SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
- --- of 1934
For the quarterly period ended September 30, 2005.
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or
Transition Report under Section 13 or 15(d) of the Securities Exchange Act
- --- of 1934
For the transition period from _______________ to ________________.
Commission File No. 0-23980
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Southeastern Bank Financial Corporation
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(Exact name of registrant as specified in its charter)
Georgia 58-2005097
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(State of Incorporation) (I.R.S. Employer Identification No.)
3530 Wheeler Road, Augusta, Georgia 30909
-----------------------------------------
(Address of principal executive offices)
(706) 738-6990
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(Issuer's telephone number, including area code)
Not Applicable
--------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
Check whether the issuer is an accelerated filer (as defined in Rule 12b-2
of the Exchange Act). Yes X No
--- ---
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act): Yes No X
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
5,260,832 shares of common stock, $3.00 par value per share, outstanding as
of October 31, 2005.
SOUTHEASTERN BANK FINANCIAL CORPORATION
FORM 10-Q
INDEX
Page
Part I
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 2005 and
December 31, 2004 3
Consolidated Statements of Income for the Three and Nine
Months ended September 30, 2005 and 2004 4
Consolidated Statements of Cash Flows for the
Nine Months ended September 30, 2005 and 2004
6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 24
Item 4. Controls and Procedures 24
Part II Other Information
Item 1. Legal Proceedings *
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 25
Item 3. Defaults Upon Senior Securities *
Item 4. Submission of Matters to a Vote of Security Holders *
Item 5. Other Information *
Item 6. Exhibits 25
Signature 26
* No information submitted under this caption
1
PART I
FINANCIAL INFORMATION
2
SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
ASSETS
September 30, December 31,
2005 2004
--------------- --------------
Cash and due from banks $ 23,983,922 $ 13,186,173
Federal funds sold 18,595,000 12,326,000
Interest-bearing deposits in other banks 1,012,167 512,024
--------------- --------------
Cash and cash equivalents 43,591,089 26,024,197
Investment securities
Available-for-sale 185,315,184 152,637,090
Held-to-maturity, at cost (fair values of
$3,930,581 and $3,997,361, respectively) 3,776,137 3,776,428
Loans held for sale 11,509,862 14,778,614
Loans 550,392,839 479,391,209
Less allowance for loan losses (9,094,402) (7,930,366)
--------------- --------------
Loans, net 541,298,437 471,460,843
Premises and equipment, net 19,912,110 18,437,500
Accrued interest receivable 4,065,034 3,638,247
Bank-owned life insurance 11,756,930 11,463,591
Other assets 4,613,831 4,300,801
--------------- --------------
$ 825,838,614 $ 706,517,311
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing $ 93,156,543 $ 80,798,355
Interest-bearing:
NOW accounts 100,341,899 80,417,657
Savings 285,032,114 225,533,029
Money management accounts 25,287,503 25,142,955
Time deposits over $100,000 106,856,773 106,835,743
Other time deposits 35,198,471 38,056,932
--------------- --------------
645,873,303 556,784,671
Federal funds purchased and securities sold
under repurchase agreements 58,166,949 44,581,259
Advances from Federal Home Loan Bank 52,000,000 40,000,000
Other borrowed funds 1,000,000 900,000
Accrued interest and other liabilities 5,561,630 5,271,556
--------------- --------------
Total liabilities 762,601,882 647,537,486
--------------- --------------
Stockholders' equity
Common stock, $3.00 par value; 10,000,000 shares
authorized; 5,279,929 and 5,287,100 shares issued in
2005 and 2004, respectively; 5,260,832 and 5,249,604
shares outstanding in 2005 and 2004, respectively 15,839,787 15,861,300
Additional paid-in capital 34,172,970 34,375,510
Retained earnings 13,917,732 8,878,633
Treasury stock, at cost; 19,097 and 37,496 shares in
2005 and 2004, respectively (270,064) (497,127)
Accumulated other comprehensive income (423,693) 361,509
--------------- --------------
Total stockholders' equity 63,236,732 58,979,825
--------------- --------------
$ 825,838,614 $ 706,517,311
=============== ==============
<FN>
See accompanying notes to consolidated financial statements.
3
SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------ ----------- ------------ ------------
2005 2004 2005 2004
------------ ----------- ------------ ------------
Interest income:
Loans, including fees $10,345,667 $ 7,073,443 $27,860,831 $20,504,835
Investment securities 2,001,470 1,844,988 5,702,611 5,264,296
Federal funds sold 131,878 28,770 283,247 46,000
Interest-bearing deposits in other banks 7,400 497 16,599 540
------------ ----------- ------------ ------------
Total interest income 12,486,415 8,947,698 33,863,288 25,815,671
------------ ----------- ------------ ------------
Interest expense:
Deposits 3,746,904 1,784,792 9,637,475 5,098,812
Federal funds purchased and securities sold
under repurchase agreements 459,035 142,662 1,081,435 454,471
Other borrowings 609,027 470,573 1,671,117 1,348,610
------------ ----------- ------------ ------------
Total interest expense 4,814,966 2,398,027 12,390,027 6,901,893
------------ ----------- ------------ ------------
Net interest income 7,671,449 6,549,671 21,473,261 18,913,778
Provision for loan losses 589,260 493,103 1,576,223 1,013,023
------------ ----------- ------------ ------------
Net interest income after provision
for loan losses 7,082,189 6,056,568 19,897,038 17,900,755
------------ ----------- ------------ ------------
Noninterest income:
Service charges and fees on deposits 1,391,383 1,342,105 3,956,858 3,628,474
Gain on sales of loans 1,520,241 1,461,997 3,860,823 4,367,103
Investment securities (losses) gains, net (46,406) 1,833 (85,666) (2,709)
Retail investment income 87,030 140,281 290,596 344,819
Trust service fees 163,855 147,239 470,791 405,309
Increase in cash surrender value of
bank-owned life insurance 108,393 118,701 293,339 370,787
Miscellaneous income 57,727 108,354 385,030 320,298
------------ ----------- ------------ ------------
Total noninterest income 3,282,223 3,320,510 9,171,771 9,434,081
------------ ----------- ------------ ------------
Noninterest expense:
Salaries 3,236,300 2,991,389 8,999,855 8,625,169
Employee benefits 768,789 693,087 2,354,158 2,190,042
Occupancy expenses 687,031 671,950 2,042,557 1,933,309
Other operating expenses 1,753,359 1,559,252 4,992,931 4,913,877
------------ ----------- ------------ ------------
Total noninterest expense 6,445,479 5,915,678 18,389,501 17,662,397
------------ ----------- ------------ ------------
Income before income taxes 3,918,933 3,461,400 10,679,308 9,672,439
Income tax expense 1,320,336 1,139,062 3,590,990 3,187,288
------------ ----------- ------------ ------------
Net income $ 2,598,597 $ 2,322,338 $ 7,088,318 $ 6,485,151
============ =========== ============ ============
(continued)
4
SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------- ----------- ----------- -----------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Basic net income per share $ 0.49 $ 0.44 $ 1.35 $ 1.24
=========== =========== =========== ===========
Diluted net income per share $ 0.48 $ 0.44 $ 1.33 $ 1.22
=========== =========== =========== ===========
Weighted average common shares outstanding 5,258,713 5,248,034 5,256,367 5,247,483
=========== =========== =========== ===========
Weighted average number of common and
common equivalent shares outstanding 5,358,959 5,322,623 5,344,621 5,324,065
=========== =========== =========== ===========
<FN>
See accompanying notes to consolidated financial statements.
