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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934



For the Quarterly Period Ended March 31, 2004



Commission File Number 2-83157



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SOUTHEASTERN BANKING CORPORATION

(Exact name of registrant as specified in its charter)



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



P. O. Box 455, 1010
Northway, Darien, Georgia 31305

(Address of principal executive offices) (Zip Code)



(912) 437-4141

(Registrants telephone number, including area code)



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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 ̈



Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes ̈No  x



As of April 30, 2004, 3,312,539 shares of the
registrants common stock, par value $1.25 per share, were outstanding.



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##### Table of Contents

Table of Contents



|                             |  |                                                                                       |  |     
|---------------------------- |  | ------------------------------------------------------------------------------------- |  | ----
|Part IFinancial Information |  |                                                                                      
|                             |  |                                                                                       |  | Page
|                             |  |                                                                                      
|Item 1.                      |  | Financial Statements (Unaudited):                                                     |  |     
|                             |  | Consolidated Balance Sheets                                                           |  | 3   
|                             |  | Consolidated Statements of Income                                                     |  | 4   
|                             |  | Consolidated Statements of Shareholders Equity                                       |  | 5   
|                             |  | Consolidated Statements of Cash Flows                                                 |  | 6   
|                             |  | Notes to Consolidated Financial Statements                                            |  | 7   
|                             |  |                                                                                      
|Item 2.                      |  | Managements Discussion and Analysis of Financial Condition and Results of Operations |  | 8   
|                             |  |                                                                                      
|Item 3.                      |  | Quantitative and Qualitative Disclosures about Market Risk                            |  | 21  
|                             |  |                                                                                      
|Item 4.                      |  | Controls and Procedures                                                               |  | 21  
|                             | 
|Part IIOther Information    |  |                                                                                      
|                             |  |                                                                                      
|Item 1.                      |  | Legal Proceedings                                                                     |  | 22  
|                             |  |                                                                                      
|Item 2                       |  | Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities     |  | 22  
|                             |  |                                                                                      
|Item 3.                      |  | Defaults upon Senior Securities                                                       |  | 22  
|                             |  |                                                                                      
|Item 4.                      |  | Submission of Matters to a Vote of Security Holders                                   |  | 22  
|                             |  |                                                                                      
|Item 5.                      |  | Other Information                                                                     |  | 22  
|                             |  |                                                                                      
|Item 6.                      |  | Exhibits and Reports on Form 8-K                                                      |  | 23  
|                             |  |                                                                                      
|Signatures                   |  |                                                                                       |  | 24  



2



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##### Table of Contents

Part IFinancial Information



Southeastern Banking Corporation



Consolidated Balance Sheets



|                                                                                                                     |  |                |             |   |                   |   |             |  
|-------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ----------------- | - | ----------- | -
|                                                                                                                     |  | (Unaudited)    |             |   |                   |  
|                                                                                                                     |  | March 31, 2004 |             |   | December 31, 2003 |  
|Assets                                                                                                               |  |                |             |   |                   |   |             |  
|Cash and due from banks                                                                                              |  | $              | 18,448,344  |   |                   | $ | 15,951,941  |  
|Federal funds sold                                                                                                   |  |                | 16,184,000  |   |                   |   | 10,454,000  |  
|                                                                                                                     |  |                |             |   |                   |   |             |  
|Cash and cash equivalents                                                                                            |  |                | 34,632,344  |   |                   |   | 26,405,941  |  
|Investment securities                                                                                                |  |                |             |   |                   |   |             |  
|Held-to-maturity (market value of approximately $39,715,000 and $39,677,000 at March 31, 2004 and December 31, 2003) |  |                | 36,866,061  |   |                   |   | 37,416,385  |  
|Available-for-sale, at market value                                                                                  |  |                | 101,577,231 |   |                   |   | 94,342,665  |  
|                                                                                                                     |  |                |             |   |                   |   |             |  
|Total investment securities                                                                                          |  |                | 138,443,292 |   |                   |   | 131,759,050 |  
|Loans, gross                                                                                                         |  |                | 200,235,510 |   |                   |   | 205,896,094 |  
|Unearned income                                                                                                      |  |                | (203,151    | ) |                   |   | (215,715    | )
|Allowance for loan losses                                                                                            |  |                | (3,920,939  | ) |                   |   | (3,832,651  | )
|                                                                                                                     |  |                |             |   |                   |   |             |  
|Loans, net                                                                                                           |  |                | 196,111,420 |   |                   |   | 201,847,728 |  
|Premises and equipment, net                                                                                          |  |                | 8,810,920   |   |                   |   | 8,933,755   |  
|Intangible assets                                                                                                    |  |                | 671,210     |   |                   |   | 702,798     |  
|Other assets                                                                                                         |  |                | 4,331,869   |   |                   |   | 4,718,462   |  
|                                                                                                                     |  |                |             |   |                   |   |             |  
|Total Assets                                                                                                         |  | $              | 383,001,055 |   |                   | $ | 374,367,734 |  
|                                                                                                                     |  |                |             |   |                   |   |             |  
|Liabilities and Shareholders Equity                                                                                 |  |                |             |   |                   |   |             |  
|Liabilities                                                                                                          |  |                |             |   |                   |   |             |  
|Deposits                                                                                                             |  |                |             |   |                   |   |             |  
|Noninterest-bearing deposits                                                                                         |  | $              | 67,260,469  |   |                   | $ | 58,953,522  |  
|Interest-bearing deposits                                                                                            |  |                | 258,778,467 |   |                   |   | 258,009,970 |  
|                                                                                                                     |  |                |             |   |                   |   |             |  
|Total deposits                                                                                                       |  |                | 326,038,936 |   |                   |   | 316,963,492 |  
|U. S. Treasury demand note                                                                                           |  |                | 870,452     |   |                   |   | 733,936     |  
|Federal Home Loan Bank advances                                                                                      |  |                | 5,000,000   |   |                   |   | 5,000,000   |  
|Other liabilities                                                                                                    |  |                | 1,888,658   |   |                   |   | 3,905,049   |  
|                                                                                                                     |  |                |             |   |                   |   |             |  
|Total liabilities                                                                                                    |  |                | 333,798,046 |   |                   |   | 326,602,477 |  
|                                                                                                                     |  |                |             |   |                   |   |             |  
|Shareholders Equity                                                                                                 |  |                |             |   |                   |   |             |  
|Common stock ($1.25 par value; 10,000,000 shares authorized; 3,580,797 shares issued; 3,312,539 shares outstanding)  |  |                | 4,475,996   |   |                   |   | 4,475,996   |  
|Additional paid-in-capital                                                                                           |  |                | 1,391,723   |   |                   |   | 1,391,723   |  
|Retained earnings                                                                                                    |  |                | 46,256,388  |   |                   |   | 45,330,975  |  
|Treasury stock, at cost (268,258 shares)                                                                             |  |                | (4,600,167  | ) |                   |   | (4,600,167  | )
|                                                                                                                     |  |                |             |   |                   |   |             |  
|Realized shareholders equity                                                                                        |  |                | 47,523,940  |   |                   |   | 46,598,527  |  
|Accumulated other comprehensive incomeunrealized gains on available-for-sale securities, net of tax                 |  |                | 1,679,069   |   |                   |   | 1,166,730   |  
|                                                                                                                     |  |                |             |   |                   |   |             |  
|Total shareholders equity                                                                                           |  |                | 49,203,009  |   |                   |   | 47,765,257  |  
|                                                                                                                     |  |                |             |   |                   |   |             |  
|Total Liabilities and Shareholders Equity                                                                           |  | $              | 383,001,055 |   |                   | $ | 374,367,734 |  
|                                                                                                                     |  |                |             |   |                   |   |             |  



See accompanying
notes to consolidated financial statements.



