##### Table of Contents



OMB ApprovalOMB Number: 3235-0420Expires: April 30, 2009Estimated average burden hours per response   1646
   UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 Form 10-KSB
  þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the fiscal year ended December 31, 2006
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from

to
 Commission
file number
 SouthEast Bancshares, Inc.
  Tennessee
    
    20-8101695(State or other jurisdiction of incorporation or organization)1878 S. Congress Parkway, Athens, TN
    
    37303(Address of principal executive offices)
    
    (Zip Code)
 (423) 745-6444
  Title of each class
    
    Name of each exchange on which registered
   
  
  þ o
 Persons who are to respond to the collection of information contained in this form are not
required to respond unless the form displays a currently valid OMB control number.
 þ
  o þ
 $12,742,805
   (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
  ̈  ̈
 (APPLICABLE ONLY TO CORPORATE REGISTRANTS)
 1,284,379 as of December 31, 2006
 DOCUMENTS INCORPORATED BY REFERENCE
   o þ




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##### Table of Contents



SOUTHEAST BANCSHARES, INC.
Annual Report on Form 10-KSB
For the Fiscal Year Ended December 31, 2006
 Table of Contents
 Item
    
    
    
    PageNumber
    
    
    
    NumberPart I1.
    
    Description of Business
    
    
    32.
    
    Description of Property
    
    
    153.
    
    Legal Proceedings
    
    
    164.
    
    Submission of Matters to a Vote of
Security Holders
    
    
    16Part II5.
    
    Market for Common Equity, Related Stockholder Matters and Small
Business Issuer Purchases of Equity Securities
    
    
    176.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    187.
    
    Financial Statements
    
    
    358.
    
    Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
    
    
    358A.
    
    Controls and Procedures
    
    
    368B.
    
    Other Information
    
    
    36Part III9.
    
    Directors and Executive Officers of the Registrant
    
    
    3710.
    
    Executive Compensation
    
    
    3711.
    
    Security Ownership of Certain Beneficial Owners
and Management
    
    
    3712.
    
    Certain Relationships and Related Transactions
    
    
    3713.
    
    Exhibits, List and Reports on Form 8-K
    
    
    3814.
    
    Principal Accountant Fees and Services
    
    
    39Ex-3.1 SouthEast Bancshares, Inc. CharterEx-3.2 SouthEast Bancshares, Inc. By-lawsEx-10.1 SouthEast Bancshares, Inc. Stock Option PlanEx-10.2 Form of Organizers Stock Option AgreementEx-10.3 Form of Management Stock Option AgreementEx-10.4 Employment Agreement between the Bank and F. Stephen MillerEx-10.5 Employment Agreement between the Bank and Tom B. Hughes IIIEx-10.6 Employment Agreement between the Bank and Jerry D. SmithEx-10.7 Employment Agreement between the Bank and Sidney W. BreauxEx-10.8 Employment Agreement between the Bank and M. Shellie FuguateEx-10.9 Employment Agreement between the Bank and James W. DewhirstEX-13 AUDITED FINANCIAL STATEMENTSEx-14 SouthEast Bancshares, Inc. and SouthEast Bank & Trust Code of Ethics and Conflict of Interest PolicyEx-31.1 Section 302 Certification of the CEOEx-31.2 Section 302 Certification of the CFOEx-32 Section 906 Certification of the CEO & CFO
 1




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PART I
 SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
 Statements and financial discussion and analysis contained in this Annual Report on Form 10-KSB
(this Report) of SouthEast Bank & Trust (the Bank) that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements describe the Banks future plans,
strategies and expectations, are based on assumptions and involve a number of risks and
uncertainties, many of which are beyond the Banks control. The important factors that could cause
actual results to differ materially from estimates or projections contained in the forward-looking
statements include, without limitation:
 
    
    general business and economic conditions in the markets the Bank serves may be less
favorable than anticipated;
    
    changes in market rates and prices may impact the value of securities, loans,
deposits and other financial instruments;
    
