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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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Quarterly Report Pursuant to Section
13 or 15(d)

of the Securities Exchange Act of 1934



For the Quarterly Period Ended March 31, 2005



Commission File Number 2-83157



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SOUTHEASTERN BANKING CORPORATION

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                  
|-------------------------------------------------------------- |  | ---------------------------------
|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, 2005, 3,304,149 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



|                               |  |                                                                                       |  |   
|------------------------------ |  | ------------------------------------------------------------------------------------- |  | --
|                               |  | Page                                                                                 
|Part I 
Financial Information |  |                                                                                      
|                               |  |                                                                                      
|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                            |  | 22
|                               |  |                                                                                      
|Item 4.                        |  | Controls and Procedures                                                               |  | 22
|                               | 
|Part II 
Other Information    |  |                                                                                      
|                               |  |                                                                                      
|Item 1.                        |  | Legal Proceedings                                                                     |  | 23
|                               |  |                                                                                      
|Item 2                         |  | Unregistered Sales of Equity Securities and Use of Proceeds                           |  | 23
|                               |  |                                                                                      
|Item 3.                        |  | Defaults upon Senior Securities                                                       |  | 23
|                               |  |                                                                                      
|Item 4.                        |  | Submission of Matters to a Vote of Security Holders                                   |  | 23
|                               |  |                                                                                      
|Item 5.                        |  | Other Information                                                                     |  | 23
|                               |  |                                                                                      
|Item 6.                        |  | Exhibits                                                                              |  | 23
|                               | 
|Signatures                     |  | 25                                                                                   



2



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##### Table of Contents

Part I - Financial Information



Southeastern Banking Corporation



Consolidated Balance Sheets



|                                                                                                                     |  |                |             |   |                  |   |             |  
|-------------------------------------------------------------------------------------------------------------------- |  | -------------- | ----------- | - | ---------------- | - | ----------- | -
|                                                                                                                     |  | (Unaudited)    |             |   |                  |  
|                                                                                                                     |  | March 31, 2005 |             |   | December 31,2004 |  
|Assets                                                                                                               |  |                |             |   |                  |   |             |  
|                                                                                                                     |  |               
|Cash and due from banks                                                                                              |  | $              | 19,705,272  |   |                  | $ | 17,923,519  |  
|Federal funds sold                                                                                                   |  |                | 27,708,000  |   |                  |   | 31,118,000  |  
|                                                                                                                     |  |                |             |   |                  |   |             |  
|Cash and cash equivalents                                                                                            |  |                | 47,413,272  |   |                  |   | 49,041,519  |  
|                                                                                                                     |  |               
|Investment securities                                                                                                |  |                |             |   |                  |   |             |  
|Held-to-maturity (market value of approximately $37,989,000 and $38,769,000 at March 31, 2005 and December 31, 2004) |  |                | 36,731,917  |   |                  |   | 36,988,268  |  
|Available-for-sale, at market value                                                                                  |  |                | 85,778,462  |   |                  |   | 80,895,767  |  
|                                                                                                                     |  |                |             |   |                  |   |             |  
|Total investment securities                                                                                          |  |                | 122,510,379 |   |                  |   | 117,884,035 |  
|                                                                                                                     |  |               
|Loans, gross                                                                                                         |  |                | 218,464,038 |   |                  |   | 218,708,809 |  
|Unearned income                                                                                                      |  |                | (195,780    | ) |                  |   | (204,306    | )
|Allowance for loan losses                                                                                            |  |                | (4,127,009  | ) |                  |   | (4,134,048  | )
|                                                                                                                     |  |                |             |   |                  |   |             |  
|Loans, net                                                                                                           |  |                | 214,141,249 |   |                  |   | 214,370,455 |  
|                                                                                                                     |  |               
|Premises and equipment, net                                                                                          |  |                | 9,273,644   |   |                  |   | 9,254,380   |  
|Intangible assets                                                                                                    |  |                | 608,365     |   |                  |   | 622,918     |  
|Other assets                                                                                                         |  |                | 5,429,399   |   |                  |   | 9,581,911   |  
|                                                                                                                     |  |                |             |   |                  |   |             |  
|Total Assets                                                                                                         |  | $              | 399,376,308 |   |                  | $ | 400,755,218 |  
|                                                                                                                     |  |                |             |   |                  |   |             |  
|Liabilities and Shareholders Equity                                                                                 |  |                |             |   |                  |   |             |  
|                                                                                                                     |  |               
|Liabilities                                                                                                          |  |                |             |   |                  |   |             |  
|                                                                                                                     |  |               
|Deposits                                                                                                             |  |                |             |   |                  |   |             |  
|Noninterest-bearing deposits                                                                                         |  | $              | 75,528,708  |   |                  | $ | 70,186,636  |  
|Interest-bearing deposits                                                                                            |  |                | 266,182,501 |   |                  |   | 269,123,254 |  
|                                                                                                                     |  |                |             |   |                  |   |             |  
|Total deposits                                                                                                       |  |                | 341,711,209 |   |                  |   | 339,309,890 |  
|                                                                                                                     |  |               
|U. S. Treasury demand note                                                                                           |  |                | 962,850     |   |                  |   | 1,431,211   |  
|Federal Home Loan Bank advances                                                                                      |  |                | 5,000,000   |   |                  |   | 5,000,000   |  
|Other liabilities                                                                                                    |  |                | 2,164,987   |   |                  |   | 5,772,356   |  
|                                                                                                                     |  |                |             |   |                  |   |             |  
|Total liabilities                                                                                                    |  |                | 349,839,046 |   |                  |   | 351,513,457 |  
|                                                                                                                     |  |                |             |   |                  |   |             |  
|Shareholders Equity                                                                                                 |  |                |             |   |                  |   |             |  
|                                                                                                                     |  |               
|Common stock ($1.25 par value; 10,000,000 shares authorized; 3,580,797 shares issued; 3,304,149 shares outstanding)  |  |                | 4,475,996   |   |                  |   | 4,475,996   |  
|Additional paid-in-capital                                                                                           |  |                | 1,391,723   |   |                  |   | 1,391,723   |  
|Retained earnings                                                                                                    |  |                | 48,778,015  |   |                  |   | 47,828,636  |  
|Treasury stock, at cost (276,648 shares)                                                                             |  |                | (4,815,629  | ) |                  |   | (4,815,629  | )
|                                                                                                                     |  |                |             |   |                  |   |             |  
|Realized shareholders equity                                                                                        |  |                | 49,830,105  |   |                  |   | 48,880,726  |  
|Accumulated other comprehensive income - unrealized (losses) gains on available-for-sale securities, net of tax      |  |                | (292,843    | ) |                  |   | 361,035     |  
|                                                                                                                     |  |                |             |   |                  |   |             |  
|Total shareholders equity                                                                                           |  |                | 49,537,262  |   |                  |   | 49,241,761  |  
|                                                                                                                     |  |                |             |   |                  |   |             |  
|Total Liabilities and Shareholders Equity                                                                           |  | $              | 399,376,308 |   |                  | $ | 400,755,218 |  
|                                                                                                                     |  |                |             |   |                  |   |             |  



