2007 Report to Shareholders

Securing a Solid Future
2007 Report to Shareholders
www.securitybank.net
Corporation
Corporation
2
Security Bank Locations
Woodstock
Alpharetta
Hiram
Atlanta
Braselton
Suwanee
Bogart
Griffin
Gray
Macon
Warner Robins
Perry
Brunswick
St. Simons
Island
Security Bank
Fairfield Financial Services
Security Bank Loan Office
Security Bank Corporation (NASDAQ: SBKC)
Security Bank Corporation is a Georgia multi-bank holding company based in Macon, Georgia. Its wholly-owned bank subsidiaries are Security Bank of
Bibb County, Security Bank of Houston County, Security Bank of Jones County, Security Bank of North Metro, Security Bank of North Fulton and
Security Bank of Gwinnett County (the “banks”). The banks maintain banking and loan production offices throughout middle Georgia, coastal Georgia
and north metropolitan Atlanta. In addition, Security Bank Corporation operates a wholly owned mortgage subsidiary, Fairfield Financial Services, Inc.
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Financial Results
2007
2006
2005
2004
2003
$192,840
102,316
90,524
32,660
18,981
67,074
9,771
3,183
$6,588
$148,082
68,647
79,435
4,469
17,955
55,651
37,270
13,878
$23,392
$78,192
27,839
50,353
2,833
16,591
38,616
25,495
9,310
$16,185
$53,926
14,373
39,553
2,819
14,654
32,129
19,259
6,940
$12,319
$42,894
12,912
29,982
2,859
16,764
30,302
13,585
4,938
$8,647
$0.35
0.34
0.35
19,081,636
$1.36
1.33
0.30
17,222,139
$1.31
1.27
0.26
12,393,980
$1.10
1.07
0.22
11,156,372
$0.99
0.96
0.20
8,725,276
Ratios:
Return on Average Assets
Return on Average Equity
Dividend Payout Ratio
Average Equity to Average Assets
Net Interest Margin
0.25%
2.10%
100.00%
12.10%
3.88%
1.15%
9.28%
22.06%
12.42%
4.40%
1.31%
12.80%
19.85%
10.21%
4.46%
1.27%
13.04%
20.00%
9.72%
4.45%
1.16%
14.27%
20.20%
8.11%
4.40%
Balance Sheet: (At end of period)
Assets
Investment Securities
Loans Held for Sale
Loans, Net of Unearned Income
Allowance for Loan Losses
Deposits
Borrowed Funds
Shareholders’ Equity
Shares Outstanding
$2,833,071
305,399
7,605
2,182,313
31,698
2,298,705
206,326
306,693
18,912,264
$2,494,071
229,940
8,878
1,901,101
22,336
1,970,927
175,605
306,407
19,166,314
$1,662,413
150,986
5,562
1,272,119
16,148
1,291,253
172,141
179,305
14,386,960
$1,063,485
111,412
7,507
845,765
10,903
842,558
107,504
106,671
11,639,810
$911,269
102,855
11,448
697,682
9,407
743,301
85,986
75,809
10,048,600
Years Ended December 31
Income Statement:
Interest Income
Interest Expense
Net Interest Income
Provision for Loan Losses
Other Income
Other Expense
Income Before Tax
Income Taxes
Net Income
Per Share:
Earnings Per Common Share:
Basic
Diluted
Cash Dividends Paid
Weighted Average Shares
4
Message to Shareholders
T
he past year has been very difficult for Security Bank Corporation and the broader community banking industry. After five years of significant increases in shareholder value, Security saw
its stock price under-perform our Southeastern banking peers in recent months as the residential real
estate market (for us primarily in the Metro Atlanta segment of our market territory) came under
intense downward pressure. This was mainly due to the much-publicized meltdown of the subprime
segment of the residential mortgage sector and the unprecedented illiquidity it imposed on the
mortgage lending industry overall. Unfortunately, some of the loans we made to residential builders
and developers have been adversely affected by these developments and a significant increase in
charge-offs and nonperforming assets in our banks is the result. Many other banks and segments of
the financial services industry have been similarly affected.
These market conditions had a significant impact on our financial results in 2007. Although
loans increased 15% to approximately $2.2 billion (driven primarily in our Middle and Coastal
Georgia markets), Metro Atlanta saw a significant slowing in loan demand starting at mid-year. Our
provision for loan losses increased $28.2 million due to the more than doubling of our level of nonperforming loans to $79.1 million, primarily residential real estate acquisition and development,
and residential construction. However, this provision exceeded by $9.3 million our net charge-offs,
which were 1.12% of average loans, as we focused on building our reserves to help position us to
manage through this difficult credit cycle. Our net interest margin declined from 4.4% to 3.9%,
given our asset sensitive balance sheet and the added costs of higher levels of nonperforming assets.