5
SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
2005 2004
------------------ ------------------
Cash flows from operating activities:
Net income $ 7,088,318 $ 6,485,151
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 1,088,406 981,038
Provision for loan losses 1,576,223 1,013,023
Net investment securities losses 85,666 2,709
Net amortization of premium on investment securities 273,044 299,815
Increase in CSV of bank owned life insurance (293,339) (370,787)
Loss (gain) on disposal of premises and equipment 6,685 (1,385)
(Gain) loss on the sale of other real estate (9,405) 8,272
Gain on sales of loans (3,860,823) (4,367,103)
Real estate loans originated for sale (199,233,926) (211,143,576)
Proceeds from sales of real estate loans 206,363,501 215,741,585
(Increase) decrease in accrued interest receivable (426,787) 304,738
Decrease in other assets 38,039 26,858
Decrease in accrued interest and other liabilities 290,074 218,087
------------------ ------------------
Net cash provided by operating activities 12,985,676 9,198,425
------------------ ------------------
Cash flows from investing activities:
Proceeds from sales of available for sale securities 23,852,712 24,315,495
Proceeds from sales of held to maturity securities - 550,000
Proceeds from maturities of available for sale securities 17,796,690 36,910,681
Proceeds from maturities of held to maturity securities - 1,168,000
Purchase of available for sale securities (75,180,015) (76,872,338)
Purchase of Federal Home Loan Bank stock (920,600) (250,000)
Proceeds from redemption of FHLB stock 225,000 -
Net increase in loans (71,523,269) (40,831,295)
Purchases of premises and equipment (2,572,201) (5,088,112)
Proceeds from sale of other real estate 172,286 250,204
Proceeds from sale of premises and equipment 2,500 50,195
------------------ ------------------
Net cash used in investing activities (108,146,897) (59,797,170)
------------------ ------------------
Cash flows from financing activities:
Net increase in deposits 89,088,632 59,677,144
Net increase (decrease) in federal funds purchased and
securities sold under repurchase agreements 13,585,690 (16,060,149)
Advances from Federal Home Loan Bank 17,000,000 10,000,000
Payments of Federal Home Loan Bank advances (5,000,000) -
Proceeds from other borrowed funds 100,000 200,000
Purchase of treasury stock - (62,042)
Payment of cash dividends (2,049,219) (2,046,410)
Proceeds from stock options exercised 3,010 390
------------------ ------------------
Net cash provided by financing activities 112,728,113 51,708,933
------------------ ------------------
(continued)
6
SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
2005 2004
----------- -----------
Net increase in cash and cash equivalents $17,566,892 $ 1,110,188
Cash and cash equivalents at beginning of period 26,024,197 15,721,884
----------- -----------
Cash and cash equivalents at end of period $43,591,089 $16,832,072
=========== ===========
Supplemental disclosures of cash paid during the period for:
Interest $12,536,090 $ 7,191,021
=========== ===========
Income taxes $ 3,560,000 $ 3,091,000
=========== ===========
Supplemental information on noncash investing activities:
Loans transferred to other real estate $ 109,452 $ 311,905
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
7
SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 2005
Note 1 - Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Southeastern Bank Financial Corporation, formerly Georgia Bank Financial
Corporation, and its wholly-owned subsidiary, Georgia Bank & Trust Company (the
"Company" or the "Bank"). Significant intercompany transactions and accounts
are eliminated in consolidation.
The financial statements for the three and nine months ended September 30, 2005
and 2004 are unaudited and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States of
America have been condensed or omitted pursuant to such rules and regulations.
These consolidated financial statements should be read in conjunction with the
audited consolidated financial statements and footnotes included in the
Company's annual report on Form 10-K for the year ended December 31, 2004.
In the opinion of management, all adjustments necessary to present fairly the
financial position and the results of operations and cash flows for the interim
periods have been made. All such adjustments are of a normal recurring nature.
The results of operations for the three and nine months ended September 30, 2005
are not necessarily indicative of the results of operations which the Company
may achieve for the entire year.
Some items in the prior period financial statements were reclassified to conform
to the current presentation.
