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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- ---- ACT OF 1934
[FEE REQUIRED]
For the Fiscal year ended December 31, 1995
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ---- EXCHANGE ACT OF 1934[NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-10853
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
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(EXACT NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
GEORGIA 58-1458268
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
40 NORTH MAIN STREET, STATESBORO, GEORGIA 30458
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 912-764-6611
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Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK, $1.00 PAR VALUE
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(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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
---- ----
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained herein, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State the issuer's revenues for its most recent fiscal year: $25,765,282
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State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock sold, or the average bid
and asked prices of such stock, as of a specified date within the past 60 days:
$55,690,114 (as of March 14, 1996)
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Common Stock, $1.00 Par Value 2,661,711 shares outstanding at March 14, 1996
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1995 are incorporated by reference into Parts II and IV.
Portions of the Proxy Statement for the Annual Meeting of Shareholders,
scheduled to be held April 25, 1996, are incorporated by reference into Part
III.
Exhibit Index on Page 28
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FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
PART I
ITEM 1. BUSINESS
HISTORY AND BUSINESS
First Banking Company of Southeast Georgia (referred to as the
"Registrant" or "Company") is a bank holding company which was organized on
October 27, 1981. All of the Registrant's business is presently conducted by
its wholly- owned subsidiaries, First Bulloch Bank & Trust Company ("Bulloch
Bank") and Metter Banking Company ("Metter Bank") (collectively, the "Banks"),
which are engaged in bank and bank-related activities. The Company does not
engage in any non-bank activities. Bulloch Bank was organized under the laws
of the State of Georgia in 1934 as a state banking corporation. On December
31, 1985, Metter Financial Services, Inc. ("Metter Financial") combined with
the Company and Metter Financial's subsidiary, Metter Bank, became a
wholly-owned subsidiary of the Company.
As of December 31, 1995, the Company had consolidated assets of
approximately $300 million, consolidated deposits of approximately $258 million
and consolidated shareholders' equity of approximately $31 million.
Pursuant to an Agreement and Plan of Merger dated March 13, 1996, the
Company has agreed to acquire FNB Bancshares, Inc. ("FNB") through the merger
of FNB with and into the Company. In the merger, each share of FNB Common Stock
(excluding certain shares held by the Company, FNB or their respective
subsidiaries) will be converted into and exchanged for the right to receive
0.892 shares of Common Stock of the Company. The Company will be the surviving
corporation resulting from the merger, and FNB's national bank subsidiary, First
National Bank of Effingham ("FNBE"), will be operated as a separate subsidiary
of the Company after the merger. As of December 31, 1995, FNBE recorded total
assets of approximately $49.7 million and total capital of approximately $3.4
million. The merger is subject to several conditions, including approval by the
shareholders of FNB and receipt of regulatory approval. Management anticipates
that the merger will be consummated during the third quarter of 1996, although
no assurances can be given as to whether or when the merger will occur.
The Banks accept customary types of demand and time deposits, make
installment and commercial loans and offer safe deposit services and individual
retirement accounts to their customers. Bulloch Bank also performs corporate,
pension and personal trust services as well as other financial services for its
customers and for those of Metter Bank.
As of December 31, 1995, Bulloch Bank had a headquarters building,
three branches and five ATM installations, and Metter Bank had a headquarters
building, a drive-in facility, one ATM installation and a supermarket branch
office.
COMPETITION
The banking business is highly competitive. The Banks emphasize the
quality of services they provide. The prices of the Banks' financial products
relative to those of other financial institutions is another important variable
influencing customer choice. Bulloch Bank's primary market area consists of
Bulloch County, Georgia, which has a population of approximately 46,278.
Bulloch Bank competes for all types of loans, deposits, and other financial
services with four other commercial banks in Bulloch County. As of December
31, 1995, Bulloch Bank was the largest of the five commercial banks located in
Bulloch County, based upon total deposits and total assets.
Metter Bank's primary market area consists of Candler County, Georgia,
which is adjacent to Bulloch County. Candler County has a population of
approximately 8,200. Metter Bank competes for all types of loans, deposits and
other financial services with one other commercial bank and a local thrift in
the county, as well as other providers of financial services in adjacent
counties. Metter Bank is the largest of the two commercial banks and a local
thrift in its primary service area, based upon total deposits and total assets.
The Company also competes with other financial institutions that are
located in Bulloch and Candler counties as well as with commercial banks,
savings and loan associations, other financial institutions and brokerage
houses located in Evans, Bryan, Effingham, Screven and Jenkins Counties. To a
lesser extent, the Company competes for loans with insurance companies,
regulated small loan companies, credit unions and certain governmental
agencies. Recent legislation, together with other regulatory changes by the
primary regulators of the various financial institutions and competition from
unregulated entities, has resulted in the elimination of many traditional
distinctions between commercial banks, thrift institutions and other providers
of financial services. Consequently, competition among financial institutions
of all types is virtually unlimited with respect to legal ability and authority
to provide most financial services.
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EMPLOYEES
Except for the six officers of the Company, who are also officers of
the Banks, the Company does not have any employees. As of December 31, 1995,
Bulloch Bank had eighty-seven (87) full-time employees and nine (9) part-time
employees, and Metter Bank had thirty-nine ( 39) full-time employees and one
(1) part-time employee. Management considers employee relations to be
generally good. Neither the Company nor the Banks have collective bargaining
agreements with any employees.
LOAN PORTFOLIO
The Company's loan portfolio consists of the following categories of
loans:
Commercial, Financial and Agricultural. Commercial, Financial and Agricultural
loans consist of all business and agricultural loans not secured by real
estate. The borrowers in this category are small to medium sized businesses
located in the market area of the Company. Most loans in this category are
collateralized. Types of collateral include accounts receivable, inventory,
equipment, furniture and fixtures, and certificates of deposit. Risks
associated with these type loans include bankruptcy, economic downturn,
deteriorating collateral, crop failure as a result of extreme or poor weather,
and changes in market prices for underlying crops, in the case of agricultural
loans.
Real Estate - Construction. Loans classified as construction loans are
typically made short-term to finance the construction of residential (1-4
family) dwellings, have permanent take-out mortgages approved and will be fully
repaid upon completion of construction. Builder financing is generally
discouraged. Such loans require site inspections and evaluations prior to the
payment of any draws. Risks associated with such loans include cost overruns
and interest rate movements.
Real Estate - Mortgage. Loans classified as mortgage real estate include all
loans secured by real estate which were made for commercial, financial or
agricultural purposes and which are not construction loans. The primary
collateral on such loans is first lien mortgages, but also includes
second-mortgage positions. Risks associated with this type loan are typically
the same as those classified "Commercial, Financial, and Agricultural."
Installment Loans to Individuals. Installment loans to individuals consists of
consumer loans made for personal, household and family purposes, such as home
improvement and automobile purchases. Types of collateral include automobiles,
mobile homes, savings accounts, and stock. Risks associated with such loans
include deteriorating collateral, general economic downturn, and bankruptcy.
Agriculturally related loans comprise approximately 10% of the total loan
portfolio at December 31, 1995. Agriculturally related loans are defined as
those loans secured by farmland as well as those originated to finance
agricultural production. The Company limits such loans to operators who
exhibit strong financial ability and proven performance and can offer the
collateral deemed necessary for their individual lines of credit. Risks
associated with such loans are typically those identified above in "Commercial,
Financial and Agricultural."
Credit Underwriting and Monitoring.
It is the practice of the Company to meet the credit needs of
qualified borrowers within its market area at a reasonable price. The extent
and amount of collateral required is based on factors such as the character of
the borrower, his financial condition, his ability to service the debt
according to a predetermined repayment plan, his credit history, and the loan
purpose. Because each loan is evaluated on its own merit, there are no
predetermined or minimal loan-to-value ratios or lien positions, except as
provided by bank regulators in the case of real estate loans. State banking
regulations require that, in the absence of other acceptable collateral, a real
estate loan be less than or equal to 90% and 75% of the appraised value of the
real estate taken as security in the case of an amortizing loan and of a
nonamortizing loan, respectively.
Agriculturally related loans made for real estate or for equipment
follow the general guidelines discussed above. Crop production and livestock
operation loans typically require liens on the livestock or the current year
crop production. Farm visits and inspections are performed periodically to
assess the collateral and the overall soundness of the operation. A customized
repayment plan is developed for each operator based upon his projected cash
flow from crop production or livestock sales.
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In 1992 the Company adopted and implemented a comprehensive loan
policy which individually addresses the various types and purposes of loans the
Banks can make and defines acceptable collateral. The lending policy
emphasizes the financial strength and cash flow position of the borrower and
considers collateral as the last resort source of repayment. The Company also
established in 1992 a formal loan classification and grading system, performed
as a separate and independent function within the Company. All loans are
assigned a grade and are subject to review based on the perceived risk of loss
to the Company. Such review includes verification of all necessary
documentation as well as financial statement analysis and compliance with
regulations and bank policy.
ECONOMY OF THE MARKET AREA
The Company's primary market area is comprised of Bulloch, Candler and
contiguous counties of southeast Georgia. The local economy is a diversified
mix of retail and service, manufacturing and agriculture. Statesboro-Bulloch
County is a retail hub which draws from an eight county area and is also the
home of Georgia Southern University, enrolling 14,000 students and employing
2,000 faculty and staff. Ogeechee Technical Institute, which opened in 1992
and currently enrolls 1,600 students, is one of the top three fastest-growing
technical schools in the southeastern U. S. and is a drawing card for
industries looking to locate in southeast Georgia. Metter-Candler County has
also experienced commercial development in terms of motels, restaurants, and
gas stations around the Interstate 16 interchange which cater to travelers.
Ceran Language Institute, a language school headquartered in Belgium, recently
established its first U. S. facility in Metter-Candler County and is designed
to provide intense instruction in the English language to foreign executives.
In the manufacturing sector the Company's market area is home to
seventy manufacturers, ranging from meat packing, lumber mills, grey-iron
foundry, meter and valve production, and garment manufacturing to computer form
production, steel recycling, and lawn mower engines. The local economy
experienced a major boost with the relocation of Briggs and Stratton, the
world's largest manufacturers of small gasoline engines, a new 1.5 million
square foot Wal-Mart Distribution Center, which supplies seasonal goods to
Wal-Mart stores for approximately one-third of the U. S., and a major expansion
in Metter of Wallace Computer Services, one of the largest providers of
computer forms and supplies in the nation. These three projects alone added
over 800 jobs to the local economy.
Agriculture and agribusiness accounts for approximately one-third of
the local economy in terms of economic impact. Major cash producers include
Vidalia onions, peanuts, cotton, forestry, tobacco, corn, poultry, beef and
swine. The resurgence of cotton has led to the construction of three cotton
gins in the area and the major upgrading of an existing one. A technological
advance in controlled atmospheric storage enables Vidalia onion growers to
store their crop and ship year-round all across the nation.
SUPERVISION AND REGULATION
Bank holding companies and banks are extensively regulated under both
Federal and state law. The following is a brief summary of certain statutes
and rules and regulations affecting the Company and the Banks. This summary is
qualified in its entirety by reference to the particular statute and regulatory
provision referred to below and is not intended to be an exhaustive description
of the statutes or regulations applicable to the business of the Company and
the Banks. Supervision, regulation and examination of the Company and the
Banks by the bank regulatory agencies are intended primarily for the protection
of depositors rather than shareholders of the Company.
Bank Holding Company Regulation
The Company is a registered holding company under the Bank Holding
Company Act of 1956, as amended (the "Federal Bank Holding Company Act"), and
the Georgia Bank Holding Company Act (the "Georgia Bank Holding Company Act")
and is regulated under such acts by the Board of Governors of the Federal
Reserve System (the "Federal Reserve") and by the Georgia Department of Banking
and Finance (the "Georgia Department"), respectively.
As a bank holding company, the Company is required to file annual
reports with the Federal Reserve and the Georgia Department and such additional
information as the applicable regulator may require pursuant to the Federal and
Georgia Bank Holding Company Acts. The Federal Reserve and the Georgia
Department may also conduct examinations of the Company to determine whether
the institution is in compliance with both Bank Holding Company Acts and the
regulations promulgated thereunder.
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The Federal Bank Holding Company Act also requires every bank holding
company to obtain prior approval from the Federal Reserve before acquiring
direct or indirect ownership or control of more than 5% of the voting shares of
any bank which is not already majority owned or controlled by that bank holding
company. Acquisitions of any additional banks would also require prior
approval from the Georgia Department.
On September 29, 1994, the President of the United States signed the
"Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994" (the
"Interstate Branching Act"). The Interstate Branching Act amends Federal law
to permit bank holding companies to acquire existing banks in any state
effective September 29, 1995, subject to certain deposit - percentage, aging
requirements and other restrictions. In addition, the Interstate Branching Act
provides that any interstate bank holding company is permitted to merge its
various bank subsidiaries into a single bank with interstate branches effective
June 1, 1997. By adopting legislation prior to that date, a state has the
authority either to "opt in" and accelerate the date after which interstate
branching is permissible or to "opt out" and prohibit interstate branching
altogether.
In response to the Interstate Branching Act, the Georgia legislature
adopted the "Georgia Interstate Banking Act," effective July 1, 1995, which
provides that (1) interstate acquisitions by institutions located in Georgia
will be permitted in states which also allow national interstate acquisitions,
and (2) interstate acquisitions of institutions located in Georgia will be
permitted by institutions located in states which also allow national
interstate acquisitions; provided, however, that if the board of directors of a
Georgia bank or bank holding company adopts a resolution to except such bank or
bank holding company from being acquired pursuant to the provisions of the
Georgia Interstate Banking Act and properly files a certified copy of such
resolution with the Georgia Department, such bank or bank holding company may
not be acquired by an institution located outside of the State of Georgia.
Additionally, in February 1996, the Georgia legislature adopted the
"Georgia Interstate Branching Act," which when signed by the Governor, will
permit Georgia-based banks and bank holding companies owning or acquiring banks
outside of Georgia and all non-Georgia banks and bank holding companies owning
or acquiring banks in Georgia the right to merge any lawfully acquired bank
into an interstate branch network. The Georgia Interstate Branching Act also
allows banks to establish de novo branch banks on a limited basis beginning
July 1, 1996. Beginning July 1, 1998, the number of de novo bank branches
which may be established will no longer be limited.
In addition to having the right to acquire ownership or control of
other banks, the Company is authorized to acquire ownership or control of
nonbanking companies, provided the activities of such companies are so closely
related to banking or managing or controlling banks that the Federal Reserve
considers such activities to be proper to the operation and control of banks.
Regulation Y, promulgated by the Federal Reserve, sets forth those activities
which are regarded as closely related to banking or managing or controlling
banks and, thus, are permissible activities for bank holding companies, subject
to approval by the Federal Reserve in individual cases.
Federal Reserve policy requires a bank holding company to act as a
source of financial strength and to take measures to preserve and protect bank
subsidiaries in situations where additional investments in a troubled bank may
not be warranted. Under these provisions, a bank holding company may be
required to loan money to its subsidiaries in the form of capital notes or
other instruments which qualify for capital under regulatory rules. Any loans
by the holding company to such subsidiary banks are likely to be unsecured and
subordinated to such bank's depositors and perhaps to its other creditors.
The Company is also subject to various federal securities laws,
including the Securities Act of 1933 (the "1933 Act") and the Securities
Exchange Act of 1934 (the "1934 Act"). The 1933 Act regulates the distribution
or public offering of securities, while the 1934 Act regulates trading in
securities that are already issued and outstanding. Both Acts provide civil
and criminal penalties for misrepresentations and omissions in connection
with the sale of securities, and the 1934 Act also prohibits market
manipulation and insider trading. Pursuant to the 1934 Act, the Company files
annual, quarterly and current reports with the Securities and Exchange
Commission. In addition, the Company and its directors, executive officers and
5% shareholders are subject to certain additional reporting requirements,
including requirements governing the submission of proxy statements and reports
of beneficial ownership of the Company's securities.
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Bank Regulation
The Banks operate as banks organized under the laws of the State of
Georgia subject to examination by the Georgia Department. The Georgia
Department regulates all areas of each Bank's commercial banking operations
including reserves, loans, mergers, payment of dividends, interest rates,
establishment of branches, and other aspects of operations.
The Banks are also insured and regulated by the Federal Deposit
Insurance Corporation (the "FDIC"). The major functions of the FDIC with
respect to insured banks include paying depositors to the extent provided by
law in the event an insured bank is closed without adequately providing for
payment of the claims of depositors, acting as a receiver of state banks placed
in receivership when so appointed by state authorities, and preventing the
continuance or development of unsound and unsafe banking practices. In
addition, the FDIC is authorized to examine insured banks which are not members
of the Federal Reserve to determine the condition of such banks for insurance
purposes. The FDIC also approves conversions, mergers, consolidations and
assumption of deposit liability transactions between insured banks and
noninsured banks or institutions to prevent capital or surplus diminution in
such transactions where the resulting, continued or assumed bank is an insured
nonmember state bank.
Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Bank Holding Company Act on any extension
of credit to the bank holding company or any of its subsidiaries, on investment
in the stock or other securities of the bank holding company or its
subsidiaries, and on the taking of such stock or securities as collateral for
loans to any borrower. In addition, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit or provision of any property or
services.
Under Georgia law, a bank must obtain the approval of the Georgia
Department before cash dividends may be paid if (1) the total classified assets
at the most recent examination of such bank exceeded 80% of the equity capital,
(2) the aggregate amount of dividends declared or anticipated to be declared in
the calendar year exceeds 50% of the net profits, after taxes but before
dividends, for the previous calendar year or (3) the ratio of equity capital to
adjusted assets is less than 6%.
The Banks are also subject to the provisions of the Community
Reinvestment Act of 1977, which requires the appropriate Federal bank
regulatory agency, in connection with its regular examination of a bank, to
assess each Bank's record in meeting the credit needs of the communities served
by that Bank, including low- and moderate-income neighborhoods.
Capital Requirements
General
Regulatory agencies measure capital adequacy within a framework that
makes capital requirements sensitive to the risk profile of the individual
banking institutions. The guidelines define capital as either Tier 1 capital
(primarily shareholders equity) or Tier 2 capital (certain debt instruments and
a portion of the reserve for loan losses). There are two measures of capital
adequacy for bank holding companies and their subsidiary banks: the Tier 1
leverage ratio and the risk-based capital requirements. Bank holding companies
and their subsidiary banks must maintain a minimum Tier 1 leverage ratio of 4%.
In addition, Tier 1 capital must equal 4% of risk-weighted assets, and total
capital (Tier 1 plus Tier 2) must equal 8% of risk-weighted assets. These are
minimum requirements, however, and institutions experiencing internal growth or
making acquisitions, as well as institutions with supervisory or operational
weaknesses, will be expected to maintain capital positions well above these
minimum levels.