Shareholders’ equity was roughly unchanged at $306.7 million compared to December 31, 2006.
Unfortunately, we believe that in 2008 our levels of nonperforming assets, provision for loan
losses, and loan charge-offs will all be significantly higher than the levels we experienced in 2007
because we’re continuing to see deterioration in the Metro Atlanta residential real estate segment.
Until this decline stabilizes we anticipate continued pressure on our earnings, liquidity and regulatory capital.
Jonathan Mayer, owner of Lawrence Mayer Florist, at his
downtown Macon store with Mel Jamison, Security Bank’s Bibb
County president, and Relationship Officer Craig Ellard.
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Message to Shareholders
To deal with these challenges and position your Company to remain strong for the future we
are focused on the basics of banking and on implementing the 2008 Strategic Plan objectives
approved by your Board of Directors. These are: (1) raise additional capital to ensure that we have
the resources to manage appropriately through this difficult time, (2) reduce problem loans, and (3)
reduce expenses.
Your Board of Directors and management team have spent significant time identifying and
implementing several strategies and initiatives to implement the elements of the strategic plan. One
of the most important of these initiatives was the stockholder Rights Offering just completed in
March 2008. This offering gave all shareholders the opportunity to increase their investment in our
Company on a pro rata basis. Via this offering, we successfully raised over $28 million in new capital which will be prudently applied to the problems and issues discussed above.
One initiative to help reduce problem loans was to identify loan relationships that could become
problematic over the next several months and to develop game plans aimed at resolving these pending situations in the customer’s and the shareholders’ best interests. Also, we have conducted an
extensive review of loan policies and procedures and have implemented changes to react aggressively to the current environment.
We have and will continue to explore ways to reduce expenses. The 2008 budget (although it
contains some increases we cannot control, such as increased FDIC Insurance) still has been cut
by approximately 5% from 2007 levels. We have implemented a hiring freeze and taken other
measures to reduce our staffing costs in 2008. Finally, all branch expansion is on hold and we have
no intent to pursue any acquisitions.
In addition to the steps mentioned above, we have also made changes to our management team to
enhance its ability to effectively manage through our challenges. As part of Security Bank’s effort to
more effectively manage and reduce nonperforming assets, Steve Stillman, Senior Vice President of
Security Bank of North Fulton, has moved to the holding company into a newly created position as
Problem Asset Manager. We also recently promoted Dan Forrester to Senior Vice President of the
holding company to manage our Specialized Lending Group, our Mortgage Operation and our
Correspondent Banking Division. Dan and Steve are each seasoned veterans with particular expertise
in dealing with these important areas.
Trey Wise (standing), Business Development Officer for Security Bank
of North Fulton, demonstrates Xpress Deposit for Todd Williams,
Mike Taylor and Susan Reed of Consultants and Builders, Inc.
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Message to Shareholders
Your Company is fortunate to have many strengths from which to draw during this period.
Evidencing our continuing momentum in our markets we opened over 13,000 new deposit
accounts in 2007. For the last two years we’ve enjoyed the largest deposit market share in our Middle
Georgia franchise; a lead which grew in 2007. Our employees continue to deliver the best banking
service available in any of our markets (and among the best in the entire industry) according to a
recently completed market survey and more customers continue to reward that high service standard by increasing their business with us every day. Our employees’ satisfaction with their Company
continues to rank among the very highest in the country, a key to our being able to deliver the exemplary customer service noted above. We believe that all these strengths will serve us well as we move
through the coming months toward a more favorable economic environment.
In closing, we extend thanks to our shareholders for your strong loyalty to and continued support of Security Bank Corporation. Your holding company Board, the Company’s executive management team and our banks’ local Boards of Directors and their management teams are working
diligently to regain and ensure the excellent performance our shareholders have come to expect. We
will continue to focus on controlling costs and on actively managing our exposures in a challenging
credit environment. We are confident your Company is positioned for long-term success, and that
our strategy of focusing on high growth markets, exemplary customer service, expense discipline, and
our commitment to strong credit risk management will continue to create value for shareholders in
the years to come.
H. Averett “Rett” Walker
President and Chief Executive Officer
Alford C. Bridges
Chairman
Security Bank customer, D. Jay DeFoor, President &
CEO of DeFoor Accoustical, Inc., with his banker,
Houston County President George Slappey.