    changes in the levels of loan prepayments and the resulting effects on the value of
the Banks loan portfolio;
    
    changes in local economic and business conditions that could adversely affect the
Banks customers and their ability to transact profitable business with the Bank,
including among other things, the ability of borrowers to repay their loans according to
their terms and the value of related collateral;
    
    the failure of assumptions underlying the establishment of and provisions made to the
allowance for possible credit losses;
    
    the loss of senior management or operating personnel and the potential inability to
hire qualified personnel at reasonable compensation levels;
    
    the Banks ability to acquire, operate and maintain cost effective and efficient
systems without incurring unexpectedly difficult or expensive but necessary technological
changes;
    
    legislative or regulatory developments including changes in laws or regulations
concerning taxes, banking, securities, insurance or other aspects of the financial
services industry;
    
    competitive factors including among other things, product and pricing pressures among
financial services organizations may increase;
    
    the Banks ability to expand and grow its business and operations through the opening
of de novo branches or the acquisition of additional banks, and the Banks ability to
realize the cost savings and revenue enhancements it expects from such expansion or
acquisitions;
    
    fiscal and governmental policies of the United States government; and
    
    other factors discussed in this Report.
 2




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##### Table of Contents



The words anticipate, estimate, project, intend, expect, believe, continue, may,
will, should and similar expressions are intended to identify forward-looking statements. These
forward-looking statements are found at various places throughout this document and the other
documents incorporated herein by reference. All written and oral forward-looking statements
attributable to the Bank are expressly qualified in their entirety by these cautionary statements.
The Bank undertakes no obligation to publicly update or otherwise revise any forward-looking
statements, whether as a result of new information, future events or otherwise, unless the
securities laws require the Bank to do so.
 
 ITEM 1. DESCRIPTION OF BUSINESS
 General
      3




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2006
    
    2005Total Assets
    
    $
    182,237,163
    
    
    $
    144,181,038Total Net loans
    
    
    144,364,908
    
    
    
    113,834,146Total Deposits
    
    
    164,496,082
    
    
    
    125,855,261Total Equity
    
    
    13,809,910
    
    
    
    12,047,728
  December 312006
    
    2005Bank
    
    Peer
    
    Bank
    
    PeerNet Interest Income / Average Assets
    
    
    3.90
    
    
    
    3.99
    
    
    
    3.71
    
    
    
    4.06Net Operating Income / Average Assets
    
    
    0.93
    
    
    
    0.79
    
    
    
    1.02
    
    
    
    0.83Net Loan Losses / Average Total Loans
    
    
    0.14
    
    
    
    0.14
    
    
    
    0.31
    
    
    
    0.07Capital / Average Assets
    
    
    7.58
    
    
    
    10.59
    
    
    
    8.36
    
    
    
    11.18
 Expansion
   Competitive Environment
  4




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Bank
    
    No. of Offices
    
    Deposits (thousands)
    
    Market Share %Citizens National Bank
    
    
    3
    
    
    $
    220,559
    
    
    
    19.04
    %Branch Banking & Trust
    
    
    5
    
    
    $
    157,438
    
    
    
    13.59
    %Athens Federal Community Bank
    
    
    3
    
    
    $
    142,087
    
    
    
    12.27
    %SouthEast Bank & Trust
    
    
    5
    
    
    $
    136,838
    
    
    
    11.81
    %First Bank of Tennessee
    
    
    3
    
    
    $
    97,869
    
    
    
    8.45
    %Regions Bank
    
    
    5
    
    
    $
    96,791
    
    
    
    8.36
    %AmSouth Bank
    
    
    4
    
    
    $
    89,127
    
    
    
    7.69
    %Community National Bank
    
    
    2
    
    
    $
    64,923
    
    
    
    5.60
    %All others
    
    
    8
    
    
    $
    152,752
    
    
    
