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 March 31, 2006.
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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 .
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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
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(Address of principal executive offices)
(706) 738-6990
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(Issuer's telephone number, including area code)
Not Applicable
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(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 a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of "accelerated filer and
large accelerated filer" in Rule 12b-2 of the Exchange Act. Large accelerated
filer [_] Accelerated filer [X] Non-accelerated filer [_]
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:
5,278,749 shares of common stock, $3.00 par value per share, outstanding as
of April 30, 2006.
SOUTHEASTERN BANK FINANCIAL CORPORATION
FORM 10-Q
INDEX
Page
Part I
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of March 31, 2006 and
December 31, 2005 3
Consolidated Statements of Income for the Three
Months ended March 31, 2006 and 2005 4
Consolidated Statements of Cash Flows for the
Three Months ended March 31, 2006 and 2005 5
Notes to Consolidated Financial Statements 6
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 1A. Risk Factors 25
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 26
Signature 27
<FN>
* No information submitted under this caption
1
PART I
FINANCIAL INFORMATION
2
SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
(Unaudited)
ASSETS
March 31, December 31,
2006 2005
------------- --------------
Cash and due from banks $ 23,214,668 $ 18,792,799
Federal funds sold 20,266,000 2,758,000
Interest-bearing deposits in other banks 512,282 1,012,257
------------- --------------
Cash and cash equivalents 43,992,950 22,563,056
Investment securities
Available-for-sale 204,376,377 197,551,996
Held-to-maturity, at cost (fair values of
$3,882,847 and $3,897,341, respectively) 3,775,943 3,776,040
Loans held for sale 16,470,538 22,146,834
Loans 610,506,213 579,087,791
Less allowance for loan losses (9,470,026) (9,124,801)
------------- --------------
Loans, net 601,036,187 569,962,990
Premises and equipment, net 21,291,426 21,376,183
Accrued interest receivable 4,609,793 4,624,023
Bank-owned life insurance 15,502,546 11,863,276
Restricted equity securities 4,287,481 4,287,481
Other assets 6,634,176 6,125,360
------------- --------------
$921,977,417 $ 864,277,239
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Noninterest-bearing $105,133,350 $ 97,083,931
Interest-bearing:
NOW accounts 119,009,830 100,692,388
Savings 272,510,034 265,131,754
Money management accounts 40,696,076 37,719,408
Time deposits over $100,000 134,262,721 122,009,813
Other time deposits 53,490,855 41,017,555
------------- --------------
725,102,866 663,654,849
Federal funds purchased and securities sold
under repurchase agreements 56,486,054 67,013,416
Advances from Federal Home Loan Bank 47,000,000 52,000,000
Other borrowed funds 350,000 1,000,000
Accrued interest payable and other liabilities 7,062,590 7,025,767
Subordinated debentures 20,000,000 10,000,000
------------- --------------
Total liabilities 856,001,510 800,694,032
------------- --------------
Stockholders' equity:
Common stock, $3.00 par value; 10,000,000 shares
authorized; 5,279,472 and 5,279,241 shares issued in
2006 and 2005, respectively; 5,279,472 and 5,263,144
shares outstanding in 2006 and 2005, respectively 15,838,416 15,837,723
Additional paid-in capital 34,138,079 34,138,876
Retained earnings 17,873,536 16,099,414
Treasury stock, at cost; 0 and 16,097 shares in
2006 and 2005, respectively - (233,898)
Accumulated other comprehensive loss, net (1,874,124) (2,258,908)
------------- --------------
Total stockholders' equity 65,975,907 63,583,207
------------- --------------
$921,977,417 $ 864,277,239
============= ==============
<FN>
See accompanying notes to consolidated financial statements.
