<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                   FORM 10-Q


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
     ACT OF 1934
     For the quarterly period ended September 30, 2001

                                       OR

[_]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
     EXCHANGE ACT OF 1934
     For the transition period from ................. to ................

                        Commission file number 2-83157

                       SOUTHEASTERN BANKING CORPORATION
--------------------------------------------------------------------------------
            (Exact name of Registrant as specified in its charter)

          GEORGIA                                                58-1423423
-------------------------------                              ------------------
(State or other jurisdiction of                                 (IRS Employer
incorporation or organization)                               Identification No.)

          P.O. BOX 455, 1010 NORTHWAY STREET, DARIEN, GEORGIA        31305
--------------------------------------------------------------------------------
              (Address of principal executive offices)            (Zip Code)

                                (912) 437-4141
--------------------------------------------------------------------------------
             (Registrant's telephone number, including area code)


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (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  [_]


As of October 31, 2001, 3,385,470 shares of the Registrant's common stock, par
value $1.25 per share, were outstanding.
<PAGE>

                       Southeastern Banking Corporation

                          Consolidated Balance Sheets


<TABLE>
<CAPTION>
                                                                                 (Unaudited)
                                                                               September 30,         December 31,
                                                                                        2001                 2000
==================================================================================================================
<S>                                                                            <C>                  <C>
Assets

Cash and due from banks                                                         $ 14,066,390         $ 15,852,283
Federal funds sold                                                                21,271,000            3,210,000
-----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents                                                         35,337,390           19,062,283

Investment securities
     Held-to-maturity (market value of approximately $34,485,000
         and $26,941,000 at September 30, 2001 and December 31, 2000)             33,400,228           26,679,250
     Available-for-sale, at market value                                         119,557,486          118,375,887
-----------------------------------------------------------------------------------------------------------------
Total investment securities                                                      152,957,714          145,055,137

Loans, gross                                                                     165,048,186          174,555,359
  Unearned income                                                                   (523,422)            (752,940)
  Allowance for loan losses                                                       (2,962,845)          (3,159,165)
-----------------------------------------------------------------------------------------------------------------
Loans, net                                                                       161,561,919          170,643,254

Premises and equipment, net                                                        6,498,711            6,723,135
Intangible assets                                                                    952,517            1,095,560
Other assets                                                                       5,319,897            6,999,183
-----------------------------------------------------------------------------------------------------------------
Total Assets                                                                    $362,628,148         $349,578,552
===================================================================================================================
Liabilities and Shareholders' Equity

Deposits
  Noninterest-bearing deposits                                                  $ 57,710,365         $ 55,125,661
  Interest-bearing deposits                                                      246,332,531          240,610,650
-------------------------------------------------------------------------------------------------------------------
Total deposits                                                                   304,042,896          295,736,311

U. S. Treasury demand note                                                         2,180,916            1,001,957
Federal Home Loan Bank advances                                                    5,000,000            5,000,000
Other liabilities                                                                  3,742,438            3,500,109
-------------------------------------------------------------------------------------------------------------------
Total liabilities                                                                314,966,250          305,238,377
-------------------------------------------------------------------------------------------------------------------

Common stock ($1.25 par value; 10,000,000 shares authorized;
  3,580,797 shares issued; 3,390,723 and 3,436,696 shares
  outstanding at September 30, 2001 and December 31, 2000)                         4,475,996            4,475,996
Additional paid-in-capital                                                         1,391,723            1,391,723
Retained earnings                                                                 43,252,071           41,327,784
Treasury stock, at cost (190,074 and 144,101 shares at September 30,
  2001 and December 31, 2000)                                                     (3,171,550)          (2,485,742)
-------------------------------------------------------------------------------------------------------------------
Realized shareholders' equity                                                     45,948,240           44,709,761
Accumulated other comprehensive income - unrealized
  gains (losses) on available-for-sale securities, net of tax                      1,713,658             (369,586)
-------------------------------------------------------------------------------------------------------------------
Total shareholders' equity                                                        47,661,898           44,340,175
-------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity                                      $362,628,148         $349,578,552
===================================================================================================================

                                                     See accompanying notes to consolidated financial statements.
</TABLE>


                                       1
<PAGE>

                       Southeastern Banking Corporation

                       Consolidated Statements of Income

<TABLE>
<CAPTION>
                                                                               Quarter                               Nine Months
                                                  ------------------------------------      ------------------------------------
<S>                                                 <C>               <C>                     <C>               <C>
Period Ended September 30,                                      2001              2000                    2001              2000
================================================================================================================================
Interest income
    Loans, including fees                                 $3,999,225        $4,669,491             $12,469,023       $13,607,130
    Federal funds sold                                       117,815            31,371                 746,066           155,344
    Investment securities
        Taxable                                            1,808,042         1,872,551               5,399,806         5,643,925
        Tax-exempt                                           357,343           310,289                 988,392           935,142
    Other assets                                              21,074            22,255                  63,389            67,820
--------------------------------------------------------------------------------------------------------------------------------
Total interest income                                      6,303,499         6,905,957              19,666,676        20,409,361
--------------------------------------------------------------------------------------------------------------------------------

Interest expense
    Deposits                                               2,663,605         2,868,555               8,449,407         8,267,944
    Federal funds purchased                                        -            15,506                       -            51,705
    U. S. Treasury demand note                                 6,403            13,725                  24,696            42,685
    Federal Home Loan Bank advances                           75,645           165,727                 224,467           282,258
--------------------------------------------------------------------------------------------------------------------------------
Total interest expense                                     2,745,653         3,063,513               8,698,570         8,644,592
--------------------------------------------------------------------------------------------------------------------------------

Net interest income                                        3,557,846         3,842,444              10,968,106        11,764,769

Provision for loan losses                                    300,000           300,000                 900,000           900,000
--------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses        3,257,846         3,542,444              10,068,106        10,864,769
--------------------------------------------------------------------------------------------------------------------------------

Noninterest income
   Service charges on deposit accounts                       566,471           609,874               1,728,575         1,793,236
   Investment securities gains, net                            5,042                 0                   5,042             6,844
   Other operating income                                    247,574           239,514                 789,599           738,400
--------------------------------------------------------------------------------------------------------------------------------
Total noninterest income                                     819,087           849,388               2,523,216         2,538,480
--------------------------------------------------------------------------------------------------------------------------------

Noninterest expense
   Salaries and employee benefits                          1,557,180         1,549,199               4,670,705         4,634,214
   Occupancy and equipment, net                              514,912           513,110               1,540,209         1,479,251
   Other operating expense                                   591,289           696,952               2,132,438         2,050,342
--------------------------------------------------------------------------------------------------------------------------------
Total noninterest expense                                  2,663,381         2,759,261               8,343,352         8,163,807
--------------------------------------------------------------------------------------------------------------------------------

Income before income taxes                                 1,413,552         1,632,571               4,247,970         5,239,442

Income tax expense                                           388,673           479,209               1,203,019         1,549,010
--------------------------------------------------------------------------------------------------------------------------------

Net income                                                $1,024,879        $1,153,362             $ 3,044,951       $ 3,690,432
================================================================================================================================
Net income per average share - basic                           $0.31             $0.34                   $0.90             $1.06
================================================================================================================================
Average common shares - basic                              3,392,732         3,436,696               3,401,717         3,487,710

                                                                    See accompanying notes to consolidated financial statements.
</TABLE>


                                       2
<PAGE>

                       Southeastern Banking Corporation

                Consolidated Statements of Shareholders' Equity

<TABLE>
<CAPTION>
                                                                                                          Accumulated
                                                               Additional                                       Other
                                                     Common       Paid-In      Retained      Treasury   Comprehensive
                                                      Stock       Capital      Earnings         Stock          Income        Total
-----------------------------------------------------------------------------------------------------------------------------------

<S>   <C>                                       <C>           <C>           <C>           <C>             <C>           <C>
Balance, December 31, 1999                      $ 4,475,996   $ 1,391,723   $38,159,815             -     $(2,874,598)  $41,152,936