3



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##### Table of Contents

Southeastern Banking Corporation



Consolidated Statements of Income



(Unaudited)



|                                                    |  |      |           |   |      |   |          
|--------------------------------------------------- |  | ---- | --------- | - | ---- | - | ---------
|Three Months Ended March 31,                        |  | 2004 |           |   | 2003
|Interest income                                     |  |      |           |   |      |   |          
|Loans, including fees                               |  | $    | 3,582,597 |   |      | $ | 3,580,509
|Federal funds sold                                  |  |      | 22,098    |   |      |   | 50,969   
|Investment securities                               |  |      |           |   |      |   |          
|Taxable                                             |  |      | 1,050,258 |   |      |   | 1,312,892
|Tax-exempt                                          |  |      | 378,294   |   |      |   | 400,020  
|Other assets                                        |  |      | 9,109     |   |      |   | 12,524   
|                                                    |  |      |           |   |      |   |          
|Total interest income                               |  |      | 5,042,356 |   |      |   | 5,356,914
|                                                    |  |      |           |   |      |   |          
|Interest expense                                    |  |      |           |   |      |   |          
|Deposits                                            |  |      | 803,068   |   |      |   | 1,334,445
|Federal funds purchased                             |  |      | 39        |   |      |   |         
|U. S. Treasury demand note                          |  |      | 955       |   |      |   | 2,234    
|Federal Home Loan Bank advances                     |  |      | 74,822    |   |      |   | 74,000   
|                                                    |  |      |           |   |      |   |          
|Total interest expense                              |  |      | 878,884   |   |      |   | 1,410,679
|                                                    |  |      |           |   |      |   |          
|Net interest income                                 |  |      | 4,163,472 |   |      |   | 3,946,235
|Provision for loan losses                           |  |      | 203,583   |   |      |   | 234,000  
|                                                    |  |      |           |   |      |   |          
|Net interest income after provision for loan losses |  |      | 3,959,889 |   |      |   | 3,712,235
|                                                    |  |      |           |   |      |   |          
|Noninterest income                                  |  |      |           |   |      |   |          
|Service charges on deposit accounts                 |  |      | 610,863   |   |      |   | 650,400  
|Investment securities (losses) gains, net           |  |      | (3,306    | ) |      |   | 7,534    
|Other operating income                              |  |      | 314,998   |   |      |   | 342,258  
|                                                    |  |      |           |   |      |   |          
|Total noninterest income                            |  |      | 922,555   |   |      |   | 1,000,192
|                                                    |  |      |           |   |      |   |          
|Noninterest expense                                 |  |      |           |   |      |   |          
|Salaries and employee benefits                      |  |      | 1,698,357 |   |      |   | 1,692,802
|Occupancy and equipment, net                        |  |      | 597,202   |   |      |   | 610,133  
|Other operating expense                             |  |      | 668,697   |   |      |   | 702,748  
|                                                    |  |      |           |   |      |   |          
|Total noninterest expense                           |  |      | 2,964,256 |   |      |   | 3,005,683
|                                                    |  |      |           |   |      |   |          
|Income before income tax expense                    |  |      | 1,918,188 |   |      |   | 1,706,744
|Income tax expense                                  |  |      | 578,707   |   |      |   | 485,394  
|                                                    |  |      |           |   |      |   |          
|Net income                                          |  | $    | 1,339,481 |   |      | $ | 1,221,350
|                                                    |  |      |           |   |      |   |          
|Basic earnings per common share                     |  | $    | 0.40      |   |      | $ | 0.37     
|                                                    |  |      |           |   |      |   |          
|Weighted average common shares outstanding          |  |      | 3,312,539 |   |      |   | 3,333,139



See accompanying
notes to consolidated financial statements.



4



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##### Table of Contents

Southeastern Banking Corporation



Consolidated Statements of Shareholders Equity



(Unaudited)



|                                                            |  |             |           |                          |   |                  |  |   |               |   |  |                                     |            |   |       |   |           |   |  |   |            |  
|----------------------------------------------------------- |  | ----------- | --------- | ------------------------ | - | ---------------- |  | - | ------------- | - |  | ----------------------------------- | ---------- | - | ----- | - | --------- | - |  | - | ---------- | -
|                                                            |  | CommonStock |           | AdditionalPaid-InCapital |   | RetainedEarnings |  |   | TreasuryStock |   |  | AccumulatedOtherComprehensiveIncome |            |   | Total |  
|Balance, December 31, 2002                                  |  | $           | 4,475,996 |                          | $ | 1,391,723        |  | $ | 43,449,597    |   |  | $                                   | (4,124,263 | ) |       | $ | 2,336,117 |   |  | $ | 47,529,170 |  
|Comprehensive income:                                       |  |             |           |                          |   |                  |  |   |               |   |  |                                     |            |   |       |   |           |   |  |   |            |  
|Net income                                                  |  |             |          |                          |   |                 |  |   | 1,221,350     |   |  |                                     |           |   |       |   |          |   |  |   | 1,221,350  |  
|Other comprehensive income, net of tax effect of $239,197:  |  |             |           |                          |   |                  |  |   |               |   |  |                                     |            |   |       |   |           |   |  |   |            |  
|Change in unrealized gains on available-for-sale securities |  |             |          |                          |   |                 |  |   |              |   |  |                                     |           |   |       |   | (464,324  | ) |  |   | (464,324   | )
|                                                            |  |             |           |                          |   |                  |  |   |               |   |  |                                     |            |   |       |   |           |   |  |   |            |  
|Total comprehensive income                                  |  |             |           |                          |   |                  |  |   |               |   |  |                                     |            |   |       |   |           |   |  |   | 757,026    |  
|                                                            |  |             |           |                          |   |                  |  |   |               |   |  |                                     |            |   |       |   |           |   |  |   |            |  
|Cash dividends declared ($0.12 per share)                   |  |             |          |                          |   |                 |  |   | (399,978      | ) |  |                                     |           |   |       |   |          |   |  |   | (399,978   | )
|                                                            |  |             |           |                          |   |                  |  |   |               |   |  |                                     |            |   |       |   |           |   |  |   |            |  
|Balance, March 31, 2003                                     |  | $           | 4,475,996 |                          | $ | 1,391,723        |  | $ | 44,270,969    |   |  | $                                   | (4,124,263 | ) |       | $ | 1,871,793 |   |  | $ | 47,886,218 |  
|                                                            |  |             |           |                          |   |                  |  |   |               |   |  |                                     |            |   |       |   |           |   |  |   |            |  
|Balance, December 31, 2003                                  |  | $           | 4,475,996 |                          | $ | 1,391,723        |  | $ | 45,330,975    |   |  | $                                   | (4,600,167 | ) |       | $ | 1,166,730 |   |  | $ | 47,765,257 |  
|Comprehensive income:                                       |  |             |           |                          |   |                  |  |   |               |   |  |                                     |            |   |       |   |           |   |  |   |            |  
|Net income                                                  |  |             |          |                          |   |                 |  |   | 1,339,481     |   |  |                                     |           |   |       |   |          |   |  |   | 1,339,481  |  
|Other comprehensive income, net of tax effect of $263,932:  |  |             |           |                          |   |                  |  |   |               |   |  |                                     |            |   |       |   |           |   |  |   |            |  
|Change in unrealized gains on available-for-sale securities |  |             |          |                          |   |                 |  |   |              |   |  |                                     |           |   |       |   | 512,339   |   |  |   | 512,339    |  
|                                                            |  |             |           |                          |   |                  |  |   |               |   |  |                                     |            |   |       |   |           |   |  |   |            |  
|Total comprehensive income                                  |  |             |           |                          |   |                  |  |   |               |   |  |                                     |            |   |       |   |           |   |  |   | 1,851,820  |  
|                                                            |  |             |           |                          |   |                  |  |   |               |   |  |                                     |            |   |       |   |           |   |  |   |            |  
|Cash dividends declared ($0.12 1/2 per share)               |  |             |          |                          |   |                 |  |   | (414,068      | ) |  |                                     |           |   |       |   |          |   |  |   | (414,068   | )
|                                                            |  |             |           |                          |   |                  |  |   |               |   |  |                                     |            |   |       |   |           |   |  |   |            |  
|Balance, March 31, 2004                                     |  | $           | 4,475,996 |                          | $ | 1,391,723        |  | $ | 46,256,388    |   |  | $                                   | (4,600,167 | ) |       | $ | 1,679,069 |   |  | $ | 49,203,009 |  
|                                                            |  |             |           |                          |   |                  |  |   |               |   |  |                                     |            |   |       |   |           |   |  |   |            |  



See accompanying
notes to consolidated financial statements.