Note 2 - Recent Accounting Pronouncements
SFAS No. 123 (Revised 2004), Accounting for Stock-Based Compensation, will
require most public entities, effective at the beginning of the first annual
period beginning after June 15, 2005, to compute the fair value of options at
the date of grant and to recognize such costs as compensation expense
immediately if there is no vesting period or ratably over the vesting period of
the options. Due to the April 15, 2005, deferral of the effective date to the
beginning of the first annual period beginning after June 15, 2005, the Bank has
chosen not to adopt the cost recognition principles of this statement for 2005.
If the Bank had chosen to adopt these principles, an annual expense of $237,000
would be recorded for the year ending 2005. Based on the options outstanding as
of September 30, 2005, the expense would remain virtually constant in 2006 and
then decline in succeeding
8
years as the options fully vest. The Bank will adopt SFAS No. 123 (Revised
2004) as of January 1, 2006.
Note 3 - Comprehensive Income
Other comprehensive income for the Company consists of net unrealized gains and
losses on investment securities available for sale. Total comprehensive income
for the three months ended September 30, 2005 was $2,615,000 compared to
$4,579,000 for the three months ended September 30, 2004. Total comprehensive
income for the nine months ended September 30, 2005 was $6,303,000 compared to
$6,116,000 for the nine months ended September 30, 2004.
Note 4 - Stock-based Compensation
The Company applies Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for its
stock option plans. Accordingly compensation cost is measured as the excess, if
any, of the quoted market price of the Company's stock at the date of grant over
the amount an employee must pay to acquire the stock. Had compensation cost
been determined based upon the fair value of the options at the grant dates
consistent with the method recommended by SFAS No. 123, on a pro forma basis,
the Company's net income and income per share, on a pro forma basis, for the
three and nine months ended September 30, 2005 and 2004 is indicated below.
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2005 2004 2005 2004
---------- ---------- ---------- ----------
Net income $2,598,597 $2,322,338 $7,088,318 $6,485,151
Deduct: Total stock-based
Compensation expense determined
Under fair value based method,
net of related tax effect 64,352 51,969 172,874 155,907
---------- ---------- ---------- ----------
Pro Forma, net income $2,534,245 $2,270,369 $6,915,444 $6,329,244
========== ========== ========== ==========
Basic net income per share:
As reported $ 0.49 $ 0.44 $ 1.35 $ 1.24
Pro forma $ 0.48 $ 0.43 $ 1.32 $ 1.21
Diluted net income per share:
As reported $ 0.48 $ 0.44 $ 1.33 $ 1.22
Pro forma $ 0.48 $ 0.43 $ 1.30 $ 1.19
Note 5 - Cash Dividend Declared
On July 18, 2005, the Company declared a quarterly cash dividend of $0.13 per
share on outstanding shares. The dividend was paid on August 15, 2005 to
shareholders of record as of August 1, 2005.
9
On October 26, 2005, the Company declared a quarterly cash dividend of $0.13 per
share on outstanding shares. The dividend is payable on November 21, 2005 to
shareholders of record as of November 7, 2005.
10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
- --------
The Bank was organized by a group of local citizens and commenced business on
August 28, 1989. It began operations with one branch. Today, the Bank operates
eight full service branches in Richmond and Columbia counties in Augusta,
Martinez, and Evans, Georgia. The Bank operates two mortgage origination
offices in Augusta, Georgia, and Savannah, Georgia. The Savannah, Georgia
office also offers construction lending services. Bank and mortgage operations
are located in Augusta, Georgia in two operations campuses located in close
proximity to the main office in Augusta, Georgia. Wealth management, trust,
and retail investment services are located in the main office. The Bank is
Augusta's largest community banking company. On July 12, 2005, the Company
announced its plans to expand outside its current markets by opening a branch in
Athens, Georgia and chartering a thrift in Aiken, South Carolina. The Company
plans to open the Athens branch in the fourth quarter of 2005.
Richmond and Columbia counties have a diversified economy based primarily on
government, transportation, public utilities, health care, manufacturing,
construction, and wholesale and retail trade. Augusta is one of the leading
medical centers in the Southeast. The 2004 population of the Augusta-Richmond
County, GA-SC metropolitan area was 341,560, the second largest in Georgia.
The Bank's services include the origination of residential and commercial real
estate loans, construction and development loans, and commercial and consumer
loans. The Bank also offers a variety of deposit programs, including
noninterest-bearing demand, interest checking, money management, savings, and
time deposits. In the combined Richmond and Columbia counties, the Bank had
17.84% of all deposits and was the second largest depository institution at June
30, 2005, as cited from the Federal Deposit Insurance Corporation's website.
Securities sold under repurchase agreements are also offered. Additional
services include wealth management, trust, retail investment, and mortgage. As
a matter of practice, most mortgage loans are sold in the secondary market;
however, some mortgage loans are placed in the portfolio based on marketing and
balance sheet considerations. The Bank continues to concentrate on increasing
its market share through various new deposit and loan products and other
financial services and by focusing on the customer relationship management
philosophy. The Bank is committed to building life-long relationships with its
customers, employees, shareholders, and the communities it serves.
The Bank's primary source of income is from its lending activities followed by
interest income from its investment activities, service charges and fees on
deposits, and gain on sale of mortgage loans in the secondary market. Loan
interest income increased during the first nine months of 2005 as compared to
the first nine months of 2004 due to rising interest rates and increased volumes
while gain on sales of mortgage loans decreased due to lower production levels.
Service charges and fees on deposits increased for the first
11
nine months of 2005 as compared to the same period in 2004 as a result of new
retail checking account products introduced in March 2004. Other significant
contributors to income are trust services fees, increases in cash surrender
value of life insurance, and retail investment income.