Comprehensive income:
    Net income                                            -             -     3,690,432             -               -     3,690,432
    Other comprehensive income, net
      of tax effect of $591,031:
        Change in unrealized gains
        (losses) on available-for-sale
        securities                                        -             -             -             -       1,147,295     1,147,295
                                                                                                                        -----------
Comprehensive income                                                                                                      4,837,727
                                                                                                                        -----------
Cash dividends declared
    ($0.30 per share)                                                        (1,045,419)                                 (1,045,419)
Purchase of treasury stock                                -             -             -    (2,485,742)              -    (2,485,742)
-----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2000                     $ 4,475,996   $ 1,391,723   $40,804,828    (2,485,742)    $(1,727,303)  $42,459,502
===================================================================================================================================

Balance, December 31, 2000                      $ 4,475,996   $ 1,391,723   $41,327,784    (2,485,742)    $  (369,586)  $44,340,175

Comprehensive income:
    Net income                                            -             -     3,044,951             -               -     3,044,951
    Other comprehensive income, net
      of tax effect of $1,073,186:
        Change in unrealized gains
        (losses) on available-for-sale
        securities                                        -             -             -             -       2,083,244     2,083,244
                                                                                                                        -----------
Comprehensive income                                                                                                      5,128,195
                                                                                                                        -----------
Cash dividends declared
    ($0.33 per share)                                     -             -    (1,120,664)            -               -    (1,120,664)
Purchase of treasury stock                                -             -             -      (685,808)              -      (685,808)
-----------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 2001                     $ 4,475,996   $ 1,391,723   $43,252,071   $(3,171,550)    $ 1,713,658   $47,661,898
===================================================================================================================================

                                                                        See accompanying notes to consolidated financial statements.
</TABLE>

                                       3
<PAGE>

                       Southeastern Banking Corporation

                     Consolidated Statements of Cash Flows

                                  (Unaudited)

<TABLE>
<CAPTION>
Nine Months Ended September 30,                                                               2001                 2000
------------------------------------------------------------------------------------------------------------------------
<S>                                                                                   <C>                   <C>
Operating activities
    Net income                                                                        $  3,044,951          $ 3,690,432
    Adjustments to reconcile net income to net cash
    provided by operating activities:
        Provision for loan losses                                                          900,000              900,000
        Depreciation                                                                       569,089              549,460
        Amortization and accretion, net                                                      2,875              135,226
        Investment securities gains, net                                                    (5,042)              (6,844)
        Net gains on other real estate                                                     (18,872)             (22,090)
        Changes in assets and liabilities:
          Decrease (increase) in other assets                                              841,108             (150,474)
          Increase in other liabilities                                                    363,430              167,057
------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities                                                5,697,539            5,262,767
------------------------------------------------------------------------------------------------------------------------
Investing activities
       Principal collections and maturities of investment securities:
        Held-to-maturity                                                                 2,308,200            2,613,400
        Available-for-sale                                                              86,895,589            5,577,301
       Proceeds from sales of investment securities available-for-sale                           -            2,996,719
       Purchases of investment securities held-to-maturity                              (9,052,658)          (1,856,585)
       Purchases of investment securities available-for-sale                           (84,752,069)          (8,229,345)
       Net decrease (increase) in loans                                                  7,977,923           (8,145,455)
       Proceeds from sales of other real estate                                            214,902              341,436
       Capital expenditures, net                                                          (344,665)            (705,116)
------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities                                      3,247,222           (7,407,645)
------------------------------------------------------------------------------------------------------------------------
Financing activities
      Net increase (decrease) in deposits                                                8,306,585           (1,083,629)
      Net decrease in federal funds purchased                                                    -           (3,950,000)
      Net increase (decrease) in U. S. Treasury demand note                              1,178,959             (400,884)
      Proceeds from Federal Home Loan Bank advances                                              -           10,000,000
      Purchase of treasury stock                                                          (685,808)          (2,485,742)
      Dividends paid                                                                    (1,469,390)          (1,310,485)
------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities                                                7,330,346              769,260
------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents                                    16,275,107           (1,375,618)
Cash and cash equivalents at beginning of year                                          19,062,283           16,816,035
------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at September 30                                             $ 35,337,390          $15,440,417
=========================================================================================================================
Supplemental disclosure
   Cash paid during the period
       Interest                                                                       $  8,716,328          $ 8,769,653
       Income taxes                                                                   $  1,245,000          $ 1,645,000
   Noncash investing and financing activities
       Real estate acquired through foreclosure                                       $  2,305,941          $   186,590
       Loans made in connection with sales of foreclosed real estate                  $  2,102,528          $   498,477

                                                           See accompanying notes to consolidated financial statements.
</TABLE>

                                       4
<PAGE>

                       Southeastern Banking Corporation

                  Notes to Consolidated Financial Statements

                                  (Unaudited)


1.   Accounting and Reporting Policy for Interim Periods

     The accompanying unaudited consolidated financial statements of
     Southeastern Banking Corporation (the Company) have been prepared in
     accordance with accounting principles generally accepted in the United
     States of America for interim financial information. These statements do
     not include all of the information and footnotes required by generally
     accepted accounting principles for complete financial statement
     presentation. In the opinion of management, all adjustments necessary for a
     fair presentation have been made. These adjustments, consisting of normal,
     recurring accruals, include estimates for various fringe benefits and other
     transactions normally determined or settled at year-end. Operating results
     for the quarter and nine months ended September 30, 2001 are not
     necessarily indicative of trends or results to be expected for the year
     ended December 31, 2001. For further information, refer to the consolidated
     financial statements and related notes included in the Company's Annual
     Report on Form 10-K for the year ended December 31, 2000.

2.   Reclassifications

     Certain prior year amounts have been restated to conform with the current
     year financial statement presentation.

3.   Recently Issued Accounting Pronouncements

     In July 2001, the Financial Accounting Standards Board issued Statement of
     Financial Accounting Standard (SFAS) No. 141, "Business Combinations," and
     SFAS No.142, "Goodwill and Other Intangible Assets." SFAS No. 141 addresses
     the initial recognition and measurement of goodwill and other intangible
     assets acquired in a business combination, and SFAS No. 142 addresses the
     initial recognition and measurement of intangible assets acquired outside
     of a business combination whether acquired individually or with a group of
     other assets. These standards require all future business combinations to
     be accounted for using the purchase method of accounting. Goodwill will no
     longer be amortized but instead will be subject to impairment tests at
     least annually. The Company is required to adopt SFAS No. 141 and 142 on a
     prospective basis as of January 1, 2002; however, certain provisions of
     these new Standards may also apply to any acquisitions concluded subsequent
     to June 30, 2001. As a result of implementing these new Standards, it is
     expected that the amortization of goodwill will cease as of December 31,
     2001. The adoption of SFAS No. 141 and SFAS No. 142 is not expected to have
     a material effect on the Company's financial position, results of
     operations, and cash flows in 2002 and subsequent years.

4.   Commitments

     On October 15, 2001, the Company signed a definitive agreement to acquire
     the Bank of Richmond Hill, an affiliate of Valdosta, Georgia-based Park
     Avenue Bank. Under the agreement, the Company will acquire cash, certain
     loans, and fixed assets, while assuming deposits and other liabilities. The
     transaction is subject to the receipt of all necessary regulatory
     approvals. At September 30, 2001, the Bank of Richmond Hill had
     approximately $10 million in total assets.

                                       5
<PAGE>

                       Southeastern Banking Corporation

                     Management's Discussion and Analysis


This Analysis should be read in conjunction with the 2000 Annual Report on Form
10-K and consolidated financial statements & related notes on pages 1 - 5 of
this quarterly filing.


Description of Business

Southeastern Banking Corporation (the Company), with assets of $363 million, is
a financial services company with operations in southeast Georgia and northeast
Florida. Southeastern Bank, the Company's principal subsidiary, offers a full
line of commercial and retail services to meet the financial needs of its
customer base through its fourteen branch locations and atm network. Services
offered include traditional deposit and credit services, long-term mortgage
originations, and credit cards. Southeastern Bank also offers 24-hour delivery
channels including internet and telephone banking. The Company's insurance
subsidiary, SBC Financial Services, Inc. (SBCF), provides insurance agent and
investment brokerage services with an emphasis on financial planning. In
addition to traditional insurance, products offered include fixed and indexed
annuities, mutual funds, retirement plans, and long-term care policies. SBCF had
a nominal impact on the Company's financial condition and results of operations
at September 30, 2001 and 2000.

