<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-K
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the Fiscal year ended December 31, 1997
--------------------------------------
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
-------- --------------------------------
Commission file number 0-10853
-------
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 58-1458268
- ----------------------------- --------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
40 NORTH MAIN STREET, STATESBORO, GEORGIA 30459
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 912-764-6611
------------------------------
- --------------------------------------------------------------------------------
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
--------------------
(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-K 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-K or any amendment to
this Form 10-K.[ ]
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:
$95,319,017 (as of February 28, 1998).
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, 3,762,468 shares outstanding at February 28, 1998
- --------------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1997 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 23, 1998, are incorporated by reference into Part
III.
Exhibit Index on Page 4 Page 1 of 51 Pages
<PAGE> 2
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 27, 1998 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-K, 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.
<TABLE>
<S> <C>
Date: March 27, 1998 By: /s/James Eli Hodges
---------------------- ---------------------------------
JAMES ELI HODGES
PRESIDENT & DIRECTOR
(PRINCIPAL EXECUTIVE OFFICER)
Date: March 27, 1998 By: /s/Julian C. Lane, Jr.
---------------------- ---------------------------------
JULIAN C. LANE, JR
VICE PRESIDENT AND DIRECTOR
Date: March 27, 1998 By: /s/John M. Wilson, Jr.
---------------------- --------------------------------
JOHN M. WILSON, JR.
VICE PRESIDENT AND DIRECTOR
Date: March 27, 1998 By: /s/Dwayne E. Rocker
---------------------- --------------------------------
DWAYNE E. ROCKER
SECRETARY & TREASURER
(PRINCIPAL FINANCIAL &
ACCOUNTING OFFICER)
Date: March 27, 1998 By: /s/E. Raybon Anderson
---------------------- -------------------------------
E. RAYBON ANDERSON, DIRECTOR
Date: March 27, 1998 By: /s/A. M. Braswell, Jr.
---------------------- --------------------------------
A. M. BRASWELL, JR., DIRECTOR
Date: March 27, 1998 By: /s/W. A. Crider, Jr.
---------------------- --------------------------------
W. A. CRIDER, JR., DIRECTOR
Date: March 27, 1998 By: /s/ C. Arthur Howard
---------------------- --------------------------------
C. ARTHUR HOWARD, DIRECTOR
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
Date: March 27, 1998 By: /s/Lanier A. Hunnicutt
---------------------- --------------------------------
LANIER A. HUNNICUTT, DIRECTOR
Date: March 27, 1998 By: /s/Joe P. Johnston
---------------------- --------------------------------
JOE P. JOHNSTON, DIRECTOR
Date: March 27, 1998 By: /s/Harry S. Mathews
---------------------- ---------------------------------
HARRY S. MATHEWS, DIRECTOR
Date: March 27, 1998 By: /s/ Dan J. Parrish, Jr.
---------------------- ---------------------------------
DAN J. PARRISH, JR., DIRECTOR
Date: March 27, 1998 By: /s/ Charles M. Robbins, Jr.
---------------------- ----------------------------------
CHARLES M. ROBBINS, JR., DIRECTOR
Date: March 27, 1998 By: /S/Larry D. Weddle
---------------------- --------------------------------
LARRY D. WEDDLE, DIRECTOR
Date: March 27, 1998 By: /s/Alvin Williams
---------------------- ---------------------------------
ALVIN WILLIAMS, DIRECTOR
</TABLE>
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Document Page
----------- ------------------ --------
<S> <C> <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.) N/A
3.2 - By-Laws of the Registrant, as amended
February 28, 1990. (1) N/A
10.1* - Profit Sharing Plan, as restated December 29,
1994. (2) 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. (1) N/A
10.3* - Target Benefit Retirement Plan, as restated
December 29, 1994.(2) 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. (1) N/A
10.5* - Employment Agreement dated February 20, 1996
between James Eli Hodges and the Registrant
(incorporated herein by reference to exhibit of the
same number in the Registrant's Form 10-KSB for
the year ended December 31, 1995.) N/A
10.6* - Employment Agreement dated April 9, 1996 between
Julian C. Lane, Jr. and the Registrant (incorporated
by reference to Exhibit 10.6 of the Registrant's
Form 10-QSB for the Quarter ended March 31, 1996.) N/A
10.7* - 1997 Stock Option Plan (incorporated by reference to
Appendix A to the Registrant's Proxy Statement filed
under cover of Schedule 14-A for the 1997 Annual
Meeting of Shareholders.) N/A
13 - The Registrant's Annual Report to Shareholders for
the year ended December 31, 1997 (except for
those portions specifically incorporated by
reference, the 1997 Annual Report to Shareholders
is not deemed to be filed as part of this report). 6
21 - Subsidiaries of the Registrant (incorporated herein
by reference to exhibit of the same number in the
Registrant's Form 10-K for the year ended
December 31, 1996.) N/A
23.1 - Consent of Deloitte & Touche LLP. 49
23.2 - Consent of McNair, McLemore, Middlebrooks & Co. 49
24 - A Power of Attorney is set forth on the signature
pages of this Annual Report on Form 10-K. 2
27 - Financial Data Schedule (for SEC use only) 50
99.1 - Report of Independent Accountants (McNair, McLemore,
Middlebrooks & Co.) dated February 2, 1996 for the
the years ended December 31, 1995 and 1994
(incorporated herein by reference to exhibit of the
same number in the Registrant's Form 10-K for the
year ended December 31, 1996). N/A
</TABLE>
<PAGE> 5
(1) Incorporated herein by reference to exhibit of the same number in the
Registrant's Form 10-K for the year ended December 31, 1989.