At December 31, 1995, the Bulloch Bank had a Tier 1 leverage ratio of
10.3%, a Tier 1 risk-based ratio of 17.9% and a Total risk-based ratio of
19.7%, and the Metter Bank had a Tier 1 leverage ratio of 9.4%, a Tier 1
risk-based ratio of 15.1% and a Total risk-based ratio of 17.1%.
Prompt Corrective Action
The Federal Deposit Insurance Corporation Improvement Act of 1991 (the
"FDIC Act") imposes a regulatory matrix which requires the Federal banking
agencies to take prompt corrective action to deal with depository institutions
that fail to meet their minimum capital requirements or are otherwise in a
troubled condition. The prompt corrective action provisions require
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undercapitalized institutions to become subject to an increasingly stringent
array of restrictions, requirements and prohibitions, as their capital levels
deteriorate and supervisory problems mount. Should these corrective measures
prove unsuccessful in recapitalizing the institution and correcting its
problems, the FDIC Act mandates that the institution be placed in receivership.
Pursuant to regulations promulgated under the FDIC Act, the corrective
actions that the banking agencies either must or may take are tied primarily to
an institution's capital levels. In accordance with the framework adopted by
the FDIC Act, the banking agencies have developed a classification system,
pursuant to which all banks and thrifts will be placed into one of five
categories: well-capitalized institutions, adequately capitalized institutions,
undercapitalized institutions, significantly undercapitalized institutions and
critically undercapitalized institutions. The capital thresholds established
for each of the categories are as follows:
<TABLE>
<CAPTION>
RISK-BASED TIER 1 RISK-
CAPITAL CATEGORY TIER 1 CAPITAL CAPITAL BASED CAPITAL OTHER
---------------- -------------- ---------- ------------- -----
<S> <C> <C> <C> <C>
Well Capitalized 5% or more 10% or more 6% or more Not subject to a
capital
directive
Adequately Capitalized 4% or more 8% or more 4% or more ---
Undercapitalized less than 4% less than 8% less than 4% ---
Significantly less than 3% less than 6% less than 3% ---
Undercapitalized
Critically 2% or less --- --- ---
Undercapitalized tangible equity
</TABLE>
The undercapitalized, significantly undercapitalized and critically
undercapitalized categories overlap; therefore, a critically undercapitalized
institution would also be an undercapitalized institution and a significantly
undercapitalized institution. This overlap ensures that the remedies and
restrictions prescribed for undercapitalized institutions will also apply to
institutions in the lowest two categories.
The down-grading of an institution's category is automatic in two
situations: (1) whenever an otherwise well- capitalized institution is subject
to any written capital order or directive, and (2) where an undercapitalized
institution fails to submit or implement a capital restoration plan or has its
plan disapproved. The Federal banking agencies may treat institutions in the
well-capitalized, adequately capitalized and undercapitalized categories as if
they were in the next lower capital level based on safety and soundness
considerations relating to factors other than capital levels.
All insured institutions regardless of their level of capitalization
are prohibited by the FDIC Act from paying any dividend or making any other
kind of capital distribution or paying any management fee to any controlling
person if following the payment or distribution the institution would be
undercapitalized. While the prompt corrective action provisions of the FDIC
Act contain no requirements or restrictions aimed specifically at adequately
capitalized institutions, other provisions of the FDIC Act and the agencies'
regulations relating to deposit insurance assessments, brokered deposits and
interbank liabilities treat adequately capitalized institutions less favorably
than those that are well-capitalized.
At December 31, 1995, the Company and the Banks had the requisite
capital levels to qualify as well-capitalized.
The FDIC has adopted or currently proposes to adopt other rules
pursuant to the FDIC Act that include: (1) real estate lending standards for
banks, which would provide guidelines concerning loan-to-value ratios for
various types of real estate loans; (2) revision to the risk-based capital
rules to account for interest rate risk, concentration of credit risk and the
risks proposed by "non-traditional activities"; (3) rules requiring depository
institutions to develop and implement internal procedures to evaluate and
control credit and settlement exposure to their correspondent banks; (4) a rule
restricting the ability of depository institutions that are not well
capitalized from accepting brokered deposits; (5) rules addressing various
"safety and soundness" issues, including operations and managerial standards
for asset quality, earnings and stock valuations, and compensation standards
for the officers, directors, employees and
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principal shareholders of the depository institutions; (6) rules mandating
enhanced financial reporting and audit requirements; and (7) rules restricting
the ability of a state bank, or a subsidiary thereof, to engage as principal in
activities not permissible for a national bank or make any investment not
permissible for a national bank.
FDIC Insurance Assessments
In July 1993, the FDIC adopted a new risk-based assessment system for
insured depository institutions that takes into account the risks attributable
to different categories and concentrations of assets and liabilities. The new
system, which went into effect on January 1, 1994, and replaced a transitional
system that the FDIC had used for the 1993 calendar year, assigns an
institution to one of three capital categories: (1) well-capitalized; (2)
adequately capitalized; and (3) undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the undercapitalized category including institutions that are
undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes. An institution is also
assigned by the FDIC to one of three supervisory subgroups within each capital
group. The supervisory subgroup to which an institution is assigned is based
on a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information which the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's insurance assessment rate is
then determined based on the capital category and supervisory category to which
it is assigned. Under the final risk-based assessment system, as well as the
prior transitional system, there are nine assessment risk classifications
(i.e., combinations of capital groups and supervisory subgroups) to which
different assessment rates are applied. Assessment rates for members of both
the Bank Insurance Fund ("BIF") and the Savings Association Insurance Fund
("SAIF") for the first half of 1995, as they had during 1994, ranged from 23
basis points (0.23% of deposits) for an institution in the highest category
(i.e., "well capitalized" and "healthy") to 31 basis points (0.31% of deposits)
for an institution in the lowest category (i.e., "undercapitalized" and
"substantial supervisory concern"). These rates were established for both
funds to achieve a designated ratio of reserves to insured deposits (i.e.,
1.25%) within a specified period of time.
Once the designated ratio for the BIF was reached, which appears to
have occurred some time during May 1995, the FDIC was authorized to reduce the
minimum assessment rate below 23 basis points and to set future assessment
rates at such levels that would maintain a fund's reserve ratio at the
designated level. In August 1995, the FDIC adopted final regulations reducing
the assessment rates for BIF-member banks. Under the revised schedule,
BIF-member banks, starting with the second half of 1995, will now pay
assessments ranging from 4 basis points to 31 basis points, with an average
assessment rate of 4.5 basis points. Refunds, with interest, were paid for
assessments for the month(s) after the month in which the designated reserve
ratio for the BIF was reached, as well as for the quarterly payment made on
September 30, 1995, assuming that the designated reserve ratio was achieved
prior to June 30, 1995. At the same time, the FDIC elected to retain the
existing assessment rate of 23 to 31 basis points for SAIF members for the
foreseeable future given the undercapitalized nature of that insurance fund.
More recently, on November 14, 1995, the FDIC announced that, beginning in
1996, it would further reduce the deposit insurance premiums for 92% of all BIF
members that are in the highest capital and supervisory categories to $2,000
per year, regardless of deposit size.
On July 28, 1995, the FDIC, the Treasury Department, and the OTS
released statements outlining a proposed plan to recapitalize the SAIF, certain
features of which were subsequently agreed upon by members of the Banking
Committees of the U.S. House of Representatives and the Senate on November 7,
1995 in negotiations to reconcile differences in bills on the issue that had
been introduced or partially adopted by each body. Under the agreement, all
SAIF-member institutions would pay a special assessment to the SAIF of
approximately 80 basis points, the amount that would enable the SAIF to attain
its designated reserve ratio of 1.25%. The special assessment would be payable
on January 1, 1996, based on the amount of deposits held as of March 31, 1995.
BIF-insured institutions holding SAIF-assessed deposits would receive a 20%
reduction in the assessment rate and would pay a one-time assessment of 64
basis points. The agreement also provides that the assessment base for the
bonds issued in the late 1980s by the Financing Corporation to recapitalize the
now defunct Federal Savings and Loan Insurance Corporation would be expanded to
include deposits of both BIF- and SAIF-insured institutions, with BIF members
paying approximately 75% of the interest on such obligations. The committee
members further agreed that the BIF and SAIF should be merged on January 1,
1998, with such merger being conditioned upon the prior elimination of the
thrift charter. At this time, the Company is not able to predict if the
recapitalization will take place, the timing or exact amount of any SAIF
special assessment that might be required. As of December 31, 1995, the Banks
held no SAIF-assessed deposits.
7
<PAGE> 9
Under the Federal Deposit Insurance Act, insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in unsafe
and unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, regulation, rule, order, or
condition imposed by the FDIC.
CRA
On April 19, 1995, the Federal bank regulatory agencies adopted
revisions to the regulations promulgated pursuant to the Community Reinvestment
Act (the "CRA"), which are intended to set distinct assessment standards for
financial institutions. The revised regulation contains three evaluation
tests: (1) a lending test which will compare the institutions's market share
of loans in low- and moderate-income areas to its market share of loans in its
entire service area and the percentage of a bank's outstanding loans to low-
and moderate-income areas or individuals, (2) a services test which will
evaluate the provision of services that promote the availability of credit to
low- and moderate-income areas, and (3) an investment test, which will evaluate
an institution's record of investments in organizations designed to foster
community development, small- and minority-owned businesses and affordable
housing lending, including state and local government housing or revenue bonds.
The regulation is designed to reduce the paperwork requirements of the current
regulations and provide regulators, institutions and community groups with a
more objective and predictable manner with which to evaluate the CRA
performance of financial institutions. The rule became effective on January 1,
1996, at which time evaluation under streamlined procedures began for
institutions with assets of less than $250 million that are owned by a holding
company with total assets of less than $1 billion.
As of the most recent CRA examination in each Bank, the Bulloch Bank
was assigned a rating of "satisfactory", and the Metter Bank was assigned a
rating of "outstanding."
Fair Lending
Congress and various Federal agencies (including, in addition to the
bank regulatory agencies, the Department of Housing and Urban Development, the
Federal Trade Commission and the Department of Justice) (collectively the
"Federal Agencies") responsible for implementing the nation's fair lending laws
have been increasingly concerned that prospective home buyers and other
borrowers are experiencing discrimination in their efforts to obtain loans. In
recent years, the Department of Justice has filed suit against financial
institutions which it determined had discriminated, seeking fines and
restitution for borrowers who allegedly suffered from discriminatory practices.
Most, if not all, of these suits have been settled (some for substantial sums)
without a full adjudication on the merits.
On March 8, 1994, the Federal Agencies, in an effort to clarify what
constitutes lending discrimination and to specify the factors the agencies will
consider in determining if lending discrimination exits, announced a joint
policy statement detailing specific discriminatory practices prohibited under
the Equal Credit Opportunity Act and the Fair Housing Act. In the policy
statement, three methods of proving lending discrimination were identified:
(1) overt evidence of discrimination, when a lender blatantly discriminates on
a prohibited basis, (2) evidence of disparate treatment, when a lender treats
applicants differently based on a prohibited factor even where there is no
showing that the treatment was motivated by prejudice or a conscious intention
to discriminate against a person, and (3) evidence of disparate impact, when a
lender applies a practice uniformly to all applicants, but the practice has a
discriminatory effect, even where such practices are neutral on their face and
are applied equally, unless the practice can be justified on the basis of
business necessity.
Future Requirements
Statutes and regulations are regularly introduced which contain
wide-ranging proposals for altering the structures, regulations and competitive
relationships of the nation's financial institutions. It cannot be predicted
whether or what form any proposed statute or regulation will be adopted or the
extent to which the business of the Company and the Banks may be affected by
such statute or regulation.
8
<PAGE> 10
Monetary Policy
The earnings of the Company are affected by domestic and foreign
economic conditions, particularly by the monetary and fiscal policies of the
United States government and its agencies.
The Federal Reserve has had, and will continue to have, an important
impact on the operating results of commercial banks through its power to
implement national monetary policy in order, among other things, to mitigate
recessionary and inflationary pressures by regulating the national money
supply. The techniques used by the Federal Reserve include setting the reserve
requirements of member banks and establishing the discount rate on member bank
borrowings. The Federal Reserve also conducts open market transactions in
United States government securities.
9
<PAGE> 11
STATISTICAL DATA
The tables and schedules set forth on the following pages provide certain
significant statistical data with respect to the Company's: (a) Consolidated
Average Balance Sheets,(b) Distribution of Assets, Liabilities and
Shareholders' Equity; Interest Rates and Interest Differential, (c) Investment
Portfolio, (d) Loan Portfolio, (e) Summary of Loan Loss Experience, (f)
Deposits and (g) Return on Equity and Assets. The information should be read
in conjunction with the consolidated financial statements and related notes of
the Company.
- --------------------------------------------------------------------------------
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
CONSOLIDATED AVERAGE BALANCE SHEETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
ASSETS
Cash and Due from Banks:
Interest Bearing Deposits............... $ 12,556,038 $ 2,348,715 $ 1,014,675
Non-Interest Bearing Deposits and Cash.. 8,240,712 7,893,833 7,963,018
------------ ------------ ------------
Total Cash and Due from Banks........ 20,796,750 10,242,548 8,977,693
------------ ------------ ------------
Investment Securities................... 74,160,943 62,769,844 56,156,239
Federal Funds Sold........................ 1,524,384 7,142,665 5,203,149
Loans..................................... 171,835,994 156,920,078 151,602,563
Less: Unearned Interest................. (37,478) (50,315) (44,625)
Allowance for Loan Losses......... (3,223,544) (2,928,099) (2,823,739)
------------ ------------ ------------
Net Loans............................... 168,574,972 153,941,664 148,734,199
------------ ------------ ------------
Interest Receivable....................... 3,616,382 2,821,728 2,841,914
Premises and Equipment, Net............... 3,435,235 3,128,225 3,095,093
Other Real Estate......................... 334,364 410,563 484,422
Other Assets.............................. 2,158,350 2,183,077 1,840,660
------------ ------------ ------------
Total Assets.......................... $274,601,380 $242,640,314 $227,333,369
============ ============ ============
LIABILITIES
Deposits:
Demand.................................. $ 28,618,218 $ 26,523,971 $ 23,786,716
NOW Accounts............................ 35,134,661 31,234,611 27,776,282
Money Market Deposit Accounts........... 32,868,866 33,789,638 30,692,617
Savings................................. 10,927,068 10,511,632 9,600,291
Time ($100,000 and above)............... 58,755,518 44,194,763 43,023,321
Other Time.............................. 70,756,598 65,507,533 65,752,905
------------ ------------ ------------
Total Deposits........................ 237,060,929 211,762,148 200,632,132
Other Borrowed Money...................... 5,529,040 2,709,489 646,268
Interest Payable and Accrued Liabilities.. 3,355,346 2,556,516 2,551,458
------------ ------------ ------------
Total Liabilities..................... 245,945,315 217,028,153 203,829,858
------------ ------------ ------------
Shareholders' Equity:
Common Stock.............................. 2,661,795 2,661,939 2,661,939
Additional Paid-in Capital................ 5,265,786 5,267,734 5,267,734
Retained Earnings......................... 20,994,587 18,049,315 15,573,838
Unrealized Loss on Investment
Securities Available for Sale........... (266,103) (366,827)
------------ ------------ ------------
Shareholders' Equity.................. 28,656,065 25,612,161 23,503,511
------------ ------------ ------------
Total Liabilities and
Shareholders' Equity................ $274,601,380 $242,640,314 $227,333,369
============ ============ ============
</TABLE>
10
<PAGE> 12
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY:
INTEREST RATES AND INTEREST DIFFERENTIAL
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------
1995 1994
--------------------------------- ------------------------------------
AVERAGE INTEREST YIELD/ AVERAGE INTEREST YIELD/
BALANCE EARNED RATE BALANCE EARNED RATE
------------ ----------- ------ --------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Assets:
Interest Bearing Deposits:
Domestic............... $ 12,556,038 $ 755,892 6.02% $ 2,348,715 $ 138,028 5.88%
Investment Securities:
Taxable................ 59,818,034 3,633,663 6.07 50,541,708 2,772,145 5.48
Tax Exempt(1).......... 14,342,909 858,320 8.54 12,228,136 747,987 8.74
Federal Funds Sold....... 1,524,384 88,452 5.80 7,142,665 264,641 3.71
Loans (Less Unearned):
Taxable................ 168,300,398 18,281,291 10.86 152,865,461 14,773,645 9.66
Tax Exempt(1).......... 3,498,118 249,364 10.27 4,004,302 216,501 7.66
------------ ------------ ----- ------------ ----------- ----
Interest Earning
Assets(1)................. 260,039,881 23,866,982 9.36 229,130,987 18,912,947 8.43
Non-Interest Earning
Assets:
Cash and Due from
Banks................... 8,240,712 7,893,833
Premises and Equipment,
Net..................... 3,435,235 3,128,225
Other Real Estate........ 334,364 410,563
Other Assets............. 5,774,732 5,004,805
Less: Allowance for
Loan Losses........ (3,223,544) (2,928,099)
------------ ------------
Total.................. $274,601,380 $242,640,314
============ ============
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1993
-------------------------------------------------
AVERAGE INTEREST YIELD/
BALANCE EARNED RATE
------------ ----------- ------
<S> <C> <C> <C>
ASSETS
Interest Earning Assets:
Interest Bearing Deposits:
Domestic............... $ 1,014,675 $ 99,669 9.82%
Investment Securities:
Taxable................ 45,144,384 2,711,658 6.01
Tax Exempt(1).......... 11,011,855 687,282 8.92
Federal Funds Sold....... 5,203,149 152,519 2.93
Loans (Less Unearned):
Taxable................ 147,354,172 13,562,944 9.20
Tax Exempt(1).......... 4,203,766 223,491 7.52
------------ ----------- -----
Interest Earning
Assets(1)................. 213,932,001 17,437,563 8.33
Non-Interest Earning
Assets:
Cash and Due from
Banks................... 7,963,018
Premises and Equipment,
Net..................... 3,095,093
Other Real Estate........ 484,422
Other Assets............. 4,682,574
Less: Allowance for
Loan Losses........ (2,823,739)
------------
Total.................. $227,333,369
============
</TABLE>
11
<PAGE> 13
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1995 1994
-------------------------------- --------------------------------
Average Interest Yield/ Average Interest Yield/
Balance Paid Rate Balance Paid Rate
----------- ----------- ------ ----------- ----------- ------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND SHARE-
HOLDERS' EQUITY
Interest Bearing Liabilities:
Deposits:
NOW and Savings......... $ 46,061,729 $ 1,415,894 3.07% $ 41,746,243 $ 1,185,215 2.84%
Money Market Deposit
Accounts............... 32,868,866 1,176,067 3.58 33,789,638 1,063,454 3.15
Time:
Certificates of Deposits
over $100,000.......... 58,755,518 3,548,649 6.04 44,194,763 2,066,015 4.67
Other Time.............. 70,756,598 4,112,853 5.81 65,507,533 2,862,364 4.37
Other Borrowed Money....... 5,529,040 399,590 7.23 2,709,489 165,414 6.10
----------- ---------- ---- ------------ ----------- ----
Total Interest Bearing
Liabilities............... 213,971,751 10,653,053 4.98 187,947,666 7,342,462 3.91
---------- -----------
Non-Interest Bearing
Liabilities:
Demand Deposits......... 28,618,218 26,523,971
Other................... 3,355,346 2,556,516
Shareholders' Equity...... 28,656,065 25,612,161
------------ ------------
Total................... $274,601,380 $242,640,314
============ ============
Net Interest Earnings..... $13,213,929 $11,570,485
=========== ===========
Net Yield on Interest
Earning Assets (1)..... 5.26% 5.23%
==== ====
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1993
-----------------------------------------
Average Interest Yield/
Balance Paid Rate
------------- ----------- ------
<S> <C> <C> <C>
LIABILITIES AND SHARE-
HOLDERS' EQUITY
Interest Bearing Liabilities
Deposits:
NOW and Savings......... $ 37,376,573 $ 1,078,808 2.89%
Money Market Deposit
Accounts............... 30,692,617 932,578 3.04
Time:
Certificates of Deposits
over $100,000.......... 43,023,321 1,857,041 4.32
Other Time.............. 65,752,905 2,910,285 4.43
Other Borrowed Money....... 646,268 37,084 5.74
------------ ----------- ----
Total Interest Bearing
Liabilities............... 177,491,684 6,815,796 3.84
-----------
Non-Interest Bearing
Liabilities:
Demand Deposits......... 23,786,716
Other................... 2,551,458
Shareholders' Equity...... 23,503,511
------------
Total................... $227,333,369
============
Net Interest Earnings..... $10,621,767
===========
Net Yield on Interest
Earning Assets (1)..... 5.15%
====
</TABLE>
1. Yields have been calculated on a tax equivalent basis assuming a tax rate
of 34 percent. The tax equivalent rate has been reduced by 0.35% to allow
for estimated disallowance of interest expense.
