net
interest margin since the repricing of various categories of assets and
liabilities is subject to competitive pressures, customer needs, and other
external factors. The Company monitors and adjusts its exposure to interest rate
risks within specific policy guidelines based on its view of current and
expected market conditions.
CAPITAL RESOURCES
Realized stockholders' equity grew $1,605,942 or 4.69% during the first
half of 1997. Book value per share, restated to reflect the three-for-one stock
split paid in 1996, increased $0.45 to $10.02. Dividends declared totaled $0.12
2/3 per share for the year-to-date period compared to $0.12 in 1996, a 5.55%
increase. The change in unrealized stockholders' equity was not significant at
June 30, 1997 compared to year-end 1996. Unrealized stockholders' equity
measures the impact of market interest rates on investment securities classified
as available-for-sale.
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 capital ratios for the most recent periods are presented in the table
below:
CAPITAL RATIOS
(AMOUNTS IN THOUSANDS) 6/30/97 12/31/96 6/30/96 12/31/95
- - ------------------------------ ------- -------- ------- --------
Risk-based ratios:
Tier 1 capital 16.83% 16.18% 15.24% 16.26%
----- ----- ----- -----
Total risk-based capital 18.09% 17.44% 16.50% 17.52%
----- ----- ----- -----
Tier 1 leverage ratio 9.90% 9.42% 8.81% 9.67%
----- ----- ----- -----
Realized stockholders' equity
to assets 10.64% 10.20% 9.51% 10.30%
----- ----- ----- -----
10
<PAGE>
As shown, 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.
RESULTS OF OPERATIONS
Net income for the second quarter totaled $1,053,792, down $121,419 or
10.33% from the same period in 1996. For the year-to-date period, net income
totaled $2,059,272, down $252,652 or 10.93% from the same period in 1996 which
was up $248,443 or 12.04% over 1995. On a per share basis, net income was $0.58,
$O.65, and $0.58 for the six months ended June 30, 1997, 1996, and 1995. The
annualized return on beginning equity was 12.02% at June 30, 1997 versus 15.13%
a year ago. A $455,000 increase in our provision for loan losses was the most
significant factor in our earnings decline year-to-date. 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 $154,634 or 2.25% during the second quarter of 1997
compared to 1996. For the six months of 1997, interest income grew $678,583 or
5.12%. For the quarter and year-to-date periods, interest and fees on loans were
the largest-growing component of interest income. For the six month period,
interest and fees on loans increased $490,768 or 5.05%. Current year growth was
fueled by a 7.05% or $12,125,000 jump in average balances because loan yields(2)
declined to 11.10% from 11.31%(1) a year ago. SEB contributed $289,333 or 59%,
and SEBF, $201,435 or 41%, of the year-to-date improvement. During the first
half of 1996, interest and fees on loans rose $744,700 or 8.30%. The prior year
results were also attributable to higher average balances, because loan
yields(2) declined 10(1) basis points at June 30, 1996 compared to 1995. Because
the loans acquired from Compass were not significant to the total loan
portfolio, they accounted for a mere 11% of the growth in loan earnings a year
ago.
Interest earnings on taxable investment securities increased $34,554 or
2.47% during the second quarter of 1997 compared to 1996. For the six month
period, interest income on taxable investment securities grew $229,432 or 8.95%.
The current results were the product of increased yields and a 5.47% rise in
average balances. At June 30, 1997, the yield on taxable investment securities
was 6.23%, up 19 basis points from 1996. Interest income on taxable investment
securities was up $463,132 or 22.05% at mid-year 1996 compared to 1995; the 1996
improvement resulted from a combined 17.10% increase in average balances and a
24 basis point improvement in yield. 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
investment securities declined $73,134 or 11.46% year-to-date due largely to a
continuing lack of attractive replacements for redeemed securities. The yield
(2)on tax-exempt securities was 8.79% at June 30, 1997.
Interest income on federal funds sold increased $31,517 or 9.21% during the
first six months of 1997 compared to 1996. Average balances rose 6.17% while
yields increased 14 basis points to 5.34% at June 30, 1997. During the first
half of 1996, a 25.26% increase in average balances produced a $31,832 or 10.26%
increase in interest earnings on federal funds sold. The increase in interest
income lagged the increase in average balances because the yield on federal
funds sold declined 70 basis points at June 30, 1996 compared to 1995.
Interest expense on deposits increased $192,434 or 3.45% during the first
six months of 1997 compared to 1996. Interest expense on savings deposits
accounted for all of the increase, because interest expense on time and
interest-bearing demand deposits declined at June 30, 1997 compared to 1996. The
increase in interest expense on savings resulted primarily from the SMARTSAVER
deposit program. The average rate paid on deposits for the six
11
<PAGE>
month period was 4.81%, down 7 basis points from 1996 levels. SEBF's
interest expense on deposits increased approximately $220,000 year-to-date while
SEB's interest expense declined $28,000. During the first six months of 1996,
interest expense on deposits increased $888,327 or 18.95%. Approximately 56% of
the 1996 increase was attributable to SEBF, including the Nassau County
locations. Because the Company continues to prepay the principal balance on
its long-term debt, interest expense on the term loan declined $42,726 or 54.97%
during the first half of 1997. The average rate paid on the term loan
year-to-date was 7.40%.