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,                        |  | 2005 |           | 2004 |  
|Interest income                                     |  |      |           |      |   |           |  
|Loans, including fees                               |  | $    | 3,947,403 |      | $ | 3,582,597 |  
|Federal funds sold                                  |  |      | 145,065   |      |   | 22,098    |  
|Investment securities                               |  |      |           |      |   |           |  
|Taxable                                             |  |      | 908,445   |      |   | 1,050,258 |  
|Tax-exempt                                          |  |      | 372,871   |      |   | 378,294   |  
|Other assets                                        |  |      | 11,013    |      |   | 9,109     |  
|                                                    |  |      |           |      |   |           |  
|Total interest income                               |  |      | 5,384,797 |      |   | 5,042,356 |  
|                                                    |  |      |           |      |   |           |  
|Interest expense                                    |  |      |           |      |   |           |  
|Deposits                                            |  |      | 902,750   |      |   | 803,068   |  
|Federal funds purchased                             |  |      |          |      |   | 39        |  
|U. S. Treasury demand note                          |  |      | 3,388     |      |   | 955       |  
|Federal Home Loan Bank advances                     |  |      | 74,000    |      |   | 74,822    |  
|                                                    |  |      |           |      |   |           |  
|Total interest expense                              |  |      | 980,138   |      |   | 878,884   |  
|                                                    |  |      |           |      |   |           |  
|Net interest income                                 |  |      | 4,404,659 |      |   | 4,163,472 |  
|                                                    |  |     
|Provision for loan losses                           |  |      | 93,333    |      |   | 203,583   |  
|                                                    |  |      |           |      |   |           |  
|Net interest income after provision for loan losses |  |      | 4,311,326 |      |   | 3,959,889 |  
|                                                    |  |      |           |      |   |           |  
|Noninterest income                                  |  |      |           |      |   |           |  
|Service charges on deposit accounts                 |  |      | 544,187   |      |   | 610,863   |  
|Investment securities losses, net                   |  |      |          |      |   | (3,306    | )
|Other operating income                              |  |      | 304,404   |      |   | 314,998   |  
|                                                    |  |      |           |      |   |           |  
|Total noninterest income                            |  |      | 848,591   |      |   | 922,555   |  
|                                                    |  |      |           |      |   |           |  
|Noninterest expense                                 |  |      |           |      |   |           |  
|Salaries and employee benefits                      |  |      | 1,910,351 |      |   | 1,698,357 |  
|Occupancy and equipment, net                        |  |      | 642,401   |      |   | 597,202   |  
|Other operating expense                             |  |      | 624,924   |      |   | 668,697   |  
|                                                    |  |      |           |      |   |           |  
|Total noninterest expense                           |  |      | 3,177,676 |      |   | 2,964,256 |  
|                                                    |  |      |           |      |   |           |  
|Income before income tax expense                    |  |      | 1,982,241 |      |   | 1,918,188 |  
|                                                    |  |     
|Income tax expense                                  |  |      | 603,322   |      |   | 578,707   |  
|                                                    |  |      |           |      |   |           |  
|Net income                                          |  | $    | 1,378,919 |      | $ | 1,339,481 |  
|                                                    |  |      |           |      |   |           |  
|Basic earnings per common share                     |  | $    | 0.42      |      | $ | 0.40      |  
|                                                    |  |      |           |      |   |           |  
|Weighted average common shares outstanding          |  |      | 3,304,149 |      |   | 3,312,539 |  



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, 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 |  
|                                                                     |  |             |           |                          |   |                  |  |   |               |   |  |                                     |            |   |       |   |           |   |  |   |            |  
|Balance, December 31, 2004                                           |  | $           | 4,475,996 |                          | $ | 1,391,723        |  | $ | 47,828,636    |   |  | $                                   | (4,815,629 | ) |       | $ | 361,035   |   |  | $ | 49,241,761 |  
|                                                                     |  |             |           |                          |   |                 
|Comprehensive income:                                                |  |             |           |                          |   |                  |  |   |               |   |  |                                     |            |   |       |   |           |   |  |   |            |  
|Net income                                                           |  |             |          |                          |   |                 |  |   | 1,378,919     |   |  |                                     |           |   |       |   |          |   |  |   | 1,378,919  |  
|Other comprehensive income, net of tax effect of $336,846:           |  |             |           |                          |   |                  |  |   |               |   |  |                                     |            |   |       |   |           |   |  |   |            |  
|Change in unrealized gains (losses) on available-for-sale securities |  |             |          |                          |   |                 |  |   |              |   |  |                                     |           |   |       |   | (653,878  | ) |  |   | (653,878   | )
|                                                                     |  |             |           |                          |   |                  |  |   |               |   |  |                                     |            |   |       |   |           |   |  |   |            |  
|Total comprehensive income                                           |  |             |           |                          |   |                  |  |   |               |   |  |                                     |            |   |       |   |           |   |  |   | 725,041    |  
|                                                                     |  |             |           |                          |   |                  |  |   |               |   |  |                                     |            |   |       |   |           |   |  |   |            |  
|Cash dividends declared ($0.13 per share)                            |  |             |          |                          |   |                 |  |   | (429,540      | ) |  |                                     |           |   |       |   |          |   |  |   | (429,540   | )
|                                                                     |  |             |           |                          |   |                  |  |   |               |   |  |                                     |            |   |       |   |           |   |  |   |            |  
|Balance, March 31, 2005                                              |  | $           | 4,475,996 |                          | $ | 1,391,723        |  | $ | 48,778,015    |   |  | $                                   | (4,815,629 | ) |       | $ | (292,843  | ) |  | $ | 49,537,262 |  
|                                                                     |  |             |           |                          |   |                  |  |   |               |   |  |                                     |            |   |       |   |           |   |  |   |            |  