2. Loan fees included in total interest income are as follows:
1995 - $525,429 1994 - $477,795 1993 - $409,797
3. No separate treatment has been made for non-accrual loans.
12
<PAGE> 14
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
The following table sets forth a summary of the changes in interest income
and interest expense resulting from changes in volume and rate for the periods
indicated. There were no out-of-period items and adjustments required to be
excluded from the table.
<TABLE>
<CAPTION>
1995 COMPARED TO 1994
INCREASE (DECREASE) DUE TO
----------------------------------------------
VOLUME(1) RATE(1) NET
---------- ----------- ----------
<S> <C> <C> <C>
Interest Income:
Interest Bearing Deposits......... $ 614,497 $ 3,367 $ 617,864
Loans:
Taxable......................... 1,572,729 1,934,917 3,507,646
Tax-Exempt...................... (19,383) 52,246 32,863
Investments:
Taxable......................... 542,995 318,523 861,518
Tax-Exempt...................... 127,158 (16,825) 110,333
Federal Funds Sold................ (620,802) 444,613 (176,189)
---------- ----------- ----------
Total Interest Income............... 2,217,194 2,736,841 4,954,035
---------- ----------- ----------
Interest Expense:
NOW and Savings................... 129,346 101,333 230,679
Money Market Deposit Accounts..... (28,087) 140,700 112,613
Certificate of Deposits
Over $100,000.................... 784,292 698,342 1,482,634
Other Time........................ 244,601 1,005,888 1,250,489
Other Borrowed Money.............. 198,789 35,387 234,176
---------- ----------- ----------
Total Interest Expense.............. 1,328,941 1,981,650 3,310,591
---------- ----------- ----------
Net Interest Earnings............... $ 888,253 $ 755,191 $1,643,444
========== =========== ==========
</TABLE>
(1) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amount of the change of each.
13
<PAGE> 15
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
The following table sets forth a summary of the changes in interest income
and interest expense resulting from changes in volume and rate for the periods
indicated. There were no out-of-period items or adjustments required to be
excluded from the table.
<TABLE>
<CAPTION>
1994 COMPARED TO 1993
INCREASE (DECREASE) DUE TO
--------------------------------------------
VOLUME(1) RATE(1) NET
--------- --------- ----------
<S> <C> <C> <C>
Interest Income:
Interest Bearing Deposits........... $ 55,206 $ (16,847) $ 38,359
Loans:
Taxable........................... 518,093 692,608 1,210,701
Tax-Exempt........................ (11,504) 4,514 (6,990)
Investments:
Taxable........................... 230,523 (170,036) 60,487
Tax-Exempt........................ 74,275 (13,570) 60,705
Federal Funds Sold.................. 65,409 46,713 112,122
---------- ---------- ----------
Total Interest Income................. 932,002 543,382 1,475,384
---------- ---------- ----------
Interest Expense:
NOW and Savings..................... 124,889 (18,482) 106,407
Money Market Deposit Accounts....... 96,332 34,544 130,876
Certificate of Deposits
Over $100,000...................... 52,565 156,409 208,974
Other Time.......................... (10,351) (37,570) (47,921)
Other Borrowed Money................ 125,857 2,473 128,330
---------- ---------- ----------
Total Interest Expense................ 389,292 137,374 526,666
---------- ---------- ----------
Net Interest Earnings................. $ 542,710 $ 406,008 $ 948,718
========== ========== ==========
</TABLE>
(1) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amount of the change in each.
An interest rate sensitivity analysis is contained in Item 6, "Management's
Discussion and Analysis or Plan of Operation - Interest Rate Sensitivity,"
which is incorporated by reference from the Company's Annual Report to
Shareholders for the year ended December 31, 1995.
14
<PAGE> 16
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
INVESTMENT PORTFOLIO
The following table sets forth the carrying amounts of investment securities
available for sale at the dates indicated:
<TABLE>
<CAPTION>
December 31
----------------------------------------
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
U.S. Treasury Securities..................$22,594,548 $31,031,134 $27,449,037
U.S. Government Agencies.................. 20,588,416 9,732,529 11,024,088
States and Political Subdivisions......... 4,899,323 3,447,085 2,444,924
Other..................................... 1,281,602 1,126,502 246,502
----------- ----------- -----------
$49,363,889 $45,337,250 $41,164,551
=========== =========== ===========
</TABLE>
No securities of a single issuer held by the company, excluding U. S. Treasury
and U. S. Government Agencies, exceeded 10% of total stockholder's equity in
1995, 1994, and 1993.
The following table sets forth the maturities of investment securities
available for sale at December 31, 1995, and the weighted average yields of
such securities (calculated on the basis of the cost and effective yields
weighted for the scheduled maturity of each security):
<TABLE>
<CAPTION>
MATURING
-------------------------------------------------------------------------------------
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
-------------------- -------------------- ----------------- -------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------------------- -------------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities............ $ 8,625,968 5.12% $13,968,580 5.20%
U.S. Government Agencies............ 3,324,846 5.38 15,277,070 5.45 $1,986,500 6.10%
States and Political Subdivisions(1) 442,986 5.73 2,291,472 6.36 2,164,865 7.06%
Other............................... 1,281,602
----------- ----- ----------- ----- ---------- ----- ---------- -----
$11,950,814 5.19% $29,688,636 5.34% $4,277,972 6.24% $3,446,467 7.06%
=========== ====== =========== ===== ========== ===== ========== =====
</TABLE>
(1) Weighted average yields on tax exempt obligations have been computed on a
fully tax-equivalent basis assuming a tax rate of 34 percent. The tax
equivalent rate has been reduced by 0.35% to allow for estimated disallowance
of interest expense.
15
<PAGE> 17
The following table sets forth the carrying amounts of investment securities
held to maturity at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1995 1994 1993
<S> <C> <C> <C>
U.S. Treasury Securities........... $ 6,985,104 $ 3,969,386 $ 2,001,747
U.S. Government Agencies........... 17,221,506 3,163,026 3,671,058
States and Political Subdivisions.. 11,571,495 10,152,297 9,067,783
Other..............................
----------- ----------- -----------
$35,778,105 $17,284,709 $14,740,588
=========== =========== ===========
</TABLE>
No securities of a single issuer held by the company, excluding U. S. Treasury
and U. S. Government Agencies, exceeded 10% of total stockholder's equity in
1995, 1994, and 1993.
The following table sets forth the maturities of investment securities held to
maturity at December 31, 1995, and the weighted average yields of such
securities (calculated on the basis of the cost and effective yields weighted
for the scheduled maturity of each security):
<TABLE>
<CAPTION>
MATURING
-----------------------------------------------------------------------------------
Within After One But After Five But After
One Year Within Five Years Within Ten Years Ten Years
--------------------- --------------------- ----------------- -----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
--------------------- --------------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities........... $ 4,994,528 7.11% $ 1,990,576 6.83%
U.S. Government Agencies........... 15,677,376 6.18 1,544,130 8.60
States and Political Subdivisions.(1) 1,002,372 9.48 3,993,368 9.14 $4,248,166 8.96% $2,327,589 8.59%
----------- ----- ----------- ----- ---------- ----- ---------- -----
$21,674,276 6.55% $ 7,528,074 8.42% $4,248,166 8.96% $2,327,589 8.59%
=========== ===== =========== ===== ========== ===== ========== =====
</TABLE>
(1) Weighted average yields on tax exempt obligations have been computed on a
fully tax-equivalent basis assuming a tax rate of 34 percent. The tax
equivalent rate has been reduced by 0.35% to allow for estimated disallowance
of interest expense.
16
<PAGE> 18
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
LOAN PORTFOLIO
The amount of loans outstanding at the indicated dates is shown in the
following table according to type of loan:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Commercial, Financial and Agricultural.. $ 41,280,234 $ 55,096,116 $ 57,037,018 $ 55,972,956 $ 35,654,640
Real Estate - Construction.............. 5,234,638 2,515,933 3,194,298 1,915,874 2,798,188
Real Estate - Mortgage.................. 120,820,728 88,492,433 75,569,603 75,190,682 90,750,776
Installment Loans to Individuals........ 14,544,017 16,682,556 15,850,252 16,886,055 16,058,506
------------ ------------ ------------ ------------ ------------
Total............................... $181,879,617 $162,787,038 $151,651,171 $149,965,567 $145,262,110
============ ============ ============ ============ ============
</TABLE>
The maturities of the indicated loans at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
MATURING
-------------------------------------------------------
AFTER ONE
WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
-------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, Financial and
Agricultural....................... $24,105,712 $ 9,307,178 $7,867,344 $41,280,234
Real Estate-
Construction....................... 4,930,866 303,772 5,234,638
----------- ----------- ---------- -----------
Total............................ $29,036,578 $ 9,610,950 $7,867,344 $46,514,872
=========== =========== ========== ===========
</TABLE>
INTEREST SENSITIVITY OF COMMERCIAL, FINANCIAL AND
AGRICULTURAL AND REAL ESTATE-CONSTRUCTION LOANS
December 31, 1995
<TABLE>
<CAPTION>
---------------------------------------
FIXED VARIABLE
RATE RATE TOTAL
---------------------------------------
<S> <C> <C> <C>
Due After One But Within
Five Years..................................... $ 1,550,806 $ 8,060,144 $ 9,610,950
Due After Five Years............................. 2,441,112 5,426,232 7,867,344
----------- ----------- -----------
Total........................................ $ 3,991,918 $13,486,376 $17,478,294
=========== =========== ===========
</TABLE>
17
<PAGE> 19
The Company's loan portfolio consists of the following categories of loans:
Commercial, Financial and Agricultural. Commercial, Financial and Agricultural
loans consist of all business and agricultural loans not secured by real
estate. The borrowers in this category are small to medium sized businesses
located in the market area of the Company. Most loans in this category are
collateralized. Types of collateral include accounts receivable, inventory,
equipment, furniture and fixtures, and certificates of deposit. Risks
associated with these type loans include bankruptcy, economic downturn,
deteriorating collateral, crop failure as a result of extreme or poor weather,
and changes in market prices for underlying crops, in the case of agricultural
loans.
Real Estate - Construction. Loans classified as construction loans are
typically made short-term to finance the construction of residential (1-4
family) dwellings, have permanent take-out mortgages approved and will be fully
repaid upon completion of construction. Builder financing is generally
discouraged. Such loans require site inspections and evaluations prior to the
payment of any draws. Risks associated with such loans include cost overruns
and interest rate movements.
Real Estate - Mortgage. Loans classified as mortgage real estate include all
loans secured by real estate which were made for commercial, financial or
agricultural purposes and which are not construction loans. The primary
collateral on such loans is first lien mortgages, but also includes
second-mortgage positions. Risks associated with this type loan are typically
the same as those classified "Commercial, Financial, and Agricultural."
Installment Loans to Individuals. Installment loans to individuals consists of
consumer loans made for personal, household and family purposes, such as home
improvement and automobile purchases. Types of collateral include automobiles,
mobile homes, savings accounts, and stock. Risks associated with such loans
include deteriorating collateral, general economic downturn, and bankruptcy.
Credit Underwriting and Monitoring. It is the practice of the Company to meet
the credit needs of qualified borrowers within its market area at a reasonable
price. The extent and amount of collateral required is based on factors such as
the character of the borrower, his financial condition, his ability to service
the debt according to a predetermined repayment plan, his credit history, and
the loan purpose. Because each loan is evaluated on its own merit, there are
no predetermined or minimal loan-to-value ratios or lien positions, except as
provided by bank regulators in the case of real estate loans. State banking
regulations require that, in the absence of other acceptable collateral, a real
estate loan be less than or equal to 90% and 75% of the appraised value of the
real estate taken as security in the case of an amortizing loan and of a
nonamortizing loan, respectively.
In 1992 the Company adopted and implemented a comprehensive loan policy which
individually addresses the various types and purposes of loans the Banks can
make and defines acceptable collateral. The lending policy emphasizes the
financial strength and cash flow position of the borrower and considers
collateral as the last resort source of repayment. The Company also
established in 1992 a formal loan classification and grading system, performed
as a separate and independent function within the Company. All loans are
assigned a grade and are subject to review based on the perceived risk of loss
to the Company. Such review includes verification of all necessary
documentation as well as financial statement analysis and compliance with
regulations and bank policy.
Economy of the Market Area. The Company's primary market area is comprised of
Bulloch, Candler and contiguous counties of southeast Georgia. The local
economy is a diversified mix of retail and service, manufacturing and
agriculture. Statesboro-Bulloch County is a retail hub which draws from an
eight county area and is also the home of Georgia Southern University,
enrolling 14,000 students and employing 2,000 faculty and staff. Ogeechee
Technical Institute, which opened in 1992 and currently enrolls 1,600 students,
is one of the top three fastest-growing technical schools in the southeastern
U. S. and is a drawing card for industries looking to locate in southeast
Georgia. Metter-Candler County has also experienced commercial development in
terms of motels, restaurants, and gas stations around the Interstate 16
interchange which cater to travelers. Ceran Language Institute, a language
school headquartered in Belgium, recently established its first U. S. facility
in Metter-Candler County and is designed to provide intense instruction in the
English language to foreign executives.
18
<PAGE> 20
In the manufacturing sector the Company's market area is home to seventy
manufacturers, ranging from meat packing, lumber mills, grey-iron foundry,
meter and valve production, and garment manufacturing to computer form
production, steel recycling, and lawn mower engines. The local economy
experienced a major boost with the relocation of Briggs and Stratton, the
world's largest manufacturers of small gasoline engines, a new 1.5 million
square foot Wal-Mart Distribution Center, which supplies seasonal goods to
Wal-Mart stores for approximately one-third of the U. S., and a major expansion
in Metter of Wallace Computer Services, one of the largest providers of
computer forms and supplies in the nation. These three projects alone added
over 800 jobs to the local economy.
Agriculture and agribusiness accounts for approximately one-third of the local
economy in terms of economic impact. Major cash producers include Vidalia
onions, peanuts, cotton, forestry, tobacco, corn, poultry, beef and swine. The
resurgence of cotton has led to the construction of three cotton gins in the
area and the major upgrading of an existing one. A technological advance in
controlled atmospheric storage enables Vidalia onion growers to store their
crop and ship year-round all across the nation.
<TABLE>
<CAPTION>
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
DECEMBER 31,
---------------------------------------------------------------
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C>
Nonaccrual Loans........... $ 403,293 $ 181,572 $ 351,505 $ 99,013 $209,861
Accruing Loans Past Due
at least 90 days......... 175,858 134,638 128,115 223,027 127,076
Restructured Loans......... 750,550 1,039,729 413,897 154,596
---------- ---------- ---------- -------- --------
Total Nonperforming Loans.. 1,329,701 1,355,939 893,517 322,040 491,533
Other Real Estate.......... 306,500 306,500 504,000 379,000 178,500
---------- ---------- ---------- -------- --------
Total Nonperforming Assets $1,636,201 $1,662,439 $1,397,517 $701,040 $670,033
========== ========== ========== ======== ========
</TABLE>
Interest income that would have been recorded on these nonperforming loans in
accordance with their original terms amounted to $93,021, $91,193, $78,758,
$6,696 and $50,906 in 1995, 1994, 1993, 1992 and 1991, respectively, compared
with amounts received of $52,879, $53,961, $23,553, $1,438 and $25,313 for such
years, respectively.
Nonaccrual loans by loan category included $352,000 in real estate-mortgage,
$34,000 in installment loans to individuals, and $17,000 in commercial loans.
Loans are placed on non-accrual status when management does not consider the
collection of interest to be reasonably assured. It is the Company's policy to
allow any loan past due greater than 90 days to remain on an accrual basis if
it is well collateralized and in process of collection. All loans 120 days
past due, however, are charged-off.
LOAN CONCENTRATIONS
Approximately 10% of the Banks' loan portfolio consisted of secured and
unsecured agriculturally related loans at December 31, 1995. These loans are
to borrowers in various aspects of agriculture, including irrigated and non-
irrigated row crops, food and feed grain, livestock and other enterprises, such
as timber and pecans. They could be impacted by an unfavorable production
relationship associated with unfavorable weather conditions or an unfavorable
farm to market economic relationship.
OTHER
The Banks have no foreign loans or significant potential problem loans that
are not already disclosed herein nor any other significant interest bearing
assets required to be disclosed.