In summary, net interest income grew $521,459 or 6.88% during the first two
quarters of 1997 compared to 1996. During the comparable period in 1996, net
interest income increased $349,742 or 4.84%. Approximately $179,000 and $200,000
of the 1997 and 1996 improvements in net interest income were attributable to
SEBF. The net interest margin(2) as a percent of interest-earning assets was
5.47% at June 30, 1997 versus 5.44%(1) at June 30, 1996.
- - ----------
(1)Certain reclassifications were made to conform with current year
presentation.
(2)Taxable-equivalent.
OTHER INCOME
Other income declined $99,697 or 4.98% during the first half of 1997
compared to 1996. During the comparable period in 1996, other income grew
$285,739 or 16.65%. Approximately 12.35% of the other income decline for the
year-to-date period resulted from a $12,310 drop in service charges on deposit
accounts. The entire decline in service charges was attributable to SEB, because
SEBF's service charges rose $30,214. A year ago, service charges on deposit
accounts were the largest-growing component of noninterest income, increasing
$223,072 or 17.19%. Aided by deposits assumed from the Nassau County branches,
SEBF contributed approximately 80% or $178,000 to the service charge improvement
last year. Other operating income declined $112,752 or 22.86% year-to-date after
increasing 7.81% at June 30, 1996 compared to 1995; reduced gains on sales of
other real estate and declines in commissions on the sale of credit line
insurance were chief factors in the current results.
OTHER EXPENSE
Salaries and employee benefits were up $96,489 or 3.01% year-to-date at
June 30, 1997 compared to 1996. During the year-ago period, salaries and
employee benefits were up $236,794 or 7.98%. Approximately 25% and 34% of the
1997 and 1996 results were attributable to SEBF, including the Nassau County
locations. Virtually all of the $39,867 or 4.03% increase in net occupancy and
equipment expense at June 30, 1997 was due to a full half-year of depreciation
and other occupancy expenses on the Nassau County locations in 1997 versus 1996.
A year ago, net occupancy and equipment expenses increased $118,795 or 13.65%.
Last year's increase resulted primarily from higher computer maintenance costs
and depreciation and additional occupancy expenses on the Nassau County
locations for the post-acquisition period. Other operating expenses increased
$148,610 or 10.26% at June 30, 1997 compared to 1996. Increased legal and
accounting fees and losses on deposit accounts were the major factors in the
year-to-date results. Other operating expenses declined $149,480 or 9.36% at
June 30, 1996 compared to 1995. The $278,992 decline in FDIC insurance premiums
was partially offset by the start-up and other costs associated with the
acquisition of the Nassau County branches.
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 - NONE
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/ EDWARD R. GRAY, JR.
------------------------------
EDWARD R. GRAY, JR., PRESIDENT
By: /s/ S. MICHAEL LITTLE
-------------------------------
S. MICHAEL LITTLE, VICE PRESIDENT
Date: AUGUST 8, 1997
14
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
- - ------- ----
27 Financial Data Schedule (for SEC use only)
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 13,384
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,070
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 89,844
<INVESTMENTS-CARRYING> 20,366
<INVESTMENTS-MARKET> 21,004
<LOANS> 188,278
<ALLOWANCE> 3,655
<TOTAL-ASSETS> 337,277
<DEPOSITS> 294,710
<SHORT-TERM> 3,052
<LIABILITIES-OTHER> 3,248
<LONG-TERM> 600
0
0
<COMMON> 4,476
<OTHER-SE> 31,191
<TOTAL-LIABILITIES-AND-EQUITY> 337,277
<INTEREST-LOAN> 10,207
<INTEREST-INVEST> 3,358
<INTEREST-OTHER> 373
<INTEREST-TOTAL> 13,938
<INTEREST-DEPOSIT> 5,768
<INTEREST-EXPENSE> 5,836
<INTEREST-INCOME-NET> 8,102
<LOAN-LOSSES> 1,055
<SECURITIES-GAINS> 13
<EXPENSE-OTHER> 5,926
<INCOME-PRETAX> 3,023
<INCOME-PRE-EXTRAORDINARY> 2,059
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,059
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0.58
<YIELD-ACTUAL> 5.47
<LOANS-NON> 1,414
<LOANS-PAST> 1,578
<LOANS-TROUBLED> 395
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,735
<CHARGE-OFFS> 1,421
<RECOVERIES> 286
<ALLOWANCE-CLOSE> 3,655
<ALLOWANCE-DOMESTIC> 2,251
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,404
</TABLE>