    13.19
    %
 Customers
  Employees
  Supervision and Regulation
 General
   5




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Tennessee Supervision and Regulation
   Dividends.
  Federal Supervision and Regulation
 Deposit Insurance
 6




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FDICIA
& Prompt Corrective Action
 7




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Standards for Safety and Soundness
 8




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Capital Requirements
    9




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Activities and Investments of Insured State-Chartered Banks
   Loans-to-One-Borrower
 10




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Federal Reserve System
 Community Reinvestment Act
 Interstate Banking
 Gramm-Leach Bliley Act
  The USA PATRIOT Act of 2001
 11




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Sarbanes-Oxley Act of 2002
  Regulation of Bank Holding Companies
  12




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Change in Control Restrictions
 Statutory Provisions
  Other
 Part III, Item 10 EXECUTIVE COMPENSATION.
  Dividends
  Part II, Item Five.
MARKET FOR THE COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF
EQUITY SECURITIES.
 13




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##### Table of Contents



Monetary Policy
 Supervision and Regulation
 Capital Adequacy
 Supervision and Regulation  Federal Supervision and Regulation
 Further Legislation
  Asset/Liability Management
  Investment Policy
   14




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ITEM 2. DESCRIPTION OF PROPERTY
           15




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ITEM 3. LEGAL PROCEEDINGS
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  16




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PART II
 
 ITEM 5. MARKET FOR THE COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES
       17




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High
    
    Low2006First quarter
    
    $
    17.00
    
    
    $
    15.00Second quarter
    
    $
    17.22
    
    
    $
    17.00Third quarter
    
    $
    18.00
    
    
    $
    17.00Fourth quarter
    
    $
    20.00
    
    
    $
    20.002005First quarter
    
    
    N/A
    
    
    
    N/ASecond quarter
    
    $
    13.50
    
    
    $
    13.00Third quarter
    
    $
    15.00
    
    
    $
    15.00Fourth quarter
    
    $
    15.00
    
    
    $
    15.00
    
 ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 OVERVIEW
   18




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Executive Summary
   2006
    
    2005
    
    ChangeSecurities available for sale
    
    $
    17,374,584
    
    
    $
    13,646,524
    
    
    $
    3,728,060Loans, net of allowance
    
    
    144,364,908
    
    
    
    113,834,146
    
    
    
    30,530,762Total assets
    
    
    182,237,163
    
    
    
    144,181,038
    
    
    
    38,056,125Deposits
    
    
    164,496,082
    
    
    
    125,855,261
    
    
    
    38,640,821FHLB advances
    
    
    3,000,000
    
    
    
    5,700,000
    
    
    
    (2,700,000
    )Stockholders equity
    
    
    13,809,910
    
    
    
    12,047,728
    
    
    
    1,762,182Net interest income
    
    
    6,255,652
    
    
    
    4,882,716
    
    
    
    1,372,936Provision for loan losses
    
    
    460,000
    
    
    
    511,175
    
    
    
    (51,175
    )Noninterest income
    
    
    1,608,407
    
    
    
    1,336,738
    
    
    
    271,669Noninterest expenses
    
    
    5,686,059
    
    
    
    4,362,794
    
    
    
    1,323,265Net income
    
    
    1,494,000
    
    
    
    1,345,485
    
    
    
    148,515Earnings per share  basic
    
    $
    1.16
    
    
    $
    1.07
    
    
    $
    0.09Allowance for loan losses as a
percentage of gross loans
    
    
    1.13
    %
    
    
    1.18
    %
    
    
    (0.05
    %)
 Deposit Services
  19




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Loans
  Critical Accounting Policies
   Allowance for loan losses
 Securities
 20




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PLAN OF OPERATIONS
     RESULTS OF OPERATIONS
  21




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Net Interest Income
  Noninterest Income
  22




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##### Table of Contents



Noninterest Expense
   Income Taxes
  FINANCIAL CONDITION
  23




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##### Table of Contents



Loans
  2006
    
    
    2005(in thousands)Real estate loans:Residential
    
    $
    58,489
    
    
    $
    47,224Commercial
    
    
    34,754
    
    
    