19
<PAGE> 21
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes average loan balances; changes in the
allowance for possible loan losses arising from loans charged off and
recoveries on loans previously charged off, by loan category; and additions to
the allowance which have been charged to expense:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Average Amount of Loans......................... $171,798,516 $156,869,763 $151,557,938 $148,745,465 $142,637,422
============ ============ ============ ============ ============
Analysis of the Allowance for Loan Losses:
Balance at Beginning of Period.................. $ 3,005,297 $ 2,661,759 $ 2,600,217 $ 2,352,812 $ 1,789,423
------------ ------------ ------------ ------------ ------------
Loans Charged off:
Commercial, Financial and Agricultural........ 50,159 62,617 187,463 403,756 404,778
Real Estate - Mortgage........................ 2,514 34,738 29,797
Installment Loans to Individuals.............. 222,593 232,462 392,052 211,696 196,382
------------ ------------ ------------ ------------ ------------
Total Loans Charged off................... 272,752 297,593 614,253 645,249 601,160
------------ ------------ ------------ ------------ ------------
Recoveries on Loans Previously Charged off:
Commercial, Financial and Agriculture......... 8,464 31,328 30,904 31,001 34,980
Real Estate - Construction.................... 499
Real Estate - Mortgage........................
Installment Loans to Individuals................ 43,565 75,230 58,123 41,623 15,220
------------ ----------- ------------ ------------ ------------
Total Recoveries.......................... 52,029 106,558 89,027 72,624 50,699
------------ ----------- ------------ ------------ ------------
Net Loans Charged off........................... 220,723 191,035 525,226 572,625 550,461
Additions to Allowance Charged to Expense....... 560,000 534,573 586,768 820,030 1,113,850
------------ ----------- ------------ ------------ ------------
Balance at End of Period........................ $ 3,344,574 $ 3,005,297 $ 2,661,759 $ 2,600,217 $ 2,352,812
============ =========== ============ ============ ============
Ratio of Net Charge-offs during the period
to Average Loans Outstanding................... .13% .12% .35% .38% .39%
============ =========== ============ ============ ============
Provision for Loan Losses shown on the
Selected Financial Data........................ $ 560,000 $ 534,573 $ 586,768 $ 820,030 $ 1,113,850
============ =========== ============ ============ ============
</TABLE>
The Registrant's provision for loan losses is based upon management's
continuing review and evaluation of the portfolio and is intended to create an
allowance adequate to absorb losses on loans outstanding as of the end of each
reporting period. For individually significant amounts, management's review
consists of evaluations of the financial strength of the borrowers and the
related collateral. Such evaluation is made by classifying loans based on
values for financial strength. These classifications are assigned by
responsible loan officers and reviewed by the Loan Review Officer. The totals
by loan classification, along with related historical loss ratios, are used to
determine the allowance required to provide for potential losses. The review
of groups of loans which are individually insignificant is based upon
delinquency status of the group, lending policies and previous collection
experience by each category. Also, the effects of current economic conditions
on specific industries or classes of borrowers are considered in determining
allowance for loan loss requirements.
The approximate anticipated amount of charge-offs by category during 1996 is
as follows:
<TABLE>
<S> <C>
Commercial, Financial and Agricultural.......................................... $250,000
Real Estate - Mortgage..........................................................
Installment Loans to Individuals................................................ 100,000
--------
Total........................................................................ $350,000
========
</TABLE>
20
<PAGE> 22
DEPOSITS
The Average Amount of Deposits is summarized for the periods indicated in
the following table:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
<S> <C> <C> <C>
Deposits:
Demand.......................... $ 28,618,218 $ 26,523,971 $ 23,786,716
NOW............................. 35,134,661 31,234,611 27,776,282
Money Market.................... 32,868,866 33,789,638 30,692,617
Savings......................... 10,927,068 10,511,632 9,600,291
Time ($100,000 and above)....... 58,755,518 44,194,763 43,023,321
Other Time...................... 70,756,598 65,507,533 65,752,905
------------ ------------ ------------
Total......................... $237,060,929 $211,762,148 $200,632,132
============ ============ ============
</TABLE>
For rates paid on deposits for the years ended December 31, 1995 and 1994,
see Distribution of Assets, Liabilities and Shareholders' Equity; Interest
Rates and Interest Differential.
As of December 31, 1995, Time Deposits of $100,000 or more totaled
$67,184,574. The maturities of all Time Deposits over $ 100,000 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
3 months or less................ $28,548,196
Over 3 through 6 months......... 16,933,837
Over 6 through 12 months........ 11,624,964
Over 12 months.................. 10,077,577
-----------
Total......................... $67,184,574
===========
</TABLE>
RETURN ON EQUITY AND ASSETS
The ratio of net income to average shareholders' equity and to average
total assets, and certain other ratios are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
<S> <C> <C> <C>
Percentage of Net Income to:
Average Total Assets............. 1.65% 1.42% 1.43%
Average Shareholders' Equity..... 15.83 13.47 13.80
Percentage of Dividends Declared per
Common Share to Net Income per
Common Share.................... 28.09 28.94 24.62
Percentage of Average Shareholders'
Equity to Average Total Assets... 10.44 10.56 10.35
</TABLE>
SHORT-TERM BORROWINGS
There were no short-term borrowings for which the average balance
outstanding during the period was more than 30% of shareholders' equity at the
end of each of the years ended December 31, 1995, 1994 and 1993.
21
<PAGE> 23
ITEM 2. PROPERTIES
The Registrant's and Bulloch Bank's main office is located at 40 North
Main Street, Statesboro, Georgia.
The first of Bulloch Bank's three branches was opened January 17,
1972, and is located in Portal, Georgia, a farming community twelve miles north
of Statesboro, Georgia. A second branch is located at the Statesboro Mall,
which is approximately one mile east of the main office. Bulloch Bank's third
branch office is approximately one mile south of the main office and near
Georgia Southern University in the College Plaza Shopping Center. Bulloch Bank
maintains four automated teller machines located at the Mall Office, the
College Plaza Office, near the junction of U.S. Highways 301 and 80 (the
"Northside ATM"), and the campus of Georgia Southern University on Chandler
Road and in the University Union Building. The Northside ATM is equipped with
a night depository, a service not available at the other ATMs. These machines
enable the Bank to provide twenty-four hour banking services to its customers.
Bulloch Bank owns all the properties except three of the ATM
locations. The Northside ATM land is currently leased on a month to month
basis. The Chandler Road location is currently leased for a three year term
until May 1996, and the University Union location is leased on a month to month
basis.
Metter Bank's main office is located at 2 S.E. Broad Street, Metter,
Georgia. Metter Bank has one drive-in facility and an ATM located
approximately 200 yards southeast of the main office and during 1990 opened a
branch in a supermarket which is approximately one-half mile from the main
office. Metter Bank owns all the properties except the supermarket branch
facility, which is currently under a two year lease expiring in July 1997.
All properties of the Banks are in good condition and are adequate for
the current operations of the Banks.
ITEM 3. LEGAL PROCEEDINGS
Neither the Registrant nor either of its subsidiaries is a party to,
nor is any of their property the subject of, any material pending legal
proceedings, other than ordinary routine proceedings incidental to the business
of the Banks, nor to the knowledge of management are any such proceedings
contemplated or threatened against the Registrant or its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
As of March 14,1996, the Company had 844 shareholders of record. The
common stock of the Company is traded on the Nasdaq National Market System
under the symbol FBCG. The information reqarding the market price of the
Company's common stock and dividends paid thereon is set forth in the Company's
Annual Report to Shareholders for the year ended December 31, 1995 under
"Selected Financial Data," and information regarding restrictions on the
amounts of dividends payable is set forth in Note 8 of the Notes to Consolidated
Financial Statements contained therein. Such information is incorporated
herein by reference.
22
<PAGE> 24
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Management's Discussion and Analysis of Financial Condition and
Results of Operations of the Financial Section of the Annual Report to
Shareholders for the year ended December 31, 1995 is incorporated herein by
reference.
ITEM 7. FINANCIAL STATEMENTS
The following financial statements, together with the applicable
report of independent public accountants, are included in the Financial Section
of the Annual Report to Shareholders for the year ended December 31, 1995 and
are incorporated herein by reference:
Consolidated Balance Sheets as of December 31, 1995 and 1994.
Consolidated Statements of Income for Years Ended December 31, 1995,
1994 and 1993.
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1994 and 1993.
Consolidated Statements of Shareholders' Equity for Years Ended
December 31, 1995, 1994 and 1993.
Notes to Consolidated Financial Statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The information appearing under the captions "Election of Directors --
Nominees and Continuing Directors", and "Executive Officers" on pages 2
through 4 and page 6, respectively, of the Proxy Statement (the "Proxy
Statement") relating to the Annual Meeting of the Registrant's Shareholders,
scheduled to be held on April 25, 1996, is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information appearing under the caption "Executive Compensation" on
page 7 of the Proxy Statement is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing under the caption "Stock Ownership" on pages 8
through 11 of the Proxy Statement is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing under the caption "Indebtedness of Directors and
Officers" on page 8 of the Proxy Statement is incorporated herein by reference.
23
<PAGE> 25
PART IV
ITEM 13. EXHIBITS, LIST AND REPORTS ON FORM 8-K
(a) The following exhibits are filed with this Form 10-K:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 - Amended and Restated Articles of Incorporation of the Registrant
(incorporated by reference to exhibit by same number in the
Registrant's Form 10-K for the year ended December 31, 1988.)
3.2 - By-Laws of the Registrant, as amended February 28, 1990. *
10.1 - Profit Sharing Plan, as restated December 29, 1994.**
10.2 - Trust Agreement related to the Registrant's Profit Sharing Plan,
as amended and restated December 30, 1988, effective January 1,
1989. *
10.3 - Target Benefit Retirement Plan, as restated December 29, 1994.**
10.4 - Trust Agreement related to the Registrant's Target Benefit
Retirement Plan, as amended and restated December 30,
1988, effective January 1, 1989*.
10.5 - Employment Agreement dated February 20, 1996 between James Eli Hodges
and the Registrant.
13 - The Registrant's Annual Report to Shareholders for the year ended
December 31, 1995 (except for those portions specifically
incorporated by reference, the 1995 Annual Report to
Shareholders is not deemed to be filed as part of this report).
21 - Subsidiaries of the Registrant (incorporated herein by reference
to Exhibit 22 of Registrant's Annual Report on Form 10-K for the
year ended December 31, 1986).
24 - A Power of Attorney is set forth on the signature pages of this
Annual Report on Form 10-KSB.
27 - Financial Data Schedule (for SEC use only)
* Incorporated herein by reference to exhibit of the same number in the
Registrant's Form 10-K for the year ended December 31, 1989.
** Incorporated herein by reference to exhibit of the same number
in the Registrant's Form 10-KSB for the year ended December 31,
1994.
</TABLE>
24
<PAGE> 26
4. Executive Compensation Plans and Arrangements
The following is a list of all of the Registrant's plans, management
contracts and compensatory arrangements, together with the location of each
such plan, contract or arrangement.
<TABLE>
<CAPTION>
Title Location
----- --------
<S> <C>
Profit Sharing Plan, as amended Exhibit 10.1 to the Registrant's Annual
and restated December 28, 1994. Report on Form 10-KSB for the year ended
December 31, 1994.
Trust Agreement related to the Exhibit 10.2 to the Registrant's Annual
Profit Sharing Plan, as amended Report on Form 10-K for the year ended
and restated December 30, 1988, December 31, 1989.
effective January 1, 1989.
Target Benefit Retirement Plan, Exhibit 10.3 to the Registrant's Annual
as amended and restated December Report on Form 10-KSB for the year ended
28, 1994. December 31, 1994.
Trust Agreement related to the Exhibit 10.4 to the Registrant's Annual
Target Benefit Retirement Plan, as Report on Form 10-K for the year ended
amended and restated December 30, year ended December 31, 1989.
1988, effective January 1, 1989.
Employment Agreement dated Exhibit 10.5 to the Registrant's Annual
February 20, 1996 between James Report on Form 10-KSB for the year ended
Eli Hodges and the Registrant. December 31, 1995.
</TABLE>
(b) The Registrant filed no reports on Form 8-K during the fourth quarter of
the year ended December 31, 1995.
25
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
FIRST BANKING COMPANY OF
SOUTHEAST GEORGIA
(Registrant)
Date: March 28, 1996 By: /s/James Eli Hodges
------------------- --------------------------------
JAMES ELI HODGES, PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James Eli Hodges and Dwayne E. Rocker, and each
of them, for him in his name, place and stead, in any and all capacities, to
sign any amendments to this Report on Form 10-KSB, and to file the same, with
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission and hereby ratifies and confirms all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: March 28, 1996 By: /s/James Eli Hodges
---------------------- --------------------------------
JAMES ELI HODGES
PRESIDENT & DIRECTOR
(PRINCIPAL EXECUTIVE OFFICER)
Date: March 28, 1996 By: /s/Julian C. Lane, Jr.
---------------------- --------------------------------
JULIAN C. LANE, JR
VICE PRESIDENT
AND DIRECTOR
Date: March 28, 1996 By: /s/John M. Wilson, Jr.
----------------------- --------------------------------
JOHN M. WILSON, SR.
VICE PRESIDENT
AND DIRECTOR
Date: March 28, 1996 By: /s/Dwayne E. Rocker
----------------------- --------------------------------
DWAYNE E. ROCKER
SECRETARY & TREASURER
(PRINCIPAL FINANCIAL &
ACCOUNTING OFFICER)
Date: March 28, 1996 By: /s/E. Raybon Anderson
----------------------- -------------------------------
E. RAYBON ANDERSON, DIRECTOR
Date: March 28, 1996 By: /s/A. M. Braswell, Jr.
----------------------- --------------------------------
A. M. BRASWELL, JR., DIRECTOR
Date: March 28, 1996 By: /s/W. A. Crider, Jr.
----------------------- --------------------------------
W. A. CRIDER, JR., DIRECTOR
26
<PAGE> 28
Date: March 28, 1996 By: /s/ C. Arthur Howard
----------------------- --------------------------------
C. ARTHUR HOWARD, DIRECTOR
Date: March 28, 1996 By: /s/Lanier A. Hunnicutt
----------------------- --------------------------------
LANIER A. HUNNICUTT, DIRECTOR
Date: March 28, 1996 By: /s/Joe P. Johnston
----------------------- --------------------------------
JOE P. JOHNSTON, DIRECTOR
Date: March 28, 1996 By: /s/ Dan J. Parrish, Jr.
----------------------- ---------------------------------
DAN J. PARRISH, JR., DIRECTOR
Date: March 28, 1996 By: /s/Charles M. Robbins, Jr.
----------------------- --------------------------------
CHARLES M. ROBBINS, JR., DIRECTOR
Date: March 28, 1996 By: /s/J. E. Smith
----------------------- ---------------------------------
J. E. SMITH, DIRECTOR
Date: March 28, 1996 By: /s/Alvin Williams
----------------------- ---------------------------------
ALVIN WILLIAMS, DIRECTOR
27
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Document Page
- ----------- -------------------------------- --------
<S> <C> <C>
3.1 Amended and Restated Articles of
Incorporation of the Registrant
(incorporated herein by reference
to exhibit of same number in the
Registrant's Form 10-K for the year
ended December 31, 1988). N/A
3.2 By-Laws of the Registrant, as amended
February 28, 1990.* N/A
10.1 Profit Sharing Plan, as restated
December 28, 1994.** N/A
10.2 Trust Agreement related to the
Registrant's Profit Sharing Plan,
as amended and restated December 30,
1988, effective January 1, 1989.* N/A
10.3 Target Benefit Retirement Plan, as
restated December 28, 1994.** N/A
10.4 Trust Agreement related to the Registrant's
Target Benefit Retirement Plan, as amended
and restated December 30, 1988, effective
January 1, 1989.* N/A
10.5 Employment Agreement dated February 20, 1996
between James Eli Hodges and the Registrant. 29
13 The Registrant's Annual Report
to Shareholders for the year
ended December 31, 1995 (except
for those portions specifically
incorporated by reference, the
1995 Annual Report to Shareholders
is not deemed to be filed as part
of this report). 38
21 Subsidiaries of the Registrant
(incorporated herein by reference
to Exhibit 22 of Registrant's
Annual Report on Form 10-K for
the year ended December 31, 1986). N/A
24 A Power of Attorney is set forth
on the signature pages of this
Annual Report on Form 10-KSB. 26
27 Financial Data Schedule (for SEC
use only)
</TABLE>
* Incorporated herein by reference to exhibit of the same number in the
Registrant's Form 10-K for the year ended December 31, 1989.
28
<PAGE> 1
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 20th day of February, 1996, between
First Bulloch Bank & Trust Company (the "Bank"), a commercial bank and trust
company chartered by the State of Georgia, and First Banking Company of
Southeast Georgia (the "Company"), the parent bank holding company of the Bank
(collectively, the "Employer"), and James Eli Hodges, a resident of the state
of Georgia (the "Employee").
RECITALS:
The Employer desires to employ the Employee as the President of the
Employer and the Employee desires to accept such employment.
In consideration of the above premises and the mutual agreements
hereinafter set forth, the parties hereby agree as follows:
1. DEFINITIONS. Whenever used in this Agreement, the following terms and
their variant forms shall have the meaning set forth below:
1.1 "Agreement" shall mean this Agreement and any Exhibits incorporated
herein together with any amendments hereto made in the manner described in this
Agreement.
1.2 "Affiliate" shall mean any business entity which controls the
Employer, is controlled by, or is under common control with the Employer.
1.3 "Area" shall mean the geographic area within the boundaries of Bulloch
and Candler County. It is the express intent of the parties that the Area as
defined herein is the area where the Employee performs or performed services on
behalf of the Employer under this Agreement as of, or within a reasonable time
prior to, the termination of the Employee's employment hereunder.
1.4 "Business of the Employer" shall mean the business conducted by the
Employer, which is commercial banking.
1.5 "Cause" shall mean:
1.5.1 With respect to termination by the Employer:
(a) A material breach of the terms of this Agreement by the
Employee, including, without limitation, failure by the Employee to perform his
duties and responsibilities in the manner and to the extent required under this
Agreement, or a breach of any representation or warranty of the Employee set
forth herein;
(b) Conduct by the Employee that amounts to fraud, dishonesty or
wilful misconduct in the performance of his duties and responsibilities
hereunder;
(c) The conviction of the Employee of a felony;
(d) Conduct by the Employee that amounts to gross and
willful insubordination or inattention to his duties and responsibilities
hereunder; or
(e) Conduct by the Employee that results in removal from his
position as an officer or employee of the Employer pursuant to a written order
by any regulatory agency with authority or jurisdiction over the Employer.
<PAGE> 2
1.5.2 With respect to termination by the Employee, a material
diminution in the powers, responsibilities or duties of Employee hereunder, or
the failure of the Board of Directors of the Bank and the Company to elect him
as President, or a material breach of the terms of this Agreement by the
Employer which remains uncured after the expiration of thirty (30) days
following the delivery of written notice of such breach to the Employer by the
Employee.