3
SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
(Unaudited)
Three Months Ended
March 31,
------------------------
2006 2005
----------- -----------
Interest income:
Loans, including fees $11,812,088 $ 8,243,538
Investment securities 2,456,072 1,764,542
Federal funds sold 150,593 55,607
Interest-bearing deposits in other banks 7,975 2,433
----------- -----------
Total interest income 14,426,728 10,066,120
----------- -----------
Interest expense:
Deposits 4,918,651 2,645,590
Federal funds purchased and securities sold
under repurchase agreements 683,908 271,970
Other borrowings 846,988 507,827
----------- -----------
Total interest expense 6,449,547 3,425,387
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Net interest income 7,977,181 6,640,733
Provision for loan losses 503,792 471,694
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Net interest income after provision
for loan losses 7,473,389 6,169,039
----------- -----------
Noninterest income:
Service charges and fees on deposits 1,352,144 1,211,050
Gain on sales of loans 1,254,345 1,042,183
Investment securities gains, net - 791
Retail investment income 167,411 81,963
Trust service fees 192,465 156,912
Increase in cash surrender value of
bank-owned life insurance 139,270 82,789
Miscellaneous income 149,625 125,102
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Total noninterest income 3,255,260 2,700,790
----------- -----------
Noninterest expense:
Salaries 3,380,559 2,749,539
Employee benefits 1,059,421 809,444
Occupancy expenses 748,736 673,093
Other operating expenses 1,977,171 1,505,162
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Total noninterest expense 7,165,887 5,737,238
----------- -----------
Income before income taxes 3,562,762 3,132,591
Income tax expense 1,102,787 1,048,602
----------- -----------
Net income $ 2,459,975 $ 2,083,989
=========== ===========
Basic net income per share $ 0.47 $ 0.40
=========== ===========
Diluted net income per share $ 0.46 $ 0.39
=========== ===========
Weighted average common shares outstanding 5,273,688 5,253,526
=========== ===========
Weighted average number of common and
common equivalent shares outstanding 5,327,383 5,331,762
=========== ===========
<FN>
See accompanying notes to consolidated financial statements.
4
SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(Unaudited)
Three Months Ended March 31,
2006 2005
---------------- ----------------
Cash flows from operating activities:
Net income $ 2,459,975 $ 2,083,989
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 376,947 359,531
Provision for loan losses 503,792 471,694
Net investment securities gains - (791)
Net (accretion of discount) amortization of premium
on investment securities (50,439) 93,823
Increase in CSV of bank owned life insurance (139,270) (82,789)
Stock options compensation cost 69,706 -
Gain on disposal of premises and equipment (2,941) -
Gain on the sale of other real estate - (4,150)
Gain on sales of loans (1,254,345) (1,042,183)
Real estate loans originated for sale (60,698,915) (52,982,473)
Proceeds from sales of real estate loans 67,629,556 53,967,068
Decrease in accrued interest receivable 14,230 35,557
Increase in other assets (707,038) (142,735)
Increase in accrued interest payable and other liabilities 36,823 13,166
---------------- ----------------
Net cash provided by operating activities 8,238,081 2,769,707
---------------- ----------------
Cash flows from investing activities:
Proceeds from sales of available for sale securities - 4,232,172
Proceeds from maturities of available for sale securities 6,420,409 3,779,820
Purchase of available for sale securities (12,611,248) (23,516,802)
Purchase of Federal Home Loan Bank stock - (380,600)
Net increase in loans (31,576,989) (29,847,361)
Purchase of Bank-owned life insurance (3,500,000) -
Additions to premises and equipment (295,887) (247,807)
Proceeds from sale of other real estate - 57,579
Proceeds from sale of premises and equipment 6,638 -
---------------- ----------------
Net cash used in investing activities (41,557,077) (45,922,999)
---------------- ----------------
Cash flows from financing activities:
Net increase in deposits 61,448,017 34,429,774
Net (decrease) increase in federal funds purchased and
securities sold under repurchase agreements (10,527,362) 4,708,179
Advances from Federal Home Loan Bank - 5,000,000
Payments of Federal Home Loan Bank advances (5,000,000) -
Proceeds from subordinated debentures 10,000,000 -
Proceeds from other borrowed funds - 100,000
Principal payments on other borrowed funds (650,000) -
Payment of cash dividends (685,853) (682,449)
Proceeds from stock options exercised 164,088 -
---------------- ----------------
Net cash provided by financing activities 54,748,890 43,555,504
---------------- ----------------
Net increase in cash and cash equivalents $ 21,429,894 $ 402,212
Cash and cash equivalents at beginning of period 22,563,056 26,024,197
---------------- ----------------
Cash and cash equivalents at end of period $ 43,992,950 $ 26,426,409
================ ================
Supplemental disclosures of cash paid during the period for:
Interest $ 6,605,609 $ 3,601,419
================ ================
Income taxes $ 445,000 $ 100,000
================ ================
<FN>
See accompanying notes to consolidated financial statements.