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Correspondent Banking
D
uring the first quarter of 2007, Security Bank broadened our service offerings to develop new
lending relationships with other financial institutions. The Company formed a new
Correspondent Banking division in March with offices in Atlanta. The division’s service area
includes community bankers in Georgia and surrounding states. We were fortunate to add two
experienced and respected commercial bankers who moved from another financial institution.
Correspondent Banking specializes in credit lines for other commercial banks, warehouse
lending, loans to directors and participation loans. Our correspondent bankers bring a consistent
credit philosophy and an appreciation that prompt decisions are often essential in meeting
clients’ requirements.
Business Banking
S
ecurity Bank introduced a new remote deposit service that makes banking easier for business customers by allowing them to make check deposits directly from their place of business. This new
product, Xpress Deposit, is suited for firms with predominantly check deposits and can eliminate
trips to the bank just to make deposits. Since its introduction in early 2007, dozens of business customers have taken advantage of Xpress Deposit, resulting in greater convenience, time and expense
savings and faster availability of deposited funds. In our metro markets where traffic congestion can
absorb valuable time away from the business, Xpress Deposit has been an effective resource to attract
new business customers.
That service complements the convenient Online Cash Management service for business customers. Cash Management saves time and expense by automating many accounting and bookkeeping tasks, including origination of payroll via automated clearinghouse (ACH) and permits multiple
users if needed by the business.
To make our customers’ access to and management of their finances even more convenient,
Security Bank offers users of Quicken® and QuickBooks® the ability to download
transactions at no charge using WebConnect and DirectConnect (unlike some large
banks that assess fees for the automated services). All our online services are available at www.securitybank.net.
Quicken® and QuickBooks® are registered trademarks of Intuit, Inc.
(Above) Peter Faser heads the new Correspondent Banking
Division in Atlanta. (Below) Jeane Weeks, right, Director of the
Heritage Club, meets with members Marie and Earl Leichliter.
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Personal Banking
W
ith 21 full-service banking offices in our retail banking regions in Middle Georgia, Metro
Atlanta and the Coast, our core banking business had healthy growth in new customers and
accounts. Many of our best ambassadors are loyal customers, who refer their friends and associates to
bank with Security Bank. More than 1,000 new deposit accounts were opened in 2007 as a direct
result of customers’ referrals. In addition to welcoming our newest customers, we are most appreciative of the many existing customers who are advocates on behalf of Security Bank.
In 2006–07, Security Bank had the largest deposit market share of any bank in our Middle
Georgia market, according to the FDIC. With 29% of total deposits as of June 30, 2007, we also
had the most growth in deposits from the previous year. Since pioneering the concept of Totally Free
Checking with Free Gift in our markets five years ago, Security Bank continues to attract many of
those customers who are searching for value and exemplary personal service.
While we continued in 2007 with solid deposit growth, we are constantly looking for new ways
to make an impact in the markets we serve. In October, we were first in our market to offer up to
$100 in cash for opening a new checking account. Customers receive the reward when they use
additional services within the first sixty days, ranging from transactions with the debit card to direct
deposits or online bill payments. This rewards program will increase our penetration of those services, resulting in more profitable, longer lasting relationships.
The Griffin branch moved into permanent new space in November, after operating from temporary facilities since the Rivoli Bank merger. The attractive new building is visible and accessible on one
of the most heavily traveled thoroughfares in Spalding County, and is helping grow our franchise in that
community south of Atlanta.
Bob and Jan Peacock, owners of Peacock’s Auto Salvage,
reflect on their long relationship with Security Bank
with Alan Childs, Jones County President.
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Service Quality
T
he Company initiated a yearlong skills training program devoted to service excellence. Every
employee in the organization was involved, with relevant modules for customer-contact, noncontact and supervisory staff. The program raises the bar for even greater customer service, with
established standards and expectations of service delivery and coaching skills for supervisors, who
are critical to superior team performance throughout the organization.
Security Bank uses an outside research company to measure how well we are meeting and
exceeding customer expectations. Interviews with over 1,200 Security Bank customers each year,
supplemented by feedback about customer experiences in our offices, ensure that we stay focused
on our most important core product: exemplary service.
Results from the last two years reveal our customer satisfaction and loyalty is among the highest in the financial services industry. 85% of our customers consistently give our service personnel
the highest possible score for the level of service delivered. Approximately 80% strongly recommend
Security Bank to others.