1.6 "Change in Control" of the Employer shall mean any transaction wherein
fifty percent (50%) of the shares of the Bank or the Company, plus one share
are directly or indirectly transferred by sale, gift, merger, exchange or any
other means to new owners other than an Affiliate of such person or entity
transferring such shares or if a majority of the members of the Board of
Directors of the Bank or the Company are replaced.
1.7 "Initial Term" shall mean that period of time commencing on the date
of execution of this Agreement by the Employer and the Employee and running
until the earlier of three (3) years thereafter or any termination of
employment of the Employee under this Agreement as provided for in Section 3.
1.8 "Permanent Disability" shall mean the total inability of the Employee
to perform his duties under this Agreement for a period of ninety (90)
consecutive days as certified by a physician chosen by the Employer and
reasonably acceptable to the Employee. If Employee is covered by a disability
insurance policy, the term "permanent disability" shall have the meaning set
forth in such policy.
1.9 "Proprietary Information" shall mean:
(a) Information related to the Employer or any Affiliate,
(i) Which derives economic value, actual or potential, from
not being generally known to or readily ascertainable by
other persons who can obtain economic value from its
disclosure or use; and
(ii) Which is the subject of efforts that are reasonable under
the circumstances to maintain its secrecy; and
(b) All tangible reproductions or embodiments of such
information.
Assuming the criteria in (a)(i) and (a)(ii) above are satisfied, Proprietary
Information includes, but is not limited to, technical and nontechnical data
related to the compilations, programs, methods, techniques, finances, actual or
potential customers and suppliers, existing and future products, and employees
of the Employer or its Affiliates. Proprietary Information also includes
information which has been disclosed to the Employer or its Affiliates by a
third party and which the Employer or any Affiliate is obligated to treat as
confidential.
1.10 "Term" shall mean the Initial Term and all subsequent renewal periods.
2. DUTIES.
2.1 The Employee is employed initially as the Chief Executive Officer of
the Employer and, subject to the direction of the Board, or its designee, shall
perform and discharge well and faithfully the duties which may be assigned to
him from time to time by the Employer in connection with the conduct of its
business. The duties and responsibilities of the Employee are set forth on
Exhibit A attached hereto.
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<PAGE> 3
2.2 In addition to the duties and responsibilities specifically assigned
to the Employee pursuant to Section 2.1 hereof, the Employee shall: (1) devote
substantially all of his time, energy and skill during regular business hours
to the performance of the duties of his employment (reasonable vacations and
reasonable absences due to illness excepted), and faithfully and industriously
perform such duties; (2) diligently follow and implement all management
policies and decisions communicated to him by the Board; and (3) timely prepare
and forward to the Board all reports and accounting as may be requested of the
Employee.
2.3 The Employee shall devote his entire business time, attention and
energies to the Business of the Employer and shall not during the term of this
Agreement be engaged (whether or not during normal business hours) in any other
business or professional activity, whether or not such activity is pursued for
gain, profit or other pecuniary advantage; but this shall not be construed as
preventing the Employee from (1) investing his personal assets in businesses
which (subject to item (2) below) are not in competition with the Business of
the Employer and which will not require any services on the part of the
Employee in their operation or affairs and in which his participation is solely
that of an investor, (2) purchasing securities in any corporation whose
securities are regularly traded provided that such purchase shall not result in
his collectively owning beneficially at any time five percent (5%) or more of
the equity securities of any business in competition with the Business of the
Employer, and (3) participating in civic and professional affairs and
organizations and conferences, preparing or publishing papers or books or
teaching so long as the Board approves of such activities prior to the
Employee's engaging in them. Prior to commencing any activity described in
clause (3) above, the Employee shall inform the Board, in writing, of any such
activity.
3. TERM AND TERMINATION.
3.1 Term. This Agreement shall remain in effect for the Initial Term.
At the end of the first twelve-month period hereunder and at the end of each
successive twelve-month period, this Agreement shall automatically be extended
for a successive 12-month period following the then two-year remaining term
unless either party gives written notice to the other of its intent not to
extend this Agreement with such written notice to be given not less than 90
days prior to the end of such twelve-month period. In the event such notice of
non-extension is properly given, this Agreement shall terminate at the end of
the remaining term then in effect. However, notwithstanding the provisions of
this Section 3.1, (i) no extension shall be granted that would extend the term
of this Agreement beyond the last day of the month during which the Employee
attains age 65, and (ii) this Agreement shall terminate upon the death or
permanent disability of Employee.
3.2 Termination. During the Term, the employment of the Employee under
this Agreement may be terminated only as follows:
3.2.1 By the Employer:
(a) For Cause, upon written notice to the Employee; or
(b) Without Cause at any time, provided that the
Employer shall give the Employee thirty (30) days prior written
notice of its intent to terminate.
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<PAGE> 4
3.2.2 By the Employee:
(a) For Cause, with no prior notice except as provided in
Section 1.5.
(b) Without Cause, provided that the Employee shall give
the Company sixty (60) days prior written notice of his intent to
terminate.
3.2.3 By the Employee within six months following a Change in
Control of the Employer, provided that the Employee shall give
written notice to the Employer of his intention to terminate this
Agreement.
3.2.4 At any time upon mutual, written agreement of the parties.
3.3 Effect of Termination. The effect of termination of the
employment of the Employee pursuant to Section 3.2 shall be as follows:
3.3.1 In the event of termination by the Employer:
(a) For Cause, pursuant to Section 3.2.1(a), the
Employer shall have no further obligation to the Employee except for
the payment of any amounts due and owing under Section 4 on the
effective date of termination;
(b) Without Cause, pursuant to Section 3.2.1(b), the
Employer shall be required to continue to meet its obligations to
the Employee under Section 4.1 for a period of twenty-four (24)
months following termination.
3.3.2 In the event of termination by the Employee:
(a) For Cause, pursuant to Section 3.2.2(a), the
Employer shall be required to continue to meet its obligations to
the Employee under Section 4.1 for a period of twenty-four (24)
months following termination.
(b) Without Cause, pursuant to Section 3.2.2(b), the
Employer shall have no further obligation to the Employee except
future payment of any amounts due and owing under Section 4 on the
effective date of the termination.
3.3.3 In the event of termination by the Employee in connection
with a Change in Control pursuant to Section 3.2.3, the Employer
shall be required to pay to continue to meet its obligations to
Employee under Section 4.1 for a period of twenty-four (24) months
after termination.
3.3.4 In the event of termination upon mutual agreement of the
parties pursuant to Section 3.2.4, the Employer shall have no
further obligation to the Employee except for the payment of any
amounts due and owing under Section 4.1 on the effective date of
termination unless otherwise set forth in the written agreement.
4. COMPENSATION. The Employee shall receive the following salary and
benefits:
- 32 -
<PAGE> 5
4.1 Base Salary. During the Initial Term, the Employee shall be
compensated at a base rate of $174,000. per annum (the "Base Salary"). The
Employee's salary shall be reviewed by the Board annually, and the Employee
shall be entitled to receive annually an increase in such amount, if any, as
may be determined by the Board. Such salary shall be payable in accordance
with the Employer's normal payroll practices.
4.2 Incentive Compensation. The Employee shall be entitled to
participate in such option, bonus, incentive and other executive compensation
programs as are made available to senior management of the Employer from time
to time
4.3 Benefits.
(a) In addition to the Base Salary and Incentive Compensation,
the Employee shall be entitled to such benefits as may be
available from time to time for executives of the Employer
similarly situated to the Employee. All such benefits shall be
awarded and administered in accordance with the Employer's
standard policies and practices. Such benefits may include, by
way of example only, profit sharing plans, retirement or
investment funds, dental, health, life and disability insurance
benefits, and such other benefits as the Employer deems
appropriate.
(b) The Employer specifically agrees to reimburse the Employee
for reasonable business expenses incurred by him in performance
of his duties hereunder, as approved from time to time by the
Board; provided that the Employee shall, as a condition of
reimbursement, submit verification of the nature and amount of
such expenses in accordance with reimbursement policies from
time to time adopted by the Employer and in sufficient detail
to comply with Internal Revenue Service Regulations.
(c) On a non-cumulative basis the Employee shall be entitled to
four (4) weeks of vacation in each year of this Agreement,
during which his compensation shall be paid in full. At least
two consecutive weeks each year must be taken by the Employee
for vacation, with other vacation to be taken at the time the
Employer determines appropriate, taking into account the
requirements of the Employer.
4.4 Withholding. The Employer may deduct from each payment of
compensation hereunder all amounts required to be deducted and withheld in
accordance with applicable federal and state income, FICA and other withholding
requirements.
5. PROPRIETARY INFORMATION.
5.1 Ownership of Proprietary Information. All Proprietary Information
received or developed by the Employee while employed by the Employer will
remain the sole and exclusive property of the Employer.
5.2 Obligations of Employee. Employee will hold the Proprietary
Information in trust and strictest confidence, and will not use, reproduce,
distribute, disclose or otherwise disseminate the Proprietary Information
except to the extent necessary to perform the duties assigned to him by the
Employer.
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<PAGE> 6
5.3 Delivery upon Termination. Upon termination of his employment with
the Employer, the Employee will promptly deliver to the Employer all property
belonging to the Employer, including without limitation all Proprietary
Information then in his possession or control.
6. NON-COMPETITION. The Employee agrees that during his employment by the
Employer hereunder and, in the event of his termination other than pursuant to
Sections 3.2.1(b) or 3.2.2(a), for a period of six (6) months thereafter, he
will not (except on behalf of or with the prior written consent of the
Employer), within the Area, either directly or indirectly, on his own behalf or
in the service or on behalf of others, as a principal, partner, officer,
director, manager, supervisor, administrator, consultant, executive employee,
or in any other capacity which involves duties and responsibilities similar to
those undertaken for the Employer, engage in any business which is the same as
or essentially the same as the Business of the Employer.
7. NON-SOLICITATION OF CLIENTS. The Employee agrees that during his
employment by the Employer hereunder and, in the event of his termination other
than pursuant to Sections 3.2.1(b) or 3.2.2(a), for a period of six (6) months
thereafter, he will not (except on behalf of or with the prior written consent
of the Employer), within the Area, on his own behalf or in the service or on
behalf of others, solicit, divert or appropriate, or attempt to solicit, divert
or appropriate, directly or by assisting others, any business from any of the
Employer's customers, including actively sought prospective customers, with
whom the Employee has or had material contact during the last two (2) years of
his employment, for purposes of providing products or services that are
competitive with those provided by the Employer.
8. NON-SOLICITATION OF EMPLOYEES. The Employee agrees that during his
employment by the Employer hereunder and, in the event of his termination other
than pursuant to Sections 3.2.1(b) or 3.2.2(a), for a period of six (6) months
thereafter, he will not, on his own behalf or in the service or on behalf of
others, solicit, recruit or hire away, or attempt to solicit, recruit or hire
away, directly or by assisting others, any employee of the Employer or its
Affiliates, whether or not such employee is a full-time employee or a temporary
employee of the Employer, and whether or not such employment is pursuant to
written agreement and whether or not such employment is for a determined period
or is at will.
9. REMEDIES. The Employee agrees that the covenants contained in Sections 5
through 8 of this Agreement are of the essence of this Agreement; that each of
the covenants is reasonable and necessary to protect the business, interests
and properties of the Employer; and that irreparable loss and damage will be
suffered by the Employer should he breach any of the covenants. Therefore, the
Employee agrees and consents that, in addition to all the remedies provided by
law or in equity, the Employer shall be entitled to a temporary restraining
order and temporary and permanent injunctions to prevent a breach or
contemplated breach of any of the covenants. The Employer and the Employee
agree that all remedies available to the Employer or the Employee, as
applicable, shall be cumulative.
10. SEVERABILITY. The parties agree that each of the provisions included in
this Agreement is separate, distinct, and severable from the other provisions
of this Agreement, and that the invalidity or unenforceability of any Agreement
provision shall not affect the validity or enforceability of any other
provision of this Agreement. Further, if any provision of this Agreement is
ruled invalid or
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<PAGE> 7
unenforceable by a court of competent jurisdiction because of a conflict
between the provision and any applicable law or public policy, the provision
shall be redrawn to make the provision consistent with and valid and
enforceable under the law or public policy.
11. NO SET-OFF BY EMPLOYEE. The existence of any claim, demand, action or
cause of action by the Employee against the Employer, or any Affiliate of the
Employer, whether predicated upon this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Employer of any of its rights
hereunder.
12. NOTICE. All notices and other communications required or permitted under
this Agreement shall be in writing and, if mailed by prepaid first-class mail
or certified mail, return receipt requested, shall be deemed to have been
received on the earlier of the date shown on the receipt or three (3) business
days after the postmarked date thereof. In addition, notices hereunder may be
delivered by hand, facsimile transmission or overnight courier, in which event
the notice shall be deemed effective when delivered or transmitted. All
notices and other communications under this Agreement shall be given to the
parties hereto at the following addresses:
(i) If to the Employer, to it at:
First Banking Company of Southeast Georgia
40 North Main Street
P. O. Box 878
Statesboro, Georgia 30458
Attn: Chairman, Compensation Committee
(ii) If to the Employee, to him at:
James Eli Hodges
106 Dumbarton Drive
Statesboro, Georgia 30458
13. ASSIGNMENT. Neither party hereto may assign or delegate this Agreement or
any of its rights and obligations hereunder without the written consent of the
other party hereto.
14. WAIVER. A waiver by the Employer of any breach of this Agreement by the
Employee shall not be effective unless in writing, and no waiver shall operate
or be construed as a waiver of the same or another breach on a subsequent
occasion.
15. ATTORNEYS' FEES. In the event of litigation between the parties concerning
this Agreement, the party prevailing in such litigation shall be entitled to
receive from the other party all reasonable costs and expenses, including
without limitation attorneys' fees, incurred by the prevailing party in
connection with such litigation, and the other party shall pay such costs and
expenses to the prevailing party promptly upon demand by the prevailing party.
16. APPLICABLE LAW. This Agreement shall be construed and enforced under and
in accordance with the laws of the state of Georgia.
17. ENTIRE AGREEMENT. This Agreement embodies the entire and final agreement
of the parties on the subject matter stated in the Agreement. No amendment or
modification of this Agreement shall be valid or binding upon the Employer or
the
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<PAGE> 8
Employee unless made in writing and signed by both parties. All prior
understandings and agreements relating to the subject matter of this Agreement
are hereby expressly terminated.
18. RIGHTS OF THIRD PARTIES. Nothing herein expressed is intended to or shall
be construed to confer upon or give to any person, firm or other entity, other
than the parties hereto and their permitted assigns, any rights or remedies
under or by reason of this Agreement.
19. SURVIVAL. The obligations of the Employee pursuant to Sections 5, 6, 7, 8
and 9 shall survive the termination of the employment of the Employee
hereunder.
20. JOINT AND SEVERAL. The obligation of the Bank and the Company to Employee
hereunder shall be joint and several.
IN WITNESS WHEREOF, the Employer and the Employee have executed and
delivered this Agreement as of the date first shown above.
THE EMPLOYER:
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
By: /s/ C. Arthur Howard
----------------------------------------------
Name: C. Arthur Howard
----------------------------------------------
Title: Director & Chairman of Compensation Committee
----------------------------------------------
FIRST BULLOCH BANK & TRUST COMPANY
By: /s/ C. Arthur Howard
----------------------------------------------
Name: C. Arthur Howard
----------------------------------------------
Title: Director
----------------------------------------------
THE EMPLOYEE:
/s/ James Eli Hodges
--------------------------------------------------------
JAMES ELI HODGES
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<PAGE> 9
Exhibit A
Initial Duties of the Employee
The initial duties of the Employee shall include, in addition to any other
duties assigned the Employee by the Board of Directors of the Employer or its
designee, the following:
- - Foster a corporate culture that promotes ethical practices, encourages
individual integrity, fulfills social responsibility, and is conducive to
attracting, retaining and motivating a diverse group of top-quality
employees at all levels.
- - Work with the Board of Directors to develop a long-term strategy for the
company that creates shareholder value.
- - Develop and recommend to the Board annual business plans and budgets that
support the company's long-term strategy.
- - Manage the day-to-day business affairs of the company appropriately.
- - Use best efforts to achieve the company's financial and operating goals
and objectives.
- - Improve the quality and value of the products and services provided by the
company.
- - Insure that the company maintains a satisfactory competitive position
within its industry.
- - Develop an effective management team and an active plan for its
development and succession, and make recommendations to the Board
regarding hiring, firing and compensation.
- - Implement major corporate policies.