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,                                                      |  | 2005 |             |   | 2004 |  
|Operating activities                                                              |  |      |             |   |      |   |             |  
|Net income                                                                        |  | $    | 1,378,919   |   |      | $ | 1,339,481   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |      |             |   |      |   |             |  
|Provision for loan losses                                                         |  |      | 93,333      |   |      |   | 203,583     |  
|Depreciation                                                                      |  |      | 215,593     |   |      |   | 198,492     |  
|Amortization and accretion, net                                                   |  |      | 80,520      |   |      |   | 192,261     |  
|Investment securities losses, net                                                 |  |      |            |   |      |   | 3,306       |  
|Net (gains) losses on other real estate                                           |  |      | (24,018     | ) |      |   | 14,178      |  
|Changes in assets and liabilities:                                                |  |      |             |   |      |   |             |  
|(Increase) decrease in other assets                                               |  |      | (38,961     | ) |      |   | 129,752     |  
|Increase (decrease) in other liabilities                                          |  |      | 9,865       |   |      |   | (310,434    | )
|                                                                                  |  |      |             |   |      |   |             |  
|Net cash provided by operating activities                                         |  |      | 1,715,251   |   |      |   | 1,770,619   |  
|                                                                                  |  |      |             |   |      |   |             |  
|Investing activities                                                              |  |      |             |   |      |   |             |  
|Principal collections and maturities of investment securities:                    |  |      |             |   |      |   |             |  
|Held-to-maturity                                                                  |  |      | 682,000     |   |      |   | 1,305,500   |  
|Available-for-sale                                                                |  |      | 32,993,122  |   |      |   | 12,552,940  |  
|Proceeds from sales of investment securities available-for-sale                   |  |      | 4,373,125   |   |      |   | 1,659,084   |  
|Purchases of investment securities held-to-maturity                               |  |      | (456,602    | ) |      |   | (788,166    | )
|Purchases of investment securities available-for-sale                             |  |      | (40,877,984 | ) |      |   | (20,796,056 | )
|Net decrease in loans                                                             |  |      | 175,457     |   |      |   | 5,469,139   |  
|Proceeds from sales of other real estate                                          |  |      | 134,377     |   |      |   | 37,065      |  
|Capital expenditures, net                                                         |  |      | (234,857    | ) |      |   | (75,657     | )
|                                                                                  |  |      |             |   |      |   |             |  
|Net cash used in investing activities                                             |  |      | (3,211,362  | ) |      |   | (636,151    | )
|                                                                                  |  |      |             |   |      |   |             |  
|Financing activities                                                              |  |      |             |   |      |   |             |  
|Net increase in deposits                                                          |  |      | 2,401,319   |   |      |   | 9,075,444   |  
|Net (decrease) increase in U. S. Treasury demand note                             |  |      | (468,361    | ) |      |   | 136,516     |  
|Dividends paid                                                                    |  |      | (2,065,094  | ) |      |   | (2,120,025  | )
|                                                                                  |  |      |             |   |      |   |             |  
|Net cash (used in) provided by financing activities                               |  |      | (132,136    | ) |      |   | 7,091,935   |  
|                                                                                  |  |      |             |   |      |   |             |  
|Net (decrease) increase in cash and cash equivalents                              |  |      | (1,628,247  | ) |      |   | 8,226,403   |  
|Cash and cash equivalents at beginning of period                                  |  |      | 49,041,519  |   |      |   | 26,405,941  |  
|                                                                                  |  |      |             |   |      |   |             |  
|Cash and cash equivalents at end of period                                        |  | $    | 47,413,272  |   |      | $ | 34,632,344  |  
|                                                                                  |  |      |             |   |      |   |             |  
|Supplemental disclosure                                                           |  |      |             |   |      |   |             |  
|Cash paid during the period                                                       |  |      |             |   |      |   |             |  
|Interest                                                                          |  | $    | 1,016,261   |   |      | $ | 979,564     |  
|Noncash investing and financing activities                                        |  |      |             |   |      |   |             |  
|Broker receivable for security sales                                              |  | $    | (4,373,125  | ) |      | $ |            |  
|Broker payable for security purchases                                             |  |      | (1,981,680  | ) |      |   |            |  
|Real estate acquired through foreclosure                                          |  |      | 196,799     |   |      |   | 63,585      |  
|Loans made in connection with sales of foreclosed real estate                     |  |      | 221,758     |   |      |   |            |  



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 three months ended March 31, 2005 are not necessarily indicative of trends or results to be expected for the full year 2005. 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, 2004. There have been no significant changes to the Companys
Accounting Policies as disclosed in the 2004 Form 10-K.



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



The Meaning of Other-Than-Temporary Impairment & Its Application to Certain Investments



In March 2004, the Emerging Issues Task Force (EITF) reached a consensus on
EITF Issue NO. 03-1, The Meaning of Other-Than-Temporary Impairment & Its Application to Certain Investments. The Issue provides guidance for evaluating whether securities are other-than-temporarily impaired and requires certain
disclosures. The Company adopted the current provisions of this Issue effective December 31, 2004.



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 2004 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 significantly 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 $399,376,000, 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 sixteen branch locations 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 $399,376,308 at March 31, 2005, down $1,378,910 or 0.34% from year-end 2004 but up $16,375,253 or 4.28% from March 31, 2004. Asset growth was concentrated in the securities portfolio.
Specifically, investment securities grew $4,626,344 or 3.92%; federal funds sold declined $3,410,000, and loans, $229,206. Loans comprised approximately 59%, investment securities, 34%, and federal funds sold, 7%, of earning assets at March 31, 2005
versus 59%, 32%, and 9% at December 31, 2004. Overall, earning assets approximated 92% of total assets at March 31, 2005. During the year-earlier period, total assets grew $8,633,321 or 2.31%. Growth in the investment portfolio and federal funds
sold were the primary factors in the 2004 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 $4,626,344 or 3.92% since December 31, 2004. Purchases of securities during the three-month period, including short-term securities with original maturities of 90
days or less, approximated $39,350,000, and redemptions, $33,675,000. The effective repricing of redeemed securities 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, 2005, mortgage-backed securities, corporates, and municipals comprised 28%, 10%, and 30% of the portfolio. Overall, securities comprised 34% of earning assets at March 31, 2005, up 200 basis
points from year-end 2004 levels. The portfolio yield approximated 4.75% in 2005 year-to-date.



Management believes the credit quality of the investment portfolio remains sound, with 59.80% of the carrying value of debt securities being backed by the U.S. Treasury or other U.S. Government-sponsored agencies at
March 31, 2005. All of the Companys corporate bonds were rated A or higher by at least



8



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one nationally recognized rating agency at March 31, 2005. The weighted average life of the portfolio remained less than
4.0 years at March 31, 2005. The amortized cost and estimated fair value of investment securities are delineated in the table below:



|                                                 |  |               |         |                 |   |                  |  |            |       |  |   |        
|------------------------------------------------ |  | ------------- | ------- | --------------- | - | ---------------- |  | ---------- | ----- |  | - | -------
|Investment Securities by Category March 31, 2005 |  | AmortizedCost |         | UnrealizedGains |   | UnrealizedLosses |  | Fair Value
|(In thousands)                                   |  |               |         |                 |   |                  |  |           
|Available-for-sale:                              |  |               |         |                 |   |                  |  |            |       |  |   |        
|U. S. Government agencies                        |  | $             | 39,828  |                 | $ | 10               |  | $          | 496   |  | $ | 39,342 
|Mortgage-backed securities                       |  |               | 34,401  |                 |   | 136              |  |            | 612   |  |   | 33,925 
|Corporates                                       |  |               | 11,993  |                 |   | 547              |  |            | 29    |  |   | 12,511 
|                                                 |  |               |         |                 |   |                  |  |            |       |  |   |        
|                                                 |  |               | 86,222  |                 |   | 693              |  |            | 1,137 |  |   | 85,778 
|Held-to-maturity:                                |  |               |         |                 |   |                  |  |            |       |  |   |        
|States and political subdivisions                |  |               | 36,732  |                 |   | 1,347            |  |            | 90    |  |   | 37,989 
|                                                 |  |               |         |                 |   |                  |  |            |       |  |   |        
|Total investment securities                      |  | $             | 122,954 |                 | $ | 2,040            |  | $          | 1,227 |  | $ | 123,767
|                                                 |  |               |         |                 |   |                  |  |            |       |  |   |        



As shown, the carrying value of the
investment portfolio reflected $813,429 in net unrealized gains at March 31, 2005; 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 a negligible $236,245
since year-end 2004. The net loans to deposits ratio aggregated 63.88% at March 31, 2005 versus 64.40% at December 31, 2004, and 61.35% 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 $3,780,789 at March 31, 2005 compared to December 31, 2004. Basically all sectors of the commercial portfolio registered declines: Nonfarm real estate, agricultural, and governmental
loans within the portfolio fell $3,214,370, $706,908, and $257,165 during the three-month period; other commercial/industrial loans grew $397,654. Balances in the consumer portfolio also declined $1,775,013 or 10.14% at March 31, 2005 compared to
year-end 2004; real estate  mortgage loans fell $626,454 or 1.10%. Reduced demand was the chief element in the 2005 results. Although balances in the commercial, consumer, and real estate - mortgage portfolios declined, real estate -
construction loans grew 10.51% or $5,937,485 during 2005 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.