Financial Condition

Consolidated assets totaled $362,628,148 at September 30, 2001, up $13,049,596
or 3.73% from year-end 2000 and up $16,309,215 or 4.71% from September 30, 2000.
Federal funds sold was the predominant factor in the 2001 results, increasing
$18,061,000. A $9,277,655 reduction in loan balances and an $8,306,585 increase
in deposits, particularly interest-bearing balances, precipitated the majority
of the growth in federal funds sold. Although the mix of earning assets shifted
at September 30, 2001 versus year-end 2000, earning assets continued to
approximate, overall, 92% of total assets. During the year-earlier period, total
assets grew 1.70% or $5,774,045. The asset growth in 2000 was funded by
increases in non-deposit liabilities, specifically advances from the Federal
Home Loan Bank (FHLB). Additional details on the FHLB advances and other funding
sources are provided in the Liquidity section of this Analysis.

Investment Securities

On a carrying value basis, investment securities increased $7,902,577 or 5.45%
since December 31, 2000. Purchases of securities during the nine-month period
approximated $93,805,000, and redemptions, $89,199,000. The high volume of
securities transactions was attributable to various issuers' exercise of call
options as a result of interest rate reductions during the first nine months of
2001. The effective repricing of securities at lower rates impacts current and
future earnings results; refer to the Interest Rate and Market Risk/Interest
Rate Sensitivity and Operations sections of this Analysis for more details. To
reduce its exposure to Agency securities with call features, the Company
increased its holdings of mortgage-backed securities, corporates, and municipals
to 27%, 5%, and 22% of the portfolio at September 30, 2001 from 13%, 0%, and 18%
at December 31, 2000. Consistent with 2000 levels, securities continued to
aggregate 45% of earning assets at September 30, 2001. The amortized cost and
estimated fair value of investment securities are delineated in the table on the
next page.

                                       6
<PAGE>

                       Southeastern Banking Corporation

                     Management's Discussion and Analysis


<TABLE>
<CAPTION>
============================================================================================================
 Investment Securities by Category                Amortized      Unrealized      Unrealized            Fair
 September 30, 2001                                    Cost           Gains          Losses           Value
============================================================================================================
<S>                                               <C>            <C>             <C>               <C>
(In thousands)
Available-for-sale:
     U. S. Government agencies                     $ 68,583          $  1,762     $      4        $  70,341
     Mortgage-backed securities                      40,719               624            -           41,343
     Corporates                                       7,659               214            -            7,873
------------------------------------------------------------------------------------------------------------
                                                    116,961             2,600            4          119,557
Held-to-maturity:
     States and political subdivisions               33,400             1,115           30           34,485
------------------------------------------------------------------------------------------------------------
Total investment securities                        $150,361            $3,715          $34         $154,042
============================================================================================================
</TABLE>

As shown, the market value of the securities portfolio exceeded the cost basis
at September 30, 2001, an improvement from 2000 levels; refer to the Capital
Adequacy section of this Analysis for more details on investment securities and
related fair value. The Company does not have a concentration in the obligations
of any issuer other than the U.S. Government and its agencies.

Loans

Loans, net of unearned income, declined 5.34% or $9,277,655 at September 30,
2001 compared to December 31, 2000. A $12,210,000 drop in commercial loans
outstanding was the chief factor in the year-to-date decline. The decline in
commercial loans outstanding resulted from multiple factors, including normal
pay-offs, the loss of several sizable loans to competitors offering below market
fixed rates over abnormally long repayment periods, and less origination due to
the current economic slowdown. Except for "other" industrial loans, basically
all sectors of the commercial portfolio registered declines year-to-date:
Nonfarm real estate loans fell $9,750,000; agricultural loans, $2,806,000; and
governmental loans, $684,000; "other" non-real estate, non-agricultural
commercial/industrial loans improved $1,030,000. Consumer loans declined
$4,443,000 or 12.56% during the first nine months of 2001 compared to year-end
2001. A softening of consumer demand in the Company's trade areas was the chief
element in the 2001 results. Consumer loans remain the Company's highest-
yielding interest-earning asset, and the Company is committed to reversing the
decline in this portfolio. Balances in the real estate-construction portfolio
also declined, dropping 5.74% or $445,000 since December 31, 2000. Most of the
loans in the real estate-construction portfolio are preparatory to customers'
attainment of permanent financing or developer's sale and are, by nature, short-
term and somewhat cyclical; swings in these account balances are normal and to
be expected. Although the Company, like peer institutions of similar size,
originates permanent residential mortgages for new construction, it
traditionally does not hold or service long-term mortgage loans for its own
portfolio. Rather, permanent residential mortgages are typically brokered
through a mortgage underwriter or government agency. The Company receives
mortgage origination fees for its participation in these origination
transactions; refer to the disclosures provided under Results of Operations for
more details. Although balances in the commercial, consumer, and real estate-
construction portfolios fell, real estate-mortgage balances increased an
appreciative $3,261,000 since the second quarter or $7,591,000 year-to-date.

Despite the current economic slowdown within our markets and overall declines in
loan balances during the first nine months of 2001, management remains
optimistic that loan volumes will increase, albeit moderately, during the
remainder of 2001. Strategies implemented by management to increase loan
production include continuing competitive pricing on loan products, development
of additional loan relationships, and purchase of loan participations from
correspondent banks, all without compromising portfolio quality. During the same
period in 2000, net loans grew $7,913,197 or 4.77%. Growth in the

                                       7
<PAGE>

                       Southeastern Banking Corporation

                     Management's Discussion and Analysis

real estate-construction and real estate-mortgage portfolios fueled the 2000
results. Loans outstanding are presented by type in the table below:

<TABLE>
<CAPTION>
============================================================================================================
                                                       September 30,       December 31,      September 30,
Loans by Category                                               2001               2000               2000
============================================================================================================
(In thousands)
<S>                                                    <C>                 <C>                <C>
Commercial, financial, and agricultural/1/                  $ 57,965           $ 70,175           $ 67,323
Real estate - construction                                     7,305              7,750              9,430
Real estate - mortgage/2/                                     68,848             61,257             60,892
Consumer, including credit cards                              30,930             35,373             37,168
------------------------------------------------------------------------------------------------------------
     Loans, gross                                            165,048            174,555            174,813
     Unearned income                                             523                753                905
------------------------------------------------------------------------------------------------------------
          Loans, net                                        $164,525           $173,802           $173,908
============================================================================================================
</TABLE>
/1/ Includes obligations of states and political subdivisions.
/2/ Typically have final maturities of 15 years or less.

The Company had no concentration of loans to borrowers engaged in any single
industry that exceeded 10% of total loans for any of the periods presented.
Although the Company's loan portfolio is diversified, significant portions of
its loans are collateralized by real estate. At September 30, 2001 and December
31, 2000, gross loans secured by real estate aggregated $108,652,000 and
$113,570,000. As required by policy, real estate loans are collateralized based
on certain loan-to-appraised value ratios. A geographic concentration in loans
arises given the Company's operations within a regional area of southeast
Georgia and northeast Florida. Commitments to extend credit and standby letters
of credit approximated $18,116,000 at September 30, 2001; because a substantial
amount of these contracts expire without being drawn upon, total contractual
amounts do not represent future credit exposure or liquidity requirements.