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<PAGE> 1
EXHIBIT B
(Deloitte & Touche LLP Letterhead)
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
First Banking Company of Southeast Georgia:
We have audited the accompanying consolidated balance sheets of First
Banking Company of Southeast Georgia and its subsidiaries (the "Company") as of
December 31, 1995 and 1994, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of the Company at December 31,
1995 and 1994, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
Deloitte & Touche LLP
January 19, 1996
(February 21, 1996 as to Note 15)
<PAGE> 2
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
ASSETS
Cash and Due from Banks (Note 12) $12,171,152 $ 12,018,917
Interest Bearing Deposits in Other Banks 12,291,546 13,037,948
Federal Funds Sold 1,700,000 5,675,000
Investment Securities:
Available for Sale,at market value (Cost of
$48,908,811 in 1995 and $46,866,494 in 1994)
(Note 2) 49,363,889 45,337,250
Held to Maturity, at cost (Estimated Market Value
of $36,658,184 in 1995 and $17,316,594 in 1994)
(Note 3) 35,778,105 17,284,709
Loans (Notes 4 and 9) 181,879,617 162,787,038
Less: Unearned Interest (24,211) (56,034)
Allowance for Loan Losses (Note 4) (3,344,574) (3,005,297)
------------ ------------
Loans - Net 178,510,832 159,725,707
------------ ------------
Interest Receivable 4,466,769 3,184,935
Premises and Equipment, Net (Note 5) 3,790,879 3,113,763
Other Real Estate 306,500 306,500
Other Assets 1,820,849 2,467,445
------------ ------------
TOTAL ASSETS $300,200,521 $262,152,174
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 33,817,337 $ 31,509,413
Interest Bearing:
NOW Accounts 40,256,829 34,510,533
Money Market Deposit Accounts 32,422,203 35,371,176
Savings 11,273,037 10,469,003
Time Certificates ($100,000 and above) 67,184,574 51,098,806
Other Time 73,322,784 65,438,998
------------ -----------
Total Deposits 258,276,764 228,397,929
Other Borrowed Money (Note 10) 7,234,447 4,629,876
Interest Payable 2,858,869 1,854,757
Other Liabilities 1,004,607 1,012,666
------------ ------------
Total Liabilities 269,374,687 235,895,228
------------ ------------
Commitments and Contingencies (Note 4)
Shareholders' Equity (Note 8):
Common Stock, $1.00 Par Value, 5,000,000
Shares Authorized, 2,661,711 Shares Issued and
Outstanding at December 31, 1995 and
2,661,939 Shares Issued and Outstanding at
December 31, 1994 2,661,711 2,661,939
Additional Paid-in Capital 5,264,825 5,267,734
Retained Earnings 22,598,946 19,336,574
Net Unrealized Gain (Loss) on Investment
Securities Available for Sale 300,352 (1,009,301)
------------ ------------
Total Shareholders' Equity 30,825,834 26,256,946
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $300,200,521 $262,152,174
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
INTEREST INCOME
Loans (Including Fees) $18,530,655 $14,990,146 $13,786,435
Interest Bearing Deposits 755,892 138,028 99,669
Investment Securities:
U.S. Treasury 1,817,279 1,763,505 1,592,455
U.S. Government Agencies 1,670,064 958,609 1,119,203
States and Political Subdivisions 881,278 747,987 687,282
Dividend Income 123,362 50,031
Federal Funds Sold 88,452 264,641 152,519
----------- ----------- -----------
Total Interest Income 23,866,982 18,912,947 17,437,563
----------- ----------- -----------
INTEREST EXPENSE
NOW Accounts 1,059,458 877,337 792,707
Money Market Deposit Accounts 1,176,067 1,063,454 932,578
Savings 356,436 307,878 286,101
Time Certificates($100,000 and above) 3,548,649 2,066,015 1,857,041
Other Time 4,112,853 2,862,364 2,903,366
Other 399,590 165,414 44,003
------------ ----------- -----------
Total Interest Expense 10,653,053 7,342,462 6,815,796
------------ ----------- -----------
NET INTEREST INCOME 13,213,929 11,570,485 10,621,767
PROVISION FOR LOAN LOSSES 560,000 534,573 586,768
------------ ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 12,653,929 11,035,912 10,034,999
------------ ----------- -----------
NON-INTEREST INCOME
Service Charges on Deposit Accounts 1,408,407 1,374,638 1,375,611
Fees for Trust Services 200,236 216,375 170,404
Other 289,657 431,511 481,046
------------ ----------- -----------
Total Non-interest Income 1,898,300 2,022,524 2,027,061
------------ ----------- -----------
NON-INTEREST EXPENSE
Salaries 3,219,036 3,085,317 2,867,875
Other Personnel Expense 1,122,395 1,100,638 1,062,909
Occupancy Expense, Net 591,122 556,366 515,820
Equipment Expense 788,121 752,537 612,649
Other (Note 11) 2,426,302 2,641,386 2,470,907
------------ ----------- -----------
Total Non-interest Expense 8,146,976 8,136,244 7,530,160
------------ ----------- -----------
INCOME BEFORE INCOME TAXES 6,405,253 4,922,192 4,531,900
PROVISION FOR INCOME TAXES (NOTE 6) 1,868,560 1,472,918 1,284,543
------------ ----------- -----------
NET INCOME $ 4,536,693 $ 3,449,274 $ 3,247,357
============ =========== ===========
EARNINGS PER SHARE $ 1.70 $ 1.30 $ 1.22
============ =========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 2,661,795 2,661,939 2,661,939
============ =========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,536,693 $ 3,449,274 $ 3,247,357
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Provision for Depreciation 538,301 511,684 443,309
Provision for Loan Losses 560,000 534,573 586,768
Gain on Sale of Other Assets (1,619)
(Gain) Loss on Sale of Other Real Estate 3,800 (22,643) 19,301
Gain on Sale and Call of Securities (2,723) (3,600)
Gain on Sale of Premises and Equipment (6,070) (2,025)
Net Amortization (Accretion)of Premiums and
Discounts on Securities (153,245) 215,293 336,096
Amortization of Goodwill 37,688 37,688 37,688
Changes in Assets and Liabilities:
(Increase)Decrease in Interest Receivable (1,281,834) (587,833) 207,601
Increase in Other Assets (65,762) (463,229) (184,554)
Increase (Decrease) in Interest Payable 1,004,112 96,239 (253,880)
Increase (Decrease) in Other Liabilities (8,059) 398,670 91,264
---------- ----------- -----------
Net Cash Provided by Operating
Activities 5,161,282 4,167,691 4,527,350
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Interest Bearing Deposits
in Other Banks 746,402 (12,488,984) 499,920
Net (Increase) Decrease in Federal Funds Sold 3,975,000 10,325,000 (6,350,000)
Available For Sale Securities:
Proceeds from Maturity 20,214,637 12,321,825
Purchases (22,420,114) (18,719,750)
Held To Maturity Securities:
Proceeds from Maturity 7,215,196 2,428,661 20,740,509
Purchases (25,389,464) (4,970,941) (18,145,339)
Net Increase in Loans (19,362,722) (11,116,767) (2,405,731)
Purchases of Premises and Equipment (1,218,007) (387,140) (871,238)
Proceeds from Sale of Premises and Equipment 8,660 2,300 300
Proceeds from Sale of Other Assets 1,621
Proceeds from Sales of Other Real Estate 13,796 20,672 37,000
----------- ----------- -----------
Net Cash Used in Investing Activities (36,214,995) (22,585,124) (6,494,579)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 29,878,835 18,684,010 2,717,498
Borrowings from the Federal Home Loan Bank 5,332,000 3,910,553 434,323
Repayment of Other Borrowed Money (2,727,429) (100,000) (100,000)
Purchase and Retirement of Fractional Shares (3,137)
Dividends Paid (1,274,321) (998,227) (798,582)
----------- ----------- -----------
Net Cash Provided by Financing Activities 31,205,948 21,496,336 2,253,239
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 152,235 3,078,903 286,010
CASH AND DUE FROM BANKS, BEGINNING OF YEAR 12,018,917 8,940,014 8,654,004
----------- ----------- -----------
CASH AND DUE FROM BANKS, END OF YEAR $12,171,152 $12,018,917 $ 8,940,014
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 9,648,941 $ 7,246,223 $ 7,069,676
Income Taxes 2,100,244 1,510,662 1,370,317
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Other Real Estate Acquired through Loan Foreclosure 170,096 7,000 365,449
Loans granted to facilitate the Sale of
Other Real Estate 152,500 206,471 184,148
Change in Net Unrealized Gain (Loss) on
Securities Available for Sale 1,309,653 (1,325,341) 316,040
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS'
EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
NET
UNREALIZED
GAIN (LOSS)
ON
INVESTMENT
ADDITIONAL SECURITIES
COMMON PAID-IN RETAINED AVAILABLE
STOCK CAPITAL EARNINGS FOR SALE
<S> <C> <C> <C> <C>
Balance at December 31, 1992 $ 2,661,939 $ 5,267,734 $14,436,752
Net Income 3,247,357
Cash Dividends, $.30 per share (798,582)
Net Unrealized Gain on Investment
Securities Available for Sale $ 316,040
----------- ----------- ---------- -----------
Balance at December 31, 1993 2,661,939 5,267,734 16,885,527 316,040
Net Income 3,449,274
Cash Dividends, $.375 per share (998,227)
Change in Net Unrealized Gain
(Loss)on Investment
Securities Available for Sale (1,325,341)
----------- ----------- ---------- -----------
Balance at December 31, 1994 2,661,939 5,267,734 19,336,574 (1,009,301)
Net Income 4,536,693
Cash Dividends, $.48 per share (1,274,321)
Change in Net Unrealized Gain
(Loss)on Investment
Securities Available for Sale 1,309,653
Purchase and Retirement of
Fractional Shares (Note 8) 228 2,909
----------- ----------- ----------- -----------
Balance at December 31, 1995 $ 2,661,711 $ 5,264,825 $22,598,946 $ 300,352
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting and reporting policies of First Banking Company of Southeast Georgia
(the "Company") conform with generally accepted accounting principles and with
general practice within the banking industry. The following is a summary of
the more significant policies:
CONSOLIDATION
The consolidated financial statements of the Company include the financial
statements of First Bulloch Bank & Trust Company ("Bulloch Bank") and Metter
Banking Company ("Metter Bank") (the "Banks"), wholly owned subsidiaries.
Intracompany balances and transactions have been eliminated in consolidation.
NATURE OF OPERATIONS
The Company's banks have seven banking locations in Bulloch and Candler
counties located in southeast Georgia. The Company's primary source of revenue
is from loans to businesses and individuals located in its market area.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INTEREST RATE RISK
The Company's assets and liabilities are generally monetary in nature, and
interest rates have an impact on the Company's performance. The Company
decreases the effect of interest rates on its performance by striving to match
maturities and interest sensitivity between loans, investment securities,
deposits and other borrowings. However, a significant change in interest rates
could have an effect on the Company's results of operations.
INVESTMENT SECURITIES AVAILABLE FOR SALE
Investments available for sale are carried at market value, and the related
unrealized gain or loss, net of income taxes, is included as a separate
component of shareholders' equity. Gains and losses on sales and calls are
based on the net proceeds and adjusted carrying amounts of the securities
sold or called, using the specific identification method.
INVESTMENT SECURITIES HELD TO MATURITY
Investment securities held to maturity are stated at cost adjusted for
amortization of premiums and accretion of discounts, which are recognized as
adjustments to interest income. The Company has the intent and ability to hold
investment securities to maturity.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level estimated to be adequate
to absorb potential losses in the loan portfolio. Management's estimates of
the adequacy of the allowance is based upon reviews of individual loans, recent
loss experience, the estimated value of any underlying collateral, current
economic conditions, the risk characteristics of the various categories of
loans and other pertinent factors. Loans deemed uncollectible are charged to
the allowance. Provisions for loan losses and recoveries on loans previously
charged off are added to the allowance.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using accelerated and straight line methods over the
estimated useful life of each asset. Significant additions and improvements are
capitalized. Maintenance and repairs are charged to expense.
<PAGE> 7
INTEREST INCOME
Interest income on commercial, real estate and simple interest installment
loans is recognized based upon the principal amount outstanding. The Banks
discontinue accruing interest income on loans when, in the opinion of
management, the interest is not collectible currently.
OTHER REAL ESTATE
Other real estate represents properties acquired through foreclosure and is
carried at the lower of cost or fair market value less estimated costs to sell.
GOODWILL
Goodwill is included in other assets and is being amortized over 25 years. The
Company periodically assesses the recoverability of goodwill based on its
judgments as to the future profitability of its operations.
INCOME TAXES
Provisions for income taxes are based upon amounts reported in the statements
of income (after exclusion of non-taxable income such as interest on state and
municipal securities) and include deferred taxes for temporary differences
between financial statement and tax bases of assets and liabilities using
enacted tax rates for the year in which the temporary differences are expected
to reverse.
STATEMENT OF CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and amounts due from banks.
AMOUNTS PER SHARE
Per share amounts are computed based on the weighted average number of common
shares outstanding during the period.
NEW ACCOUNTING PRONOUCEMENT
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121").
SFAS 121 addresses the issues surrounding the measurement and recognition of
losses when the value of certain assets has been deemed to be permanently
impaired. The Company plans to adopt SFAS 121 in 1996 and believes that there
will be no material effect on its financial statements from adopting SFAS 121.
<PAGE> 8
2.INVESTMENT SECURITIES AVAILABLE FOR SALE
The amortized cost, estimated market value and unrealized gains and losses of
investment securities available for sale are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
U.S. Treasury $22,470,406 $ 141,251 $ 17,109 $22,594,548
U.S. Government Agencies 20,354,252 247,276 13,112 20,588,416
States and Political
Subdivisions 4,802,551 118,582 21,810 4,899,323
Other 1,281,602 1,281,602
----------- ---------- ---------- -----------
Total $48,908,811 $ 507,109 $ 52,031 $49,363,889
=========== ========== ========== ===========
DECEMBER 31, 1994
U.S. Treasury $31,865,052 $ 2,120 $ 836,038 $31,031,134
U.S. Government Agencies 10,070,887 3,946 342,304 9,732,529
States and Political
Subdivisions 3,804,053 6,742 363,710 3,447,085
Other 1,126,502 1,126,502
----------- ---------- ---------- -----------
$46,866,494 $ 12,808 $1,542,052 $45,337,250
=========== ========== ========== ===========
</TABLE>
The amortized cost and estimated market value of these securities at December
31, 1995, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because the borrower may have the right to
call or prepay obligations with or without call or prepayment penalties.
Mortgage-backed securities, which are included above in U. S. Government
Agencies, are included in the year of their final maturity.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET VALUE
<S> <C> <C>
Due in one year or less $11,941,570 $11,950,814
Due after one year through five years 29,311,260 29,688,636
Due after five years through ten years 4,214,426 4,277,972
Due after ten years 3,441,555 3,446,467
----------- -----------
Total $48,908,811 $49,363,889
=========== ===========
</TABLE>
During 1995 and 1993, there were realized gains of $2,723 and $3,600 from total
proceeds from sales and calls of securities of $50,000 and $183,600,
respectively. There were no sales or calls of securities in 1994 and,
therefore, no gains or losses.
Securities with a carrying amount of $31,059,864 at December 31, 1995 are
pledged as collateral for public deposits and trust assets.
3.INVESTMENT SECURITIES HELD TO MATURITY
The amortized cost, estimated market value and unrealized gains and losses of
investment securities held to maturity are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
DECEMBER 31, 1995
U.S. Treasury $ 6,985,104 $ 58,656 $ 7,043,760
U.S. Government Agencies 17,221,506 150,657 $ 2,766 17,369,397
States and Political
Subdivisions 11,571,495 675,674 2,142 12,245,027
----------- ---------- --------- -----------
Total $35,778,105 $ 884,987 $ 4,908 $36,658,184
=========== ========== ========= ===========
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
DECEMBER 31, 1994
<S> <C> <C> <C> <C>
U.S. Treasury $ 3,969,386 $ 2,801 $ 29,677 $ 3,942,510
U.S. Government Agencies 3,163,026 29,954 476 3,192,504
States and Political
Subdivisions 10,152,297 194,361 165,078 10,181,580
----------- ---------- -------- -----------
Total $17,284,709 $ 227,116 $ 195,231 $17,316,594
=========== ========== ========= ===========
</TABLE>
The amortized cost and estimated market value of these securities at December
31, 1995, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because the borrower may have the right to
call or prepay obligations with or without call or prepayment penalties.
Mortgage-backed securities, which are included above in U. S. Government
Agencies, are included in the year of their final maturity.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET VALUE
<S> <C> <C>
Due in one year or less $21,674,276 $21,765,915
Due after one year through five years 7,528,074 7,856,629
Due after five years through ten years 4,248,166 4,557,623
Due after ten years 2,327,589 2,478,017
----------- -----------
Total $35,778,105 $36,658,184
=========== ===========
</TABLE>
Securities with a carrying amount of $29,540,435 at December 31, 1995 are
pledged as collateral for public deposits and trust assets.
4. LOANS
Loans are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
<S> <C> <C>
Real Estate:
Construction $ 5,234,638 $ 2,515,933
Other 120,820,728 88,492,433
Commercial and Agricultural 41,280,234 55,096,116
Installment and Other Consumer 14,544,017 16,682,556
------------ ------------
Total $181,879,617 $162,787,038
============ ============
</TABLE>
The Banks' loans are concentrated with customers in the Banks' market area of
southeast Georgia, primarily in Bulloch, Candler and contiguous counties.
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Balance, Beginning of Year $3,005,297 $2,661,759 $2,600,217
Provision for Loan Losses 560,000 534,573 586,768
Loans Charged Off (272,752) (297,593) (614,253)
Recoveries 52,029 106,558 89,027
---------- ---------- ----------
Balance, End of Year $3,344,574 $3,005,297 $2,661,759
========== ========== ==========
</TABLE>
Nonperforming loans were $1,329,701 at December 31, 1995 and $1,355,939 at
December 31, 1994. These loans included those on a non-accrual status of
$403,293 and $181,572, accruing loans contractually past due at least 90 days
of $175,858 and $134,638, and restructured loans of $750,550 and $1,039,729 at
December 31, 1995 and 1994, respectively. Interest income that would have been
recorded on these nonperforming loans in accordance with their original terms
was $93,021 in 1995 and $91,193 in 1994, compared with amounts received of
$52,879 and $53,961, respectively.
<PAGE> 10
The Company adopted Statement of Financial Accounting Standards Nos. 114 and
118 (the "Statements") as of January 1, 1995. The Company considers a loan to
be impaired when it is probable that it will be unable to collect all amounts
due according to the terms of the loan agreement. The Company measures
impairment of a loan on a loan by loan basis for real estate, commercial and
agricultural loans. Installment and other consumer loans are considered
smaller balance, homogeneous loans. Amounts of impaired loans that are not
probable of collection are charged off immediately. The Company had impaired
loans of $181,572 and $403,293 as of January 1, 1995 and December 31, 1995,
respectively. The average amount of impaired loans during 1995 was $229,000. No
specific allowance was necessary for such loans under the provisions of such
Statements. The interest income recognized on such loans was $17,066 in 1995 as
compared to $2,635 of interest received on a cash basis.
The Banks are parties to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
lines of credit. The Banks' exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments
to extend credit and standby lines of credit is represented by the contractual
amount of those instruments. The Banks use the same credit policies in making
these commitments as they do for on- balance-sheet instruments. The Banks
expect no loss from loan commitments of $21,646,692 and $12,762,310 and standby
lines of credit of $472,450 and $796,145 at December 31, 1995 and
1994,respectively. The loan commitments and standby lines of credit include
$12,734,289 and $472,450, respectively, of fixed rate commitments at December
31, 1995. The Banks evaluate each customer's credit worthiness on a case-
by-case basis. The amount of collateral obtained for these commitments, if
deemed necessary by the Banks, is based on management's credit evaluation of
the customer. Collateral held varies but may include inventory, equipment, and
real estate.
5. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1994
<S> <C> <C>
Land $ 645,828 $ 645,828
Buildings 2,953,282 2,682,154
Leasehold Improvements 92,133 92,133
Furniture and Equipment 5,091,182 4,449,084
---------- ----------
Total 8,782,425 7,869,199
Less: Accumulated Depreciation 4,991,546 4,755,436
---------- ----------
Premises and Equipment, Net $3,790,879 $3,113,763
========== ==========
</TABLE>
6. INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Previously, the Company had accounted for its income tax expense in accordance
with Accounting Principles Board Opinion No. 11. SFAS No. 109 requires
temporary differences between financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
temporary differences are expected to reverse. The cumulative effect of the
adoption of this pronouncement on the Company's financial statements was to
increase net income by approximately $232,000 ($0.14 per share) for the year
ended December 31, 1993. This cumulative effect was offset by the reduction in
net income from the adoption of SFAS No. 106, as discussed in Note 7.