Despite economic uncertainties within the Companys markets, management is optimistic
that loan volumes will trend higher in 2005 than 2004. 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. During the same period last year, net loans fell 2.75% or $5,648,020. A decline in the commercial portfolio was the predominant factor in the 2004 results. Loans outstanding are
presented by type in the table on the next page.



9



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|                                         |  |                |         |                   |   |                |  |   |        
|---------------------------------------- |  | -------------- | ------- | ----------------- | - | -------------- |  | - | -------
|Loans by Category                        |  | March 31, 2005 |         | December 31, 2004 |   | March 31, 2004
|(In thousands)                           |  |                |         |                   |   |               
|Commercial, financial, and agricultural1 |  | $              | 84,004  |                   | $ | 87,784         |  | $ | 79,820 
|Real estate  construction               |  |                | 62,408  |                   |   | 56,471         |  |   | 47,321 
|Real estate  residential mortgage2      |  |                | 56,317  |                   |   | 56,944         |  |   | 53,013 
|Consumer, including credit cards         |  |                | 15,735  |                   |   | 17,510         |  |   | 20,081 
|                                         |  |                |         |                   |   |                |  |   |        
|Loans, gross                             |  |                | 218,464 |                   |   | 218,709        |  |   | 200,235
|Unearned income                          |  |                | 196     |                   |   | 204            |  |   | 203    
|                                         |  |                |         |                   |   |                |  |   |        
|Loans, net                               |  | $              | 218,268 |                   | $ | 218,505        |  | $ | 200,032
|                                         |  |                |         |                   |   |                |  |   |        

---

|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, 2005, the Company had approximately $170,001,000 in real estate loans, and an additional $18,754,000 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 $36,259,000 at March 31, 2005; 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 has not funded or incurred any losses on letters of credit in 2005 year-to-date.



Nonperforming Assets



Nonperforming assets consist of nonaccrual loans, restructured loans, and foreclosed real estate and other assets. Overall, nonperforming assets approximated $1,259,000
at March 31, 2005, down $246,000 or 16.35% from year-end 2004 and 18.88% from March 31, 2004. As a percent of total assets, nonperforming assets totaled 0.32% at March 31, 2005 versus 0.38% at year-end 2004 and 0.41% a year ago. No material credits
have been transferred or removed from nonaccrual status during 2005 year-to-date. Industry or individual concentrations within nonaccrual balances at March 31, 2005 included:



| | a) | Industry concentrations: Approximately 32% or $305,000 of nonaccrual balances at March 31, 2005 pertained to the shrimping industry; charge-offs on these particular loans
approximated $39,000 during 2005 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, 2005, nonaccrual balances also included loans to one other borrower totaling $73,000. Due to the underlying collateral coverage, no
significant losses, if any, are expected on this balance.
| | -- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Refer
to the subsection entitled Policy Note for criteria used by management in classifying loans as nonaccrual. The allowance for loan losses approximated 4.36X the nonperforming loans balance at March 31, 2005 versus 3.87X at year-end 2004 and 2.94X a
year ago. Significant activity within foreclosed real estate balances included foreclosure of one borrowers residential real estate valued at $94,000 and sale of an unrelated $150,000 parcel. Management is unaware of any other material
developments in nonperforming assets at March 31, 2005 that should be presented or otherwise discussed.



10



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Loans past due 90 days or more approximated $797,000, or less than 1% of net loans, at March 31, 2005. 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, 2005 |       |   | December 31, 2004 |   |       | March 31, 2004 | 
|(In thousands)                                                       |  |                |       |   |                   |   |       |                | 
|Nonaccrual loans:                                                    |  |                |       |   |                   |   |       |                |  |   |       |  
|Commercial, financial, and agricultural                              |  | $              | 212   |   |                   | $ | 312   |                |  | $ | 657   |  
|Real estate  construction                                           |  |                | 60    |   |                   |   | 33    |                |  |   | 55    |  
|Real estate  mortgage                                               |  |                | 557   |   |                   |   | 556   |                |  |   | 530   |  
|Consumer, including credit cards                                     |  |                | 117   |   |                   |   | 168   |                |  |   | 90    |  
|                                                                     |  |                |       |   |                   |   |       |                |  |   |       |  
|Total nonaccrual loans                                               |  |                | 946   |   |                   | $ | 1,069 |                |  |   | 1,332 |  
|Restructured loans1                                                  |  |                |      |   |                   |   |      |                |  |   |      |  
|                                                                     |  |                |       |   |                   |   |       |                |  |   |       |  
|Total nonperforming loans                                            |  |                | 946   |   |                   | $ | 1,069 |                |  |   | 1,332 |  
|Foreclosed real estate2                                              |  |                | 259   |   |                   |   | 409   |                |  |   | 213   |  
|Other repossessed assets                                             |  |                | 54    |   |                   |   | 27    |                |  |   | 7     |  
|                                                                     |  |                |       |   |                   |   |       |                |  |   |       |  
|Total nonperforming assets                                           |  | $              | 1,259 |   |                   | $ | 1,505 |                |  | $ | 1,552 |  
|                                                                     |  |                |       |   |                   |   |       |                |  |   |       |  
|Accruing loans past due 90 days or more                              |  | $              | 797   |   |                   | $ | 876   |                |  | $ | 655   |  
|                                                                     |  |                |       |   |                   |   |       |                |  |   |       |  
|Ratios:                                                              |  |                |       |   |                   |   |       |                |  |   |       |  
|Nonperforming loans to net loans                                     |  |                | 0.43  | % |                   |   | 0.49  | %              |  |   | 0.67  | %
|                                                                     |  |                |       |   |                   |   |       |                |  |   |       |  
|Nonperforming assets to net loans plus foreclosed/repossessed assets |  |                | 0.58  | % |                   |   | 0.69  | %              |  |   | 0.78  | %
|                                                                     |  |                |       |   |                   |   |       |                |  |   |       |  

---

|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.