5



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##### Table of Contents

Southeastern Banking Corporation



Consolidated Statements of Cash Flows



(Unaudited)



|                                                                                  |  |      |             |   |      |   |             |  
|--------------------------------------------------------------------------------- |  | ---- | ----------- | - | ---- | - | ----------- | -
|Three Months Ended March 31,                                                      |  | 2004 |             |   | 2003 |  
|Operating activities                                                              |  |      |             |   |      |   |             |  
|Net income                                                                        |  | $    | 1,339,481   |   |      | $ | 1,221,350   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |             |   |      |   |             |  
|Provision for loan losses                                                         |  |      | 203,583     |   |      |   | 234,000     |  
|Depreciation                                                                      |  |      | 198,492     |   |      |   | 220,224     |  
|Amortization and accretion, net                                                   |  |      | 192,261     |   |      |   | 301,145     |  
|Investment securities losses (gains), net                                         |  |      | 3,306       |   |      |   | (7,534      | )
|Net losses on other real estate                                                   |  |      | 14,178      |   |      |   | 8,888       |  
|Changes in assets and liabilities:                                                |  |      |             |   |      |   |             |  
|Decrease in other assets                                                          |  |      | 129,752     |   |      |   | 313,677     |  
|Decrease in other liabilities                                                     |  |      | (310,434    | ) |      |   | (415,831    | )
|                                                                                  |  |      |             |   |      |   |             |  
|Net cash provided by operating activities                                         |  |      | 1,770,619   |   |      |   | 1,875,919   |  
|                                                                                  |  |      |             |   |      |   |             |  
|Investing activities                                                              |  |      |             |   |      |   |             |  
|Principal collections and maturities of investment securities:                    |  |      |             |   |      |   |             |  
|Held-to-maturity                                                                  |  |      | 1,305,500   |   |      |   | 170,000     |  
|Available-for-sale                                                                |  |      | 12,552,940  |   |      |   | 21,172,929  |  
|Proceeds from sales of investment securities held-to-maturity                     |  |      |            |   |      |   | 310,650     |  
|Proceeds from sales of investment securities available-for-sale                   |  |      | 1,659,084   |   |      |   |            |  
|Purchases of investment securities held-to-maturity                               |  |      | (788,166    | ) |      |   | (490,406    | )
|Purchases of investment securities available-for-sale                             |  |      | (20,796,056 | ) |      |   | (21,204,165 | )
|Net decrease (increase) in loans                                                  |  |      | 5,469,139   |   |      |   | (2,694,801  | )
|Proceeds from sales of other real estate                                          |  |      | 37,065      |   |      |   | 35,331      |  
|Capital expenditures, net                                                         |  |      | (75,657     | ) |      |   | (110,815    | )
|                                                                                  |  |      |             |   |      |   |             |  
|Net cash used in investing activities                                             |  |      | (636,151    | ) |      |   | (2,811,277  | )
|                                                                                  |  |      |             |   |      |   |             |  
|Financing activities                                                              |  |      |             |   |      |   |             |  
|Net increase in deposits                                                          |  |      | 9,075,444   |   |      |   | 5,097,555   |  
|Net increase (decrease) in U. S. Treasury demand note                             |  |      | 136,516     |   |      |   | (2,094,645  | )
|Dividends paid                                                                    |  |      | (2,120,025  | ) |      |   | (2,183,207  | )
|                                                                                  |  |      |             |   |      |   |             |  
|Net cash provided by financing activities                                         |  |      | 7,091,935   |   |      |   | 819,703     |  
|                                                                                  |  |      |             |   |      |   |             |  
|Net increase (decrease) in cash and cash equivalents                              |  |      | 8,226,403   |   |      |   | (115,655    | )
|Cash and cash equivalents at beginning of period                                  |  |      | 26,405,941  |   |      |   | 39,635,550  |  
|                                                                                  |  |      |             |   |      |   |             |  
|Cash and cash equivalents at end of period                                        |  | $    | 34,632,344  |   |      | $ | 39,519,895  |  
|                                                                                  |  |      |             |   |      |   |             |  
|Supplemental disclosure                                                           |  |      |             |   |      |   |             |  
|Cash paid during the period                                                       |  |      |             |   |      |   |             |  
|Interest                                                                          |  | $    | 979,564     |   |      | $ | 1,745,635   |  
|Noncash investing and financing activities                                        |  |      |             |   |      |   |             |  
|Real estate acquired through foreclosure                                          |  | $    | 63,585      |   |      | $ | 51,044      |  
|Loans made in connection with sales of foreclosed real estate                     |  |      |            |   |      |   |            |  



See accompanying
notes to consolidated financial statements.



6



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##### Table of Contents

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 accounting principles generally accepted in the United
States of America 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 ended March 31, 2004 are not necessarily indicative of trends or results to be expected for the full year 2004. 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, 2003. There have been no significant changes to the Companys Accounting
Policies as disclosed in the 2003 Form 10-K.



|2. | Recent Accounting Standards
|-- | ---------------------------



Accounting for Loans or Certain Debt Securities Acquired in a Transfer



In December 2003, the American Institute of Certified Public Accountants issued Statement of Position (SOP) 03-3,
Accounting for Loans or Certain Debt Securities Acquired in a Transfer. This statement addresses accounting for differences arising between contractual cash flows and cash flows expected to be collected from an investors initial
investment in loans or debt securities acquired in a transfer, if those differences relate to credit quality. SOP 03-3 also prohibits the carryover or creation of a valuation allowance in the initial accounting for loans acquired in a
transfer. The scope of SOP 03-3 includes loans acquired in purchase business combinations but not loans originated by the entity. The Company adopted SOP 03-3 effective January 1, 2004. Adoption of SOP 03-3 did not have a significant impact on the
consolidated financial statements.



Employers
Disclosures about Pensions and Other Postretirement Benefits  an amendment of FASB Statements No. 87, 88, and 106



In December 2003, the FASB revised SFAS No. 132, Employers Disclosures about Pensions and Other Postretirement Benefits  an amendment of
FASB Statements No. 87, 88, and 106. This statement requires additional disclosures about the assets, obligations, and cash flows of defined benefit pension and postretirement plans, as well as the expense recorded for such plans. Because the
Company has no defined benefit plans, the adoption of SFAS No. 149 did not have a current impact on the Companys consolidated financial statements.



7



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##### Table of Contents

|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations.
|------- | --------------------------------------------------------------------------------------



This Analysis should be read in conjunction with the 2003 Annual Report on Form 10-K and the consolidated financial statements & related notes on pages 3  7
of this quarterly filing. The Companys accounting policies, which are described in detail in Form 10-K, are integral to understanding the results reported. The Companys accounting policies require managements judgment in valuing
assets, liabilities, commitments, and contingencies. A variety of factors could affect the ultimate value that is obtained when earning income, recognizing an expense, recovering an asset, or relieving a liability. This Analysis contains
forward-looking statements with respect to business and financial matters. Actual results may vary from those contained in these forward-looking statements. See the section entitled Forward-Looking Statements within this Analysis.



Description of Business



Southeastern Banking Corporation (the Company), with assets exceeding $383,001,000, is a financial services company with operations in
southeast Georgia and northeast Florida. Southeastern Bank (SEB), 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 fifteen branch locations,
loan production office in Brunswick, Georgia, and ATM network. Services offered include traditional deposit and credit services, long-term mortgage originations, and credit cards. SEB also offers 24-hour delivery channels, including internet and
telephone banking, and through an affiliation with Raymond James Financial Services, provides insurance agent and investment brokerage services.



Financial Condition



Consolidated assets totaled $383,001,055 at March 31, 2004, up $8,633,321 or 2.31% from year-end 2003 and $3,939,726 or 1.04% from March 31, 2003. Asset growth was concentrated in investment securities and federal
funds sold. Specifically, investment securities grew $6,684,242 and federal funds sold, $5,730,000; loans declined $5,736,308. Loans comprised 56%, investment securities, 39%, and federal funds sold, 5%, of earning assets at March 31, 2004 versus
59%, 38%, and 3% at December 31, 2003. Overall, earning assets continued to approximate 92% of total assets at March 31, 2004. During the year-earlier period, total assets increased $921,700 or 0.24%. Loan growth was the primary factor in the 2003
results. Refer to the Liquidity section of this Analysis for details on deposits and other funding sources.



Investment Securities



On a carrying value basis, investment securities grew $6,684,242 or 5.07% since December 31, 2003. Purchases of securities during the three-month period approximated
$21,584,000, and redemptions, $15,521,000. Approximately 65% of securities transactions year-to-date were attributable to various issuers exercise of call options and other prepayments as a result of the current low-rate interest environment.
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. In conjunction with
asset/liability management, the Company continues to increase its proportionate holdings of mortgage-backed securities, corporates, and municipals when feasible to reduce its exposure to Agency securities with call features. At March 31, 2004,
mortgage-backed securities, corporates, and municipals comprised 31%, 11%, and 27% of the portfolio. Overall, securities comprised 39% of earning assets at March 31, 2004 versus 38% at year-end 2003. The portfolio yield decreased from 5.06% in 2003
to 4.93% in 2004 year-to-date, primarily from reinvesting accelerated prepayments and maturities at lower market rates.