Great service is celebrated every week in department meetings, with success stories shared
throughout the Company. Top service performers are selected and honored as WOW award winners. Quarterly WOW winners in 2007 were Lori Fincher and Heather Roark of the Griffin office,
Hannah Cody and Eric Croft of the Brunswick office, and Laurie Stevenson in the Hartley Bridge
office in Macon.
The overall service quality award winner for 2007 was Donna Brock, who is the Loan
Administration Supervisor at Security Bank of Jones County. Donna was selected by executive management from among hundreds of nominees for her devotion to her customers and colleagues in the
Gray community bank.
(Above) Lashaunia Robinson, North Fulton Accounting
Manager, was selected from among hundreds of nominations
for one of the Company’s highest service awards.
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Security Bank Corporation Board of Directors
Name
Age
Shares of
Common Stock
Beneficially Owned
Alford C. Bridges, Chairman
69
316,414
Vice President
Whiteway Development Corporation d/b/a Appling Brothers
grading, paving and construction company
John W. Ramsey
President and owner
Rams Four Ltd
Real estate holdings company
64
550,000
Edward M. Beckham, II, Vice Chairman 69
Partner
Beckham Bros. Distribution and Beckham Bros.
real estate and agricultural company
Robert M. Stalnaker
Former Co-owner and President
Stalnaker Plastics, Inc
manufacturing company
58
21,480
H. Cullen Talton, Jr.
Sheriff
Houston County, Georgia
75
37,154
Joe E. Timberlake, III
Retired President
Timberlake Grocery Company
67
280,316
H. Averett “Rett” Walker
President and Chief Executive Officer
Security Bank Corporation
54
202,776
Larry C. Walker
66
Attorney
Walker, Hulbert, Gray, Byrd & Christy, LLC
116,659
Name
Age
Frank H. Childs, Jr.
County Attorney for Jones County
Partner, Groover & Childs
Shares of
Common Stock
Beneficially Owned
101,000
59
66,840
Thad G. Childs, Jr.
61
Retired President and Chief Executive Officer
Security Bank of Jones County
208,691
Benjamin W. Griffith, III
55
President and Owner
Southern Pine Plantations, Inc.
real estate development and timberland company
2,107,820
Ruthie G. McMichael
Retired Media Specialist
Jones County School System
55
Robert T. Mullis
Business and Real Estate Investor
65
483,580
Ben G. Porter
Developer
Porter Properties
Residential and golf course development
74
241,842
Audit Committee
Edward M. Beckham, II
(Chairman)
Alford C. Bridges
Ruthie G. McMichael
Ben G. Porter
Robert M. Stalnaker
Joe E. Timberlake, III
Richard W. White, Jr.
66,108
Compensation Committee
Joe E. Timberlake, III
(Chairman)
Edward M. Beckham, II
Alford C. Bridges
Frank H. Childs, Jr.
Ruthie G. McMichael
Robert T. Mullis
H. Cullen Talton, Jr.
Larry C. Walker
James R. Williams
Richard W. White, Jr.
President and part owner
White Brothers Warehouse, Inc.
wholesale distributor of auto parts
54
96,722
James R. Williams
Chairman and Chief Executive Officer
Parkway Office Suites, Ltd
an office suites development company
65
82,376
Nominating Committee
Robert T. Mullis (Chairman)
Alford C. Bridges
Ruthie G. McMichael
Richard W. White, Jr.
Policy Committee
Larry C. Walker (Chairman)
Richard W. White, Jr.
Ben G. Porter
Frank H. Childs, Jr.
Robert T. Mullis
James R. Williams
17
Affiliate Bank Directors
Security Bank of Bibb County
Richard W. White, Jr., Chairman
William P. Brooks,
Vice Chairman
Richard A. Collinsworth,
Vice Chairman
H. Averett Walker, Vice Chairman
A.V. Elliott
Daniel M Forrester
Benjamin W. Griffith
D. Frank Gunn
Robert T. Mullis
Ben G. Porter
John W. Ramsey
Alvin D. Sewell
Christopher R. Sheridan, Jr.
Georgia G. Slagle
Joe E. Timberlake, III
Frank G. Wall, Jr.