(2) Incorporated herein by reference to exhibit of the same number in the
Registrant's Form 10-KSB for the year ended December 31, 1994.
* Denotes Registrant's plans, management contracts and compensatory
arrangements.
<PAGE> 1
EXHIBIT 13
DELOITTE &
TOUCHE LLP -----------------------------------------------
Suite 1700 Telephone: (404)220-1500
100 Peachtree Street Facsimile: (404)220-1583
Atlanta, Georgia 30303-1911
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
First Banking Company of Southeast Georgia:
We have audited the consolidated balance sheets of First Banking Company of
Southeast Georgia and subsidiaries (the "Company") as of December 31, 1997 and
1996 and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audits. The consolidated financial
statements give retroactive effect to the 1996 merger of First Banking Company
of Southeast Georgia and FNB Bancshares, Inc., which was accounted for as a
pooling of interests as described in Note 2 to the consolidated financial
statements. We did not audit the related consolidated statements of income,
stockholders' equity, and cash flows of FNB Bancshares, Inc. and subsidiary
for the year ended December 31, 1995, which statements reflect total revenues
of $4,012,435 for the year ended December 31, 1995. Those statements were
audited by other auditors whose report has been furnished to us, and our
opinion, insofar as it relates to the amounts included for FNB Bancshares, Inc.
and subsidiary for 1995, is based solely on the report of such other auditors.
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 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 and the report of
the other auditors 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 as of December 31,
1997 and 1996 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
January 30, 1998
<PAGE> 2
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
ASSETS
Cash and Due from Banks (Note 14) $ 24,631,342 $ 21,610,743
Interest Bearing Deposits in Other Banks 16,367,519 9,905,485
Federal Funds Sold 3,775,000 6,220,000
Investment Securities:
Available for Sale, at Fair Value (Amortized Cost
of $84,147,288 in 1997 and $85,900,522 in 1996)
(Note 3) 84,476,788 85,865,947
Held to Maturity, at Cost (Estimated Fair Value
of $21,543,556 in 1997 and $18,738,071 in 1996)
(Note 4) 20,847,115 18,157,744
Loans (Notes 5 and 11) 250,311,707 231,057,478
Less: Unearned Interest Income (16,698) (15,127)
Allowance for Loan Losses (Note 5) (3,920,535) (4,024,539)
------------ ------------
Loans - Net 246,374,474 227,017,812
------------ ------------
Interest Receivable 5,157,819 5,383,067
Premises and Equipment, Net (Note 6) 7,089,559 7,193,309
Other Real Estate 368,524 446,500
Other Assets 2,134,736 2,235,375
------------ ------------
TOTAL ASSETS $411,222,876 $384,035,982
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits (Note 12):
Demand $ 45,981,051 $ 43,367,783
Interest Bearing:
NOW Accounts 76,036,196 56,265,610
Money Market Deposit Accounts 29,111,446 33,331,641
Savings 14,593,108 13,185,253
Time Certificates ($100,000 and above) 88,807,158 82,203,709
Other Time 100,276,241 101,293,199
------------ ------------
Total Deposits 354,805,200 329,647,195
Federal Funds Purchased 800,000
Repurchase Agreements 1,400,000 1,200,000
Other Borrowed Money (Note 12) 9,418,343 10,917,951
Interest Payable 3,550,857 3,279,336
Other Liabilities 1,019,691 870,739
------------ ------------
Total Liabilities 370,194,091 346,715,221
------------ ------------
Commitments and Contingencies (Note 5)
Shareholders' Equity (Notes 9 and 10):
Common Stock, $1.00 Par Value, 10,000,000
Shares Authorized, 3,762,468 Shares Issued and
Outstanding at December 31, 1997 and