5
SOUTHEASTERN BANK FINANCIAL CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 2006
Note 1 - Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Southeastern 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 months ended March 31, 2006 and 2005 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, 2005.
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 months ended March 31, 2006 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 - 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 March 31, 2006 was $2,844,759 compared to $795,261
for the three months ended March 31, 2005.
Note 3 - Stock-based Compensation
During 2000, the Company adopted the 2000 Long-Term Incentive Plan (the 2000
Plan) which allows for stock option awards for up to 253,000 shares of the
Company's common stock to key employees of the Company. The Company believes
that such awards better align the interests of its employees with those of its
shareholders. Under the provisions of the 2000 Plan, the option price is
determined by a committee of the
6
board of directors at the time of grant and may not be less than 100% of the
fair value of the common stock on the date of the grant of such option.
Generally, when granted, these options vest over a five-year period. However,
there were 10,000 options granted in 2005, that vest based on specific loan
growth performance targets. Compensation cost related to these performance
stock options is considered immaterial. Therefore, these options are included
in all disclosures presented for other options. All options must be exercised
within a ten-year period.
The Company periodically purchases treasury stock, which if available, is used
when stock options are exercised. If treasury stock is not available,
additional stock is issued. The Company estimates it will repurchase 25,000
shares or less during the 2006 year.
The Company will accept as payment for options exercised, at the optionee's
discretion, cash, or shares of the Company's stock at market value, or a
combination of cash and Company stock. For the three month ended March 31,
2006, the Company received $164,088 in cash, and stock with a fair market value
of $21,567. For the three month ended March 31, 2005, the Company received
stock with a fair market value of $209,860 and no cash was received. All
options issued are incentive stock options and therefore, no tax benefit is
realized.
Effective January 1, 2006, the Company adopted SFAS No. 123 (Revised 2004),
Accounting for Stock-Based Compensation, which requires the Company to compute
the fair value of options at the date of grant and to recognize such costs as
compensation expense ratably over the vesting period of the options. For the
three months ended March 31, 2006, the Company recognized $69,706 as
compensation expense resulting from stock options.
The fair value of each option is estimated on the date of grant using the
Black-Scholes valuation model that uses the assumptions noted in the following
table. Expected volatility is the annualized standard deviation of the
continuously compounded rate of return. The method used to calculate historical
average annualized volatility is based on the closing price of the first trade
of each month. Expected dividends are based on the Company's historical pattern
of dividend payments. The Company uses historical data to estimate option
exercise and employee termination within the valuation model. The risk-free rate
is the ten year U.S. Treasury note at the time of grant.
During April 2006, the Company adopted the 2006 Long-Term Incentive Plan which
allows for stock option awards for up to 250,000 shares of the Company's common
stock to employees of the Company.
7
Three Months Ended March 31
-------------------------------
2006 2005
--------------- --------------
Expected volatility 33.47% 29.87%
Expected dividend yield 2.00% 2.00%
Expected option life 7.92 8.54
Risk-free interest rate 4.36% 4.05%
A summary of option activity under the Plan as of March 31, 2006 and March 31,
2005, and changes during the three months is presented in the following table:
For the Three Month Ended March 31, 2005 and 2006
-----------------------------------------------------
Weighted
Weighted average
average remaining Aggregate
exercise contractual life Intrinsic
Shares price/share in years Value
-------- ------------- ---------------- ----------
Options outstanding - December 31, 2005 215,434 $ 21.95
Granted in 2006 5,000 39.25
Options exercised in 2006 (16,874) (11.00)
-------- -------------
Options outstanding - March 31, 2006 203,560 $ 23.29 7.22 $2,994,368
======== ============= ================ ==========
Exercisable at March 31, 2006 96,743 $ 17.12 6.25 $2,019,994
======== ============= ================ ==========
Options outstanding - December 31, 2004 188,040 $ 17.05
Granted in 2005 9,000 30.00
Options exercised in 2005 (13,200) (15.90)
-------- -------------
Options outstanding - March 31, 2005 183,840 $ 17.77 7.27 $2,707,963
======== ============= ================ ==========
Exercisable at March 31, 2005 82,089 $ 14.98 6.70 $1,438,199
======== ============= ================ ==========
The weighted average grant-date fair value of the options granted during the
three months ended March 31, 2006 and March 31, 2005 was $14.13 and $10.52,
respectively. The total intrinsic value of options exercised during the three
months ended March 31, 2006 and March 31, 2005 was $456,000 and $219,000,
respectively.