Nonperforming Assets

Nonperforming assets consist of nonaccrual loans, restructured loans, and
foreclosed real estate balances. Overall, nonperforming assets approximated
$1,900,000, or 0.52% of total assets, at September 30, 2001, down significantly,
or 50.55%, from $3,842,000 at year-end 2000. Nonperforming loans fell more than
57%, or $1,967,000, while foreclosed real estate increased a slight $25,000 at
September 30, 2001. The fluctuation in nonperforming asset balances year-to-date
resulted predominantly from a single commercial real estate loan. Specifically,
foreclosed real estate balances at December 31, 2000 included an impaired real
estate loan totaling approximately $2,300,000. This loan, secured by a first
lien on income-producing commercial real estate, was charged-off by $400,000 in
December 2000 and prior to foreclosure in February 2001, an additional $300,000.
Impairment of the loan was based on the fair value of the underlying collateral,
less estimated selling expenses, as determined by a third party appraisal.
During the third quarter, this property was sold to a third party; net proceeds
on the sale approximated $2,025,000. To maintain and maximize collateral value,
the Company engaged an operating company with expertise in managing commercial
properties to handle day-to-day operations as management focused on marketing
the property to potential buyers. Operating costs associated with managing the
property approximated $125,000 through the closing date. Pending furtherance of
various legal proceedings, management is optimistic that various costs
associated with the property may ultimately be recovered.

During the first nine months of 2001, a single credit with principal balances
aggregating $615,000 was placed on nonaccrual status. This credit, secured by
timber and farmlands with accompanying tobacco and peanut allotments, was not
substantially past due, and its impairment could not be reasonably

                                       8
<PAGE>

                       Southeastern Banking Corporation

                     Management's Discussion and Analysis


measured prior to 2001. Due to a loan-to-appraised value ratio of less than 55%,
no loss, other than possibly foregone interest, is expected on these loans.
Foreclosure of the real estate collateral was interrupted by bankruptcy
proceedings and is expected to remain stalled until at least the fourth quarter.
Exclusive of the two credits discussed in the preceding paragraphs, the
allowance for loan losses approximated 3.43X the nonperforming loans balance at
September 30, 2001 versus 2.76X at December 31, 2000 and 2.65X a year ago.

During the third quarter, loans to two separate borrowers totaling $265,000 and
$210,000, respectively, were transferred to nonaccrual status. Due to the
underlying collateral coverage, no material losses, if any, are expected on
these credits. Refer to the subsection entitled Policy Note for criteria used by
management in classifying loans as nonaccrual. Management is unaware of any
other material developments in nonperforming assets at September 30, 2001 that
should be presented or otherwise discussed.

Loans past due 90 or more days approximated $1,502,000 at September 30, 2001, up
moderately from 2000 levels. A single, well-collateralized loan comprised 12.38%
of loans past due 90 plus days at September 30, 2001; management is unaware of
any other material concentrations within these past due balances. The table
below provides further information about nonperforming assets and loans past due
90 days or more:

<TABLE>
<CAPTION>
============================================================================================================
                                                       September 30,       December 31,      September 30,
Nonperforming Assets                                            2001               2000               2000
============================================================================================================
(In thousands)
<S>                                                    <C>                 <C>               <C>
Nonaccrual loans:
 Commercial, financial, and agricultural                      $1,329             $2,894             $  444
 Real estate - construction                                        -                  -                  -
 Real estate - mortgage                                          141                189                409
 Consumer, including credit cards                                  8                 21                 21
------------------------------------------------------------------------------------------------------------
  Total nonaccrual loans                                       1,478              3,104                874
Restructured loans/1/                                              -                341                350
------------------------------------------------------------------------------------------------------------
  Total nonperforming loans                                    1,478              3,445              1,224
------------------------------------------------------------------------------------------------------------
Foreclosed real estate/2/                                        422                397                366
------------------------------------------------------------------------------------------------------------
Total nonperforming assets                                    $1,900             $3,842             $1,590
============================================================================================================
Accruing loans past due 90 days or more                       $1,502             $1,191             $1,378
============================================================================================================
</TABLE>
/1/ Does not include restructured loans that yield a market rate.
/2/ Includes only other real estate acquired through foreclosure or in
    settlement of debts previously contracted.

Policy Note. Loans classified as nonaccrual have been placed in nonperforming,
or impaired, status because the borrower's ability to make future principal
and/or interest payments has become uncertain. The Company considers a loan to
be nonaccrual with the occurrence of any one of the following events: a)
interest or principal has been in default 90 days or more, unless the loan is
well-secured and in the process of collection; b) collection of recorded
interest or principal is not anticipated; or c) the income on the loan is
recognized using the cash versus accrual basis of accounting due to
deterioration in the financial condition of the borrower. Smaller balance
consumer loans are generally not subject to the above-referenced guidelines and
are normally placed on nonaccrual status or else charged-off when payments have
been in default 90 days or more. Nonaccrual loans are reduced to the lower of
the principal balance of the loan or the market value of the underlying real
estate or other collateral net of selling costs. Any impairment in the principal
balance is charged against the allowance for loan losses. Accrued interest on
any loan switched to nonaccrual status is reversed. Interest income on
nonaccrual loans, if subsequently recognized, is recorded on a cash basis. No
interest is subsequently recognized on

                                       9
<PAGE>

                       Southeastern Banking Corporation

                     Management's Discussion and Analysis


nonaccrual (or former nonaccrual) loans until all principal has been collected.
Loans are classified as restructured when either interest or principal has been
reduced or deferred because of deterioration in the borrower's financial
position. Foreclosed real estate represents real property acquired by
foreclosure or directly by title or deed transfer in settlement of debt.
Provisions for subsequent devaluations of foreclosed real estate are charged to
operations, while costs associated with improving the properties are generally
capitalized. Refer to the footnotes accompanying the consolidated financial
statements for more details on the Company's accounting and reporting policies
on impaired loans and other real estate.

Allowance for Loan Losses

The Company maintains an allowance for loan losses available to absorb potential
losses in the loan portfolio. As a percent of net loans, the allowance declined
2 basis points to 1.80% at September 30, 2001 from 1.82% at year-end 2000. Net
charge-offs totaled $1,097,000, up considerably, or $553,000, from 2000's
$544,000, which was down $517,000 from 1999. Approximately 27%, or $300,000, of
2001 charge-offs year-to-date were attributable to the large nonperforming loan
foreclosed in the first quarter. Long-term strategies implemented by management
to reduce and minimize charge-off levels include: a) a revised loan grading
system, b) periodic external loan review, c) formation of a full-time collection
department, and d) managerial and staff changes at various locations. The
quarterly and nine month provision from income totaled $300,000 and $900,000 at
September 30, 2001, unchanged from the year-earlier period. Activity in the
allowance is presented in the table below:

<TABLE>
<CAPTION>
============================================================================================================
Allowance for Loan Losses
Nine Months Ended September 30,                                        2001            2000            1999
============================================================================================================
(Dollars in thousands)

<S>                                                            <C>            <C>             <C>
Allowance for loan losses at beginning of year                     $  3,160        $  3,223        $  3,407
Provision for loan losses                                               900             900             900
Charge-offs:
 Commercial, financial, and agricultural                                660             120             470
 Real estate - construction                                               -               -             351
 Real estate - mortgage                                                 130             154              96
 Consumer, including credit cards                                       572             588             671
------------------------------------------------------------------------------------------------------------
 Total charge-offs                                                    1,362             862           1,588
------------------------------------------------------------------------------------------------------------
Recoveries:
 Commercial, financial, and agricultural                                 32              23             210
 Real estate - construction                                               -               -               -
 Real estate - mortgage                                                  12              18              26
 Consumer, including credit cards                                       221             277             291
------------------------------------------------------------------------------------------------------------
 Total recoveries                                                       265             318             527
------------------------------------------------------------------------------------------------------------
Net charge-offs                                                       1,097             544           1,061
------------------------------------------------------------------------------------------------------------
Allowance for loan losses at September 30                          $  2,963        $  3,579        $  3,246
============================================================================================================
Net loans outstanding/1/ at September 30                           $164,525        $173,908        $162,290
============================================================================================================
Average net loans outstanding/1/ at September 30                   $164,772        $172,546        $162,954
============================================================================================================
Ratios:
 Allowance to net loans                                                1.80%           2.06%           2.00%
============================================================================================================
 Net charge-offs to average loans                                      0.89%           0.42%           0.87%
============================================================================================================
 Provision to average loans                                            0.73%           0.70%           0.74%
============================================================================================================
</TABLE>
/1/ Net of unearned income

                                       10
<PAGE>

                       Southeastern Banking Corporation

                     Management's Discussion and Analysis


Management believes the allowance was adequate at September 30, 2001 based on
conditions reasonably known to management; however, the allowance may increase
or decrease based on loan growth, changes in internally generated credit
ratings, changes in general economic conditions of the Company's trade areas,
changes in customer bankruptcy filings, or historical loan loss experience.
These factors are analyzed and reviewed on a continual basis to determine if any
changes to the provision for loan losses should be made.