<PAGE> 11
The provision for income taxes for the years ended December 31, 1995, 1994 and
1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Current $2,117,560 $1,480,918 $1,300,924
Deferred (249,000) (8,000) (16,381)
--------- ----------- ----------
Total $1,868,560 $1,472,918 $1,284,543
========== ========== ==========
</TABLE>
At December 31, 1995 and 1994, the significant components of the Company's net
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Deferred Tax Assets:
Allowance for Possible Loan Losses $1,009,000 $ 850,000
State Tax Carryforwards 64,000 147,000
Other Postretirement Benefits 131,000 131,000
Other Liabilities 39,000 38,000
Unrealized Loss on Investment Securities
Available for Sale 516,000
---------- ----------
Total Deferred Tax Assets 1,243,000 1,682,000
---------- ----------
Deferred Tax Liabilities:
Accumulated Depreciation (77,000) (76,000)
Other Assets (83,000) (166,000)
Unrealized Gain on Investment Securities
Available for Sale (155,000)
---------- ----------
Total Deferred Tax Liabilities (315,000) (242,000)
---------- ----------
Net Deferred Tax Asset before Valuation Allowance 928,000 1,440,000
Valuation Allowance (90,000)
---------- ----------
Net Deferred Tax Asset $ 928,000 $1,350,000
========= ==========
</TABLE>
The provision for income taxes is less than that computed by applying the
federal statutory rate of 34% to pretax income as indicated by following:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Income Tax Computed at
Statutory Rate $2,177,786 $1,673,545 $1,540,846
Increases (Decreases) Resulting from:
Tax Exempt Interest (370,412) (286,546) (281,335)
Other 61,186 85,919 25,032
---------- ---------- ----------
Income Tax Expense $1,868,560 $1,472,918 $1,284,543
========== ========== ==========
</TABLE>
7. BENEFIT PLANS
The Company adopted SFAS 106, "Accounting for Postretirement Benefits,"
effective January 1, 1993. Prior to January 1, 1993, the Company had accounted
for postretirement benefits on the pay-as-you-go basis. The Company has
limited its coverage of postretirement benefits to primarily currently retired
individuals. The Company elected to immediately recognize the accumulated
liability of approximately $374,000, and, accordingly, the cumulative effect of
the change in accounting principle of $232,000, net of income taxes, has been
recorded as a reduction in income and offset against the increase in net income
which resulted from the change in accounting for income taxes as discussed in
Note 6.
At December 31, 1995 and 1994, the Company had a recorded liability of
approximately $344,208 for other postretirement benefits and recognized an
expense during each of the years ended December 31, 1995 and 1994 of
approximately $23,600 and $20,000,respectively. A discount of 7.5% and an
annual medical insurance cost trend rate of 12% reduced by 1% each year until
6.5% were used in calculating the other post retirement benefit obligation. If
the annual medical insurance cost trend rate assumption were increased by 1%,
the liability would be increased by 8% at December 31,1995.
<PAGE> 12
The Company has a profit sharing plan [401(k) plan] and a target benefit plan,
each of which covers substantially all employees of the Banks. Employees may
contribute up to 10% of their compensation to the profit-sharing plan, up to a
maximum amount of $9,240 in 1995. The Banks contribute between 50% and 187.5%
of the participant's initial 4% contribution. The Banks may make an additional
contribution each year under certain circumstances.
Under the terms of the target benefit plan, an employee's target benefit will
be based on service of up to twenty years subsequent to January 1, 1986 as to
employees of the Bulloch Bank and January 1, 1989 as to employees of the Metter
Bank. For each year of service performed, the Banks contribute percentages of
the participant's compensation as set forth in the plan.
A summary of profit-sharing and target benefit expenses follows:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Profit-Sharing Plan $288,284 $338,901 $313,292
Target Benefit Plan 134,331 129,203 143,586
-------- -------- --------
Total $422,615 $468,104 $456,878
======== ======== ========
</TABLE>
8. SHAREHOLDERS' EQUITY
Effective May 15, 1995, the Company declared an 8 for 5 stock split of its
common stock effected in the form of a 60% stock dividend. All references to
share and per share amounts have been retroactively adjusted to reflect the
split. Additional paid-in capital has been charged and common stock has been
credited retroactively with $998,227 to reflect the stock split.
The primary source of funds for payment of dividends by the Company to its
shareholders is dividends received from its banking subsidiaries. The Banks
may pay dividends to the Company in any year in an amount up to 50% of the
previous year's net income, or $2,337,396 in 1996, without the approval of the
Georgia Department of Banking and Finance.
The Banks are also required to maintain minimum amounts of capital to total
"risk weighted" assets, as defined by the banking regulators. At December 31,
1995 the Banks were required to have minimum Tier 1 and Total Capital ratios of
4% and 8%, respectively, and a leverage ratio (Tier 1 Capital to total assets)
of at least 3%. The Banks' actual ratios at December 31, 1995 were as follows:
<TABLE>
<CAPTION>
Bulloch Bank Metter Bank
------------ -----------
<S> <C> <C>
Tier 1 Capital ratio 17.9% 15.1%
Total Capital ratio 19.7 17.1
Leverage ratio 10.3 9.4
</TABLE>
9. RELATED PARTY TRANSACTIONS
Certain directors, executive officers and principal shareholders of the Company
and the Banks, including their associates and companies in which they are
principal owners, were loan customers of the Banks during 1995 and 1994. Such
loans are made in the ordinary course of business at the Banks' normal credit
terms, including interest rates and collateralization, and do not represent
more than a normal risk of collection. An analysis of the activity in loans to
executive officers, directors, and principal shareholders is as follows:
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Balance, Beginning of Year $ 8,505,094 $10,575,153
Amounts Advanced 25,208,324 15,874,886
Repayments (25,745,432) (17,944,945)
----------- -----------
Balance, End of Year $ 7,967,986 $ 8,505,094
=========== ===========
</TABLE>
<PAGE> 13
10. OTHER BORROWED MONEY
Other borrowed money at December 31, 1995 and 1994 consists of $7,234,447
and $4,629,876, respectively, advanced from the Federal Home Loan
Bank to the Banks. Maturities of these advances are $1,600,092 in 1996,
$791,923 in 1997, $775,789 in 1998, $521,928 in 1999, $600,487 in 2000,
and $2,944,228 in 2001 and beyond. Average interest rates on such
advances were 7.02% in 1995 and 6.10% in 1994.
11. OTHER EXPENSE
Items comprising other expense for the years ended December 31, 1995, 1994
and 1993 follow:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Office Supplies $ 309,247 $ 254,169 $ 254,327
Outside Services 349,451 323,883 296,103
Computer Services 50,965 77,005 57,173
Advertising and Public Relations 444,228 369,265 347,919
Directors' Fees 152,300 158,100 154,600
Postage 178,269 167,356 177,239
FDIC Assessment 257,578 469,600 454,916
Other 684,264 822,008 728,630
---------- ---------- ----------
Total $2,426,302 $2,641,386 $2,470,907
========== ========== ==========
</TABLE>
12. CASH RESTRICTIONS
The Federal Reserve System requires that a certain level of average cash
be maintained. At December 31, 1995 and 1994, such required balances were
$1,782,000 and $1,108,000, respectively.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No.
107, "Disclosures about Fair Value of Financial Instruments." The
estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies.
However, considerable judgment is necessarily required to interpret market
data to develop the estimates of fair value. Accordingly, the estimates
presented herein are not necessarily indicative of the amounts the Company
could realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts.
<TABLE>
<CAPTION>
1995 1994
----------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and Due from Banks $ 12,171 $ 12,171 $ 12,019 $ 12,019
Interest Bearing Deposits
in Other Banks 12,292 12,292 13,038 13,038
Federal Funds Sold 1,700 1,700 5,675 5,675
Investment Securities 85,142 86,022 62,622 62,654
Loans 178,511 175,992 159,726 156,165
Liabilities:
Deposits 258,277 260,350 228,398 229,471
Other Borrowed Money 7,234 7,741 4,630 4,663
Off-Balance-Sheet Instruments:
Commitments to
Extend Credit 21,647 12,762
Standby Letters of Credit 472 796
</TABLE>
<PAGE> 14
The carrying amounts of cash and due from banks, interest bearing deposits in
other banks, and federal funds sold are a reasonable estimate of their fair
value due to the short-term nature of these financial instruments. The fair
value of investment securities is based on quoted market prices and dealer
quotes. The fair value of loans, deposits, and other borrowed money is
estimated by discounting the future cash flows using the Banks' current
interest rates for such financial instruments. No adjustment was made to the
entry-value interest rates for changes in credit of performing loans for which
there are no known credit concerns. Management segregates loans in appropriate
risk categories. Management believes that the risk factor embedded in the
entry-value interest rates along with the general reserves applicable to the
performing loan portfolio for which there are no known credit concerns result
in a fair valuation of such loans on an entry-value basis. The fair value of
nonperforming loans with a recorded book value of $1,329,701 at December 31,
1995 and $1,355,939 at December 31, 1994 has been estimated to be the recorded
book value based on the fair value of the underlying collateral.
As required by SFAS 107, demand deposits are shown at their face value. No
additional value has been ascribed to core deposits, which generally bear a low
rate of or no interest and do not fluctuate in response to changes in
interest rates.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1995. Although management is not
aware of any factors that would significantly affect the estimated fair value
amounts, such amounts have not been comprehensively revalued for purposes of
these financial statements since that date and, therefore, current estimates of
fair value may differ significantly from the amounts presented herein.
The fair value of commitments and standby letters of credit is estimated using
the fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the present creditworthiness
of the counterparties.
14. NEW LEGISLATION
On January 25, 1996, the State of Georgia legislature passed legislation
allowing a bank to establish three branches during the period from July 1,
1996 through June 30, 1998 in counties in Georgia in which the bank
presently does not have a branch. If the bank is part of a bank holding
company, all holding company affiliates will be treated as one, and the
holding company group will be limited to opening three de novo branches in
three new counties. Effective July 1, 1998, the legislation will allow a
bank to branch anywhere in Georgia, subject to regulatory approval. The
bill must be signed by the Governor of Georgia before the legislation will
become effective. This legislation is not expected to have an adverse
effect on the results of operations of the Company.
15. SUBSEQUENT EVENT
On February 21, 1996, the Company entered into a nonbinding letter of
intent to merge with FNB Bancshares, Inc., parent company of First National
Bank of Effingham ("FNBE"), Springfield, Georgia. The Company will be the
surviving corporation resulting from the proposed merger, and following the
merger, FNBE will be operated as a separate subsidiary of the Company. As of
December 31, 1995, FNBE recorded total assets of $49,711,000 and total capital
of $3,401,000. The combination of the two organizations is subject to several
conditions, including the execution of a definitive agreement, normal due
diligence, approval of FNB Bancshares' shareholders, and regulatory approval.
The transaction is expected to be consummated during the third quarter of 1996.
<PAGE> 15
16. CONDENSED FINANCIAL STATEMENTS OF FIRST BANKING (PARENT ONLY)
The condensed financial statements of First Banking (parent only) are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995 1994
<S> <C> <C>
CONDENSED BALANCE SHEETS
ASSETS
Cash and Due from Banks $ 18,548 $ 4,812
Investment in Subsidiaries 30,898,867 26,309,847
Other Assets 5,417 22,567
----------- -----------
Total Assets $30,922,832 $26,337,226
=========== ===========
LIABILITIES
Other Liabilities $ 96,998 $ 80,280
----------- -----------
Total Liabilities 96,998 80,280
----------- -----------
SHAREHOLDERS' EQUITY
Common Stock 2,661,711 2,661,939
Additional Paid-in Capital 5,264,825 5,267,734
Retained Earnings 22,598,946 19,336,574
Net Unrealized Gain (Loss) on Investment Securities
Available for Sale 300,352 (1,009,301)
----------- -----------
Total Shareholders' Equity 30,825,834 26,256,946
----------- -----------
Total Liabilities and
Shareholders' Equity $30,922,832 $26,337,226
=========== ===========
</TABLE>
CONDENSED STATEMENTS OF INCOME
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Dividends from Subsidiaries $1,357,739 $1,134,377 $ 969,182
Fees from Subsidiaries 436,116 381,742 373,278
---------- ---------- ----------
Total Income 1,793,855 1,516,119 1,342,460
General and Administrative Expenses 625,016 625,748 440,248
---------- ---------- ----------
Income Before Income Taxes and Equity in
Undistributed Income of Subsidiaries 1,168,839 890,371 902,212
Income Tax Benefit 50,800 67,000 7,600
---------- ---------- ----------
Income Before Equity in Undistributed
Income of Subsidiaries 1,219,639 957,371 909,812
Equity in Undistributed Income of
Subsidiaries 3,317,054 2,491,903 2,337,545
---------- ---------- ----------
Net Income $4,536,693 $3,449,274 $3,247,357
========== ========== ==========
</TABLE>
<PAGE> 16
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 4,536,693 $ 3,449,274 $ 3,247,357
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities:
Amortization of Goodwill 37,688 37,688 37,688
Earnings of Subsidiaries (4,674,794) (3,626,279) (3,306,727)
Changes in Assets and Liabilities:
Decrease in Other Assets 17,150 82,600 39,008
Increase(Decrease) in Other
Liabilities 16,718 17,474 (100,128)
----------- ----------- -----------
Net Cash Used by Operating Activities (66,545) (39,243) (82,802)
----------- ----------- -----------
Cash Flows From Investing Activities -
Dividends Received from Subsidiaries 1,357,739 1,134,377 969,181
----------- ----------- -----------
Cash Flows From Financing Activities:
Repayment of Note Payable (100,000) (100,000)
Purchase and Retirement of
Fractional Shares (3,137)
Dividends Paid (1,274,321) (998,227) (798,582)
----------- ----------- -----------
Net Cash Used by Financing Activities (1,277,458) (1,098,227) (898,582)
----------- ----------- -----------
Increase(Decrease)in Cash and
Due From Banks 13,736 (3,093) (12,203)
Cash and Due From Banks,
Beginning of Year 4,812 7,905 20,108
----------- ----------- -----------
Cash and Due From Banks, End of Year $ 18,548 $ 4,812 $ 7,905
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid (Received) During the Year for:
Interest $ 1,617 $ 7,700
Income Taxes $ (67,950) (29,329) (16,135)
</TABLE>
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years ended December 31, 1995 and 1994 is
summarized as follows (thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
1995
<S> <C> <C> <C> <C>
Interest Income $5,562 $5,833 $6,127 $6,345
Interest Expense 2,292 2,564 2,807 2,990
------ ------ ------ ------
Net Interest Income 3,270 3,269 3,320 3,355
Provision for Loan Losses 153 160 162 85
------ ------ ------ ------
Net Interest Income after
Provision for Loan Losses 3,117 3,109 3,158 3,270
Non-Interest Income 457 501 458 482
Non-Interest Expense 1,998 2,056 1,939 2,154
------ ------ ------ ------
Income Before Taxes 1,576 1,554 1,677 1,598
Provision for Income Taxes 485 472 514 397
------ ------ ------ ------
Net Income $1,091 $1,082 $1,163 $1,201
====== ====== ====== ======
Earnings Per Share $ 0.41 $ 0.41 $ 0.43 $ 0.45
====== ====== ====== ======
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
1994
<S> <C> <C> <C> <C>
Interest Income $4,273 $4,632 $4,857 $5,151
Interest Expense 1,721 1,787 1,822 2,012
------ ------ ------ ------
Net Interest Income 2,552 2,845 3,035 3,139
Provision for Loan Losses 170 170 170 25
------ ------ ------ ------
Net Interest Income after
Provision for Loan Losses 2,382 2,675 2,865 3,114
Non-Interest Income 474 523 492 533
Non-Interest Expense 1,896 2,008 2,100 2,132
------ ------ ------ ------
Income Before Taxes 960 1,190 1,257 1,515
Provision for Income Taxes 272 346 367 488
------ ------ ------ ------
Net Income $ 688 $ 844 $ 890 $1,027
====== ====== ====== ======
Earnings Per Share $ 0.26 $ 0.32 $ 0.33 $ 0.39
====== ====== ====== ======
</TABLE>
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Interest Income $ 23,866,982 $ 18,912,947 $ 17,437,563 $ 18,921,928 $ 21,307,828
Other Income 1,898,300 2,022,524 2,027,061 1,917,430 1,835,023
------------ ------------ ------------ ------------ ------------
Total 25,765,282 20,935,471 19,464,624 20,839,358 23,142,851
------------ ------------ ------------ ------------ ------------
Interest Expense 10,653,053 7,342,462 6,815,796 8,624,088 11,736,340
Provision for
Loan Losses 560,000 534,573 586,768 820,030 1,113,850
Provision for
Income Taxes 1,868,560 1,472,918 1,284,543 1,163,155 931,034
Other Expense 8,146,976 8,136,244 7,530,160 7,229,921 6,817,091
------------ ------------ ------------ ------------ ------------
Total 21,228,589 17,486,197 16,217,267 17,837,194 20,598,315
------------ ------------ ------------ ------------ ------------
Net Income $ 4,536,693 $ 3,449,274 $ 3,247,357 $ 3,002,164 $ 2,544,536
============ ============ ============ ============ ============
Earnings per
Share $ 1.70 $ 1.30 $ 1.22 $ 1.13 $ 0.96
============ ============ ============ ============ ============
Cash Dividends:
Declared $ 1,274,321 $ 998,227 $ 798,582 $ 565,661 $ 499,114
Per Share $ .48 $ .375 $ .30 $ .21 $ .19
Book Value at Year
End-Per Share $ 11.58 $ 9.86 $ 9.44 $ 8.40 $ 7.49
Weighted Average Shares
Outstanding 2,661,795 2,661,939 2,661,939 2,661,939 2,661,939
Total Assets $300,200,521 $262,152,174 $238,199,804 $232,382,976 $230,909,536
Other Borrowed
Money $ 7,234,447 $ 4,629,876 $ 819,323 $ 485,000 $ 300,000
</TABLE>
The book value per share, cash dividends, and average shares outstanding have
been restated to reflect the 2-for-1 stock split effected in the form of a 100
% stock dividend effective May 7, 1992 and to reflect the 8-for-5 stock split
effected in the form of a 60% stock dividend effective May 15, 1995.
<PAGE> 18
The common stock of First Banking Company is traded on the Nasdaq Stock Market
("Nasdaq") under the symbol FBCG. At December 31, 1995 First Banking Company
had 840 shareholders of record. The following table sets forth on a per share
basis the high and low sale prices of the Company's common stock and the cash
dividends paid by the Company on a quarterly basis for 1994 and 1995, adjusted
for the 60% stock dividend paid in May 1995.