8
A summary of the status of the Company's nonvested shares as of March 31, 2006
and March 31, 2005 is presented in the following table.
Weighted
Average
Grant Date
Shares Fair Value
-------- -----------
Nonvested at December 31, 2005 125,837 $ 17.24
Granted in 2006 5,000 14.13
Vested in 2006 (24,020) 15.98
-------- -----------
Nonvested at March 31, 2006 106,817 $ 17.38
======== ===========
Nonvested at December 31, 2004 115,851 $ 19.57
Granted in 2005 9,000 10.00
Vested in 2005 (23,100) 16.52
-------- -----------
Nonvested at March 31, 2005 101,751 $ 19.42
======== ===========
As of March 31, 2006, there was $731,000 of total unrecognized compensation cost
related to nonvested share based compensation arrangements granted under the
Plan. That cost is expected to be recognized over a weighted average period of
3.1 years. The total fair value of shares vested during the periods ended March
31, 2006 and 2005 was $944,000 and $714,000, respectively.
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 months ended March 31, 2005 is indicated in the following
table.
9
Three Months
Ended
March 31, 2005
---------------
Net income $ 2,083,989
Deduct: Total stock-based
Compensation expense determined
Under fair value based method,
net of related tax effect 54,261
---------------
Pro Forma, net income $ 2,029,728
===============
Basic net income per share:
As reported $ 0.40
Pro forma $ 0.39
Diluted net income per share:
As reported $ 0.39
Pro forma $ 0.38
Note 4 - Cash Dividend Declared
On January 18, 2006, the Company declared a quarterly cash dividend of $0.13 per
share on outstanding shares. The dividend was paid on February 22, 2006 to
shareholders of record as of February 8, 2006.
On April 18, 2006, the Company declared a quarterly cash dividend of $0.13 per
share on outstanding shares. The dividend is payable on May 19, 2006 to
shareholders of record as of May 4, 2006.
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, with one branch location. Today, the Bank is Augusta's largest
community banking company operating eight full service branches in Richmond and
Columbia counties in Augusta, Martinez, and Evans, Georgia and one branch in
Athens, 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 and trust services are
located in the main office. The Company is in the process of organizing a
federally chartered thrift in Aiken, South Carolina.
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 2005 population of the Augusta-Richmond
County, GA-SC metropolitan area was 520,332, the second largest in Georgia. The
Bank expanded into the Athens, Georgia market in December 2005. Athens has a
diversified economy which includes government, retail services, tourism,
manufacturing, other services, and health care, with the largest share of
government jobs in the state. The Athens-Clarke County, GA metropolitan area
ranks sixth in Georgia with a 2005 population of 175,085.
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 Augusta-Richmond County, GA-SC metropolitan area, the Bank
had 11.25% of all deposits and was the fourth 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 sales of mortgage loans in the secondary market. Interest
income on loans and investment securities increased during the first three
months of 2006 as compared to the
11
first three months of 2005 due to rising interest rates and increased volumes.
Gain on sales of mortgage loans increased due to higher production levels.
Service charges and fees on deposits increased for the first three months of
2006 as compared to the same period in 2005 due to increases in NSF income on
retail checking accounts and debit/ATM card income, both the result of new
account growth. Other significant contributors to income are trust services
fees, retail investment income, and increases in cash surrender value of life
insurance.
The Bank continues to experience steady growth. Over the past four years,
assets grew from $481.5 million at December 31, 2001 to $864.3 million at
December 31, 2005. At March 31, 2006, assets were $922.0 million. From year
end 2001 to year end 2005, loans increased $261.6 million, and deposits
increased $294.5 million. From December 31, 2005 to March 31, 2006, loans
increased $25.7 million and deposits increased $61.4 million. Also, from 2001
to 2005, return on average equity increased from 12.19% to 16.15% and return on
average assets increased from 1.02% to 1.27%. For the quarter ended March 31
2006, annualized return on average assets was 1.13% and annualized return on
average equity was 15.42%. Net income for the year ended 2001 was $4.6 million
compared to net income of $10.0 million at year end 2005. Net income for the
three months ended March 31, 2006 was $2.5 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
and 2005.