Other Commitments

On October 15, 2001, the Company signed a definitive agreement to acquire the
Bank of Richmond Hill, an affiliate of Valdosta, Georgia-based Park Avenue Bank.
Under the agreement, the Company will acquire cash, certain loans, and fixed
assets, while assuming deposits and other liabilities. The transaction is
subject to the approval of various regulatory authorities and is expected to be
completed by the end of the year. At September 30, 2001, the Bank of Richmond
Hill had approximately $10 million in total assets.

Other than the pending purchase of property and equipment in conjunction with
its proposed acquisition of the Bank of Richmond Hill, management has also
contracted for future branch sites in Glynn County, Georgia. Renovation of the
Darien office and construction of separate corporate offices are also planned.
The total cost of these projects approximates $4 million, of which $1.5 million
is associated with the Richmond Hill acquisition.

Liquidity

Liquidity is managed to ensure sufficient cash flow to satisfy demands for
credit, deposit withdrawals, and other corporate needs. The Company meets most
of its daily liquidity needs through the management of cash and federal funds
sold. Additional liquidity is provided by payments and maturities, including
both principal and interest, of the loan and investment securities portfolios.
At September 30, 2001, loans/1/ and investment securities with carrying values
exceeding $64 million and $13 million were scheduled to mature in one year or
less. The investment portfolio has also been structured to meet liquidity needs
prior to asset maturity when necessary. The Company's liquidity position is
further strengthened by its access, on both a short- and long-term basis, to
local and regional funding sources.

Funding sources primarily comprise customer-based core deposits but also include
borrowed funds and cash flows from operations. Customer-based core deposits, the
Company's largest and most cost-effective source of funding, comprised 85% of
the funding base at September 30, 2001, virtually unchanged from 2000 levels.
Borrowed funds, which variously encompass U.S. Treasury demand notes, federal
funds purchased, and FHLB advances, totaled $7,180,916 at September 30, 2001
versus $6,001,957 at December 31, 2000. More specifically, the maximum amount of
U.S. Treasury demand notes available to the Company at September 30, 2001
totaled $3,000,000, of which $2,180,916 was outstanding. Unused borrowings under
unsecured federal funds lines of credit from other banks, each with varying
terms and expiration dates, totaled $24,000,000. Additionally, under a credit
facility with the FHLB, the Company can borrow up to 16% of SEB's total assets;
at September 30, 2001, unused borrowings approximated $53 million. Refer to the
subsection entitled FHLB Advances for details on the Company's outstanding
balance with the FHLB. Cash flows from operations also constitute a significant
source of liquidity. Net cash from operations derives primarily from net income
adjusted for noncash items such as depreciation and amortization, accretion, and
the provision for loan losses.

                                       11
<PAGE>

                       Southeastern Banking Corporation

                     Management's Discussion and Analysis


Management believes the Company has the funding capacity, from operating
activities or otherwise, to meet its financial commitments in 2001. Refer to the
Capital Adequacy section of this Analysis for details on treasury stock
purchases and intercompany dividend policy.

/1/ No cash flow assumptions other than final contractual maturities have been
    made for installment loans. Nonaccrual loans are excluded.

Deposits

Deposits exceeded $304 million at September 30, 2001, up $8,306,585 or 2.81%
from December 31, 2000. More than 68%, or $5,721,881, of the deposit growth at
September 30 was attributable to interest-bearing balances. Overall, interest-
bearing deposits comprised 81.02%, and noninterest-bearing deposits, 18.98%, of
total deposits at September 30, 2001. The distribution of interest-bearing
balances at September 30, 2001 and certain comparable quarter-end dates is shown
in the table below:

<TABLE>
<CAPTION>
=====================================================================================================================
                                        September 30, 2001          December 31, 2000         September 30, 2000
                                   ----------------------------------------------------------------------------------
                                                       Percent                    Percent                    Percent
Deposits                                Balances      of Total     Balances      of Total      Balances      of Total
=====================================================================================================================
(Dollars in thousands)
<S>                                  <C>          <C>           <C>          <C>           <C>          <C>
Interest-bearing demand deposits/1/     $ 50,812        20.63%     $ 50,309        20.91%     $ 45,568        19.33%
Savings                                   85,090        34.54%       73,781        30.66%       74,798        31.73%
Time certificates (less than)
   $100,000                               69,558        28.24%       72,207        30.01%       71,764        30.45%
Time certificates (greater than
   or equal to) $100,000                  40,873        16.59%       44,314        18.42%       43,574        18.49%
----------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits         $246,333       100.00%     $240,611       100.00%     $235,704       100.00%
======================================================================================================================
</TABLE>
/1/ NOW and money market accounts.

The composition of average deposits and the fluctuations therein at September 30
for each of the last three years is shown in the Average Balances table included
in the Operations section of this Analysis.

FHLB Advances

Advances outstanding with the FHLB totaled $5 million at September 30, 2001,
unchanged from year-end 2000. The outstanding advance, which matures March 17,
2010, accrues interest at an effective rate of 6.00%, payable quarterly. The
advance is convertible into a three-month Libor-based floating rate on or after
March 17, 2001 at the option of the FHLB. Year-to-date, interest expense on the
advance approximated $224,000. Mortgage-backed securities with aggregate
carrying values of approximately $10.2 million were pledged to collateralize
current and future advances under this line of credit.

Interest Rate and Market Risk/Interest Rate Sensitivity

The normal course of business activity exposes the Company to interest rate
risk. Fluctuations in interest rates may result in changes in the fair market
value of the Company's financial instruments, cash flows, and net interest
income. The asset/liability committee regularly reviews the Company's exposure
to interest rate risk and formulates strategy based on acceptable levels of
interest rate risk. The overall objective of this process is to optimize the
Company's financial position, liquidity, and net interest

                                       12
<PAGE>

                       Southeastern Banking Corporation

                     Management's Discussion and Analysis


income, while limiting volatility to net interest income from changes in
interest rates. The Company uses gap analysis and simulation modeling to measure
and manage interest rate sensitivity.

An indicator of interest rate sensitivity is the difference between interest
rate sensitive assets and interest rate sensitive liabilities; this difference
is known as the interest rate sensitivity gap. In an asset sensitive, or
positive, gap position, the amount of interest-earning assets maturing or
repricing within a given period exceeds the amount of interest-bearing
liabilities maturing or repricing within that same period. Conversely, in a
liability sensitive, or negative, gap position, the amount of interest-bearing
liabilities maturing or repricing within a given period exceeds the amount of
interest-earning assets maturing or repricing within that time period. During a
period of rising rates, a negative gap would tend to affect net interest income
adversely, while a positive gap would theoretically result in increased net
interest income. In a falling rate environment, a negative gap would tend to
result in increased net interest income, while a positive gap would affect net
interest income adversely. The gap analysis below provides a snapshot of the
Company's interest rate sensitivity position at September 30, 2001.