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, 2005 totaled $93,333 and net charge-offs, $100,372. The comparable provision and charge-off amounts at March
31, 2004 were $203,583 and $115,295. Net charge-offs represented 0.18% of average



11



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loans at March 31, 2005 compared to 0.23% at March 31, 2004 and 0.54% in 2003. No single charge-off exceeded $39,000 at
March 31, 2005. 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, |  | 2005 |         |   | 2004 |   |         | 2003 | 
|(Dollars in thousands)                                 |  |      |         |   |      |   |         |      | 
|Allowance for loan losses at beginning of year         |  | $    | 4,134   |   |      | $ | 3,833   |      |  | $ | 3,601   |  
|Provision for loan losses                              |  |      | 93      |   |      |   | 204     |      |  |   | 234     |  
|Charge-offs:                                           |  |      |         |   |      |   |         |      |  |   |         |  
|Commercial, financial, and agricultural                |  |      | 71      |   |      |   | 40      |      |  |   | 123     |  
|Real estate  construction                             |  |      |        |   |      |   | 12      |      |  |   | 3       |  
|Real estate  mortgage                                 |  |      | 15      |   |      |   | 24      |      |  |   | 56      |  
|Consumer, including credit cards                       |  |      | 75      |   |      |   | 98      |      |  |   | 105     |  
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Total charge-offs                                      |  |      | 161     |   |      |   | 174     |      |  |   | 287     |  
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Recoveries:                                            |  |      |         |   |      |   |         |      |  |   |         |  
|Commercial, financial, and agricultural                |  |      | 10      |   |      |   | 2       |      |  |   | 5       |  
|Real estate  construction                             |  |      |        |   |      |   |        |      |  |   |        |  
|Real estate  mortgage                                 |  |      | 3       |   |      |   | 15      |      |  |   | 4       |  
|Consumer, including credit cards                       |  |      | 48      |   |      |   | 41      |      |  |   | 40      |  
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Total recoveries                                       |  |      | 61      |   |      |   | 58      |      |  |   | 49      |  
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Net charge-offs                                        |  |      | 100     |   |      |   | 116     |      |  |   | 238     |  
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Allowance for loan losses at end of period             |  | $    | 4,127   |   |      | $ | 3,921   |      |  | $ | 3,597   |  
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Net loans outstanding1at end of period                 |  | $    | 218,268 |   |      | $ | 200,032 |      |  | $ | 177,387 |  
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Average net loans outstanding1at end of period         |  | $    | 216,733 |   |      | $ | 203,256 |      |  | $ | 175,880 |  
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Ratios:                                                |  |      |         |   |      |   |         |      |  |   |         |  
|Allowance to net loans                                 |  |      | 1.89    | % |      |   | 1.96    | %    |  |   | 2.03    | %
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Net charge-offs to average loans                       |  |      | 0.18    | % |      |   | 0.23    | %    |  |   | 0.54    | %
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Provision to average loans                             |  |      | 0.17    | % |      |   | 0.40    | %    |  |   | 0.53    | %
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  
|Recoveries to total charge-offs                        |  |      | 37.89   | % |      |   | 33.33   | %    |  |   | 17.07   | %
|                                                       |  |      |         |   |      |   |         |      |  |   |         |  

---

|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 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,



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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, 2005.



Other Commitments



Other than construction of a permanent branch building to replace the temporary facility in Brunswick, Georgia, renovation of other SEB
offices, and the purchase of new core banking software, the Company had no material plans or commitments for capital expenditures as of March 31, 2005. Planning for the permanent branch building and the software purchase have not been finalized, and
potential capital expenditures cannot yet be estimated.



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, 2005, loans1and investment securities with carrying values exceeding $101,230,000 and $8,146,000 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, 2005, virtually unchanged from 2004 levels. Borrowed funds, which variously encompass U.S. Treasury demand notes, federal funds
purchased, and FHLB advances, totaled $5,962,850 at March 31, 2005 versus $6,431,211 at year-end 2004. More specifically, the maximum amount of U.S. Treasury demand notes available to the Company at March 31, 2005 totaled $3,000,000, of which
$962,850 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, 2005, unused borrowings approximated $58,888,000. 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 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 2005. Refer to the Capital Adequacy section of this Analysis for details on treasury stock purchases and intercompany dividend policy and the Financial Condition section for details on unfunded loan
commitments.



---

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



13



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Deposits



Deposits grew a modest $2,401,319 or 0.70% since year-end 2004. Noninterest-bearing deposits increased $5,342,072 or 7.61%, while interest-bearing deposits fell
$2,940,753 or 1.09%. Virtually the entire decline in interest-bearing balances was due to seasonal variation in local government balances, particularly NOW accounts. Notably, customers continue to utilize savings as an alternative to time
certificates in the current low-rate environment; savings balances exceeded 36% of interest-bearing balances at March 31, 2005. Overall, interest-bearing deposits comprised 77.90%, and noninterest-bearing deposits, 22.10%, of total deposits at March
31, 2005. The distribution of interest-bearing balances at March 31, 2005 and certain comparable quarter-end dates is shown in the table below:



|                                  |  |                |         |                 |                   |   |          |                |                 |  |        |          |  |                 |         |  |        |  
|--------------------------------- |  | -------------- | ------- | --------------- | ----------------- | - | -------- | -------------- | --------------- |  | ------ | -------- |  | --------------- | ------- |  | ------ | -
|                                  |  | March 31, 2005 |         |                 | December 31, 2004 |   |          | March 31, 2004 |                
|Deposits                          |  | Balances       |         | Percentof Total |                   |   | Balances |                | Percentof Total |  |        | Balances |  | Percentof Total |        
|(Dollars in thousands)            |  |                |         |                 |                   |   |          |                |                 |  |        |          |  |                 |        
|Interest-bearing demand deposits1 |  | $              | 91,825  |                 | 34.50             | % |          | $              | 98,352          |  | 36.55  | %        |  | $               | 85,111  |  | 32.89  | %
|Savings                           |  |                | 97,977  |                 | 36.81             | % |          |                | 95,414          |  | 35.45  | %        |  |                 | 97,034  |  | 37.50  | %
|Time certificates < $100,000      |  |                | 45,015  |                 | 16.91             | % |          |                | 45,256          |  | 16.82  | %        |  |                 | 48,471  |  | 18.73  | %
|Time certificates >= $100,000     |  |                | 31,366  |                 | 11.78             | % |          |                | 30,101          |  | 11.18  | %        |  |                 | 28,162  |  | 10.88  | %
|                                  |  |                |         |                 |                   |   |          |                |                 |  |        |          |  |                 |         |  |        |  
|Total interest-bearing deposits   |  | $              | 266,183 |                 | 100.00            | % |          | $              | 269,123         |  | 100.00 | %        |  | $               | 258,778 |  | 100.00 | %
|                                  |  |                |         |                 |                   |   |          |                |                 |  |        |          |  |                 |         |  |        |  

---

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



Deposits of one local governmental body comprised approximately $33,244,000 and $36,468,000 of the overall deposit base at March 31, 2005 and December 31, 2004. Brokered
deposits totaled $594,000 at both March 31, 2005 and year-end 2004.



Approximately 83% of time certificates at March 31, 2005 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,
2005, unchanged from year-end 2004. 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 $74,000. Mortgage-backed securities were pledged to collateralize advances under this line of credit.