    25,905Construction
    
    
    12,836
    
    
    
    7,058Other
    
    
    5,424
    
    
    
    4,671Total mortgage loans on real estate
    
    
    111,503
    
    
    
    84,858Commercial and industrial loans
    
    
    18,302
    
    
    
    15,977Consumer loans
    
    
    13,078
    
    
    
    11,817Other
    
    
    3,157
    
    
    
    2,568Total loans
    
    
    146,040
    
    
    
    115,220Less: Allowance for loan losses
    
    
    (1,645
    )
    
    
    (1,362
    )Deferred loan fees
    
    
    (30
    )
    
    
    (24
    )Net loans
    
    $
    144,365
    
    
    $
    113,834
    24




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Allowance For Loan and Lease Losses
   2006
    
    
    2005Balance, beginning of year
    
    $
    1,361,567
    
    
    $
    1,172,129Provision charged to operating expense
    
    
    460,000
    
    
    
    511,175Recoveries of loans charged off
    
    
    66,963
    
    
    
    37,206Loans charged off
    
    
    (243,896
    )
    
    
    (358,943
    )Balance, end of year
    
    $
    1,644,634
    
    
    $
    1,361,567
  Lending Policy of the Bank
  25




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Maximum AllowableLoan Category
    
    Loan-to-Value RatioLand
    
    
    65
    %Land development
    
    
    75
    %Owner-occupied land development
    
    
    75
    %ConstructionCommercial, multifamily1and other nonresidential
    
    
    80
    %1-4 family residential
    
    
    85
    %Improved property
    
    
    85
    %Owner-occupied 1-4 family and home equity2
    
    
    85
    %
 
 1
    
    Multifamily construction includes condominiums and cooperatives.2
    
    A loan-to-value limit has not been established for permanent mortgage or home equity loans on
owner-occupied, 1-4 family residential property. However, for any such loan with a
loan-to-value ratio that equals or exceeds 90% at origination, appropriate credit enhancement
in the form of either mortgage insurance or readily marketable collateral is required. Loan Review and Nonperforming Assets
  Grade 1: Superior
 26




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##### Table of Contents



Grade
2: Good
 Grade 3: Average
 Grade 4: Acceptable
 Grade
5: Pass with Caution.
 Grade
6: Special Mention
 Grade
7: Substandard
 Grade
8: Doubtful
 27




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##### Table of Contents



Grade
9 Loss
   Securities
   Premises and Equipment
  Deposits
  28




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##### Table of Contents



Year Ended December 31(in thousands)2006
    
    
    2005Average
    
    
    Average
    
    
    % of
    
    
    Average
    
    
    Average
    
    
    % ofBalance
    
    
    Rate
    
    
    Deposits
    
    
    Balance
    
    
    Rate
    
    
    DepositsNoninterest-bearingDemand Deposits
    
    $
    11,266
    
    
    
    
    
    
    
    7.87
    %
    
    $
    7,906
    
    
    
    
    
    
    
    6.92
    %Interest-bearingDemand Deposits
    
    
    19,583
    
    
    
    1.30
    %
    
    
    13.69
    %
    
    
    17,770
    
    
    
    1.31
    %
    
    
    15.55
    %Savings Deposits
    
    
    32,215
    
    
    
    2.67
    %
    
    
    22.52
    %
    
    
    32,263
    
    
    
    2.32
    %
    
    
    28.23
    %Time Deposits
    
    
    79,998
    
    
    
    4.44
    %
    
    
    55.92
    %
    
    
    56,353
    
    
    
    3.39
    %
    
    
    49.30
    %Total Deposits
    
    $
    143,062
    
    
    
    3.27
    %
    
    
    100.00
    %
    
    $
    114,292
    
    
    
    2.53
    %
    
    
    100.00
    %
  Liquidity
   Federal Home Loan Bank Advances
  29




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Capital Resources
   Interest Rate Sensitivity
   30