The Bank meets its liquidity needs by managing cash and due from banks, federal
funds purchased and sold, maturity of investment securities, principal
repayments 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 Federal Home Loan Bank advances.
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 net 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
12
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 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 Estimates
- -------------------------------
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 estimate 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;
13
however, cash receipts on impaired and nonaccrual loans for which the accrual of
interest has been discontinued are generally applied first to principal and then
to interest income depending upon the overall risk of principal loss to the
Company. Impaired and Classified/Watch loans are aggressively monitored. The
reserves for loans rated 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
do 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 first quarter of 2006 was $2,460,000 which was
an increase of $376,000 (18.0%) compared to net income of $2,084,000 for the
first quarter of 2005. Diluted net income per share for the three months ended
March 31, 2006 was $0.46 compared to $0.39 for the three months ended March 31,
2005. The increase in net income for the three months ended March 31, 2006 as
compared with the three months ended March 31, 2005, was primarily a result of
increases in net interest income and noninterest income, somewhat offset by
increases in noninterest expense. Interest income on both loans and investment
securities increased due to increased volumes and higher interest rates.
Interest expense on deposits, securities sold under repurchase agreements and
other borrowings increased as the result of rising interest rates and higher
volumes. Factors contributing to the increase in noninterest income for the
three months ended March 31, 2006, were increases in both service charges and
fees on deposits and gains on sales of loans. Increases in both NSF fees on
retail checking accounts and debit/ATM card income were primarily the result of
new account growth while increases in the gain on sales of mortgage loans in the
secondary market were due to increased production. Noninterest expense increased
$1,429,000 during the three-month period ended March 31, 2006 compared to the
three-month period ended March 31, 2005, primarily due to increases in salaries
and employee benefits related to company growth and increases in other operating
expenses. The increase in noninterest expense included $331,000 in expenses
related to the Company's expansion into new markets. Significant changes in
other operating expenses during the three-month period include increases in
professional fees for Sarbanes-Oxley 404 compliance and other advisory services
and increases in processing expenses attributable to new account growth for both
retail and business checking products.
Total assets of $922.0 million at March 31, 2006 reflect an increase of $57.7
million (6.7%) from year-end 2005. This increase is primarily attributable to
higher balances for loans, federal funds sold and investment securities since
December 2005. Total loans at
14
March 31, 2006 were $627.0 million which represented an increase of $25.7
million (4.3%) from December 31, 2005. Since December 31, 2005, federal funds
sold increased $17.5 million (634.8%), investment securities increased $6.8
million (3.4%), and cash and due from banks increased $4.4 million (23.5%).
These increases were funded by increases in total deposits of $61.4 million
(9.3%) and increases in subordinated debentures of $10.0 million, somewhat
offset by decreases in securities sold under repurchase agreements of $10.5
million (15.7%) and decreases in Federal Home Loan Bank advances of $5.0 million
(9.6%). Net income of $2.5 million less dividends paid of $686,000 also
contributed to the funding.
The annualized return on average assets for the Company was 1.13% for the three
months ended March 31, 2006, compared to 1.17% for the same period last year.
While total assets have increased $171.1 million since first quarter 2005, net
income has only increased $376,000, resulting in a decrease in ROA. Increases
in net interest income of $1.3 million and noninterest income of $554,000 were
somewhat offset by increases in noninterest expense of $1.4 million. The
annualized return on average stockholders' equity was 15.42% for the three
months ended March 31, 2006, compared to 14.14% for the same period last year.
The increase is primarily attributable to net income growth.
Net Interest Income
- ---------------------
Table 1 - Net Interest Income
Three Months Ended
March 31, Variance
--------------------- ---------------------
2006 2005 Amount %
--------- ---------- --------- ----------
(Dollars in thousands)
Interest income:
Loans, including fees $ 11,812 $ 8,244 $ 3,568 43.3%
Investment securities 2,456 1,764 692 39.2%
Interest expense:
Deposits 4,919 2,646 2,273 85.9%
Federal funds purchased
and securities sold under
repurchase agreements 684 272 412 151.5%
Other borrowings 847 508 339 66.7%
Net interest income 7,977 6,641 1,336 20.1%
Net interest income increased $1.3 million (20.1%) during the three-month period
as the result of increases in both interest income and interest expense. Loan
interest income increased $3.6 million in the three month period while deposit
interest expense increased $2.3 million in the same period, both the result of
rising interest rates and the continued growth of account balances. Other
contributing factors during the three month period included increases in
interest income on investment securities, increases in interest
15
expense on federal funds purchased and securities sold under repurchase
agreements and increases in interest expense on other borrowings, all the result
of increased volumes and higher interest rates. Interest-earning assets were
$875.7 million at March 31, 2006, an increase of $161.5 million (22.6%) over
March 31, 2005 and $53.2 million (6.5%) over December 31, 2005.