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Management believes the credit quality of the investment portfolio remains sound, with 61.39% of the carrying value of
debt securities being backed by the U.S. Treasury or other U.S. Government-sponsored agencies at March 31, 2004. All of the Companys corporate bonds were rated A or higher by at least one nationally recognized rating agency at
March 31, 2004. The weighted average life of the portfolio remained less than 4.0 years at March 31, 2004. The amortized cost and estimated fair value of investment securities are delineated in the table below:



|                                                 |  |               |         |                 |   |                  |  |            |    |  |   |        
|------------------------------------------------ |  | ------------- | ------- | --------------- | - | ---------------- |  | ---------- | -- |  | - | -------
|Investment Securities by Category March 31,
2004 |  | AmortizedCost |         | UnrealizedGains |   | UnrealizedLosses |  | Fair Value
|(In thousands)                                   |  |               |         |                 |   |                  |  |           
|Available-for-sale:                              |  |               |         |                 |   |                  |  |            |    |  |   |        
|U. S. Government agencies                        |  | $             | 41,915  |                 | $ | 597              |  | $          | 17 |  | $ | 42,495 
|Mortgage-backed securities                       |  |               | 42,035  |                 |   | 497              |  |            | 35 |  |   | 42,497 
|Corporates                                       |  |               | 15,084  |                 |   | 1,501            |  |            |   |  |   | 16,585 
|                                                 |  |               |         |                 |   |                  |  |            |    |  |   |        
|                                                 |  |               | 99,034  |                 |   | 2,595            |  |            | 52 |  |   | 101,577
|Held-to-maturity:                                |  |               |         |                 |   |                  |  |            |    |  |   |        
|States and political subdivisions                |  |               | 36,866  |                 |   | 2,854            |  |            | 5  |  |   | 39,715 
|                                                 |  |               |         |                 |   |                  |  |            |    |  |   |        
|Total investment securities                      |  | $             | 135,900 |                 | $ | 5,449            |  | $          | 57 |  | $ | 141,292
|                                                 |  |               |         |                 |   |                  |  |            |    |  |   |        



As shown, the carrying value of the
investment portfolio reflected $5,392,681 in net unrealized gains at March 31, 2004; 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 2.75% or $5,648,020 at March 31, 2004 compared to year-end 2003. The net loans to deposits ratio aggregated 61.35% at March 31,
2004 versus 64.89% at December 31, 2003 and 54.93% a year ago. The decline in loans outstanding resulted primarily from pay-downs on large commercial loans in the normal course of business. Overall, the commercial portfolio fell $6,258,525 at March
31, 2004 compared to December 31, 2003. Basically all sectors of the commercial portfolio registered declines: Nonfarm real estate, agricultural, governmental, and other commercial/industrial loans within the portfolio fell $1,561,431, $2,425,287,
$401,806, and $1,870,001 during the three-month period. Balances in the consumer portfolio also declined $1,184,125 or 5.57% at March 31, 2004 compared to year-end 2003; real estate  mortgage loans fell $1,768,798 or 3.23%. Reduced demand was
the chief element in the 2004 results. Although balances in the commercial, consumer, and real estatemortgage portfolios declined, real estateconstruction loans grew 8.11% or $3,550,864 during 2004 year-to-date. The majority of the
growth within the construction portfolio was residential in nature. 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 mortgages for new construction, it traditionally does not hold or
service long-term mortgage loans for its own portfolio. Rather, permanent 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.



Loan volumes have improved since March 31, 2004, and despite economic uncertainties within the Companys markets, management is optimistic that loan volumes will trend higher in 2004 than 2003. Managerial
strategies 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.
Additionally, the Brunswick loan



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production office, which opened in February 2003, is expected to continue its strong origination volume in 2004. During
the same period last year, net loans grew 1.37% or $2,405,803. Growth in the commercial and real estatemortgage portfolios fueled the 2003 results. Loans outstanding are presented by type in the table below:



|                                         |  |               |         |                  |   |               |  |   |        
|---------------------------------------- |  | ------------- | ------- | ---------------- | - | ------------- |  | - | -------
|Loans by Category                        |  | March 31,2004 |         | December 31,2003 |   | March 31,2003
|(In thousands)                           |  |               |         |                  |   |              
|Commercial, financial, and agricultural1 |  | $             | 79,820  |                  | $ | 86,078        |  | $ | 80,832 
|Real estate  construction               |  |               | 47,321  |                  |   | 43,770        |  |   | 17,695 
|Real estate  residential mortgage2      |  |               | 53,013  |                  |   | 54,782        |  |   | 56,556 
|Consumer, including credit cards         |  |               | 20,081  |                  |   | 21,266        |  |   | 22,603 
|                                         |  |               |         |                  |   |               |  |   |        
|Loans, gross                             |  |               | 200,235 |                  |   | 205,896       |  |   | 177,686
|Unearned income                          |  |               | 203     |                  |   | 216           |  |   | 299    
|                                         |  |               |         |                  |   |               |  |   |        
|Loans, net                               |  | $             | 200,032 |                  | $ | 205,680       |  | $ | 177,387
|                                         |  |               |         |                  |   |               |  |   |        



|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 March 31, 2004, the Company had approximately $151,629,000 in real estate loans, and an additional $21,401,000 commitment to extend
credit on such loans. 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. On an aggregate basis, commitments to extend credit and standby letters of credit approximated $34,599,000 at March 31, 2004; because a substantial amount of these contracts expire without being drawn upon, total
contractual amounts do not represent future credit exposure or liquidity requirements. The Company did not fund or incur any losses on letters of credit in 2004 year-to-date.



Nonperforming Assets



Nonperforming assets consist of nonaccrual loans, restructured loans, and foreclosed real estate and other assets. Overall, nonperforming assets approximated $1,552,000
at March 31, 2004, down $44,000 or 2.76% from year-end 2003 and 24.51% from March 31, 2003. As a percent of total assets, nonperforming assets totaled 0.41% at March 31, 2004 versus 0.43% at year-end 2003 and 0.54% a year ago. No material credits
have been transferred or removed from nonperforming status during 2004 year-to-date. Industry or individual concentrations within nonaccrual balances at March 31, 2004 included:



| | a) | Industry concentrations: Approximately 32% or $426,000 of nonaccrual balances at March 31, 2004 pertained to the shrimping industry; charge-offs on these particular loans
approximated $28,000 during 2004 year-to-date. Collateral held varies but includes real estate and commercial fishing vessels. Management considers the allowance sufficient to absorb any additional losses that may result from these loans.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | b) | Individual concentrations: At March 31, 2004, nonaccrual balances also included loans to two other borrowers averaging $179,000 each. Due to the underlying collateral coverage, no
significant losses, if any, are expected on these two balances. Management is optimistic that the commercial real estate underlying the larger of these two credits will be sold by the second quarter of 2004.
| | -- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Refer to the subsection entitled Policy Note for criteria used by management in classifying
loans as nonaccrual. The allowance for loan losses approximated 2.94X the nonperforming loans balance at March 31, 2004 versus 2.76X at year-end 2003 and 2.07X a year ago. The modest increase in foreclosed



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real estate was due to normal foreclosure and sales activity. Management is unaware of any other material developments in
nonperforming assets at March 31, 2004 that should be presented or otherwise discussed.



Loans past due 90 days or more approximated $655,000, or less than 1% of net loans, at March 31, 2004. Management is unaware of any material concentrations within these past due balances. The table below provides further information about
nonperforming assets and loans past due 90 plus days:



|                                                                     |  |               |       |   |                  |   |       |               |  |   |       |  
|-------------------------------------------------------------------- |  | ------------- | ----- | - | ---------------- | - | ----- | ------------- |  | - | ----- | -
|Nonperforming Assets                                                 |  | March 31,2004 |       |   | December 31,2003 |   |       | March 31,2003 | 
|(In thousands)                                                       |  |               |       |   |                  |   |       |               | 
|Nonaccrual loans:                                                    |  |               |       |   |                  |   |       |               |  |   |       |  
|Commercial, financial, and agricultural                              |  | $             | 657   |   |                  | $ | 691   |               |  | $ | 963   |  
|Real estate  construction                                           |  |               | 55    |   |                  |   | 60    |               |  |   | 7     |  
|Real estate  mortgage                                               |  |               | 530   |   |                  |   | 560   |               |  |   | 664   |  
|Consumer, including credit cards                                     |  |               | 90    |   |                  |   | 77    |               |  |   | 101   |  
|                                                                     |  |               |       |   |                  |   |       |               |  |   |       |  
|Total nonaccrual loans                                               |  |               | 1,332 |   |                  | $ | 1,388 |               |  |   | 1,735 |  
|Restructured loans1                                                  |  |               |      |   |                  |   |      |               |  |   |      |  
|                                                                     |  |               |       |   |                  |   |       |               |  |   |       |  
|Total nonperforming loans                                            |  |               | 1,332 |   |                  | $ | 1,388 |               |  |   | 1,735 |  
|Foreclosed real estate2                                              |  |               | 213   |   |                  |   | 197   |               |  |   | 280   |  
|Other repossessed assets                                             |  |               | 7     |   |                  |   | 11    |               |  |   | 41    |  
|                                                                     |  |               |       |   |                  |   |       |               |  |   |       |  
|Total nonperforming assets                                           |  | $             | 1,552 |   |                  | $ | 1,596 |               |  | $ | 2,056 |  
|                                                                     |  |               |       |   |                  |   |       |               |  |   |       |  
|Accruing loans past due 90 days or more                              |  | $             | 655   |   |                  | $ | 961   |               |  | $ | 1,249 |  
|                                                                     |  |               |       |   |                  |   |       |               |  |   |       |  
|Ratios:                                                              |  |               |       |   |                  |   |       |               |  |   |       |  
|Nonperforming loans to net loans                                     |  |               | 0.67  | % |                  |   | 0.67  | %             |  |   | 0.98  | %
|                                                                     |  |               |       |   |                  |   |       |               |  |   |       |  
|Nonperforming assets to net loans plus foreclosed/repossessed assets |  |               | 0.78  | % |                  |   | 0.78  | %             |  |   | 1.16  | %
|                                                                     |  |               |       |   |                  |   |       |               |  |   |       |  