The Bank continues to experience steady growth. Over the past four years,
assets grew from $405.8 million at December 31, 2000 to $706.5 million at
December 31, 2004. At September 30, 2005, assets were $825.8 million. From
year end 2000 to year end 2004, loans increased $210.6 million, and deposits
increased $245.9 million. From December 31, 2004 to September 30, 2005, loans
increased $67.7 million and deposits increased $89.1 million. Also, from 2000
to 2004, return on average equity increased from 12.58% to 15.50% and return on
average assets increased from 1.08% to 1.29%. At September 30 2005, return on
average assets was 1.24% and return on average equity was 15.60%. Net income
for the year ended 2000 was $4.0 million compared to net income of $8.7 million
at year end 2004. Net income for the nine months ended September 30, 2005 was
$7.1 million. The Company has reached a level of maturity evidenced by
long-term financial performance and stability that resulted in cash dividends of
$0.13 per share paid for each quarter of 2004, as well as for the first three
quarters of 2005.
The Bank meets its liquidity needs by managing cash and due from banks, federal
funds purchased and sold, maturity of investment securities, paydowns from
mortgage-backed securities, and draws on lines of credit. Additionally,
liquidity can be managed through structuring deposit and loan maturities. The
Bank funds loan and investment growth with core deposits, securities sold under
repurchase agreements and wholesale borrowings. During inflationary periods,
interest rates generally increase and operating expenses generally rise. When
interest rates rise, variable rate loans and investments produce higher
earnings; however, deposit and other borrowings interest expense also rise. The
Bank monitors its interest rate risk as it applies to income in a ramp up and
down annually 200 basis points (2%) scenario and as it applies to economic value
of equity in a shock up and down 200 (2%) basis points scenario. The Bank
monitors operating expenses through responsibility center budgeting.
Forward-Looking Statements
- ---------------------------
Southeastern Bank Financial Corporation (the "Company") may, from time to time,
make written or oral forward-looking statements, including statements contained
in the Company's filings with the Securities and Exchange Commission (the
"Commission") and its reports to shareholders. Statements made in such
documents, other than those concerning historical information, should be
considered forward-looking and subject to various risks and uncertainties. Such
forward-looking statements are made based upon management's belief as well as
assumptions made by, and information currently available to, management pursuant
to "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995. The Company's actual results may differ materially from the results
anticipated in forward-looking statements due to a variety of factors, including
unanticipated changes in the Bank's local economy, the national economy,
governmental monetary and fiscal policies, deposit levels, loan demand, loan
collateral values and securities portfolio values; difficulties in interest rate
risk management; the effects of
12
competition in the banking business; difficulties in expanding the Bank's
business into new markets; changes in governmental regulation relating to the
banking industry, including regulations relating to branching and acquisitions;
failure of assumptions underlying the establishment of reserves for loan losses,
including the value of collateral underlying delinquent loans; and other
factors. The Company cautions that such factors are not exclusive. The Company
does not undertake to update any forward-looking statement that may be made from
time to time by, or on behalf of, the Company.
Critical Accounting Policies
- ------------------------------
The accounting and financial reporting policies of the Company conform to
accounting principles generally accepted in the United States of America and to
general practices within the banking industry. Of these policies, management
has identified the allowance for loan losses as a critical accounting policy
that requires difficult, subjective judgment and is important to the
presentation of the financial condition and results of operations of the
Company.
The allowance for loan losses is established through a provision for loan losses
charged to expense, which affects the Company's earnings directly. Loans are
charged against the allowance for loan losses when management believes that the
collectibility of the principal is unlikely. Subsequent recoveries are added to
the allowance. The allowance is an amount that management believes will be
adequate to absorb losses on existing loans that become uncollectible, based on
evaluations of the collectibility of loans. The evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, historical loss rates, overall portfolio quality, review of specific
problem loans, and current economic conditions and trends that may affect a
borrower's ability to repay.
The Company segments its allowance for loan losses into the following four major
categories: 1) identified losses for impaired loans; 2) general reserves for
Classified/Watch loans; 3) general reserves for loans with satisfactory ratings;
and 4) general reserves based on economic and market risk qualitative factors.
Risk ratings are initially assigned in accordance with the Bank's loan and
collection policy. An organizationally independent department reviews grade
assignments on an ongoing basis. Management reviews current information and
events regarding a borrower's financial condition and strengths, cash flows
available for debt repayment, the related collateral supporting the loan and the
effects of known and expected economic conditions. When the evaluation reflects
a greater than normal risk associated with the individual loan, management
classifies the loan accordingly. If the loan is determined to be impaired,
management allocates a portion of the allowance for loan losses for that loan
based upon the present value of future cash flows discounted at the loan's
effective interest rate, or the fair value of the collateral if collection of
the loan is deemed to be dependent upon the collateral. Regulatory guidance is
also considered. Cash receipts for accruing loans are applied to principal and
interest under the contractual terms of the loan agreement, where cash receipts
on impaired and nonaccrual loans for which the accrual of interest has been
discontinued are applied first to principal and then to interest income.
Impaired and Classified/Watch loans are aggressively monitored. The reserves
for loans rated
13
satisfactory are further subdivided into various types of loans as defined by
call report codes. Qualitative factors are based upon economic, market and
industry conditions that are specific to the Company's two local county markets.
These qualitative factors include, but are not limited to, national and local
economic conditions, bankruptcy trends, unemployment trends, loan
concentrations, and competitive factors in the local market. These allocations
for the qualitative factors are included in the various individual components of
the allowance for loan losses. The qualitative factors are subjective in nature
and require considerable judgment on the part of the Company's management.
However, it is the Company's opinion that these factors represent uncertainties
in the Bank's business environment that must be factored into the Company's
analysis of the allowance for loan losses.