The Company's net interest margin for the three months ended March 31, 2006 was
3.77% as compared to 3.86% for the three months ended March 31, 2005. The
decrease in the net interest margin for the three month period is primarily the
result of increases in the cost to fund earning assets due to interest expense
on subordinated debentures issued in December 2005.
Noninterest Income
- -------------------
Table 2 - Noninterest Income
Three Months Ended
March 31, Variance
---------------------- ---------------------
2006 2005 Amount %
--------- ----------- -------- -----------
(Dollars in thousands)
Service charges and fees
on deposits $ 1,352 $ 1,211 $ 141 11.6%
Gain on sales of loans 1,254 1,042 212 20.3%
Noninterest income 3,255 2,701 554 20.5%
Noninterest income increased $554,000 (20.5%) during the three-month period.
The most significant changes were for gain on sales of mortgage loans in the
secondary market and service charges and fees on deposits. Increases in gain on
sales of loans were due to increased mortgage production which is primarily the
result of local market conditions. Increases in service charges and fees on
deposits during the three-month period were primarily due to increases in NSF
fees for retail checking accounts and debit/ATM card income, both the result of
new account growth.
16
Noninterest Expense
- --------------------
Table 3 - Noninterest Expense
Three Months Ended
March 31, Variance
---------------------- ----------------------
2006 2005 Amount %
--------- ----------- --------- -----------
(Dollars in thousands)
Salaries $ 3,381 $ 2,750 $ 631 22.9%
Employee benefits 1,059 809 250 30.9%
Occupancy expenses 749 673 76 11.3%
Other operating expenses 1,977 1,505 472 31.4%
--------- ----------- --------- -----------
Total noninterest expense $ 7,166 $ 5,737 $ 1,429 24.9%
========= =========== ========= ===========
Noninterest expense increased $1.4 million (24.9%) during the three-month
period. Noninterest expense attributable to the Company's expansion into new
markets totaled $331,000 for the quarter ended March 31, 2006. Salary expense
increased primarily as the result of company growth related to new markets,
opening of a customer care center and expansion of the wealth management area.
Increases in employee benefits were for FICA taxes and medical expenses directly
related to salaries and stock option compensation expense recognized to comply
with SFAS No. 123 (Revised 2004). Other operating expenses increased $472,000
(31.4%) for the three-month period. Significant changes include increases in
professional fees for Sarbanes-Oxley 404 compliance and other advisory services
and increases in processing expenses attributable to new account growth for both
retail and business checking products.
Income Taxes
- -------------
Income tax expense in the first quarter of 2006 totaled $1,103,000, an increase
of $54,000 (5.2%) over the first quarter of 2005. The effective tax rate for the
three months ended March 31, 2006 and 2005 was 31.0% and 33.5%, respectively.
The decrease in the effective tax rate for the three month period is primarily
due to increases in interest income on tax-exempt municipal securities, loans
and cash surrender value of life insurance.
Asset Quality
- --------------
Table 4 which follows shows the current and prior period amounts of
non-performing assets. Non-performing assets were $3.4 million at March 31,
2006, compared to $4.0 million at December 31, 2005 and $2.7 million at March
31, 2005. The increase from March 2005 to December 2005 is primarily the result
of $1.3 million in loans for two customers who have filed bankruptcy. The
decrease from December 2005 to March 2006 is mostly due to decreases in
non-performing assets with balances less than $100,000. The ratio of
non-performing assets to total loans and other real estate was 0.54% at March
31, 2006, compared to 0.67% at December 31, 2005 and 0.51% at March 31,
17
2005. The control and monitoring of non-performing assets continues to be a
priority of management.