Security Bank of Houston County
H. Cullen Talton, Jr., Chairman
William D. Watson,
Vice Chairman
Edward M. Beckham, II
Mark S. Byrd
Robert H. Causey, III
Vividawn L. “Billie” Gibson
G. Riley Hunt, Jr.
Christopher M. Murman
F. Foster Rhodes
George E. Slappey
Gail N. Spivey
Robert M. Stalnaker
T. R. Tolleson, Jr.
Larry C. Walker
Security Bank of Jones County
Holmes J Hawkins, Jr., Chairman
Frank H. Childs, Jr.,
Vice Chairman
Alan S. Childs
John C. Childs, Jr.
Thad G. Childs, Jr.
Howard Ponder Childs, Jr.
Craig M. Childs
J. Mike Green
Ruthie G. McMichael
James C. Roberts
Security Bank of North Metro
Tony E. Collins, Chairman
Charles M. Barnes
David C. Barrett
Carl O. Black
Clarence V. Dinsmore
Thomas L. Hollis, Jr.
J. Russell Ivie
Vernon L. Krause
Ross Mynatt
Richard B. Nix
Douglas M. Parker
Waverly L. Thornton
B. Gene Waldron
Security Bank of North Fulton
James R. Williams, Chairman
Phil Baldwin
Thomas E. Boland
Charles E. Hoff
Ramzan Karimi
Barbara H. Lebow-Weilage
Benjamin H. Schnell
Victor C. Smith
Tony E. Collins
Security Bank of Gwinnett County
Thomas W. Wheeler, Jr., Chairman
Henry G. Baker
Jon Been
Tony E. Collins
Heyward Horton, Jr.
Scott Hudgins
Robert S. Jordan, Jr.
James Pope
Roy H. Zellars
Security Bank of Glynn County
Advisory Directors
J. Al McKinnon, Chairman
and President
William F. Brunson, Jr.
Thomas E. Bryan, Jr.
Dr. Mitchell T. Jones
Jack C. Kilgore
Mark P. L. Love
Richard K. Strickland
Executive Officers
Name
Age
Shares of
Common Stock
Beneficially Owned
H. Averett “Rett” Walker
President and Chief Executive Officer
54
202,776
Richard A. Collinsworth
58
Executive Vice President and Chief Credit Officer
115,477
James R. McLemore
48
Executive Vice President and Chief Financial Officer
57,299
Tony E. Collins
Executive Vice President
Regional Director — Atlanta
47,770
54
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Corporate Information
Corporate Headquarters
Security Bank Corporation
P.O. Box 4748
Macon, GA 31208-4748
(478) 722-6200
For more information on Security Bank Corporation and our
subsidiaries, visit our website at www.securitybank.net.
Annual Meeting
Our annual shareholders meeting will be held on May 15, 2008
at 2:00 p.m. local time. The meeting will be held at:
Macon Centreplex
200 Coliseum Drive
Macon, GA 31201
Stock Exchange
Security Bank Corporation’s trading symbol is SBKC.
The common stock of SBKC is traded on the Nasdaq Global
Select Market. There were approximately 6,120 beneficial holders
of the company’s common stock as of February 29, 2008.
SEC Filings
A copy of the Security Bank Corporation’s Annual Report (Form
10-K) and other reports filed with the Securities and Exchange
Commission for 2007 are available through our corporate website
or will be furnished, without charge, on written request to:
Lorraine D. Miller, CFA
Senior Vice President — Investor Relations
P.O. Box 4748
Macon, GA 31208-4748
(478) 722-6210
Forward-Looking Statements
This annual report contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. These statements are subject to numerous risks and
uncertainties that could cause actual results to differ materially
from such statements. For information concerning these risks and
uncertainties, see Security Bank Corporation’s publicly available
filings with the Securities and Exchange Commission. Security
Bank Corporation disclaims any intention or obligation to update
or revise any forward-looking statements.
Shareholder Information
Shareholder Services/Dividend Reinvestment Plan/
Cash Contributions
Shareholders wishing to change the name or address on their
stock, to report lost certificates, to consolidate accounts, to
automatically reinvest quarterly dividends into common stock or
to make voluntary cash contributions should contact:
Registrar and Transfer Company
Investor Relations
10 Commerce Drive
Cranford, NJ 07016-3572
(800) 368-5948
Investor Relations
Shareholders, analysts and others seeking financial information
about Security Bank Corporation should contact:
Lorraine D. Miller, CFA
Senior Vice President — Investor Relations
P.O. Box 4748
Macon, GA 31208-4748
(478) 722-6210
Senior Lender Moe Brooks and Griffin Branch
Manager Lori Fincher in the new relocated office
on West Taylor Street in downtown Griffin.
19
Securing a Solid Future
2007 Report to Shareholders
www.securitybank.net
Corporation
Corporation