Performance Overview -- Net Income
- ----------------------------------
The Company's net income for the third quarter of 2005 was $2,599,000 which was
an increase of $277,000 (11.9%) compared to net income of $2,322,000 for the
third quarter of 2004. Diluted net income per share for the three months ended
September 30, 2005 was $0.48 compared to $0.44 for the three months ended
September 30, 2004. Net income for the first nine months of 2005 was
$7,088,000, an increase of $603,000 (9.3%) compared with net income of
$6,485,000 for the first nine months of 2004. The increase in net income for
the three and nine months ended September 30, 2005 as compared with the three
and nine months ended September 30, 2004, was primarily a result of increases in
net interest income, somewhat offset by an increase in the loan loss provision,
a decrease in noninterest income and an increase in noninterest expense. Both
loan interest income and deposit interest expense increased due to higher
interest rates and increased volumes. The provision for loan losses increased
due to increases in outstanding loan balances and the level of Classified debt.
Factors contributing to the decrease in noninterest income for the nine months
ended September 30, 2005, were a decrease in the gain on sale of mortgage loans
in the secondary market due to lower volumes, somewhat offset by increases in
service charges and fees on deposits. Retail checking accounts introduced in
March 2004 continue to generate increases in NSF fees and ATM income, somewhat
offset by decreases in service charges. Noninterest expense increased $727,000
during the nine-month period ended September 30, 2005 compared to the nine-month
period ended September 30, 2004. This increase included $191,000 in expenses
related to the Company's expansion into new markets. Other increases in
noninterest expense were primarily due to increases in salaries and employee
benefits related to company growth, increases in occupancy expenses related to
facilities opened in February and September 2004, and increases in other
operating expenses. Significant changes in other operating expenses during the
nine-month period include increases in professional fees for trust advisory fees
and other advisory services and increases in staff development expense for sales
training. These increases were somewhat offset by decreases in loan costs for
losses that were recorded in the first nine months of 2004 for a loan that was
sold into the secondary market based on a fraudulent appraisal and for
commercial loan litigation settlement. Additional factors include decreases in
processing expenses attributable to moving ATM processing in-house, retail
checking products expense, and the expiration of commissions due under an
overdraft protection contract.
14
Total assets of $825.8 million at September 30, 2005 reflect an increase of
$119.3 million (16.9%) from year-end 2004. This increase is primarily
attributable to higher loan and investment balances since December 2004. Total
loans at September 30, 2005 were $561.9 million which represented an increase of
$67.7 million (13.7%) from December 31, 2004. Since December 31, 2004
investment securities increased $32.7 million (20.9%), cash and due from banks
increased $10.8 million (81.9%), and federal funds sold increased $6.3 million
(50.9%). These increases were funded by increases in total deposits of $89.1
million (16.0%), increases in securities sold under repurchase agreements of
$13.6 million (30.5%), increases in Federal Home Loan Bank advances of $12.0
million (30.0%), and net income of $7.1 million less dividends paid of $2.0
million.
The annualized return on average assets for the Company was 1.24% for the nine
months ended September 30, 2005, compared to 1.30% for the same period last
year. While total assets have increased $137.2 million since third quarter
2004, net income has only increased $603,000, resulting in a decrease in ROA.
Increases in net interest income were somewhat offset by decreases in
noninterest income and increases in noninterest expense and income tax expense.
The annualized return on average stockholders' equity was 15.60% for the nine
months ended September 30, 2005, compared to 15.61% for the same period last
year. The steady ratio reflects growth of both net income and stockholders'
equity in proportion to one another during the periods compared.
Net Interest Income
- ---------------------
Table 1 - Net Interest Income
Three Months Ended Nine Months Ended
September 30, Variance September 30, Variance
---------------------- ---------------------- ---------------------- ----------------------
2005 2004 Amount % 2005 2004 Amount %
----------- --------- ----------- --------- ----------- --------- ----------- ---------
(Dollars in thousands)
Interest income:
Loans, including fees $ 10,346 $ 7,073 $ 3,273 46.3% $ 27,861 $ 20,505 $ 7,356 35.9%
Investment securities 2,001 1,845 156 8.5% 5,703 5,264 439 8.3%
Federal funds sold 132 29 103 355.2% 283 46 237 515.2%
Interest expense:
Deposits 3,747 1,785 1,962 109.9% 9,638 5,099 4,539 89.0%
Federal funds purchased
and securities sold under
repurchase agreements 459 143 316 221.0% 1,081 455 626 137.6%
Other borrowings 609 471 138 29.3% 1,671 1,349 322 23.9%
Net interest income 7,671 6,550 1,121 17.1% 21,473 18,914 2,559 13.5%
=========== ========= =========== ========= =========== ========= =========== =========
15
Net interest income increased $1.1 million (17.1%) during the three-month period
and $2.6 million (13.5%) during the nine-month period as the result of increases
in both interest income and interest expense. Loan interest income increased
$3.3 million and $7.4 million in the three and nine month periods, respectively,
while deposit interest expense increased $2.0 million and $4.5 million in the
three and nine month periods, respectively, all the result of higher interest
rates and increased volumes. Other contributing factors during both the three
and nine month periods included increases in interest income on investment
securities and federal funds sold and an increase in interest expense on federal
funds purchased and securities sold under repurchase agreements, again the
result of increased volumes and higher interest rates. Interest expense on other
borrowings also increased due to increased volumes somewhat offset by a decrease
in the average interest rate, the result of additional borrowings at lower
rates. Interest-earning assets were $770.6 million at September 30, 2005, an
increase of $127.7 million (19.9%) over September 30, 2004 and $107.2 million
(16.2%) over December 31, 2004.
The Company's net interest margin for the three and nine months ended September
30, 2005 was 3.98% and 3.94%, respectively, as compared to 4.03% and 4.01% for
the three and nine months ended September 30, 2004, respectively. The cost to
fund earning assets has increased at a slightly higher rate than the rate earned
on those assets resulting in a decrease in the net interest margin for the three
and nine month periods.