<TABLE>
<CAPTION>
====================================================================================================================
                                                               Repricing Within
                                        ------------------------------------------------------------
                                                                                                More
Interest Rate Sensitivity                        0 - 3          4 - 12     One - Five      Than Five
September 30, 2001                              Months          Months          Years          Years          Total
====================================================================================================================
(Dollars in thousands)
<S>                                       <C>            <C>             <C>            <C>            <C>
Interest Rate Sensitive Assets
 Federal funds sold                           $ 21,271                                                     $ 21,271
 Securities/1/                                   2,998       $  10,473       $ 82,757        $54,133        150,361
 Loans, gross/2/                                62,176          22,150         57,412         21,832        163,570
-------------------------------------------------------------------------------------------------------------------
  Total interest rate sensitive assets          86,445          32,623        140,169         75,965        335,202
-------------------------------------------------------------------------------------------------------------------

Interest Rate Sensitive Liabilities
 Deposits/3/                                   159,421          64,926         21,899             87        246,333
 U.S. Treasury demand note                       2,181               -              -              -          2,181
 Federal Home Loan Bank advances                     -                              -          5,000          5,000
-------------------------------------------------------------------------------------------------------------------
  Total interest rate sensitive
  liabilities                                  161,602          64,926         21,899          5,087        253,514
-------------------------------------------------------------------------------------------------------------------
Interest rate sensitivity gap                 $(75,157)      $ (32,303)      $118,270        $70,878       $ 81,688
====================================================================================================================
Cumulative gap                                $(75,157)      $(107,460)      $ 10,810        $81,688
====================================================================================================================
Ratio of cumulative gap to total
  rate sensitive assets                        (22.42)%        (32.06)%          3.22%         24.37%
====================================================================================================================
Ratio of cumulative rate sensitive
    assets to rate sensitive liabilities         53.49%          52.56%        104.35%        132.22%
====================================================================================================================
Cumulative gap at December 31, 2000           $(91,308)      $(117,955)      $ 15,283        $73,662
====================================================================================================================
Cumulative gap at September 30, 2000          $(96,410)      $(126,261)      $ 14,275        $74,819
====================================================================================================================
</TABLE>
/1/ Distribution of maturities for available-for sale-securities is based on
    amortized cost. Additionally, distribution of maturities for mortgage-backed
    securities is based on expected average lives which may be different from
    the contractual terms. Equity securities, if any, are excluded.
/2/ No cash flow assumptions other than final contractual maturities have been
    made for installment loans with fixed rates. Nonaccrual loans are excluded.
/3/ NOW, money market, and savings account balances are included in the 0-3
    months repricing category.

                                       13
<PAGE>

                       Southeastern Banking Corporation

                     Management's Discussion and Analysis


As shown in the table above, the Company's gap position remained negative
through the short-term repricing intervals at September 30 2001, totaling
$(75,157) at three months and $(107,460) through one-year. Excluding
traditionally nonvolatile NOW and savings balances from the gap calculation, the
cumulative gap at September 30, 2001 totaled $37,493 at three months and $5,190
at twelve months. The narrowing of the short-term gap position at September 30,
2001 versus 2000 was primarily attributable to increases in federal funds sold.
As discussed in earlier sections of this Analysis, the jump in fed funds sold
balances accrued from reductions in loans and higher deposits. The gap position
is expected to widen moderately, resembling 2000 levels, as fed funds sold are
reallocated to other earning assets. Given current and projected economic
conditions, this reallocation is expected to remain a particular challenge of
2001. Shortcomings are inherent in any gap analysis since certain assets and
liabilities may not move proportionally as rates change. For example, the gap
analysis presumes that all loans/2/ and securities/1/ will perform according to
their contractual maturities when, in many cases, actual loan terms are much
shorter than the original terms and securities are subject to early redemption.

In addition to gap analysis, the Company uses simulation modeling to test the
interest rate sensitivity of net interest income and the balance sheet.
Contractual maturity and repricing characteristics of loans are incorporated
into the model, as are prepayment assumptions, maturity data, and call options
within the investment portfolio. Non-maturity deposit accounts are modeled based
on past experience. Simulation results quantify interest rate risks under
various interest rate scenarios. Based on the Company's latest analysis, the
simulation model estimates that a gradual 200 basis points rise or decline in
rates over the next twelve months would have an adverse impact of 5% or less on
its net interest income for the period. In estimating the impact of these rate
movements on the Company's net interest income, the following general
assumptions were made: a) Spreads on all loans, investment securities, and
deposit products remain constant; b) Interest rate movements occur gradually
over an extended period versus rapidly; and c) Loans and deposits are projected
to grow at constant speeds. Limitations inherent with these assumptions include:
a) Certain deposit accounts, in particular, interest-bearing demand deposits,
rarely reprice and therefore, have limited impact on net interest income from a
rate perspective; b) In a down rate environment, competitive and other factors
constrain timing of rate cuts on other deposit products whereas loans tied to
prime and other variable indexes reprice instantaneously and, as amply
demonstrated this year, securities with call or other prepayment features are
likely to be redeemed prior to stated maturity and replaced at lower rates (lag
effect); c) Changes in balance sheet mix, for example, unscheduled pay-offs of
large commercial loans, are oftentimes difficult to forecast; and d) Rapid and
aggressive rate movements by the Federal Reserve, as in 2001 to-date, can
materially impact estimated results. As further discussed in the Operations
section of this Analysis, net interest income declined $796,663 or 6.77% year-
to-date at September 30, 2001 versus 2000. Management is optimistic that
initiatives taken to improve loan production and diversify the securities
portfolio will gradually reduce the interest rate sensitivity of net interest
income and the balance sheet. Because the focus of these initiatives is long-
term versus short-term, net interest income is expected to lag last year's
results the remainder of 2001.

The Company has not in the past, but may in the future, utilize interest rate
swaps, financial options, financial futures contracts, or other rate protection
instruments to reduce interest rate and market risks.

Impact of Inflation

The effects of inflation on the local economy and the Company's operating
results have been relatively modest the last several years. Because
substantially all the Company's assets and liabilities, including cash,
securities, loans, and deposits, are monetary in nature, their values are less
sensitive to the effects

                                       14
<PAGE>

                       Southeastern Banking Corporation

                     Management's Discussion and Analysis


of inflation than to changing interest rates. As discussed in the preceding
section, the Company attempts to control the impact of interest rate
fluctuations by managing the relationship between its interest sensitive assets
and liabilities.

Capital Adequacy

Federal banking regulators have established certain capital adequacy standards
required to be maintained by banks and bank holding companies. These regulations
define capital as either Tier 1 (primarily shareholders' equity) or Tier 2
(certain debt instruments and a portion of the allowance for loan losses). The
Company and SEB are subject to a minimum Tier 1 capital ratio (Tier 1 capital to
risk-weighted assets) of 4%, total capital ratio (Tier 1 plus Tier 2 to risk-
weighted assets) of 8%, and Tier 1 leverage ratio (Tier 1 to average quarterly
assets) of 4%. To be considered a "well-capitalized" institution, the Tier 1
capital, total capital, and Tier 1 leverage ratios must equal or exceed 6%, 10%,
and 5%, respectively. Banks and bank holding companies are prohibited from
including unrealized gains and losses on debt securities in the calculation of
risk-based capital but are permitted to include up to 45 percent of net
unrealized pre-tax holding gains on equity securities in Tier 2 capital. The
Company did not have any unrealized gains on equity securities includible in the
risk-based capital calculations for any of the periods presented. The Company is
committed to maintaining its well-capitalized status.