There were no loans past due 90 days or more and still accruing at March 31,
2006 and March 31, 2005. At December 31, 2005 there were loans past due 90 days
or more and still accruing of $1,000.
Table 4 - Non-Performing Assets
March 31, 2006 December 31, 2005 March 31, 2005
--------------- ------------------ ---------------
Nonaccrual loans $ 3,387 $ 4,009 $ 2,652
Other real estate owned 0 0 0
--------------- ------------------ ---------------
Total non-performing assets $ 3,387 $ 4,009 $ 2,652
=============== ================== ===============
Loans past due 90 days or more
and still accruing interest $ 0 $ 1 $ 0
=============== ================== ===============
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 estimate of the
Company. See "Critical Accounting Estimates."
When reviewing the allowance for loan losses, it is important to understand to
whom the Company lends. The following table sets forth the composition of the
Company's loan portfolio as of March 31, 2006 and December 31, 2005.
18
Table 5 - Loan Portfolio Composition
March 31, 2006 December 31, 2005
------------------- ---------------------
Amount % Amount %
--------- -------- ---------- ---------
(Dollars in thousands)
Commercial financial and agricultural. $ 69,075 11.02% $ 64,398 10.71%
--------- -------- ---------- ---------
Real estate
Commercial . . . . . . . . . . . . . $178,661 28.50% $ 171,652 28.55%
Residential. . . . . . . . . . . . . 123,167 19.64% 123,960 20.62%
Residential held for sale. . . . . . 16,471 2.63% 22,147 3.68%
Construction and
development. . . . . . . . . . . . 206,581 32.95% 184,826 30.74%
--------- -------- ---------- ---------
Total real estate. . . . . . . . 524,880 83.72% 502,585 83.59%
--------- -------- ---------- ---------
Lease financing. . . . . . . . . . . . 124 0.02% 111 0.02%
Consumer.
Direct . . . . . . . . . . . . . . . 24,283 3.87% 24,343 4.05%
Indirect.. . . . . . . . . . . . . . 8,746 1.39% 9,752 1.62%
Revolving. . . . . . . . . . . . . . 622 0.10% 656 0.11%
--------- -------- ---------- ---------
Total consumer . . . . . . . . . . 33,651 5.37% 34,751 5.78%
--------- -------- ---------- ---------
Deferred loan origination fees . . . . (753) -0.12% (610) -0.10%
--------- -------- ---------- ---------
Total. . . . . . . . . . . . . . . $626,977 100.00% $ 601,235 100.00%
========= ======== ========== =========
At March 31, 2006, the loan portfolio is comprised of 83.72% real estate loans.
Commercial, financial and agricultural loans comprise 11.02%, and consumer loans
comprise 5.37% of the portfolio.
While the Company has 83.72% of its loan portfolio composed of real estate
loans, this percentage is not significantly higher than in previous years.
Commercial real estate comprises 28.50% 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
loan portfolio, repayment is not dependent upon the sale of the real estate held
as collateral. Construction and development (32.95%) 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 sale of the real estate in the normal course of
business and can be impacted by national and local economic conditions. The
residential category, 19.64% 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,
2.63% 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. Unsecured
loans at March 31, 2006 were $10.1 million. While management uses available
information to recognize losses on loans, future additions to the allowance may
be necessary based on
19
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 advise additions to the allowance
based on their judgments about information available to them at the time of
their examination. Such regulatory guidance is considered, and the Company may
recognize additions to the allowance as a result.
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 $504,000 was charged to
expense for the quarter ended March 31, 2006 compared to $472,000 for the
quarter ended March 31, 2005. The higher provision for the three months ended
March 31, 2006 as compared to the three months ended March 31, 2005 is due to
increases in outstanding loan balances and specific reserves somewhat offset by
decreases in qualitative factors related to employment assumptions for Fort
Gordon and Savannah River Site.
Table 6 - Allowance for Loan Losses
2006 2005
------- -------
Beginning balance, January 1 $9,125 $7,930
Provision charged to expense 504 472
Recoveries 259 259
Loans charged off (418) (358)
------- -------
Ending balance, March 31 $9,470 $8,303
======= =======
At March 31, 2006 the ratio of allowance for loan losses to total loans was
1.51% compared to 1.52% at December 31, 2005 and 1.58% at March 31, 2005.