|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-collateralized and in the process of collection; b) collection of recorded interest or principal is not anticipated; or c) income on the loan is recognized on a cash basis 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 placed on nonaccrual status is reversed. Interest income on nonaccrual loans, if subsequently recognized, is recorded on a cash basis. No interest is subsequently recognized on 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.



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Allowance for Loan Losses



The Company continuously reviews its loan portfolio and maintains an allowance for loan losses available to absorb losses inherent in the
portfolio. The three-month provision for loan losses at March 31, 2004 totaled $203,583, which exceeded net charge-offs of $115,295 by $88,288. The comparable provision and charge-off amounts at March 31, 2003 were $234,000 and $237,954. Net
charge-offs represented 0.23% of average loans at March 31, 2004 compared to 0.54% at March 31, 2003 and 0.07% in 2002. No single charge-off exceeded $30,000 at March 31, 2004. The Company is committed to the early recognition of problem loans and
to an appropriate and adequate level of allowance. The adequacy of the allowance is further discussed in the next subsection of this Analysis. Activity in the allowance is presented in the table below:



|                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------ |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|Allowance for Loan Losses Three Months
Ended March 31, |  | 2004 |         |   | 2003 |   |         | 2002 | 
|(Dollars in thousands)                                 |  |      |         |   |      |   |         |      | 
|Allowance for loan losses at beginning of year         |  | $    | 3,833   |   |      | $ | 3,601   |      |  | $ | 3,135   |  
|Provision for loan losses                              |  |      | 204     |   |      |   | 234     |      |  |   | 300     |  
|Charge-offs:                                           |  |      |         |   |      |   |         |      |  |   |         |  
|Commercial, financial, and agricultural                |  |      | 40      |   |      |   | 123     |      |  |   | 6       |  
|Real estate  construction                             |  |      | 12      |   |      |   | 3       |      |  |   |        |  
|Real estate  mortgage                                 |  |      | 24      |   |      |   | 56      |      |  |   |        |  
|Consumer, including credit cards                       |  |      | 98      |   |      |   | 105     |      |  |   | 106     |  
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Total charge-offs                                      |  |      | 174     |   |      |   | 287     |      |  |   | 112     |  
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Recoveries:                                            |  |      |         |   |      |   |         |      |  |   |         |  
|Commercial, financial, and agricultural                |  |      | 2       |   |      |   | 5       |      |  |   | 2       |  
|Real estate  construction                             |  |      |        |   |      |   |        |      |  |   |        |  
|Real estate  mortgage                                 |  |      | 15      |   |      |   | 4       |      |  |   | 1       |  
|Consumer, including credit cards                       |  |      | 41      |   |      |   | 40      |      |  |   | 77      |  
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Total recoveries                                       |  |      | 58      |   |      |   | 49      |      |  |   | 80      |  
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Net charge-offs                                        |  |      | 116     |   |      |   | 238     |      |  |   | 32      |  
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Allowance for loan losses at end of period             |  | $    | 3,921   |   |      | $ | 3,597   |      |  | $ | 3,403   |  
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Net loans outstanding1 at end of period                |  | $    | 200,032 |   |      | $ | 177,387 |      |  | $ | 174,713 |  
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Average net loans outstanding1 at end of period        |  | $    | 203,256 |   |      | $ | 175,880 |      |  | $ | 172,556 |  
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Ratios:                                                |  |      |         |   |      |   |         |      |  |   |         |  
|Allowance to net loans                                 |  |      | 1.96    | % |      |   | 2.03    | %    |  |   | 1.95    | %
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Net charge-offs to average loans                       |  |      | 0.23    | % |      |   | 0.54    | %    |  |   | 0.07    | %
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Provision to average loans                             |  |      | 0.40    | % |      |   | 0.53    | %    |  |   | 0.70    | %
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Recoveries to total charge-offs                        |  |      | 33.33   | % |      |   | 17.07   | %    |  |   | 71.43   | %
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  



|1 | Net of unearned income
|- | ----------------------



The Company prepares a comprehensive analysis of the allowance for loan losses at least quarterly. SEBs Board of Directors is responsible for affirming the
allowance methodology and assessing the general and specific allowance factors in relation to estimated and actual net charge-off trends. The allowance for loan losses consists of three elements: a) specific allowances for individual loans; b)
general allowances for loan pools based on historical loan loss experience and current trends; and c) allowances based on economic conditions and other risk factors in the Companys markets. The specific allowance is based on a regular analysis
of classified loans where the internal risk ratings are below a predetermined classification. The specific allowance established for these classified loans is based on a careful analysis of probable and potential sources of repayment, including cash
flow, collateral value, and guarantor capacity. The general allowance is determined by the mix of loan products within the



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portfolio, an internal loan grading process, and associated allowance factors. These general allowance factors are
updated at least annually and are based on a statistical loss analysis and current loan charge-off trends. The loss analysis examines loss experience for loan portfolio segments in relation to internal loan grades. Charge-off trends are analyzed for
homogeneous loan categories (e.g., residential real estate, consumer loans, etc.). While formal loss and charge-off trend analyses are conducted annually, the Company continually monitors credit quality in all portfolio segments and revises the
general allowance factors whenever necessary in order to address improving or deteriorating credit quality trends or specific risks associated with a given loan category. The third element, comprised of economic conditions, concentrations, and other
risk factors, is based on marketplace conditions and/or events that may affect loan repayment in the near-term. This element requires a high degree of managerial judgment to anticipate the impact that economic trends, legislative or governmental
actions, or other unique market and/or portfolio issues will have on credit losses. Consideration of other risk factors typically includes such issues as recent loss experience in specific portfolio segments, trends in loan quality, changes in
market focus, and concentrations of credit. These factors are based on the influence of current external variables on portfolio risk, so there will typically be some movement between this element and the specific allowance component during various
stages of the economic cycle. Because of their subjective nature, these risk factors are carefully reviewed by management and revised as conditions indicate. Based on its analyses, management believes the allowance was adequate at March 31, 2004.



Other Commitments



Other than construction of a future branch site in Brunswick, Georgia near the I-95 corridor
and renovation of other SEB offices, the Company had no material plans or commitments for capital expenditures as of March 31, 2004.



Liquidity



Liquidity is managed to ensure sufficient cash flow to satisfy demands for credit, deposit withdrawals, and other corporate needs. The Companys sources of funds include a large, stable deposit base and secured
advances from the Federal Home Loan Bank. Additional liquidity is provided by payments and maturities, including both principal and interest, of the loan and investment securities portfolios. At March 31, 2004, loans1and investment securities with carrying values exceeding $79,512,000 and $12,278,000 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 other 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 91% of the funding base at March 31, 2004,
virtually unchanged from 2003 levels. Borrowed funds, which variously encompass U.S. Treasury demand notes, federal funds purchased, and FHLB advances, totaled $5,870,452 at March 31, 2004 versus $5,733,936 at year-end 2003. More specifically, the
maximum amount of U.S. Treasury demand notes available to the Company at March 31, 2004 totaled $3,000,000, of which $870,452 was outstanding. Unused borrowings under unsecured federal funds lines of credit from other banks, each with varying terms
and expiration dates, totaled $22,000,000. Additionally, under a credit facility with the FHLB, the Company can borrow up to 16% of SEBs total assets; at March 31, 2004, unused borrowings approximated $56,268,000. 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



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cash from operations derives primarily from net income adjusted for noncash items such as depreciation and amortization,
accretion, and the provision for loan losses.