Capital ratios for the most recent periods are presented in the table below:

<TABLE>
<CAPTION>
============================================================================================================
                                                       September 30,        December 31,       September 30,
Capital Ratios                                                  2001                2000                2000
============================================================================================================
(Dollars in thousands)
<S>                                                    <C>                 <C>                 <C>
Tier 1 capital:
 Realized shareholders' equity                              $ 45,948            $ 44,710            $ 44,187
 Intangible assets and other adjustments                        (955)             (1,117)             (1,166)
------------------------------------------------------------------------------------------------------------
  Total Tier 1 capital                                        44,993              43,593              43,021
------------------------------------------------------------------------------------------------------------
Tier 2 capital:
 Portion of allowance for loan losses                          2,352               2,374               2,370
 Allowable long-term debt                                          -                   -                   -
------------------------------------------------------------------------------------------------------------
  Total Tier 2 capital                                         2,352               2,374               2,370
------------------------------------------------------------------------------------------------------------
Total risk-based capital                                    $ 47,345            $ 45,967            $ 45,391
============================================================================================================
Risk-weighted assets                                        $187,555            $189,139            $188,364
============================================================================================================
Risk-based ratios:
 Tier 1 capital                                                23.99%              23.05%              22.84%
============================================================================================================
 Total risk-based capital                                      25.24%              24.30%              24.10%
============================================================================================================
 Tier 1 leverage ratio                                         12.66%              12.56%              12.33%
============================================================================================================
Realized shareholders' equity to assets                        12.76%              12.78%              12.70%
============================================================================================================
</TABLE>

On a per share basis, realized book value grew $0.19 since the second quarter,
or $0.54 year-to-date, to $13.55 at September 30, 2001. Dividends declared
totaled $0.33 year-to-date at September 30, 2001, up 10% or $0.03 from 2000,
which was unchanged from 1999. For particulars on the Company's dividend policy,
refer to the subsection immediately following. Accumulated other comprehensive
income, which measures net fluctuations in the fair values of investment
securities, improved $2,083,244 at September 30, 2001 compared to year-end 2000.
Movement in interest rates remained a dominant factor in the fair

                                       15
<PAGE>

                       Southeastern Banking Corporation

                     Management's Discussion and Analysis


value results. Further details on investment securities and associated fair
values are contained in the Financial Condition section of this Analysis.

On March 14, 2000, the Board of Directors authorized the purchase of up to
$7,000,000 in Company common stock. In 2000, the Company purchased 144,101
shares from one group of shareholders at a purchase price of $17.25 per share
and in 2001 to-date, an additional 45,973 shares on the open market and through
private transactions at an average price of $14.92 per share. Since inception,
the treasury stock program has reduced the Company's outstanding common stock
from 3,580,797 shares to 3,390,723 shares. The maximum consideration available
for additional treasury purchases, at prices to be determined in the future, is
$3,828,450. Any acquisition of additional shares will be dictated by market
conditions. In accordance with generally accepted accounting principles, no
prior period amounts have been restated to reflect the treasury stock purchases.

Dividend Policy

The Parent Company is a legal entity separate and distinct from its
subsidiaries, and its revenues and liquidity position depend primarily on the
payment of dividends from its subsidiaries. State banking regulations limit the
amount of dividends SEB may pay without prior approval of the regulatory
agencies. Year-to-date, SEB has paid 75% or $1,875,000 of the $2,500,000 in cash
dividends available to the Company in 2001 without such prior approval. The
Company uses regular dividends paid by SEB in order to pay quarterly dividends
to its own shareholders. Management anticipates that the Company will continue
to pay cash dividends on a recurring basis.

Results of Operations

Net income for the 2001 third quarter totaled $1,024,879, up $16,711 from the
2001 second quarter but down $128,483 or 11.14% from the 2000 third quarter. On
a per share basis, quarterly earnings totaled $0.31 at September 30, 2001 versus
$0.29 at June 30, 2001 and $0.34 at September 30, 2000. Year-to-date, net income
fell $645,481 or 17.49% to $3,044,951 at September 30, 2001 from $3,690,432 in
2000. Similarly, per share income for the nine month period declined $0.16 to
$0.90 at September 30, 2001 from $1.06 in 2000. As further discussed in the next
subsection of this Analysis, the earnings decline at September 30, 2001 resulted
primarily from a 6.77% drop in net interest income. The return on beginning
equity totaled 9.08% year-to-date at September 30, 2001 versus 11.18% in 2000.


Net Interest Income

Net interest income declined $284,598 or 7.41% during the third quarter of 2001
compared to 2000. For the nine month period, net interest income fell $796,663
or 6.77% from 2000. Likewise, the net interest margin and spread fell to 4.62%
and 3.51%, respectively, from 5.02% and 3.89% a year ago. Interest income on all
earning assets other than federal funds sold declined from year-to-date results
in 2000. Specifically, interest earnings on loans, investment securities, and
other earning assets declined $1,138,107, $190,869, and $4,431 from year-to-date
results in 2000 while earnings on federal funds sold jumped $590,722. Shifts in
earning assets and overall declines in asset yields precipitated the
year-to-date results. As discussed in other sections of this Analysis, the
increase in average federal funds sold balances resulted from reductions in
loans, early redemptions of investment securities, and higher deposit balances.
Federal funds sold balances have declined from mid-year levels and are expected
to further decline during the remainder of 2001 as funds are reallocated to
other earning assets. Interest expense on deposits and borrowed funds declined
an appreciable $317,860 or 10.38% during the 2001 third quarter compared to 2000
after increasing $371,838 during the first half of 2001. Cost of funds totaled
4.61% year-to-date at September 30, 2001, virtually unchanged from 4.65% at
September 30, 2000. Given the aggressive rate cuts made by the Federal Reserve
in 2001 to-date, management expects net interest income to continue lagging 2000
results as significant amounts of investment securities with early redemption
features and loans tied to prime and similar indexes reprice at lower rates.
Expected declines in average loans outstanding during 2001, as discussed in the
Loan section of this Analysis, will exert further pressure on net interest
results. Interest expense on deposits will also decline, but due to the lag
inherent in repricing maturity deposits, declines in asset yields will initially
and substantially exceed any drops in costs of funds.

The intense competition for loans and deposits continues in 2001 and shows no
sign of abating. The high number of new and existing financial institutions in
the Company's market areas essentially guarantees downward pressure on net
interest spreads and margins as all participants struggle to amass and grow
market share. Volume of assets and deposits will become even more important as
margins decline. Strategies implemented by management to increase average loans
outstanding emphasize competitive pricing on loan products and development of
additional loan relationships, all without compromising portfolio quality.
Management's strategy for deposits is to reduce costs of funds and employ
alternative sources of financing when feasible. Comparative details about
average balances, income/expense, and

                                       16
<PAGE>

                       Southeastern Banking Corporation

                     Management's Discussion and Analysis


average yields earned and rates paid on interest-earning assets and liabilities
at September 30 for each of the last three years are provided in the table on
the next page.

Noninterest Income and Expense

Noninterest income declined $30,301 or 3.57% during the third quarter of 2001
compared to 2000. Year-to-date, noninterest income dropped $15,264, or 0.60% in
2001 compared to 2000. Declines in service charges on deposit accounts was the
principal factor in the quarter and nine month results. The other operating
portion of noninterest income climbed 6.93% or $51,199 to exceed $789,000 year-
to-date. By type and amount, the chief components of other operating income in
2001 were mortgage origination fees, $222,944; commissions on the sale of credit
life insurance (generated by SEB), $147,940; surcharge fees - atm, $92,499; safe
deposit box rentals, $64,155; and income on sale of check products, $45,728.
Combined, these five income items comprised 72.60% of other operating income
year-to-date. Salaries and employee benefits increased less than 1% during the
quarter and nine months ended September 30, 2001 compared to 2000. The vast
majority, or 83%, of employee expenses remained concentrated in salaries and
other direct compensation, including related payroll taxes, at September 30,
2001. Profit-sharing accruals and other fringe benefits constituted the
remaining 7% and 10% of employee expenses. The division of employee expenses
between compensation, profit-sharing, and other fringe benefits remained
consistent with historical norms at September 30, 2001 and 2000. When compared
to the same period in the prior year, net occupancy and equipment expense
increased 4.12% or $60,958 year-to-date at September 30, 2001 and 10.94% at
September 30, 2000. The increase both periods resulted largely from higher
computer costs, including depreciation expense associated with check imaging,
internet banking, and voice banking systems. Other operating expenses climbed
$82,096 or 4.00% at September 30, 2001 compared to 2000. Operating costs
associated with a major parcel of foreclosed commercial real estate, as
discussed in earlier sections of this Analysis, accounted for virtually all of
the fluctuation year-to-date. Besides marketing and supplies expense, no
individual component of other operating expenses aggregated or exceeded 10% of
the total at September 30, 2001 or 2000.