Interest Rate and Market Risk/Interest Rate Sensitivity



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



14



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##### Table of Contents

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, 2005:



|                                                                        |  |                  |          |    |              |   |           |                 |  |   |                    |   |  |   |        |   |  |   |        
|----------------------------------------------------------------------- |  | ---------------- | -------- | -- | ------------ | - | --------- | --------------- |  | - | ------------------ | - |  | - | ------ | - |  | - | -------
|                                                                        |  | Repricing Within |          |    | Total       
|Interest Rate Sensitivity March
31, 2005                                |  | 0 - 3Months      |          |    | 4 - 12Months |   |           | One - FiveYears |  |   | MoreThan FiveYears |   | 
|(Dollars in thousands)                                                  |  |                  |          |    |              |   |           |                 |  |   |                    |   |  |  
|Interest Rate Sensitive Assets                                          |  |                  |          |    |              |   |           |                 |  |   |                    |   |  |   |        |   |  |   |        
|Federal funds sold                                                      |  | $                | 27,708   |    |              |   |           |                 |  |   |                    |   |  |   |        |   |  | $ | 27,708 
|Securities1                                                             |  |                  | 2,582    |    |              | $ | 5,930     |                 |  | $ | 77,294             |   |  | $ | 37,148 |   |  |   | 122,954
|Loans, gross2                                                           |  |                  | 118,320  |    |              |   | 21,678    |                 |  |   | 72,399             |   |  |   | 5,121  |   |  |   | 217,518
|Other assets                                                            |  |                  | 1,247    |    |              |   |          |                 |  |   |                   |   |  |   |       |   |  |   | 1,247  
|                                                                        |  |                  |          |    |              |   |           |                 |  |   |                    |   |  |   |        |   |  |   |        
|Total interest rate sensitive assets                                    |  |                  | 149,857  |    |              |   | 27,608    |                 |  |   | 149,693            |   |  |   | 42,269 |   |  |   | 369,427
|                                                                        |  |                  |          |    |              |   |           |                 |  |   |                    |   |  |   |        |   |  |   |        
|Interest Rate Sensitive Liabilities                                     |  |                  |          |    |              |   |           |                 |  |   |                    |   |  |   |        |   |  |   |        
|Deposits3                                                               |  | $                | 207,063  |    |              |   | 46,367    |                 |  |   | 12,693             |   |  |   | 60     |   |  |   | 266,183
|U.S. Treasury demand note                                               |  |                  | 963      |    |              |   |          |                 |  |   |                   |   |  |   |       |   |  |   | 963    
|Federal Home Loan Bank advances                                         |  |                  |         |    |              |   |          |                 |  |   | 5,000              |   |  |   |       |   |  |   | 5,000  
|                                                                        |  |                  |          |    |              |   |           |                 |  |   |                    |   |  |   |        |   |  |   |        
|Total interest rate sensitive liabilities                               |  |                  | 208,026  |    |              |   | 46,367    |                 |  |   | 17,693             |   |  |   | 60     |   |  |   | 272,146
|                                                                        |  |                  |          |    |              |   |           |                 |  |   |                    |   |  |   |        |   |  |   |        
|Interest rate sensitivity gap                                           |  | $                | (58,169) |    |              | $ | (18,759)  |                 |  | $ | 132,000            |   |  | $ | 42,209 |   |  | $ | 97,281 
|                                                                        |  |                  |          |    |              |   |           |                 |  |   |                    |   |  |   |        |   |  |   |        
|Cumulative gap                                                          |  | $                | (58,169) |    |              | $ | (76,928)  |                 |  | $ | 55,072             |   |  | $ | 97,281 |   |  |   |        
|                                                                        |  |                  |          |    |              |   |           |                 |  |   |                    |   |  |   |        |   |  |   |        
|Ratio of cumulative gap to total rate sensitive assets                  |  |                  | (15.75   | )% |              |   | (20.82    | )%              |  |   | 14.91              | % |  |   | 26.33  | % |  |   |        
|                                                                        |  |                  |          |    |              |   |           |                 |  |   |                    |   |  |   |        |   |  |   |        
|Ratio of cumulative rate sensitive assets to rate sensitive liabilities |  |                  | 72.04    | %  |              |   | 69.76     | %               |  |   | 120.24             | % |  |   | 135.75 | % |  |   |        
|                                                                        |  |                  |          |    |              |   |           |                 |  |   |                    |   |  |   |        |   |  |   |        
|Cumulative gap at December 31, 2004                                     |  | $                | (59,503) |    |              | $ | (71,138)  |                 |  | $ | 54,244             |   |  | $ | 91,758 |   |  |   |        
|                                                                        |  |                  |          |    |              |   |           |                 |  |   |                    |   |  |   |        |   |  |   |        
|Cumulative gap at March 31, 2004                                        |  | $                | (94,465) |    |              | $ | (107,551) |                 |  | $ | 34,082             |   |  | $ | 87,454 |   |  |   |        
|                                                                        |  |                  |          |    |              |   |           |                 |  |   |                    |   |  |   |        |   |  |   |        

---

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



As shown in the table above, the Companys gap position remained negative through the
short-term repricing intervals at March 31, 2005, totaling $(58,169) at three months and $(76,928) through one-year. Excluding traditionally nonvolatile NOW and premium savings balances from the gap calculation, the



15



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##### Table of Contents

cumulative gap at March 31, 2005 totaled $101,580 at three months and $82,821 at twelve months. The widening of the
short-term gap position at March 31, 2005 versus year-end 2004 was primarily attributable to the purchase of investment securities with contractual maturities exceeding one year. The gap position is expected to widen further during 2005 as federal
funds sold are reallocated to other earning assets and as seasonal deposits decline. 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. 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 increase loan production and diversify the securities portfolio have reduced the interest rate sensitivity of net interest income and the balance sheet, and such actions will continue.



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.



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



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##### Table of Contents

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 31,2005 |         |   | December 31,2004 |   |         | March 31,2004 | 
|(Dollars in thousands)                  |  |               |         |   |                  |   |         |               | 
|Tier 1 capital:                         |  |               |         |   |                  |   |         |               |  |   |         |  
|Realized shareholders equity           |  | $             | 49,830  |   |                  | $ | 48,881  |               |  | $ | 47,524  |  
|Intangible assets and other adjustments |  |               | (608    | ) |                  |   | (623    | )             |  |   | (671    | )
|                                        |  |               |         |   |                  |   |         |               |  |   |         |  
|Total Tier 1 capital                    |  |               | 49,222  |   |                  |   | 48,258  |               |  |   | 46,853  |  
|                                        |  |               |         |   |                  |   |         |               |  |   |         |  
|Tier 2 capital:                         |  |               |         |   |                  |   |         |               |  |   |         |  
|Portion of allowance for loan losses    |  |               | 3,101   |   |                  |   | 3,201   |               |  |   | 2,970   |  
|Allowable long-term debt                |  |               |        |   |                  |   |        |               |  |   |        |  
|                                        |  |               |         |   |                  |   |         |               |  |   |         |  
|Total Tier 2 capital                    |  |               | 3,101   |   |                  |   | 3,201   |               |  |   | 2,970   |  
|                                        |  |               |         |   |                  |   |         |               |  |   |         |  
|Total risk-based capital                |  | $             | 52,323  |   |                  | $ | 51,459  |               |  | $ | 49,823  |  
|                                        |  |               |         |   |                  |   |         |               |  |   |         |  
|Risk-weighted assets                    |  | $             | 247,155 |   |                  | $ | 255,110 |               |  | $ | 236,675 |  
|                                        |  |               |         |   |                  |   |         |               |  |   |         |  
|Risk-based ratios:                      |  |               |         |   |                  |   |         |               |  |   |         |  
|Tier 1 capital                          |  |               | 19.92   | % |                  |   | 18.92   | %             |  |   | 19.80   | %
|                                        |  |               |         |   |                  |   |         |               |  |   |         |  
|Total risk-based capital                |  |               | 21.17   | % |                  |   | 20.17   | %             |  |   | 21.05   | %
|                                        |  |               |         |   |                  |   |         |               |  |   |         |  
|Tier 1 leverage ratio                   |  |               | 12.28   | % |                  |   | 12.34   | %             |  |   | 12.58   | %
|                                        |  |               |         |   |                  |   |         |               |  |   |         |  
|Realized shareholders equity to assets |  |               | 12.47   | % |                  |   | 12.21   | %             |  |   | 12.47   | %
|                                        |  |               |         |   |                  |   |         |               |  |   |         |  