<TABLE>
<CAPTION>
1994 HIGH LOW DIVIDEND
<S> <C> <C> <C>
First Quarter $ 11.25 $ 10.00 $0.09
Second Quarter 11.88 10.31 0.09
Third Quarter 12.50 10.94 0.09
Fourth Quarter 12.81 11.25 0.09
1995
First Quarter $ 13.13 $ 11.56 $0.12
Second Quarter 18.50 13.13 0.12
Third Quarter 19.50 16.50 0.12
Fourth Quarter 20.75 18.00 0.12
</TABLE>
<PAGE> 19
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ORGANIZATION
First Banking Company of Southeast Georgia (the "Company") owns all of the
outstanding stock in First Bulloch Bank & Trust Company and Metter Banking
Company("the Banks"). All of the operations of the Company are conducted by
the Banks. Management's discussion and analysis, which follows, relates
primarily to the Banks.
CAPITAL RESOURCES
The Company's ratio of shareholders' equity to total assets was 10.3% at
December 31, 1995 and 10.0% at December 31, 1994. The Banks are required to
maintain minimum amounts of capital to total "risk weighted" assets, as defined
by the banking regulators. At December 31, 1995, the Banks were required to
have minimum Tier 1 and Total Capital ratios of 4% and 8%, respectively. At
that date each of the Banks' actual Tier 1 and Total Capital ratios exceeded
15.1% and 17.1%, respectively. Additionally, the Banks are required to
maintain a leverage ratio of at least 3%. At December 31, 1995, each Bank's
leverage ratio exceeded 9.4%. These ratios qualify each bank for the
"well-capitalized" classification as defined by the banking regulators. While
management believes that the current level of capital is sufficient for current
and foreseeable needs of the Company and the Banks, capital needs are
continually evaluated by management.
LIQUIDITY
The percentage of net loans to deposits was 69.1% at December 31, 1995 and
69.9% at December 31, 1994. At December 31, 1995, the Banks held $26,162,698 in
cash and cash equivalents as compared to $30,731,865 at December 31, 1994. The
Banks' liquidity policies require a minimum ratio of 20.0% of cash and certain
investments to net withdrawable deposits and short-term maturities of other
borrowed money. At December 31, 1995, each Bank's liquidity ratio exceeded
23.0%. Management considers the Company and the Banks' liquidity to be
adequate to repay deposits and other obligations, to meet expected loan
demands, and to pay cash dividends.
Operating activities provided cash to the Company of $5,161,282 and $4,167,691
in 1995 and 1994, respectively. Investing activities, which primarily consists
of granting loans to customers and purchasing investment securities, used cash
of $36,214,995 and $22,585,124 in 1995 and 1994, respectively. The Banks
purchased $1,218,007 and $387,140 of premises and equipment in 1995 and 1994,
respectively. Cash provided by financing activities was $31,205,948 and
$21,496,336 in 1995 and 1994, respectively. Financing activities consist
primarily of accepting deposits from customers, the payment of dividends to
shareholders, and occassional strategic borrowing from the Federal Home Loan
Bank. Dividend payments were $1,274,321 in 1995 and $998,227 in 1994.
Effective May 15, 1995, the Company declared an eight-for-five split of its
common stock effected in the form of a 60% stock dividend. All references to
share and per share amounts have been retroactively adjusted to reflect the
split.
FINANCIAL CONDITION
Total assets increased $38,048,347 (14.5%) at December 31, 1995 from December
31, 1994 and increased $23,952,370 (10.2%) at December 31, 1994 from December
31, 1993. The 1995 growth was reflected primarily in the increase in
investment securities and loans and resulted from an increase in total deposits
of $29,878,835 and in other borrowed money of $2,604,571 and from net income of
$4,536,693 less dividends paid of $1,274,321. The 1994 increase was reflected
primarily in the increase in investment securities and loans and resulted from
an increase in total deposits of $18,684,010 and in other borrowed money of
$3,810,553 at December 31, 1994 from December 31, 1993 and from net income of
$3,449,274 less dividends paid of $998,277. A detailed discussion of the major
components of the changes follows.
INVESTMENT SECURITIES. The Company has classified its investment securities as
either available for sale or held to maturity depending upon whether the
Company has the intent and ability to hold investment securities to maturity.
At December 31, 1995 and 1994, $49,363,889 and $45,337,250, respectively, of
investment securities were classified as
<PAGE> 20
available for sale. A net unrealized gain of $300,352 at December 31, 1995 and
a net unrealized loss of $1,009,301 at December 31, 1994 were included in
shareholders' equity related to available for sale securities. There were no
realized losses from the sale or call of investment securities in 1995 and
1994. Gross unrealized losses for all investment securities at December 31,
1995 were $56,939. Such losses are not expected to have any adverse impact on
future operations of the Company.
At December 31, 1995 investment securities had maturities and weighted average
yields as follows:
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------ ----------------
Maturing: Amount Yield Amount Yield
- --------- ------ ----- ------ -----
<S> <C> <C> <C> <C>
$ 11,950,814 5.19% $21,674,276 6.55%
Within one year
After one but within
five years 29,688,636 5.34 7,528,074 8.42
After five but within
ten years 4,277,972 6.24 4,248,166 8.96
After ten years 3,446,467 7.06 2,327,589 8.59
</TABLE>
LOANS. Loans net of unearned interest increased $19,124,102 or 11.8% in 1995
as compared to 1994 and increased $11,125,203 or 7.3% in 1994 as compared to
1993. These increases were the result of a continued increase in loan demand.
The following table sets forth the maturities and sensitivities of loans to
changes in interest rates.
<TABLE>
<CAPTION>
Due in Due After One Due After
Loan Maturity: One Year Through Five Years Five Years Total
- -------------- -------- ------------------ ---------- -----
<S> <C> <C> <C> <C>
Commercial, Financial,
Agricultural $24,105,712 $ 9,307,178 $ 7,867,344 $ 41,280,234
Real Estate 55,947,565 40,682,747 29,425,054 126,055,366
Installment and other
Consumer 6,278,190 7,996,477 269,350 14,544,017
----------- ----------- ----------- ------------
Total $86,331,467 $57,986,402 $37,561,748 $181,879,617
=========== =========== =========== ============
Rate Sensitivity:
- -----------------
Fixed rate loans $59,478,069 $36,520,736 $10,890,080 $106,888,885
Variable rate loans 26,853,398 21,465,666 26,671,668 74,990,732
</TABLE>
The risks associated with granting loans at fixed rates is that the deposits
funding such loans may reprice at higher rates prior to the loan's maturity.
The Company mitigates such risk by managing the maturity match of interest
bearing assets and liabilities. See "Interest Rate Sensitivity."
DEPOSITS. Average deposits increased $25,298,791 in 1995 and $11,130,016 in
1994. These increases are the result of increases in interest rates paid on
deposits. At December 31, 1995 and 1994, time deposits $100,000 and above
comprised 26.0% and 22.4%, respectively, of total deposits and 22.4% and 19.5%,
respectively, of total assets. Peer average of time deposits $100,000 and
above to total assets was 7.9% at December 31, 1994. At December 31, 1995 and
1994, 41.5% and 32.7%, respectively, of total time deposits over $100,000 were
deposits of state and local governmental entities. Such deposits are acquired
from, and rates paid are based on, competitive bids with other local commercial
banks in the market area. State banking regulations require such deposits in
excess of the FDIC coverage of $100,000 be collateralized by pledging
securities in the investment portfolio. Because of the volatility of such
deposits, securities are generally purchased to match maturities of the
corresponding time deposit.
OTHER BORROWED MONEY. Other borrowed money increased $2,604,571 from December
31, 1994 to December 31, 1995 and increased $3,810,553 from December 31, 1993
to December 31, 1994. Funds are strategically borrowed from the Federal Home
Loan Bank as a means of
<PAGE> 21
providing funding for long-term credit products to the Company's loan
customers. Maturities and principal repayments of other borrowed money are
structured to generally match those of the loans funded by these borrowings.
INTEREST RATE SENSITIVITY
The objective of interest rate sensitivity management is to minimize the effect
of interest rate changes on net interest margin. Maintaining a balanced
interest rate sensitivity position by adjusting the asset and liability mix so
that generally equal volumes of assets and liabilities reprice each period is
one way of achieving this objective. Profits, however, are not always
maximized by this balance and the Company selectively mismatches asset and
liability repricing to take advantage of short-term interest rate movements.
The Banks' historical performance in various economic climates assists
management in making long-term asset/liability decisions for the Banks.
The table below depicts the Company's interest risk at December 31, 1995. The
time period indicated in the table represents the shorter of the time remaining
before the asset or liability either matures or is subject to repricing. NOW,
money market, and savings accounts have been included in "less than three
months." The analysis results in a negative one year gap of $22,210,000
(excess of interest bearing liabilities over interest earning assets repricing
within one year). However, the Banks' experience has indicated that NOW, money
market, and savings deposits of $83,952,065 are not interest rate sensitive.
INTEREST RATE SENSITIVITY ANALYSIS
December 31, 1995 (Dollars in thousands)
<TABLE>
<CAPTION>
Term to Repricing or Maturity
-----------------------------------------------------------------
Over Three Over One Over Five
Less than Months through Year through Years and
Three Months One Year Five Years Insensitive Total
<S> <C> <C> <C> <C> <C>
Interest Earning Assets:
Interest Bearing Deposits in
Other Banks $ 12,292 $ 12,292
Investment Securities 11,909 $ 21,716 $ 37,217 $ 14,300 85,142
Federal Funds Sold 1,700 1,700
Loans 89,660 44,732 32,439 15,024 181,855
-------- -------- ------- -------- --------
Total Interest
Earning Assets 115,561 66,448 69,656 29,324 280,989
Non-interest Earning
Assets 19,212 19,212
-------- -------- ------- -------- --------
Total Assets $115,561 $ 66,448 $ 69,656 $ 48,536 $300,201
======== ======== ======== ======== ========
Interest Bearing Liabilities:
Interest Bearing Deposits $135,019 $ 67,600 $ 21,841 $224,460
Other Borrowed Money 1,164 436 2,690 $ 2,944 7,234
-------- -------- ------- -------- --------
Total Interest Bearing 136,183 68,036 24,531 2,944 231,694
Liabilities
33,817 33,817
Liabilities and Equity 34,690 34,690
-------- -------- ------- -------- --------
Total Liabilities & Equity $136,183 $ 68,036 $ 24,531 $ 71,451 $300,201
Interest Free Deposits ======== ======== ======== ======== ========
Other Interest Free
Net Interest Rate
Sensitivity Gap $(20,622) $ (1,588) $45,125 $(22,915)
Cumulative Gap $(20,622) $(22,210) $22,915
Net Interest Rate
Sensitivity Gap as a
Percent of Interest
Earning Assets (17.85) (2.39) 64.78
Cumulative Gap as a Percent
of Cumulative Interest
Earning Assets (17.85) (12.20) 9.11
</TABLE>
<PAGE> 22
RESULTS OF OPERATIONS
INTEREST INCOME
Total interest income increased $4,954,035 (26.2%) in 1995 from 1994 and
increased $1,475,384 (8.5%) in 1994 from 1993. Interest on loans increased
$3,540,509 in 1995 from 1994 and increased $1,203,711 in 1994 from 1993. The
increase in 1995 is the result of an increase in average yield on loans from
9.61% in 1994 to 10.85% in 1995 as well as an increase in average loans
outstanding of $14,928,753. The increase in 1994 is the result of an increase
in average yield on loans from 9.15% in 1993 to 9.61% in 1994 as well as an
increase in average loans outstanding of $5,311,825.
Interest on investments increased $971,851 (27.6%) in 1995 from 1994 and
increased $121,192 (3.5%) in 1994 from 1993. The increase in 1995 is the
result of an increase in the average investment portfolio of $11,391,099 as
well as an increase in average yields in the portfolio from 6.12% in 1994 to
6.55% in 1995. The increase in 1994 is the result of an increase in the
average investment portfolio of $6,389,526 offset by lower average yields
within the portfolio from 6.58% in 1993 to 6.12% in 1994.
During 1995, interest on federal funds sold decreased $176,189 (66.6%) from
1994 and increased $112,122 (73.5%) in 1994 from 1993, while interest on
interest bearing deposits increased $617,864 (447.6%) in 1995 from 1994 and
increased $38,359 (38.5%) in 1994 from 1993. The decrease in income from
federal funds sold and the increase in income from interest bearing deposits in
other banks during 1995 is primarily the result of a shift in short-term
investments from federal funds sold to interest bearing deposit accounts as
well as an overall increase in total funds available for short-term investment
and higher rates paid on short-term investments. The increase in 1994 was the
result of an increase in the average amount of federal funds sold of $1,939,516
as well as a steady increase in rates during the year.
INTEREST EXPENSE
During 1995 interest paid on deposits increased $3,076,415 (42.9%) from 1994
and increased $405,255 (6.0%) from 1993. The increase in such interest in 1995
and 1994 is the result of an increase in interest rates paid during each year
of 1.07% in 1995 and 0.07% in 1994 along with an increase in average interest
bearing deposits of $23,204,534 in 1995 and $8,392,761 in 1994.
NET INTEREST MARGIN
The interest margin of the Company, the spread between interest income and
interest expense, was 5.26% in 1995, 5.23% in 1994, and 5.15% in 1993. The
increase each year is the result of careful management of both the growth and
the pricing of loans and deposits as well as a favorable interest rate
environment.
PROVISION FOR LOAN LOSSES
Provision for loan losses increased $25,427 in 1995 from 1994 and decreased
$52,195 in 1994 from 1993. Changes in the amount of the provision for loan
losses are the result of judgments made by management of the Banks after
considering the credit worthiness and growth of the loan portfolios. At
December 31, 1995 and 1994, the allowance for loan losses was 1.8% of
outstanding loans less unearned interest. Total nonperforming loans were
$1,329,701 at December 31, 1995 and $1,355,939 at December 31, 1994. The
allowance for loan losses was 2.52 and 2.22 times total nonperforming loans at
December 31, 1995 and 1994, respectively. Net charge-offs amounted to $220,723
in 1995 as compared to $191,035 in 1994. The amount of the allowance for loan
losses is determined by management after considering, among other things,
factors such as classified and past due loans as well as portfolio growth and
diversification. Management believes such allowance is adequate to absorb
future losses on loans outstanding at December 31, 1995.
NON-INTEREST INCOME AND EXPENSE
Non-interest income decreased $124,224 in 1995 from 1994 and decreased $4,537
in 1994 from 1993. Non-interest expense increased $10,732 in 1995 from 1994
and $606,084 in 1994 from 1993. The decrease in non-interest income in 1995 is
primarily the result of the $119,599 decrease in income from a lesser number of
long-term mortgage loans originated for other banks. The decrease in 1994
non-interest income is primarily the result of a decrease in credit insurance
commissions of $52,996 offset by an increase in trust income of $45,971. The
increases in non-interest expense resulted from an
<PAGE> 23
increase in total salary and personnel expense of $155,476 in 1995 and $255,171
in 1994, an increase in total occupancy and equipment expense of $70,340 in
1995 and $180,434 in 1994, and a decrease in Other Expense of $215,084 in 1995
and an increase in such expense of $170,479 in 1994. The decrease in Other
Expense in 1995 is attributable to a decrease in premiums assessed by the FDIC
of $212,022.
INCOME TAXES
The increase in the provision for income taxes of $395,642 in 1995 and the
increase of $188,375 in 1994 resulted from increases in taxable income. The
effective tax rate for 1995, 1994 and 1993 was 29%, 30%, and 28%, respectively.
The effective tax rate is lower than the statutory rate of 34% because of the
Banks' investments in tax-exempt securities and loans.
IMPACT OF NEW ACCOUNTING STANDARD
In March 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to be Disposed Of" ("SFAS 121").
SFAS 121 addresses issues surrounding the measurement and recognition of losses
when the value of certain assets has been deemed to be permanently impaired.
The Company plans to adopt SFAS 121 in 1996 and believes that there will be no
material effect on its financial position or results of operations from
adopting SFAS 121.
NEW LEGISLATION
On January 25, 1996 the State of Georgia legislature passed legislation
allowing a bank to establish three branches during the period from July 1,
1996 through June 30, 1998 in counties in Georgia in which the bank
presently does not have a branch. If the bank is part of a bank holding
company, all holding company affiliates will be treated as one, and the
holding company group will be limited to opening three de novo branches in
three new counties. Effective July 1, 1998, the legislation will allow a
bank to branch anywhere in Georgia, subject to regulatory approval. The
bill must be signed by the Governor of Georgia before the legislation will
become effective. This legislation is not expected to have an adverse effect
on the results of operations of the Company.
SUBSEQUENT EVENT
On February 21, 1996, the Company entered into a nonbinding letter of intent to
merge with FNB Bancshares, Inc., parent company of First National Bank of
Effingham ("FNBE"), Springfield, Georgia. The Company will be the
surviving corporation resulting from the proposed merger, and following
the merger, FNBE will be operated as a separate subsidiary of the Company.
As of December 31, 1995, FNBE recorded total assets of $49,711,000 and
total capital of $3,401,000. The combination of the two organizations is
subject to several conditions, including the execution of a definitive
agreement, normal due diligence, approval of FNB Bancshares' shareholders,
and regulatory approval. The transaction is expected to be consummated during
the third quarter of 1996.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST BANKING COMPANY OF SOUTHEAST GEORGIA FOR THE YEAR
ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 12,171
<INT-BEARING-DEPOSITS> 12,292
<FED-FUNDS-SOLD> 1,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 49,364
<INVESTMENTS-CARRYING> 35,778
<INVESTMENTS-MARKET> 36,658
<LOANS> 181,855
<ALLOWANCE> 3,344
<TOTAL-ASSETS> 300,201
<DEPOSITS> 258,277
<SHORT-TERM> 1,000
<LIABILITIES-OTHER> 3,864
<LONG-TERM> 6,234
0
0
<COMMON> 2,662
<OTHER-SE> 28,164
<TOTAL-LIABILITIES-AND-EQUITY> 300,201
<INTEREST-LOAN> 18,531
<INTEREST-INVEST> 4,492
<INTEREST-OTHER> 844
<INTEREST-TOTAL> 23,867
<INTEREST-DEPOSIT> 10,253
<INTEREST-EXPENSE> 10,653
<INTEREST-INCOME-NET> 13,214
<LOAN-LOSSES> 560
<SECURITIES-GAINS> 3
<EXPENSE-OTHER> 8,147
<INCOME-PRETAX> 6,405
<INCOME-PRE-EXTRAORDINARY> 6,405
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,537
<EPS-PRIMARY> 1.70
<EPS-DILUTED> 1.70
<YIELD-ACTUAL> 5.26
<LOANS-NON> 403
<LOANS-PAST> 176
<LOANS-TROUBLED> 751
<LOANS-PROBLEM> 1,330
<ALLOWANCE-OPEN> 3,005
<CHARGE-OFFS> 273
<RECOVERIES> 52
<ALLOWANCE-CLOSE> 3,344
<ALLOWANCE-DOMESTIC> 3,344
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