Management believes the Company
has the funding capacity, from operating activities or otherwise, to meet its financial commitments in 2004. 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 grew $9,075,444 or 2.86% since year-end 2003. More than 91%, or $8,306,947 of the
deposit growth at March 31 was attributable to interest-bearing balances. Notably, customers continue to utilize savings as an alternative to time certificates in the current low-rate environment; savings balances exceeded 35% of interest-bearing
balances at March 31, 2004. Overall, interest-bearing deposits comprised 79.37%, and noninterest-bearing deposits, 20.63%, of total deposits at March 31, 2004. The distribution of interest-bearing balances at March 31, 2004 and certain comparable
quarter-end dates is shown in the table below:



|                                  |  |                |         |                 |                   |   |          |                |                 |  |        |          |  |                 |         |  |        |  
|--------------------------------- |  | -------------- | ------- | --------------- | ----------------- | - | -------- | -------------- | --------------- |  | ------ | -------- |  | --------------- | ------- |  | ------ | -
|                                  |  | March 31, 2004 |         |                 | December 31, 2003 |   |          | March 31, 2003 |                
|Deposits                          |  | Balances       |         | Percentof Total |                   |   | Balances |                | Percentof Total |  |        | Balances |  | Percentof Total |        
|(Dollars in thousands)            |  |                |         |                 |                   |   |          |                |                 |  |        |          |  |                 |         |  |        |  
|                                  |  |                |         |                 |                   |  
|Interest-bearing demand deposits1 |  | $              | 85,111  |                 | 32.89             | % |          | $              | 85,797          |  | 33.25  | %        |  | $               | 80,312  |  | 30.77  | %
|Savings                           |  |                | 97,034  |                 | 37.50             | % |          |                | 94,189          |  | 36.51  | %        |  |                 | 100,640 |  | 38.56  | %
|Time certificates < $100,000      |  |                | 48,471  |                 | 18.73             | % |          |                | 49,300          |  | 19.11  | %        |  |                 | 53,429  |  | 20.47  | %
|Time certificates >= $100,000     |  |                | 28,162  |                 | 10.88             | % |          |                | 28,724          |  | 11.13  | %        |  |                 | 26,632  |  | 10.20  | %
|                                  |  |                |         |                 |                   |   |          |                |                 |  |        |          |  |                 |         |  |        |  
|Total interest-bearing deposits   |  | $              | 258,778 |                 | 100.00            | % |          | $              | 258,010         |  | 100.00 | %        |  | $               | 261,013 |  | 100.00 | %
|                                  |  |                |         |                 |                   |   |          |                |                 |  |        |          |  |                 |         |  |        |  



|1 | NOW and money market accounts.
|- | ------------------------------



Deposits of one local governmental body comprised approximately $22,146,000 and $27,225,000 of the overall deposit base at March 31, 2004 and December 31, 2003. Brokered
deposits totaled $594,000 at both March 31, 2004 and year-end 2003.



Approximately 83% of time certificates at March 31, 2004 were scheduled to mature within the next twelve months. The composition of average deposits and the fluctuations therein at March 31 for the last two years is shown in the Average
Balances table included in the Operations section of this Analysis.



FHLB Advances



Advances outstanding with the
FHLB totaled $5,000,000 at March 31, 2004, unchanged from year-end 2003. 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 anytime at the option of the FHLB. Year-to-date, interest expense on the advance approximated $75,000. Mortgage-backed securities with aggregate carrying values of approximately $5,138,000 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



14



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##### Table of Contents

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 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 March 31, 2004:



|                                                                        |  |                  |          |    |            |   |          |               |  |   |                     |   |  |       |        |   |  |   |        
|----------------------------------------------------------------------- |  | ---------------- | -------- | -- | ---------- | - | -------- | ------------- |  | - | ------------------- | - |  | ----- | ------ | - |  | - | -------
|                                                                        |  | Repricing Within |          |    |           
|Interest Rate Sensitivity March 31,
2004                                |  | 03Months        |          |    | 412Months |   |          | OneFiveYears |  |   | More Than FiveYears |   |  | Total
|(Dollars in thousands)                                                  |  |                  |          |    |            |   |          |               |  |   |                     |   |  |       |        |   |  |   |        
|                                                                        |  |                  |          |    |           
|Interest Rate Sensitive Assets                                          |  |                  |          |    |            |   |          |               |  |   |                     |   |  |       |        |   |  |   |        
|Federal funds sold                                                      |  | $                | 16,184   |    |            |   |          |               |  |   |                     |   |  |       |        |   |  | $ | 16,184 
|Securities1                                                             |  |                  | 3,779    |    |            | $ | 9,741    |               |  | $ | 75,367              |   |  | $     | 47,013 |   |  |   | 135,900
|Loans, gross2                                                           |  |                  | 82,891   |    |            |   | 25,408   |               |  |   | 79,185              |   |  |       | 11,419 |   |  |   | 198,903
|Other assets                                                            |  |                  | 1,115    |    |            |   |         |               |  |   |                    |   |  |       |       |   |  |   | 1,115  
|                                                                        |  |                  |          |    |            |   |          |               |  |   |                     |   |  |       |        |   |  |   |        
|Total interest rate sensitive assets                                    |  |                  | 103,969  |    |            |   | 35,149   |               |  |   | 154,552             |   |  |       | 58,432 |   |  |   | 352,102
|                                                                        |  |                  |          |    |            |   |          |               |  |   |                     |   |  |       |        |   |  |   |        
|Interest Rate Sensitive Liabilities                                     |  |                  |          |    |            |   |          |               |  |   |                     |   |  |       |        |   |  |   |        
|Deposits3                                                               |  | $                | 197,564  |    |            |   | 48,235   |               |  |   | 12,919              |   |  |       | 60     |   |  |   | 258,778
|U.S. Treasury demand note                                               |  |                  | 870      |    |            |   |         |               |  |   |                    |   |  |       |       |   |  |   | 870    
|Federal Home Loan Bank advances                                         |  |                  |         |    |            |   |         |               |  |   |                    |   |  |       | 5,000  |   |  |   | 5,000  
|                                                                        |  |                  |          |    |            |   |          |               |  |   |                     |   |  |       |        |   |  |   |        
|Total interest rate sensitive liabilities                               |  |                  | 198,434  |    |            |   | 48,235   |               |  |   | 12,919              |   |  |       | 5,060  |   |  |   | 264,648
|                                                                        |  |                  |          |    |            |   |          |               |  |   |                     |   |  |       |        |   |  |   |        
|Interest rate sensitivity gap                                           |  | $                | (94,465  | )  |            | $ | (13,086  | )             |  | $ | 141,633             |   |  | $     | 53,372 |   |  | $ | 87,454 
|                                                                        |  |                  |          |    |            |   |          |               |  |   |                     |   |  |       |        |   |  |   |        
|Cumulative gap                                                          |  | $                | (94,465  | )  |            | $ | (107,551 | )             |  | $ | 34,082              |   |  | $     | 87,454 |   |  |   |        
|                                                                        |  |                  |          |    |            |   |          |               |  |   |                     |   |  |       |        |   |  |   |        
|Ratio of cumulative gap to total rate sensitive assets                  |  |                  | (26.83   | )% |            |   | (30.55   | )%            |  |   | 9.68                | % |  |       | 24.84  | % |  |   |        
|                                                                        |  |                  |          |    |            |   |          |               |  |   |                     |   |  |       |        |   |  |   |        
|Ratio of cumulative rate sensitive assets to rate sensitive liabilities |  |                  | (52.39   | )% |            |   | (56.40   | )%            |  |   | 113.13              | % |  |       | 133.05 | % |  |   |        
|                                                                        |  |                  |          |    |            |   |          |               |  |   |                     |   |  |       |        |   |  |   |        
|Cumulative gap at December 31, 20034                                    |  | $                | (102,025 | )  |            | $ | (107,190 | )             |  | $ | 32,495              |   |  | $     | 82,296 |   |  |   |        
|                                                                        |  |                  |          |    |            |   |          |               |  |   |                     |   |  |       |        |   |  |   |        
|Cumulative gap at March 31, 20034                                       |  | $                | (107,134 | )  |            | $ | (122,209 | )             |  | $ | 30,623              |   |  | $     | 80,649 |   |  |   |        
|                                                                        |  |                  |          |    |            |   |          |               |  |   |                     |   |  |       |        |   |  |   |        



|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.
|- | --------------------------------------------------------------------------------------------------

|4 | Certain prior year amounts have been restated to conform with the current year presentation.
|- | --------------------------------------------------------------------------------------------



15



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##### Table of Contents

As shown in the table above, the Companys gap position remained negative through the short-term repricing intervals
at March 31, 2004, totaling $(94,465) at three months and $(107,551) through one-year. Excluding traditionally nonvolatile NOW and savings balances from the gap calculation, the cumulative gap at March 31, 2004 totaled $56,053 at three months and
$42,967 at twelve months. The narrowing of the short-term gap position at March 31, 2004 versus year-end 2003 was primarily attributable to an increase in federal funds sold. The gap position is expected to widen moderately during 2004 as federal
funds sold are reallocated to other earning assets. 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 loans2and securities1will 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 7.50% 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, infrequently reprice and historically, have had 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 the last few years, 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 can materially impact estimated results. 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.