Noninterest Income
- -------------------
Table 2 - Noninterest Income
Three Months Ended Nine Months Ended
September 30, Variance September 30, Variance
---------------------- ----------------------- ---------------------- -----------------------
2005 2004 Amount % 2005 2004 Amount %
---------- ---------- ----------- ---------- ---------- ---------- ----------- ----------
(Dollars in thousands)
Service charges and fees
on deposits $ 1,391 $ 1,342 $ 49 3.7% $ 3,957 $ 3,628 $ 329 9.1%
Gain on sales of loans 1,520 1,462 58 4.0% 3,860 4,367 (507) (11.6%)
Noninterest income 3,282 3,321 (39) (1.2%) 9,172 9,434 (262) (2.8%)
========== ========== =========== ========== ========== ========== =========== ==========
Noninterest income decreased $262,000 (2.8%) during the nine-month period.
Contributing factors included decreases in gain on sales of mortgage loans in
the secondary market due to lower mortgage loan volumes which are primarily the
result of the rising interest rate environment, increased competition, reduced
staff in existing offices, and the closing of the Nashville, Tennessee mortgage
office. These decreases were partially offset by increases in service charges
and fees on deposits during the nine- month period primarily due to increases in
NSF fees and ATM income, somewhat offset by decreases in service charges, all a
result of new retail checking accounts.
16
Noninterest Expense
- --------------------
Table 3 - Noninterest Expense
Three Months Ended Nine Months Ended
September 30, Variance September 30, Variance
---------------------- ---------------------- ---------------------- ----------------------
2005 2004 Amount % 2005 2004 Amount %
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands)
Salaries $ 3,236 $ 2,991 $ 245 8.2% $ 9,000 $ 8,625 $ 375 4.3%
Employee benefits 769 693 76 11.0% 2,354 2,190 164 7.5%
Occupancy expenses 687 672 15 2.2% 2,043 1,934 109 5.6%
Other operating expenses 1,753 1,559 194 12.4% 4,993 4,914 79 1.6%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total noninterest expense $ 6,445 $ 5,915 $ 530 9.0% $ 18,390 $ 17,663 $ 727 4.1%
========== ========== ========== ========== ========== ========== ========== ==========
Noninterest expense increased $530,000 (9.0%) during the three-month period and
$727,000 (4.1%) during the nine-month period. Noninterest expense attributable
to the Company's expansion into new markets totaled $151,000 for the quarter
ended September 30, 2005. Salary expense and employee benefits increased during
the three and nine month periods primarily as the result of company growth. The
increase in occupancy expenses during the nine-month period is primarily due to
depreciation and maintenance expense on the Walton Way Operations Campus opened
in February 2004 and the Cotton Exchange branch which opened in September 2004.
Other operating expenses increased $194,000 (12.4%) for the three-month period
primarily due to professional fees related to expansion of the Company. During
the nine-month period, other operating expenses increased $79,000 (1.6%).
Professional fees increased $208,000 (34.8%) primarily due to trust advisory
fees and other advisory services. Staff development expense increased $137,000
(46.0%) primarily due to sales training. Increases in other operating expenses
were partially offset by a $131,000 (14.8%) decrease in processing expense
primarily attributable to moving ATM processing in-house, retail checking
products expense, and the expiration of the contract to pay commissions for
overdraft protection. Other expenses in the first nine months of 2004 include
$150,000 related to a loan which was sold into the secondary market that the
Company was required to repurchase based on a fraudulent appraisal and $50,000
for a commercial loan litigation settlement.
Income Taxes
- -------------
Income tax expense in the third quarter of 2005 totaled $1,320,000, an increase
of $181,000 (15.9%) over the third quarter of 2004. The effective tax rate for
the three months ended September 30, 2005 and 2004 was 33.7% and 32.9%,
respectively. Income tax expense for the nine months ended September 30, 2005
totaled $3,591,000 for an effective tax rate of 33.6% compared to 33.0% for the
nine months ended September 30, 2004. The increase in the effective tax rate
for both the three and nine month periods is primarily due to an increase in the
income tax rate resulting in an adjustment to deferred income taxes in 2004 and
a decrease in cash surrender value, somewhat offset by an increase in tax exempt
municipal income.
17
Asset Quality
- --------------
Table 5 which follows shows the current and prior period amounts of
non-performing assets. Non-performing assets were $4.5 million at September 30,
2005, compared to $3.0 million at December 31, 2004 and $2.7 million at
September 30, 2004. This increase is primarily due to $1.6 million in loans for
three customers who have filed bankruptcy. The ratio of non-performing assets
to total loans and other real estate was 0.80% at September 30, 2005, compared
to 0.60% at December 31, 2004 and 0.57% at September 30, 2004. The control and
monitoring of non-performing assets continues to be a priority of management.
There were $29,000 and $8,000 of loans past due 90 days or more and still
accruing at December 31, 2004 and September 30, 2004, respectively. There were
no loans past due 90 days or more and still accruing at September 30, 2005.
Allowance for Loan Losses
- ----------------------------
The allowance for loan losses represents a reserve for probable incurred loan
losses in the loan portfolio. The adequacy of the allowance for loan losses is
evaluated periodically based on a review of all significant loans, with
particular emphasis on impaired, non-accruing, past due, and other loans that
management believes require special attention. The determination of the
allowance for loan losses is considered a critical accounting policy of the
Company. See "Critical Accounting Policies."
When reviewing the allowance for loan losses, it is important to understand to
whom the Company lends. At September 30, 2005, the loan portfolio is comprised
of 82.20% real estate loans. Commercial, financial and agricultural loans
comprise 11.42%, and consumer loans comprise 6.36% of the portfolio.
While the Company has 82.20% of its loan portfolio secured by real estate loans,
this percentage is not significantly higher than in previous years. Commercial
real estate comprises 30.12% of the loan portfolio and is primarily owner
occupied properties where the operations of the commercial entity provide the
necessary cash flow to service the debt. For this portion of real estate loans,
repayment is not dependent upon liquidation of the real estate. Construction
and development (29.42%) has been an increasingly important portion of the real
estate loan portfolio. The Company carefully monitors the loans in this
category since the repayment of these loans is generally dependent upon the
liquidation of the real estate and is impacted by national and local economic
conditions. The residential category, 20.61% of the portfolio, represents those
loans that the Company chooses to maintain in its portfolio rather than selling
into the secondary market for marketing and competitive reasons and commercial
loans secured by residential real estate. The residential held for sale
category, 2.05% of the portfolio, comprises loans that are in the process of
being sold into the secondary market. In these loans, the credit has been
approved by the investor and the interest rate locked so that the Company
minimizes credit and interest rate risk with respect to these loans.