Book value per share grew $0.29 or
1.96% during the first three months of 2005 to $15.08 at March 31, 2005. Dividends declared totaled $0.13, up 4.00% or $0.005 from 2004, which was up 4.17% from 2003. 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, declined $635,878 at March 31, 2005 compared to year-end 2004. 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2004, the Company repurchased
276,648 shares on the open market and through private transactions at an average price of $17.41 per share. No treasury stock purchases have been made in 2005 year-to-date. The maximum consideration available for additional purchases, at prices to
be determined in the future, is $5,184,371. 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.



17



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##### Table of Contents

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 $728,160 of the $2,912,000 in cash dividends available to the Company in
2005 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 2005 first quarter totaled $1,378,919, up $39,438 or 2.94% from 2004. On
a per share basis, quarterly earnings grew $0.02 to $0.42 at March 31, 2005 from $0.40 in 2004. The return on beginning equity for the three-month period totaled 11.28% at March 31, 2005 versus 11.50% in 2004. A 5.79% improvement in net interest
income was the predominant factor in the 2005 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 $241,187 or 5.79% during the first three months of 2005 compared to 2004. The net interest margin approximated 5.03% at March 31, 2005
versus 5.05% a year ago; the interest rate spread, 4.64% versus 4.72%. Interest earnings on loans, federal funds sold, and other earning assets improved $364,806, $122,967, and $1,904 from same period results in 2004 while earnings on investment
securities fell 10.31% or $147,236. Overall improvements in average balances and, to a lesser extent, asset yields, precipitated the 2005 results. Asset yields averaged 6.10% at March 31, 2005 versus 6.07% in 2004; see the interest differential
table on page 20 for more details on changes in interest income attributable to volume and rates at March 31, 2005 versus 2004. Interest expense on deposits and other borrowed funds increased $101,254 or 11.52% during the 2005 first quarter versus
2004. Cost of funds increased 11 basis points from 2004 levels, totaling 1.46% at March 31, 2005 versus 1.35% at March 31, 2004. The jump in cost of funds resulted primarily from higher deposit rates, particularly on NOW and money market accounts,
at March 31, 2005 compared to 2004. Given the rising rate environment currently propelled by the Federal Reserve, managements expects costs of funds and corresponding interest expense to increase throughout 2005 as deposits and other funds reprice
at higher levels. 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 margins and spreads. Additionally, because most of the loans in
the variable portfolio are tied to prime and similar indexes, the portfolio is positioned to take advantage of rate hikes promulgated by the Federal Reserve in 2005; variable loans comprised approximately 51% of total loans at March 31, 2005.



The intense competition for loans and deposits continues in 2005 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 closely manage anticipated market increases and maintain a competitive position with respect to pricing and products. 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 on the next page.



18



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##### Table of Contents

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



|                                                                    |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  
|------------------------------------------------------------------- |  | --------------- | ------- | -------------- | ---- | ------------ |  | ---- | --------------- |  | -------------- | ------- | ------------ | - | ----- |  | ---- | -
|                                                                    |  | 2005            |         |                | 2004 |             
|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                                                     |  | $               | 216,733 |                | $    | 3,956        |  | 7.30 | %               |  | $              | 203,256 |              | $ | 3,587 |  | 7.06 | %
|Federal funds sold                                                  |  |                 | 24,286  |                |      | 145          |  | 2.39 | %               |  |                | 9,731   |              |   | 22    |  | 0.90 | %
|Taxable investment securities3                                      |  |                 | 90,074  |                |      | 908          |  | 4.03 | %               |  |                | 97,391  |              |   | 1,050 |  | 4.31 | %
|Tax-exempt investment securities3,4                                 |  |                 | 33,737  |                |      | 563          |  | 6.68 | %               |  |                | 34,185  |              |   | 573   |  | 6.70 | %
|Other assets                                                        |  |                 | 1,115   |                |      | 11           |  | 3.95 | %               |  |                | 983     |              |   | 9     |  | 3.66 | %
|                                                                    |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  
|Total interest-earning assets                                       |  | $               | 365,945 |                | $    | 5,583        |  | 6.10 | %               |  | $              | 345,546 |              | $ | 5,241 |  | 6.07 | %
|                                                                    |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  
|Liabilities                                                         |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  
|Interest-bearing liabilities:                                       |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  
|Interest-bearing demand deposits5                                   |  | $               | 90,938  |                | $    | 292          |  | 1.28 | %               |  | $              | 82,534  |              | $ | 190   |  | 0.92 | %
|Savings                                                             |  |                 | 96,421  |                |      | 211          |  | 0.88 | %               |  |                | 94,982  |              |   | 209   |  | 0.88 | %
|Time deposits                                                       |  |                 | 76,310  |                |      | 400          |  | 2.10 | %               |  |                | 77,242  |              |   | 404   |  | 2.09 | %
|Federal funds purchased                                             |  |                 |        |                |      |             |  |     |                 |  |                | 22      |              |   | 1     |  | 1.10 | %
|U. S. Treasury demand note                                          |  |                 | 595     |                |      | 3            |  | 2.02 | %               |  |                | 514     |              |   | 1     |  | 0.74 | %
|Federal Home Loan Bank advances                                     |  |                 | 5,000   |                |      | 74           |  | 6.00 | %               |  |                | 5,000   |              |   | 75    |  | 6.00 | %
|                                                                    |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  
|Total interest-bearing liabilities                                  |  | $               | 269,264 |                | $    | 980          |  | 1.46 | %               |  | $              | 260,294 |              | $ | 880   |  | 1.35 | %
|                                                                    |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  
|Excess of interest-earning assets over interest-bearing liabilities |  | $               | 96,681  |                |      |              |  |      |                 |  | $              | 85,252  |              |   |       |  |      |  
|                                                                    |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  
|Interest rate spread                                                |  |                 |         |                |      |              |  | 4.64 | %               |  |                |         |              |   |       |  | 4.72 | %
|                                                                    |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  
|Net interest income                                                 |  |                 |         |                | $    | 4,603        |  |      |                 |  |                |         |              | $ | 4,361 |  |      |  
|                                                                    |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  
|Net interest margin                                                 |  |                 |         |                |      |              |  | 5.03 | %               |  |                |         |              |   |       |  | 5.05 | %
|                                                                    |  |                 |         |                |      |              |  |      |                 |  |                |         |              |   |       |  |      |  

---

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



Analysis of Changes in Net Interest Income



The average balance table above provides detailed information about average balances, income/expense, and average yields earned and rates paid on interest-earning assets
and interest-bearing liabilities for the three months ended March 31, 2005 and 2004. The table on the next page summarizes the changes in interest income and interest expense attributable to volume and rates during this period.