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 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.



16



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##### Table of Contents

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.



The Companys capital ratios for the most recent periods are presented in the table below:



|                                        |  |               |         |   |                  |   |         |               |  |   |         |  
|--------------------------------------- |  | ------------- | ------- | - | ---------------- | - | ------- | ------------- |  | - | ------- | -
|Capital Ratios                          |  | March 31,2004 |         |   | December31, 2003 |   |         | March 31,2003 | 
|(Dollars in thousands)                  |  |               |         |   |                  |   |         |               |  |   |         |  
|                                        |  |               |        
|Tier 1 capital:                         |  |               |         |   |                  |   |         |               |  |   |         |  
|Realized shareholders equity           |  | $             | 47,524  |   |                  | $ | 46,599  |               |  | $ | 46,014  |  
|Intangible assets and other adjustments |  |               | (671    | ) |                  |   | (703    | )             |  |   | (816    | )
|                                        |  |               |         |   |                  |   |         |               |  |   |         |  
|Total Tier 1 capital                    |  |               | 46,853  |   |                  |   | 45,896  |               |  |   | 45,198  |  
|                                        |  |               |         |   |                  |   |         |               |  |   |         |  
|Tier 2 capital:                         |  |               |         |   |                  |   |         |               |  |   |         |  
|Portion of allowance for loan losses    |  |               | 2,970   |   |                  |   | 3,020   |               |  |   | 2,722   |  
|Allowable long-term debt                |  |               |        |   |                  |   |        |               |  |   |        |  
|                                        |  |               |         |   |                  |   |         |               |  |   |         |  
|Total Tier 2 capital                    |  |               | 2,970   |   |                  |   | 3,020   |               |  |   | 2,722   |  
|                                        |  |               |         |   |                  |   |         |               |  |   |         |  
|Total risk-based capital                |  | $             | 49,823  |   |                  | $ | 48,916  |               |  | $ | 47,920  |  
|                                        |  |               |         |   |                  |   |         |               |  |   |         |  
|Risk-weighted assets                    |  | $             | 236,675 |   |                  | $ | 240,749 |               |  | $ | 216,872 |  
|                                        |  |               |         |   |                  |   |         |               |  |   |         |  
|Risk-based ratios:                      |  |               |         |   |                  |   |         |               |  |   |         |  
|Tier 1 capital                          |  |               | 19.80   | % |                  |   | 19.06   | %             |  |   | 20.84   | %
|                                        |  |               |         |   |                  |   |         |               |  |   |         |  
|Total risk-based capital                |  |               | 21.05   | % |                  |   | 20.32   | %             |  |   | 22.10   | %
|                                        |  |               |         |   |                  |   |         |               |  |   |         |  
|Tier 1 leverage ratio                   |  |               | 12.58   | % |                  |   | 12.56   | %             |  |   | 12.19   | %
|                                        |  |               |         |   |                  |   |         |               |  |   |         |  
|Realized shareholders equity to assets |  |               | 12.47   | % |                  |   | 12.49   | %             |  |   | 12.23   | %
|                                        |  |               |         |   |                  |   |         |               |  |   |         |  



Book value per share grew $0.28 or
1.99% during the first three months of 2004 to $14.35 at March 31, 2004. Dividends declared totaled $0.12 1/2, up 4.17% or $0.005 from 2003, which was up 4.35% from 2002. For more specifics 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 $512,339 at March 31, 2004 compared to year-end 2003. Movement in interest rates remained
a dominant factor in the fair value results. Further details on investment securities and associated fair values are contained in the Financial Condition section of this Analysis.



Under existing authorization, the Company can purchase up to $10,000,000 in treasury stock. From 2000  2003, the Company purchased
268,258 shares on the open market and through private transactions at an average price of $17.15 per share. No treasury stock purchases have been made in 2004 year-to-date. The maximum consideration available for additional purchases, at prices to
be determined in the future,



17



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is $5,399,833. Any acquisition of additional shares will be dictated by market conditions. There is no expiration date
for the treasury authorization.



Refer to the Financial Condition and Liquidity
sections of this Analysis for details on planned capital expenditures.



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 25% or $652,750 of the $2,611,000 in cash dividends available to the Company in 2004 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 2004 first quarter totaled $1,339,481, up $118,131 or 9.66% from 2003. On a per share basis, quarterly earnings grew $0.03 to $0.40 at March 31, 2004 from $0.37 in 2003. Likewise, the return on
beginning equity increased 69 basis points to 11.50% at March 31, 2004 from 10.81% a year ago. A $217,237 improvement in net interest income was the dominant factor in the 2004 results year-to-date. Variations in operating results are further
discussed within the next two subsections of this Analysis.



Net Interest Income



Net interest income
increased $217,237 or 5.50% during the first quarter of 2004 compared to 2003. The net interest margin approximated 5.05% at March 31, 2004 versus 4.82% a year ago; the interest rate spread, 4.72% versus 4.31%. Reductions in interest expense fueled
the 2004 results, because interest income on all earning assets other than loans declined from 2003 results. Specifically, interest earnings on taxable securities, tax-exempt securities, federal funds sold, and other earning assets declined
$262,634, $21,726, $28,871, and $3,415 from same period results in 2003 while earnings on loans increased a negligible $2,088 or 0.06%. Overall declines in asset yields and, to a lesser extent, shifts in earning assets precipitated the 2004 results.
On average, asset yields totaled 6.07% at March 31, 2004, down 38 basis points from 2003. Interest expense on deposits and other borrowed funds fell $531,795 during the first quarter of 2004 versus 2003. Cost of funds dropped 79 basis points from
2003 levels, totaling 1.35% at March 31, 2004 versus 2.14% at March 31, 2003. Expected declines in yields on investment securities, as discussed in the Financial Condition section of this Analysis, will exert pressure on net interest results in
2004. Continued reallocation of federal funds sold balances to other earning assets and anticipated loan growth in Brunswick and other markets are expected to alleviate declines in securities yields.



The intense competition for loans and deposits continues in 2004 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



18



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##### Table of Contents

sources of financing when feasible. Comparative details about average balances, income/expense, and average yields earned
and rates paid on interest-earning assets and liabilities for the last two years are provided in the table below:



Selected Average Balances, Income/Expense, and Average Yields Earned and Rates Paid



|                                                                    |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  
|------------------------------------------------------------------- |  | --------------- | ------- | -------------- | ---- | ------------ |  | ---- | --------------- |  | -------------- | ------- | ------------ | - | ----- |  | ---- | -
|                                                                    |  | 2004            |         |                | 2003 |             
|Average Balances6 Three Months
Ended March 31,                      |  | AverageBalances |         | Income/Expense |      | Yields/Rates |  |      | AverageBalances |  | Income/Expense |         | Yields/Rates |  
|(Dollars in thousands)                                              |  |                 |         |                |      |              |  |      |                 |  |                |         |              |  
|Assets                                                              |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  
|Interest-earning assets:                                            |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  
|Loans, net1,2,4                                                     |  | $               | 203,256 |                | $    | 3,587        |  | 7.06 | %               |  | $              | 175,880 |              | $ | 3,595 |  | 8.18 | %
|Federal funds sold                                                  |  |                 | 9,731   |                |      | 22           |  | 0.90 | %               |  |                | 17,440  |              |   | 51    |  | 1.17 | %
|Taxable investment securities3                                      |  |                 | 97,391  |                |      | 1,050        |  | 4.31 | %               |  |                | 116,507 |              |   | 1,313 |  | 4.51 | %
|Tax-exempt investment securities3,4                                 |  |                 | 34,185  |                |      | 573          |  | 6.70 | %               |  |                | 35,176  |              |   | 606   |  | 6.89 | %
|Other assets                                                        |  |                 | 983     |                |      | 9            |  | 3.66 | %               |  |                | 1,087   |              |   | 13    |  | 4.78 | %
|                                                                    |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  
|Total interest-earning assets                                       |  | $               | 345,546 |                | $    | 5,241        |  | 6.07 | %               |  | $              | 346,090 |              | $ | 5,578 |  | 6.45 | %
|                                                                    |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  
|Liabilities                                                         |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  
|Interest-bearing liabilities:                                       |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  
|Interest-bearing demand deposits5                                   |  | $               | 82,534  |                | $    | 190          |  | 0.92 | %               |  | $              | 76,814  |              | $ | 308   |  | 1.60 | %
|Savings                                                             |  |                 | 94,982  |                |      | 209          |  | 0.88 | %               |  |                | 99,148  |              |   | 403   |  | 1.63 | %
|Time deposits                                                       |  |                 | 77,242  |                |      | 404          |  | 2.09 | %               |  |                | 82,135  |              |   | 623   |  | 3.03 | %
|Federal funds purchased                                             |  |                 | 22      |                |      | 1            |  | 1.10 | %               |  |                |        |              |   |      |  |     |  
|U. S. Treasury demand note                                          |  |                 | 514     |                |      | 1            |  | 0.74 | %               |  |                | 719     |              |   | 2     |  | 1.24 | %
|Federal Home Loan Bank advances                                     |  |                 | 5,000   |                |      | 75           |  | 6.00 | %               |  |                | 5,000   |              |   | 74    |  | 6.00 | %
|                                                                    |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  
|Total interest-bearing liabilities                                  |  | $               | 260,294 |                | $    | 880          |  | 1.35 | %               |  | $              | 263,816 |              | $ | 1,410 |  | 2.14 | %
|                                                                    |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  
|Excess of interest-earning assets over interest-bearing liabilities |  | $               | 85,252  |                |      |              |  |      |                 |  | $              | 82,274  |              |   |       |  |      |  
|                                                                    |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  
|Interest rate spread                                                |  |                 |         |                |      |              |  | 4.72 | %               |  |                |         |              |   |       |  | 4.31 | %
|                                                                    |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  
|Net interest income                                                 |  |                 |         |                | $    | 4,361        |  |      |                 |  |                |         |              | $ | 4,168 |  |      |  
|                                                                    |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  
|Net interest margin                                                 |  |                 |         |                |      |              |  | 5.05 | %               |  |                |         |              |   |       |  | 4.82 | %
|                                                                    |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  