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##### Table of Contents



INTEREST RATE GAP ANALYSIS
 Repricing or Maturing Within(Dollars in thousands)0-3
    
    
    3-12
    
    
    Total
    
    
    1-5
    
    
    OverMonths
    
    
    Months
    
    
    1 Yr.
    
    
    Years
    
    
    5 Yrs.
    
    
    TotalASSETSInvestment Securities
    
    $
    3,301
    
    
    $
    2,947
    
    
    $
    6,248
    
    
    $
    8,706
    
    
    $
    3,229
    
    
    $
    18,183Federal Funds Sold
    
    
    4,396
    
    
    
    
    
    
    
    4,396
    
    
    
    
    
    
    
    
    
    
    
    4,396Interest Bearing Deposits
    
    
    32
    
    
    
    95
    
    
    
    127
    
    
    
    
    
    
    
    
    
    
    
    127Loans
    
    
    62,633
    
    
    
    45,594
    
    
    
    108,227
    
    
    
    30,525
    
    
    
    7,288
    
    
    
    146,040Total Earning Assets
    
    
    70,362
    
    
    
    48,636
    
    
    
    118,998
    
    
    
    39,231
    
    
    
    10,517
    
    
    
    168,746LIABILITIESFHLB advances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,000
    
    
    
    
    
    
    
    3,000Interest bearing deposits
    
    
    55,432
    
    
    
    65,579
    
    
    
    121,011
    
    
    
    10,633
    
    
    
    19,125
    
    
    
    150,769Asset (liability) GAP
    
    $
    14,930
    
    
    $
    (16,943
    )
    
    $
    (2,013
    )
    
    $
    25,598
    
    
    $
    (8,608
    )
    
    $
    14,977Cumulative asset (liability)
GAP
    
    $
    14,930
    
    
    $
    (2,013
    )
    
    $
    (2,013
    )
    
    $
    23,585
    
    
    $
    14,977
    
    
    $
    14,977Cumulative as a percentage
of interest-earning assets
    
    
    8.85
    %
    
    
    (1.19
    %)
    
    
    (1.19
    %)
    
    
    13.98
    %
    
    
    8.88
    %
    
    
    8.88
    %
 31




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Average Balance Sheets, Net Interest Revenue and Changes in Interest Income and Interest
Expense
  In Thousands of dollarsDecember 31, 2006
    
    
    December 31, 2005
    
    
    ChangeAverage
    
    
    Interest
    
    
    Revenue/
    
    
    Average
    
    
    Interest
    
    
    Revenue/
    
    
    Due to
    
    
    Due toBalance
    
    
    Rate
    
    
    Expense
    
    
    Balance
    
    
    Rate
    
    
    Expense
    
    
    Volume
    
    
    Rate (1)
    
    
    TotalGross loans (2 and 3)
    
    $
    128,071
    
    
    
    7.97
    %
    
    $
    10,204
    
    
    $
    105,069
    
    
    
    7.02
    %
    
    $
    7,372
    
    
    $
    1,615
    
    
    $
    1,217
    
    
    $
    2,832Securities available for sale
    
    
    16,240
    
    
    
    4.04
    %
    
    
    657
    
    
    
    12, 403
    
    
    
    3.39
    %
    
    
    421
    
    
    
    130
    
    
    
    106
    
    
    
    236Restricted investments
    
    
    787
    
    
    
    3.82
    %
    
    
    30
    
    
    
    735
    
    
    
    3.28
    %
    
    
    24
    
    
    
    2
    
    
    
    4
    
    
    
    6Interest bearing deposits
    
    
    28
    
    
    
    4.30
    %
    
    
    4
    
    
    
    22
    
    
    
    4.55
    %
    
    
    1
    
    
    
    
    
    
    
    3
    
    
    
    3Federal funds sold
    
    
    4,976
    
    
    
    4.79
    %
    
    
    239
    
    
    
    4,255
    
    
    