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 March 31, 2006 was 86.5% compared to
90.6% at December 31, 2005 and 88.6% at March 31, 2005. The decrease in the
loan to deposit ratio from December 31, 2005 to March 31, 2006 reflects
significant deposit growth during the first three months of 2006. The increase
in the loan to deposit ratio from March 31, 2005 to December 31, 2005 reflects
loan growth at a higher rate than deposit growth during that time period.
Deposits at March 31, 2006 and December 31, 2005 include $43.4 million and $40.4
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
20
collateralized by eligible first mortgage loans, commercial real estate loans
and investment securities. These borrowings totaled $47.0 million at March 31,
2006. 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 March 31, 2006. 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
maturities on loans and deposits offered to customers. The Company also uses
retail securities sold under repurchase agreements to fund growth. Retail
securities sold under repurchase agreements were $56.5 million at March 31,
2006.
Shareholders' equity to total assets was 7.16% at March 31, 2006 compared to
7.36% at December 31, 2005 and 7.87% at March 31, 2005. The capital of the
Company and the Bank exceeded all required regulatory guidelines at March 31,
2006. The Company's Tier 1 risk-based, total risk-based and leverage capital
ratios were 12.17%, 13.49%, and 9.89%, respectively, at March 31, 2006. The
following table reflects the current regulatory capital levels in more detail,
including comparisons to the regulatory minimums.
Table 7 - Regulatory Capital Requirements
March 31, 2006
(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 $87,710 12.17% 28,828 4.00% 58,882 8.17%
Total capital 97,213 13.49% 57,656 8.00% 39,557 5.49%
Tier 1 leverage ratio 87,710 9.89% 35,462 4.00% 52,248 5.89%
Georgia Bank & Trust Company
Risk-based capital:
Tier 1 capital $64,232 8.98% 28,622 4.00% 35,610 4.98%
Total capital 73,183 10.23% 57,244 8.00% 15,939 2.23%
Tier 1 leverage ratio 64,232 7.35% 34,944 4.00% 29,288 3.35%
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.
21
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 $181.9 million at March 31, 2006. These commitments are
primarily at variable interest rates.
The Company's commitments are funded through internal funding sources of
scheduled repayments of loans and sales and maturities of investment securities
available for sale or external funding sources through acceptance of deposits
from customers or borrowings from other financial institutions.
The following table is a summary of the Company's commitments to extend credit,
commitments under contractual leases as well as the Company' contractual
obligations, consisting of deposits, FHLB advances, which are subject to early
termination options, and borrowed funds by contractual maturity date.
Table 8 - Commitments and
Contractual Obligations Less than 1 More than
($in thousands) Year 1 - 3 Years 3 - 5 Years 5 Years
- ---------------------------- ------------ ------------ ------------ ----------
Lines of credit $ 181,901 - - -
Lease agreements 84 60 12 -
Deposits 670,463 44,829 5,109 4,702
Securities sold under
repurchase agreements 56,486 - - -
FHLB advances - - 30,000 17,000
Other borrowings 350 - - -
------------ ------------ ------------ ----------
Total commitments and
contractual obligations $ 909,284 $ 44,889 $ 35,121 $ 21,702
============ ============ ============ ==========
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.
22
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.
23
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of March 31, 2006, 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, 2005. 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, 2005 included in the
Company's 2005 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 Group Vice President and Chief Financial
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 1A. Risk Factors
In addition to the other information set forth in this report,
you should carefully consider the factors discussed in Part I,
"Item 1A. Risk Factors" in the Company's Annual Report on Form
10-K for the year ended December 31, 2005, which could materially
affect its business, financial condition or future results. The
risks described in the Annual Report on Form 10-K are not the
only risks facing the Company. Additional risks and uncertainties
not currently known to management or that management currently
deems to be immaterial also may materially adversely affect the
Company's business, financial condition and/or operating results.
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 first quarter of
2006. There were no shares repurchased under an existing stock
repurchase plan or otherwise during the first quarter of 2006.
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
25
Item 6. Exhibits
3.1 Articles of Incorporation, as amended April 26, 2006.
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.
26
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: May 5, 2006 By: /s/ Darrell R. Rains
----------------- --------------------------------
Darrell R. Rains
Group Vice President, Chief
Financial Officer (Duly Authorized
Officer of Registrant and Principal
Financial Officer)
27