The Company has no large loan concentrations to individual borrowers or
industries. Unsecured loans at September 30, 2005 were $10.8 million. While
management uses
18
available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Company's allowance for loan losses. Such agencies may
require the Company to recognize additions to the allowance based on their
judgments about information available to them at the time of their examination.
Additions to the allowance for loan losses are made periodically to maintain the
allowance at an appropriate level based upon management's analysis of potential
risk in the loan portfolio. Loans determined to be uncollectible are charged to
the allowance for loan losses and subsequent recoveries are added to the
allowance. A provision for losses in the amount of $589,000 was charged to
expense for the quarter ended September 30, 2005 compared to $493,000 for the
quarter ended September 30, 2004, and $1.6 million for the nine months ended
September 30, 2005 compared to $1.0 million for the nine months ended September
30, 2004. The higher provision for the three and nine months ended September
30, 2005 as compared to the three and nine months ended September 30, 2004 is
due to increases in outstanding loan balances, the level of Classified and
Watch-rated debt, and specific reserves.
At September 30, 2005 the ratio of allowance for loan losses to total loans was
1.62% compared to 1.60% at December 31, 2004 and 1.61% at September 30, 2004.
Management considers the current allowance for loan losses appropriate based
upon its analysis of the potential risk in the portfolio, although there can be
no assurance that the assumptions underlying such analysis will continue to be
correct.
Liquidity and Capital Resources
- ----------------------------------
The Company's liquidity remains adequate to meet operating and loan funding
requirements. The loan to deposit ratio at September 30, 2005 was 87.0%
compared to 88.8% at December 31, 2004 and 86.6% at September 30, 2004. The
decrease in the loan to deposit ratio from December 31, 2004 to September 30,
2005 reflects deposit growth at a higher rate than loan growth during the first
nine months of 2005. The increase in the loan to deposit ratio from September
30, 2004 to December 31, 2004 reflects significant loan growth during that time
period. Deposits at September 30, 2005 and December 31, 2004 include $30.6
million and $34.9 million of brokered certificates of deposit, respectively.
The Company has also utilized borrowings from the Federal Home Loan Bank. The
Company maintains a line of credit with the Federal Home Loan Bank approximating
10% of the Bank's total assets. Federal Home Loan Bank advances are
collateralized by eligible first mortgage loans, and commercial real estate
loans. These borrowings totaled $52.0 million at September 30, 2005. The
Company maintains repurchase lines of credit with SunTrust Robinson Humphrey,
Atlanta, Georgia, for advances up to $20.0 million and with The Bankers Bank,
Atlanta, Georgia, for advances up to $10.0 million of which no amounts were
outstanding in either case at September 30, 2005. The Company has a federal
funds purchased accommodation with The Bankers Bank, Atlanta, Georgia, for
advances up to $16.7 million and with SunTrust Bank, Atlanta, Georgia for
advances up to $10.0 million. Additionally, liquidity needs can be satisfied by
the structuring of the maturities of investment securities and the pricing and
19
maturities on loans and deposits offered to customers. The Company also uses
retail securities sold under repurchase agreements to fund growth. Securities
sold under repurchase agreements were $58.2 million at September 30, 2005.
Shareholders' equity to total assets was 7.66% at September 30, 2005 compared to
8.35% at December 31, 2004 and 7.95% at September 30, 2004. The capital of the
Company and the Bank exceeded all required regulatory guidelines at September
30, 2005. The Company's Tier 1 risk-based, total risk-based and leverage
capital ratios were 9.80%, 11.05%, and 7.90%, respectively, at September 30,
2005. Table 6 which follows reflects the current regulatory capital levels in
more detail, including comparisons to the regulatory minimums.
Management is not aware of any events or uncertainties that are reasonably
likely to have a material effect on the Company's liquidity, capital resources
or operations.
Commitments and Contractual Obligations
- ------------------------------------------
The Bank is a party to lines of credit with off-balance sheet risk in the normal
course of business to meet the financing needs of its customers. Lines of
credit are unfunded commitments to extend credit. These instruments involve, in
varying degrees, exposure to credit and interest rate risk in excess of the
amounts recognized in the financial statements. The Bank's exposure to credit
loss in the event of nonperformance by the other party to the financial
instrument for unfunded commitments to extend credit and letters of credit is
represented by the contractual amount of those instruments. The Bank evaluates
construction and acquisition and development loans for the percentage completed
before extending additional credit. The Bank follows the same credit policies
in making commitments and contractual obligations as it does for on-balance
sheet instruments.
Unfunded commitments to extend credit where contract amounts represent potential
credit risk totaled $198.8 million at September 30, 2005. These commitments are
primarily at variable interest rates.
The Company's commitments are funded through internal funding sources of
scheduled repayments of loans and sales and maturities of investment securities
available for sale or external funding sources through acceptance of deposits
from customers or borrowings from other financial institutions.
The following table is a summary of the Company's commitments to extend credit,
commitments under contractual leases as well as the Company' contractual
obligations, consisting of deposits, FHLB advances, which are subject to early
termination options, and borrowed funds by contractual maturity date for the
next five years.