    3.67
    %
    
    
    156
    
    
    
    26
    
    
    
    57
    
    
    
    83Total interest-earning assets
    
    
    150,102
    
    
    
    7.42
    %
    
    
    11,134
    
    
    
    122,484
    
    
    
    6.51
    %
    
    
    7,974
    
    
    
    1,773
    
    
    
    1,387
    
    
    
    3,160Cash and due from banks
    
    
    3,687
    
    
    
    
    
    
    
    
    
    
    
    2,626Other nonearning assets
    
    
    8,845
    
    
    
    
    
    
    
    
    
    
    
    7,863Allowance for loan losses
    
    
    (1,470
    )
    
    
    
    
    
    
    
    
    
    
    (1,277
    )Total assets
    
    $
    161,164
    
    
    
    
    
    
    
    
    
    
    $
    131,696Deposits:NOW
    
    $
    19,583
    
    
    
    1.30
    %
    
    
    254
    
    
    $
    17,770
    
    
    
    1.31
    %
    
    
    232
    
    
    
    24
    
    
    
    (2
    )
    
    
    22Money market investments
    
    
    25,458
    
    
    
    2.91
    %
    
    
    742
    
    
    
    26,353
    
    
    
    2.46
    %
    
    
    649
    
    
    
    (22
    )
    
    
    115
    
    
    
    93Savings
    
    
    6,757
    
    
    
    1.75
    %
    
    
    118
    
    
    
    5,910
    
    
    
    1.69
    %
    
    
    100
    
    
    
    1
    
    
    
    17
    
    
    
    18Time deposits $100,000 and over
    
    
    32,103
    
    
    
    4.63
    %
    
    
    1,486
    
    
    
    21,193
    
    
    
    3.44
    %
    
    
    728
    
    
    
    375
    
    
    
    383
    
    
    
    758Other time deposits
    
    
    47,895
    
    
    
    4.34
    %
    
    
    2,080
    
    
    
    35,160
    
    
    
    3.36
    %
    
    
    1,180
    
    
    
    429
    
    
    
    471
    
    
    
    900Total interest-bearing deposits
    
    
    131,796
    
    
    
    3.55
    %
    
    
    4,680
    
    
    
    106,386
    
    
    
    2.72
    %
    
    
    2,889
    
    
    
    807
    
    
    
    984
    
    
    
    1,791Other borrowings
    
    
    4,406
    
    
    
    4.50
    %
    
    
    198
    
    
    
    5,676
    
    
    
    3.56
    %
    
    
    202
    
    
    
    (45
    )
    
    
    41
    
    
    
    (4
    )Total interest-bearing liabilities
    
    
    136,202
    
    
    
    3.58
    %
    
    
    4,878
    
    
    
    112,062
    
    
    
    2.76
    %
    
    
    3,091
    
    
    
    762
    
    
    
    1,025
    
    
    
    1,787Noninterest-bearing liabilities
    
    
    12,088
    
    
    
    
    
    
    
    
    
    
    
    8,423Total liabilities
    
    
    148,290
    
    
    
    
    
    
    
    
    
    
    
    120,485Shareholders equity
    
    
    12,874
    
    
    
    
    
    
    
    
    
    
    
    11,211Total liabilities and shareholders equity
    
    $
    161,164
    
    
    
    
    
    
    
    
    
    
    $
    131,696Net interest income
    
    
    
    
    
    
    
    
    
    $
    6,256
    
    
    
    
    
    
    
    
    
    
    $
    4,883
    
    
    $
    1,011
    
    
    $
    362
    
    
    $
    1,373Net interest margin (4)
    
    
    
    
    
    
    4.17
    %
    
    
    
    
    
    
    
    
    
    
    3.99
    %
 
 1
    
    Changes in interest income and expense not due solely to balance or rate changes are included
in the rate category.2
    
    Interest income includes fees on loans of $675 in 2006 and $514 in 2005.3
    
    Nonaccrual loans are included in average loan balances and the associated income (recognized
on a cash basis) is included in interest.4
    