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##### Table of Contents

|                                                    |        |                                                  |     |      |  |   |     |   |  |   |      |  
|--------------------------------------------------- | ------ | ------------------------------------------------ | --- | ---- |  | - | --- | - |  | - | ---- | -
|Interest Differential1 Three Months Ended March 31, |        | 2005 Compared to 2004 Increase (Decrease) Due to |    
|                                                    | Volume |                                                  |     | Rate |  |   | Net |  
|(In thousands)                                      |        |                                                  |     |      |  |   |     |   | 
|Interest income                                     |        |                                                  |     |      |  |   |     |   |  |   |      |  
|Loans2,3                                            |        | $                                                | 243 |      |  | $ | 126 |   |  | $ | 369  |  
|Federal funds sold                                  |        |                                                  | 59  |      |  |   | 64  |   |  |   | 123  |  
|Taxable investment securities                       |        |                                                  | (76 | )    |  |   | (66 | ) |  |   | (142 | )
|Tax-exempt investment securities3                   |        |                                                  | (7  | )    |  |   | (3  | ) |  |   | (10  | )
|Other interest-earning assets                       |        |                                                  | 1   |      |  |   | 1   |   |  |   | 2    |  
|                                                    |        |                                                  |     |      |  |   |     |   |  |   |      |  
|Total interest income                               |        |                                                  | 220 |      |  |   | 122 |   |  |   | 342  |  
|                                                    |        |                                                  |     |      |  |   |     |   |  |   |      |  
|Interest expense                                    |        |                                                  |     |      |  |   |     |   |  |   |      |  
|Interest-bearing demand deposits4                   |        |                                                  | 21  |      |  |   | 82  |   |  |   | 102  |  
|Savings                                             |        |                                                  | 3   |      |  |   | (1  | ) |  |   | 2    |  
|Time deposits                                       |        |                                                  | (5  | )    |  |   | 1   |   |  |   | (4   | )
|Federal funds purchased                             |        |                                                  | (1  | )    |  |   |    |   |  |   | (1   | )
|U.S. Treasury demand note                           |        |                                                  |    |      |  |   | 2   |   |  |   | 2    |  
|Federal Home Loan Bank advances                     |        |                                                  |    |      |  |   | (1  | ) |  |   | (1   | )
|                                                    |        |                                                  |     |      |  |   |     |   |  |   |      |  
|Total interest expense                              |        |                                                  | 19  |      |  |   | 81  |   |  |   | 100  |  
|                                                    |        |                                                  |     |      |  |   |     |   |  |   |      |  
|Net change in net interest income                   |        | $                                                | 201 |      |  | $ | 41  |   |  | $ | 242  |  
|                                                    |        |                                                  |     |      |  |   |     |   |  |   |      |  

---

|1 | Changes in net interest income are attributed to either changes in average balances (volume change) or changes in average rates (rate change) for earning assets and
sources of funds on which interest is received or paid. Volume change is calculated as change in volume times the previous rate while rate change is change in rate times the previous volume. The rate/volume change, change in rate times change in
volume, is allocated between volume change and rate change at the ratio each component bears to the absolute value of their total.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|2 | Includes loan fees. See the average balances table on the previous page for more details.
|- | -----------------------------------------------------------------------------------------

|3 | Interest income on tax-exempt loans and securities is presented on a taxable-equivalent basis, using a federal income tax rate of 34%. No adjustments have been made
for any state tax benefits or the nondeductible portion of interest expense.
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4 | Now and money market accounts.
|- | ------------------------------



Noninterest Income and Expense



Noninterest income declined $73,964 or 8.02% during the first quarter of 2005 compared to 2004. A $66,676 or 10.92% drop in service charges on deposit accounts was the main factor in the three-month results; the
majority, or 68%, of the 2005 decline was attributable to reduced volume of NSF fees. The other operating portion of noninterest income fell $10,594 at March 31, 2005 compared to 2004. By type and amount, the chief components of other operating
income at March 31, 2005 were mortgage origination fees, $131,026; surcharge fees  ATM, $39,839; commissions on the sale of credit life insurance, $27,121; income on sale of check products, $29,698; and safe deposit box rentals, $18,001.
Together, these five income items comprised 80.71% of other operating income at March 31, 2005. In 2004, these same five income components comprised 73.90% of other operating income. Overall, noninterest expense increased $213,420 or 7.20% in 2005
year-to-date. Personnel costs accounted for virtually the entire increase. The 2005 increase ensued largely from additional staff in various administrative and other managerial positions. The vast majority, or 84%, of employee expenses remained
concentrated in salaries and other direct compensation, including related payroll taxes, at March 31, 2005. Profit-sharing accruals and other fringe benefits constituted the remaining 6% and 10% 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 increased 7.57% or $45,199 during the first three months
of 2005 compared to 2004. Costs associated with the Companys new branch facility in Brunswick, Georgia, operational since November 2004, accounted for the bulk of the 2005  2004 fluctuation. Other operating expenses fell $43,773 or 6.55%
at March 31, 2005 compared to 2004; net gains versus losses



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on sales of foreclosed real estate was the primary variable. Besides advertising expense, which approximated $67,000 in
2005 and $69,000 in 2004, no individual component of other operating expenses aggregated or exceeded 10% of the total in 2005 or 2004. Costs associated with the Companys Brunswick facility and additional staff, as discussed above, are expected
to increase noninterest expense approximately $550,000 in 2005 compared to 2004.



Recent Accounting Pronouncements



Recent accounting
pronouncements affecting the Company are discussed in Note 2 to the consolidated financial statements and, further, in the 2004 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.
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | 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.
| | - |  | ------------------------------------------------------------------------------



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| |  |  | 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.



The Companys management, with the participation of the Companys Chief Executive Officer (the CEO) and Chief Financial Officer (the CFO or Treasurer), has evaluated the effectiveness of the Companys disclosure controls and
procedures (as defined in Rules 13a-15(e) or 15(d)-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, the CEO and Treasurer 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. Unregistered Sales of Equity Securities and Use of Proceeds.



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 11, 2005. At the Meeting, the following individuals were elected directors:



|                          |  |           |  |         
|------------------------- |  | --------- |  | --------
|Directors                 |  | For       |  | Withheld
|Alyson G. Beasley         |  | 2,480,441 |  | 100     
|Leslie H. Blair           |  | 2,480,541 |  |        
|David H. Bluestein        |  | 2,480,541 |  |        
|Cornelius P. Holland, III |  | 2,472,621 |  | 7,920   
|Alva J. Hopkins, III      |  | 2,480,541 |  |        
|G. Norris Johnson         |  | 2,480,541 |  |        



The shareholders also
approved the following proposals:



| | (a) | Setting the number of directors at a 9 member maximum, with 3 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
|2,442,572 |  | 16,019  |  | 21,950  |  |                



| | (b) | The appointment of independent auditors by the Audit Committee for fiscal year 2005.
| | --- | ------------------------------------------------------------------------------------



|          |  |         |  |         |  |                 
|--------- |  | ------- |  | ------- |  | ----------------
|For       |  | Against |  | Abstain |  | Broker Non-Votes
|2,458,349 |  |        |  | 22,192  |  |                



Item 5. Other Information.



None



Item 6. Exhibits.



| | (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 2002



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



None



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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 16, 2005



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