|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.
|- | --------------------------------------------------------------



Noninterest Income and Expense



Noninterest income declined $77,637 or 7.76% during the first quarter of 2004 compared to 2003. A $39,537 or 6.08% decline in service charges on deposit accounts and a
$27,260 drop in other operating income were the main factors in the three-month results. Declines in mortgage origination fees accounted for 89% of the drop in other operating income year-to-date. By type and amount, the chief components of other
operating income at March 31, 2004 were mortgage origination fees, $107,531; surcharge fees  ATM, $44,017; commissions on the sale of credit life insurance, $31,952; income on



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sale of check products, $30,385; and safe deposit box rentals, $18,906. Together, these five income items comprised
73.90% of other operating income at March 31, 2004. In 2003, these same five income components comprised 75.60% of other operating income. Overall, noninterest expense declined $41,427 or 1.38% in 2004 year-to-date. Salaries and employee benefits
increased a negligible $5,555 or 0.33% at March 31, 2004 compared to 2003. The vast majority, or 84%, of employee expenses remained concentrated in salaries and other direct compensation, including related payroll taxes, at March 31, 2004.
Profit-sharing accruals and other fringe benefits constituted the remaining 7% and 9% of employee expenses. The division of employee expenses between compensation, profit-sharing, and other fringe benefits remained consistent with historical norms
in 2004. When compared to the prior year, net occupancy and equipment expense declined 2.12% or $12,931 during the first three months of 2004 compared to 2003. Other operating expenses fell $34,051 or 4.85% at March 31, 2004 compared to 2003; a
$24,246 decline in advertising expense accounted for the bulk of the 2004  2003 fluctuation. Besides advertising expense, which approximated $69,000 in 2004 and $93,000 in 2003, no individual component of other operating expenses aggregated or
exceeded 10% of the total in 2004 or 2003. Costs associated with the Companys planned full-service facility in Brunswick and additional staff in various administrative positions are expected to increase noninterest expense approximately
$300,000 in 2004 compared to 2003.



Recent Accounting Pronouncements



Recent accounting pronouncements affecting the Company are discussed in
Note 2 to the consolidated financial statements and, further, in the 2003 Form 10-K previously filed with the Securities and Exchange Commission.



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 press releases. 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.



Forward-looking statements involve inherent risks and uncertainties. Certain factors that
could cause actual results to differ materially from estimates contained in or underlying forward-looking statements include:



| |  ̈ | Competitive pressures between depository and other financial institutions may increase significantly.
| | - | -----------------------------------------------------------------------------------------------------



| |  ̈ | Changes in the interest rate environment may reduce margins and impact funding sources.
| | - | ---------------------------------------------------------------------------------------



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| |  ̈ | General economic or business conditions in the geographic regions and industry in which the Company operates may lead to a deterioration in credit quality or a reduced demand for
credit.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  ̈ | Legislative or regulatory changes, including changes in accounting standards, monetary policies, and taxation requirements, may adversely affect the Companys business.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Other factors include:



| |  ̈ | Changes in consumer spending and saving habits as well as real estate markets.
| | - | ------------------------------------------------------------------------------



| |  ̈ | 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.
| | - | --------------------------------------------------------------------------------------------------



| |  ̈ | The effect of mergers, acquisitions, and/or dispositions and their integration into the Company.
| | - | ------------------------------------------------------------------------------------------------



| |  ̈ | 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. Many of the factors that will determine
actual financial performance and values are beyond the Companys ability to predict or control. This Analysis should be read in conjunction with the consolidated financial statements and related notes.



|Item 3. | Quantitative and Qualitative Disclosures about Market Risk.
|------- | -----------------------------------------------------------



The discussion on market risk is included in the Interest Rate and Market Risk/Interest Rate Sensitivity section of Part I, Item 2.



|Item 4. | Controls and Procedures.
|------- | ------------------------



A review and evaluation was performed by the Companys management, including the Companys Chief Executive Officer (the CEO) and Chief Financial Officer (the
CFO), of the effectiveness of the design and operation of the Companys disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) or 15(d)-15(e)) as of the end of the period covered by this quarterly report. Based on that
review and evaluation, the CEO and CFO have concluded that the Companys current disclosure controls and procedures, as designed and implemented, were effective.



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Part IIOther Information



|Item 1. | Legal Proceedings.
|------- | ------------------



None



|Item 2. | Changes in Securities, Use of Proceeds, and Issuer Purchases of Equity Securities.
|------- | ----------------------------------------------------------------------------------



None



|Item 3. | Defaults Upon Senior Securities.
|------- | --------------------------------



None



|Item 4. | Submission of Matters to a Vote of Security Holders.
|------- | ----------------------------------------------------



The Annual Meeting of Shareholders (the Meeting) was held on May 12, 2004. At the Meeting, the following individuals were elected directors:



|                          |  |           |  |         
|------------------------- |  | --------- |  | --------
|Directors                 |  | For       |  | Withheld
|Alyson G. Beasley         |  | 2,584,007 |  | 6,635   
|Leslie H. Blair           |  | 2,584,007 |  | 6,635   
|David H. Bluestein        |  | 2,584,007 |  | 6,635   
|Gene F. Brannen           |  | 2,584,007 |  | 6,635   
|Cornelius P. Holland, III |  | 2,576,087 |  | 14,555  
|Alva J. Hopkins, III      |  | 2,576,087 |  | 14,555  
|G. Norris Johnson         |  | 2,584,007 |  | 6,635   



The shareholders also
approved the following proposals:



(a) Setting the number of
directors at a 9 member maximum, with 2 to remain vacant until the elected Board deems it in the Companys best interest to fill one or more of such vacancies.



|          |  |         |  |         |  |                 
|--------- |  | ------- |  | ------- |  | ----------------
|For       |  | Against |  | Abstain |  | Broker Non-Votes
|2,564,544 |  | 26,098  |  |        |  |                



(b)
The appointment of independent auditors by the Audit Committee for fiscal year 2004.



|          |  |         |  |         |  |                 
|--------- |  | ------- |  | ------- |  | ----------------
|For       |  | Against |  | Abstain |  | Broker Non-Votes
|2,589,052 |  |        |  | 1,590   |  |                



|Item 5. | Other Information.
|------- | ------------------



None



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|Item 6. | Exhibits and Reports on Form 8-K.
|------- | ---------------------------------



(a) Index to Exhibits:



Exhibit 31.1.

CEO Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 31.2.

Treasurer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002Exhibit 32.

CEO/Treasurer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002




(b) Reports on
Form 8-K:



The Company filed a Current Report on Form 8-K on
April 28, 2004, announcing its earnings for the first quarter of 2004.



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Signatures



Pursuant to the requirements 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/    ALYSON G. BEASLEYAlyson G. Beasley, Vice President & Treasurer




Date: May 17, 2004



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