    Net interest income to average interest-earning assets. 32




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##### Table of Contents



Investment Portfolio
  December 312006
    
    
    2005(In Thousands)U.S. Government and federal agencies
    
    $
    8,972
    
    
    $
    10,646Mortgage-backed securities
    
    
    7,230
    
    
    
    2,958State and municipal securities
    
    
    1,173
    
    
    
    43Total
    
    $
    17,375
    
    
    $
    13,647
  Within
    
    
    1-5
    
    
    5-10
    
    
    Beyond1 Year
    
    
    Years
    
    
    Years
    
    
    10 Years
    
    
    Total($ in thousands)U.S. Government and
federal agency
    
    $
    4,510
    
    
    $
    4,462
    
    
    $
    
    
    
    $
    
    
    
    $
    8,972Mortgage-backed
    
    
    
    
    
    
    
    
    
    
    1,100
    
    
    
    6,130
    
    
    
    7,230State and municipal
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,173
    
    
    
    1,173Total debt securities
    
    $
    4,510
    
    
    $
    4,462
    
    
    $
    1,100
    
    
    $
    7,303
    
    
    $
    17,375Weighted average
yield
(tax equivalent)
    
    
    2.88
    %
    
    
    4.61
    %
    
    
    4.77
    %
    
    
    5.03
    %
    
    
    4.36
    %
 Loan Portfolio
  One year or less
    
    $
    73,357One year to five years
    
    
    58,150Over five years
    
    
    14,423145,930Non-repricing
    
    
    110Total
    
    $
    146,040
     33




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##### Table of Contents



Summary of Loan Loss Experience
  December 312006
    
    
    2005Balance at beginning of period
    
    $
    1,362
    
    
    $
    1,172Charge-offs: Consumer
    
    
    (228
    )
    
    
    (215
    )All other
    
    
    (35
    )
    
    
    (144
    )Recoveries
    
    
    86
    
    
    
    38Provision for loan losses
    
    
    460
    
    
    
    511Balance at end of period
    
    $
    1,645
    
    
    $
    1,362Ratio of net charge-offs during the period to
average loans outstanding during the
period
    
    
    .14
    %
    
    
    .31
    %
  2006
    
    
    2005Percentage of
    
    
    
    
    
    
    Percentage ofloans in each
    
    
    
    
    
    
    loans in eachcategory to
    
    
    
    
    
    
    category toAmount
    
    
    total loans
    
    
    Amount
    
    
    total loansCommercial, financial and
agricultural
    
    $
    230
    
    
    
    14
    %
    
    $
    204
    
    
    
    15
    %Real estate-construction
    
    
    148
    
    
    
    9
    %
    
    
    82
    
    
    
    6
    %Real estate-1 to 4 family residential
    
    
    658
    
    
    
    40
    %
    
    
    558
    
    
    
    41
    %Real estate-commercial
    
    
    395
    
    
    
    24
    %
    
    
    272
    
    
    
    20
    %Real estate  other
    
    
    66
    
    
    
    4
    %
    
    
    95
    
    
    
    7
    %Consumer and other loans
    
    
    148
    
    
    
    9
    %
    
    
    151
    
    
    
    11
    %Total
    
    $
    1,645
    
    
    
    100
    %
    
    $
    1,362
    
    
    
    100
    %
 Off-Balance Sheet Arrangements
   34




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##### Table of Contents



ITEM 7. FINANCIAL STATEMENTS
  
    
    Consolidated Balance Sheets as of December 31, 2006 and 2005;
    
    Consolidated Statements of Operations for the years ended December 31, 2006 and 2005;
    
    Consolidated Statements of Changes in Shareholders Equity for the years ended
December 31, 2006 and 2005; and
    
    Consolidated Statements of Cash Flows for the years ended December 31, 2006 and 2005.
 
 ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  35




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##### Table of Contents



ITEM 8A. CONTROLS AND PROCEDURES
 Evaluation of disclosure controls and procedures
 Changes in internal control over financial reporting
 
 ITEM 8B. OTHER INFORMATION
  36




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##### Table of Contents



PART III
 
 ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
   
    
    Honest and ethical conduct, including the ethical handling of actual or apparent
conflicts of interest between personal and professional relationships;
    
    full, fair, accurate, timely and understandable disclosure in reports and documents
that the Company files with the SEC and other public communications;
    
    compliance with applicable laws, rules, and regulations;
    
    prompt internal reporting of violations of the policy; and
    
    accountability for adherence to the policy.
  
 ITEM 10. EXECUTIVE COMPENSATION
  
 ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
  
 ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  37




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##### Table of Contents



ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
 Exhibits
  Exhibit No.
    
    Description3.1
    
    SouthEast Bancshares, Inc. Charter3.2
    
    SouthEast Bancshares, Inc. By-laws10.1
    
    SouthEast Bancshares, Inc. Stock Option Plan10.2
    
    Form of Organizers Stock Option Agreement10.3
    
    Form of Management Stock Option Agreement10.4
    
    Employment Agreement between the Bank and F. Stephen Miller10.5
    
    Employment Agreement between the Bank and Tom B. Hughes III10.6
    
    Employment Agreement between the Bank and Jerry D. Smith10.7
    
    Employment Agreement between the Bank and Sidney W. Breaux10.8
    
    Employment Agreement between the Bank and M. Shellie Fugate10.9
    
    Employment Agreement between the Bank and James W. Dewhirst13
    
    Audited Financial Statements14
    
    SouthEast Bancshares, Inc. and SouthEast Bank & Trust Code of Ethics
and Conflict of Interest Policy effective as of January 2, 200731.1
    
    Certification of principal executive officer pursuant to 18 U.S.C. Section
1350  Sarbanes-Oxley Act of 200231.2
    
    Certification of principal financial officer pursuant to 18 U.S.C. Section
1350  Sarbanes-Oxley Act of 200232
    
    Certification of the chief executive officer and the chief financial
officer pursuant to Section 906 of the Sarbanes-Oxley 
Act of 2002
 Reports on Form 8-K
  38




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##### Table of Contents



ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES
  39




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##### Table of Contents



SIGNATURES
  SOUTHEAST BANCSHARES, INC.Date: March 16, 2007
    By:

/s/ F. Stephen Miller, Chief Executive OfficerF. Stephen MillerChief Executive OfficerBy:
    /s/ M. Shellie Fugate, Chief Financial OfficerM. Shellie FugateChief Financial Officer




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##### Table of Contents



Signature
    
    Title/s/ F. Stephen Miller

F. Stephen Miller
    
    Chairman / Chief Executive Officer / Director/s/ Tom B. Hughes, III

Tom B. Hughes, III
    
    President / Chief Operating Officer / Director/s/ M. Shellie Fugate

M. Shellie Fugate
    
    Chief Financial Officer/s/ Sandra B. Boyd

Sandra B. Boyd
    
    Director/s/ Sidney W. Breaux

Sidney W. Breaux
    
    Executive Vice President / Senior Credit Officer / Director/s/ William M. Buchanan

William M. Buchanan
    
    Director/s/ C. William Inman

C. William Inman
    
    Director/s/ Gary L. Mason

Gary L. Mason
    
    Director/s/ Calvin D. Rockholt

Calvin D. Rockholt
    
    Director




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##### Table of Contents



Signature
    
    Title/s/ R. Carter Runyan

R. Carter Runyan
    
    Director/s/ Jerry D. Smith

Jerry D. Smith
    
    Senior Vice President / Director/s/ Jerry E. Smith

Jerry E. Smith
    
    Director/s/ Paul L. Smith

Paul L. Smith
    
    Director/s/ Martin C. Wilhelm

Martin C. Wilhelm
    
    Director/s/ Shirley S. Woodcock

Shirley S. Woodcock
    
    Director