                                      17
<PAGE>

                        Southeastern Banking Corporation

                      Management's Discussion and Analysis

<TABLE>
<CAPTION>
SELECTED AVERAGE BALANCES, INCOME/EXPENSE, AND AVERAGE YIELDS EARNED AND RATES PAID

========================================= ======== ======== ========== ========= ========= ========== ========= ========
                                          2001                          2000                           1999/7/
                               ---------- -------- -------- ---------- --------- --------- ---------- --------- --------
Average Balances/6/             Average   Income/  Yields/    Average   Income/   Yields/    Average    Income/  Yields/
Nine Months Ended September 30, Balances  Expense    Rates   Balances   Expense     Rates   Balances   Expense    Rates
----------------------------------------- -------- -------- ---------- --------- --------- ---------- --------- --------
<S>                             <C>       <C>       <C>      <C>        <C>        <C>      <C>        <C>       <C>
(Dollars in thousands)
Assets
Interest-earning assets:
   Loans, net/1/,/2/,/4/        $164,772  $12,504   10.12%   $172,546   $13,697    10.58%   $162,954   $12,829   10.50%
   Federal funds sold             22,509      746    4.42%      3,505       156     5.93%      8,093       286    4.71%
   Taxable investment
     securities/3/               116,770    5,400    6.17%    125,671     5,643     5.99%    120,694     5,349    5.91%
   Tax-exempt investment
     securities/3/,/4/            26,579    1,496    7.50%     24,837     1,415     7.60%     24,560     1,427    7.75%
   Other assets                    1,347       64    6.34%      1,088        68     8.33%      1,030        64    8.28%
----------------------------------------- -------- -------- ---------- --------- --------- ---------- --------- --------
        Total interest-earning
           assets               $331,977  $20,210    8.12%   $327,647   $20,979     8.54%   $317,331   $19,955    8.38%
========================================= ======== ======== ========== ========= ========= ========== ========= ========

Liabilities
Interest-bearing liabilities:
   Interest-bearing demand
     deposits/5/                 $52,087  $ 1,135    2.91%    $46,479    $  986     2.83%    $43,804    $  925    2.82%
   Savings                        76,980    2,180    3.78%     76,280     2,407     4.21%     74,697     2,248    4.01%
   Time deposits                 116,944    5,135    5.85%    117,289     4,875     5.54%    120,205     4,998    5.54%
   Federal funds purchased             -        -       -%        977        52     6.96%        622        25    5.36%
   U. S. Treasury demand note        773       25    4.31%        940        43     6.10%        760        26    4.60%
   Federal Home Loan Bank
     advances                      5,000      224    6.00%      5,824       282     6.46%          -         -        -
----------------------------------------- -------- -------- ---------- --------- --------- ---------- --------- --------
       Total interest-bearing
         liabilities            $251,784  $ 8,699    4.61%   $247,789   $ 8,645     4.65%   $240,088   $ 8,222    4.57%
========================================= ======== ======== ========== ========= ========= ========== ========= ========
Excess of interest-earning
  assets over interest-bearing
  liabilities                    $80,193                      $79,858                        $77,243
========================================= ======== ======== ========== ========= ========= ========== ========= ========
Interest rate spread                                 3.51%                          3.89%                         3.81%
========================================= ======== ======== ========== ========= ========= ========== ========= ========
Net interest income                       $11,511                       $12,334                        $11,733
========================================= ======== ======== ========== ========= ========= ========== ========= ========
Net interest margin                                  4.62%                          5.02%                         4.93%
========================================= ======== ======== ========== ========= ========= ========== ========= ========
</TABLE>

/1/      Average loans are shown net of unearned income. Nonperforming loans are
         included.
/2/      Includes loan fees.
/3/      Securities are presented on an amortized cost basis. Investment
         securities with original maturities of three months or less are
         included, as applicable.
/4/      Interest income on tax-exempt loans and securities is presented on a
         taxable-equivalent basis, using a federal income tax rate of 34%. No
         adjustment has been made for any state tax benefits.
/5/      NOW and money market accounts.
/6/      Averages presented generally represent average daily balances.
/7/      Although not required by generally accepted accounting principles, the
         1999 data allows the comparison of average balances and related
         earnings results for more than one period.

                                      18
<PAGE>

                        Southeastern Banking Corporation

                      Management's Discussion and Analysis


Recent Accounting Pronouncements

In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 141, "Business Combinations" and SFAS
No.142, "Goodwill and Other Intangible Assets". SFAS No. 141 addresses the
initial recognition and measurement of goodwill and other intangible assets
acquired in a business combination, and SFAS No. 142 addresses the initial
recognition and measurement of intangible assets acquired outside of a business
combination whether acquired individually or with a group of other assets. These
standards require all future business combinations to be accounted for using the
purchase method of accounting. Goodwill will no longer be amortized but instead
will be subject to impairment tests at least annually. The Company is required
to adopt SFAS No. 141 and 142 on a prospective basis as of January 1, 2002;
however, certain provisions of these new Standards may also apply to any
acquisitions concluded subsequent to June 30, 2001. As a result of implementing
these new Standards, it is expected that the amortization of goodwill will cease
as of December 31, 2001. The adoption of SFAS No. 141 and SFAS No. 142 is not
expected to have a material effect on the Company's financial position, results
of operations, and cash flows in 2002 and subsequent years.

Various other accounting proposals affecting the banking industry are pending
with the Financial Accounting Standards Board. Given the inherent uncertainty of
the proposal process, the Company cannot assess the impact of any such proposals
on its financial condition or results of operations.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 (the Act) provides a safe
harbor for forward-looking statements made by or on behalf of the Company. The
Company and its representatives have made, and may continue to make, various
written or oral forward-looking statements with respect to business and
financial matters, including statements contained in this report, filings with
the Securities and Exchange Commission, and reports to shareholders. Generally,
the words "believe," "expect," "intend," "estimate," "anticipate," "project,"
"will," "should," and similar expressions identify forward-looking statements.
All statements which address operating performance, events or developments that
we expect or anticipate will occur in the future, including statements related
to loan growth, deposit growth, per share growth, and statements expressing
general sentiment about future operating results and non-historical information,
are forward-looking statements within the meaning of the Act. The forward-
looking statements are and will be based on management's then current views and
assumptions regarding future events and operating performance. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements in light of new information or future events.

Certain factors that could affect financial performance or cause actual results
to vary significantly from estimates contained in or underlying forward-looking
statements include:

     .    Interest rate fluctuations and other market conditions.
     .    Strength of the consumer and commercial credit sectors as well as real
          estate markets.
     .    Changes in laws and regulations, including changes in accounting
          standards, monetary policies, and taxation requirements (including tax
          rate changes, new tax laws, and revised tax law interpretations).
     .    Competitive pricing and other pressures on loans and deposits and the
          Company's ability to maintain market shares in its trade areas.

                                       19
<PAGE>

     .    Management of costs associated with expansion of existing and
          development of new distribution channels, and ability to realize
          increased revenues from these distribution channels.
     .    The outcome of litigation which depends on judicial interpretations of
          law and findings of juries.
     .    Other risks and uncertainties as detailed from time to time in Company
          filings with the Securities and Exchange Commission.

The foregoing list of factors is not exclusive. This Analysis should be read in
conjunction with the consolidated financial statements and related notes.

                                       20
<PAGE>

                       Southeastern Banking Corporation

                          Part II - Other Information


Item 1.   Legal Proceedings
          (Not Applicable)


Item 2.   Changes in Securities
          (Not Applicable)


Item 3.   Defaults Upon Senior Securities
          (Not Applicable)


Item 4.   Submission of Matters to a Vote of Security Holders
          (Not Applicable)


Item 5.   Other Information
          (Not Applicable)


Item 6.   Exhibits and Reports on Form 8-K

          NONE

<PAGE>

                       Southeastern Banking Corporation

                                  Signatures

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.



                              SOUTHEASTERN BANKING CORPORATION
                              (Registrant)



                              By:   /s/  S. MICHAEL LITTLE
                                 ----------------------------------------------
                                   S. Michael Little, Executive Vice President


                              By:   /s/  ALYSON GRAY
                                 ----------------------------------------------
                                   Alyson Gray, Vice President

Date: November 14, 2001
      -----------------

                                       22