20
Table 4 - Commitments and Due in Due in Due in Due in Due in
Contractual Obligations 1 Year 2 Years 3 Years 4 Years 5 Years
- --------------------------- -------- -------- -------- -------- --------
Lines of credit $198,799 - - - -
Lease agreements 82 73 5 - -
Deposits 293,818 105,268 97,969 40,146 42,588
Securities sold under
repurchase agreements 58,167 - - - -
FHLB advances 5,000 - - - 28,000
Other borrowings 1,000 - - - -
-------- -------- -------- -------- --------
Total commitments and
contractual obligations $556,866 $105,341 $ 97,974 $ 40,146 $ 70,588
======== ======== ======== ======== ========
Although management regularly monitors the balance of outstanding commitments to
fund loans to ensure funding availability should the need arise, management
believes that the risk of all customers fully drawing on all these lines of
credit at the same time is remote.
Effects of Inflation and Changing Prices
- ----------------------------------------
Inflation generally increases the cost of funds and operating overhead and to
the extent loans and other assets bear variable rates, the yields on such
assets. Unlike most industrial companies, virtually all of the assets and
liabilities of a financial institution are monetary in nature. As a result,
interest rates generally have a more significant impact on the performance of a
financial institution than the effects of general levels of inflation. Although
interest rates do not necessarily move in the same direction and to the same
extent as the prices of goods and services, increases in inflation generally
have resulted in increased interest rates. In addition, inflation can increase
a financial institution's cost of goods and services purchased, the cost of
salaries and benefits, occupancy expense and similar items. Inflation and
related increases in interest rates generally decrease the market value of
investments and loans held and may adversely affect liquidity, earnings, and
stockholders' equity. Mortgage originations and refinancings tend to slow as
interest rates increase, and can reduce the Company's earnings from such
activities and the income from the sale of residential mortgage loans in the
secondary market.
21
TABLE 5
- -------
SELECTED FINANCIAL DATA
(Dollars in Thousands)
Nine Months Ended September 30,
-------------------------------------
PROFITABILITY 2005 2004
- ------------- ----------------- ------------------
Return on average assets * 1.24% 1.30%
Return on average equity * 15.60% 15.61%
ALLOWANCE FOR LOAN LOSSES
- -------------------------
Beginning balance, January 1 $ 7,930 $ 7,278
Provision charged to expense 1,576 1,013
Recoveries 714 543
Loans charged off (1,126) (1,248)
----------------- ------------------
Ending balance, September 30 $ 9,094 $ 7,586
================= ==================
NON-PERFORMING ASSETS September 30, 2005 December 31, 2004 September 30, 2004
- ---------------------
Non-accrual loans $ 4,513 $ 2,972 $ 2,623
Other real estate owned 0 53 58
------------------- ------------------ -------------------
Total non-performing assets $ 4,513 $ 3,025 $ 2,681
=================== ================== ===================
LOANS PAST DUE 90 DAYS OR
MORE AND STILL ACCRUING $ 0 $ 29 $ 8
=================== ================== ===================
* Annualized
22
TABLE 6
- -------
Regulatory Capital Requirements
September 30, 2005
(Dollars in Thousands)
Required for capital
Actual adequacy purposes Excess
Amount Percent Amount Percent Amount Percent
------------------------ ----------------------- -----------------------
Southeastern Bank Financial
Corporation
Risk-based capital:
Tier 1 capital $ 63,520 9.80% 25,933 4.00% 37,587 5.80%
Total capital 71,636 11.05% 51,867 8.00% 19,769 3.05%
Tier 1 leverage ratio 63,520 7.90% 32,157 4.00% 31,363 3.90%
Georgia Bank & Trust Company
Risk-based capital:
Tier 1 capital $ 60,237 9.31% 25,870 4.00% 34,367 5.31%
Total capital 68,334 10.57% 51,741 8.00% 16,593 2.57%
Tier 1 leverage ratio 60,237 7.51% 32,095 4.00% 28,142 3.51%
23
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of September 30, 2005, there were no substantial changes in the interest rate
sensitivity analysis or the sensitivity of market value of portfolio equity for
various changes in interest rates calculated as of December 31, 2004. The
foregoing disclosures related to the market risk of the Company should be read
in conjunction with the Company's audited consolidated financial statements,
related notes and management's discussion and analysis of financial condition
and results of operations for the year ended December 31, 2004 included in the
Company's 2004 Annual Report on Form 10-K.
Item 4. Controls and Procedures
As of the end of the period covered by this report, the Company carried out an
evaluation, under the supervision and with the participation of the Company's
management, including the Company's President and Chief Executive Officer
(principal executive officer) and its Executive Vice President and Chief
Operating Officer (principal financial officer), of the effectiveness of the
design and operation of the Company's disclosure controls and procedures
pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, such officers
concluded that the Company's disclosure controls and procedures are effective in
timely alerting them to material information relating to the Company (including
its consolidated subsidiaries) that is required to be included in the Company's
periodic filings with the Securities and Exchange Commission. There have been
no significant changes in the Company's internal controls or, to the Company's
knowledge, in other factors that could significantly affect those internal
controls subsequent to the date the Company carried out its evaluation, and
there have been no corrective actions with respect to significant deficiencies
or material weaknesses.
24
Part II
OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Company
or any of its subsidiaries is a party or of which any of their
property is subject.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities
On April 15, 2004, the Company announced the commencement of a stock
repurchase program, pursuant to which it will, from time to time,
repurchase up to 100,000 shares of its outstanding stock. The program
does not have a stated expiration date. No stock repurchase programs
were terminated during the third quarter of 2005. There were no shares
repurchased under an existing stock repurchase plan or otherwise
during the third quarter of 2005.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits
31.1 Certification of Chief Executive Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief Financial
Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
25
SOUTHEASTERN BANK FINANCIAL CORPORATION
Form 10-Q Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
SOUTHEASTERN BANK FINANCIAL CORPORATION
Date: November 3, 2005 By: /s/ Ronald L. Thigpen
---------------- --------------------------------------
Ronald L. Thigpen
Executive Vice President, Chief
Operating Officer (Duly Authorized
Officer of Registrant and Principal
Financial Officer)
26