3,752,525 Shares Issued and Outstanding at
December 31, 1996 3,762,468 3,752,525
Additional Paid-in Capital 7,474,172 7,272,339
Retained Earnings 29,574,675 26,318,721
Net Unrealized Gain (Loss) on Investment
Securities Available for Sale 217,470 (22,824)
------------ ------------
Total Shareholders' Equity 41,028,785 37,320,761
------------ ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $411,222,876 $384,035,982
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
INTEREST INCOME
Loans (Including Fees) $24,935,274 $23,593,288 $21,726,452
Interest Bearing Deposits 672,159 584,746 755,892
Investment Securities:
U.S. Treasury 1,257,456 1,438,107 1,817,279
U.S. Government Agencies 3,113,072 3,398,383 1,865,014
States and Political Subdivisions 1,098,739 983,163 881,278
Dividend Income 186,043 151,786 133,557
Federal Funds Sold 199,988 418,504 268,331
------------ ----------- -----------
Total Interest Income 31,462,731 30,567,977 27,447,803
------------ ----------- -----------
INTEREST EXPENSE
NOW Accounts 1,875,013 1,793,576 1,155,231
Money Market Deposit Accounts 859,518 1,265,473 1,292,854
Savings 448,766 418,777 386,571
Time Certificates($100,000 and above) 5,057,137 4,528,026 3,998,332
Other Time 5,656,899 5,783,882 5,184,666
Other 737,760 617,601 400,390
------------ ----------- -----------
Total Interest Expense 14,635,093 14,407,335 12,418,044
------------ ----------- -----------
NET INTEREST INCOME 16,827,638 16,160,642 15,029,759
PROVISION FOR LOAN LOSSES 932,285 694,911 859,300
------------ ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 15,895,353 15,465,731 14,170,459
------------ ----------- -----------
NON-INTEREST INCOME
Service Charges on Deposit Accounts 2,099,425 1,918,032 1,751,415
Fees for Trust Services 208,864 215,946 200,236
Other 626,554 405,434 378,263
------------ ----------- -----------
Total Non-interest Income 2,934,843 2,539,412 2,329,914
------------ ----------- -----------
NON-INTEREST EXPENSE
Salaries 4,249,429 4,110,004 3,835,909
Other Personnel Expense 1,494,100 1,157,196 1,297,087
Occupancy Expense, Net 893,338 767,941 699,277
Equipment Expense 1,314,450 1,051,469 911,268
Other (Note 13) 3,156,288 3,344,054 3,098,164
------------ ----------- -----------
Total Non-interest Expense 11,107,605 10,430,664 9,841,705
------------ ----------- -----------
INCOME BEFORE INCOME TAXES 7,722,591 7,574,479 6,658,668
PROVISION FOR INCOME TAXES (NOTE 7) 2,258,707 2,400,517 1,952,700
------------ ----------- -----------
NET INCOME $ 5,463,884 $ 5,173,962 $ 4,705,968
============ =========== ===========
EARNINGS PER SHARE:
Basic $ 1.46 $ 1.38 $ 1.25
============ =========== ===========
Diluted $ 1.45 $ 1.38 $ 1.25
============ =========== ===========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING:
Basic 3,752,931 3,752,615 3,752,769
============ =========== ===========
Diluted 3,755,756 3,752,615 3,752,769
============ =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 5,463,884 $ 5,173,962 $ 4,705,968
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Provision for Depreciation 1,084,048 845,621 656,059
Provision for Loan Losses 932,285 694,911 859,300
Gain on Sale of Other Assets (1,619)
Loss (Gain) on Sale of Other Real Estate 42,487 (3,607) (26,693)
Gain on Sale and Call of Securities (6,090) (7,359) (2,723)
(Gain) Loss on Sale of Premises and Equipment 3,653 11,751 (6,070)
Net Accretion of Premiums and
Discounts on Securities (150,874) (537,317) (126,317)
Amortization of Goodwill 37,688 37,688 37,688
Changes in Assets and Liabilities:
(Increase) Decrease in Interest
Receivable 225,248 (426,124) (1,419,086)
Increase in Other Assets (60,836) (49,864) (135,022)
Increase in Interest Payable 271,521 61,334 1,222,327
Increase (Decrease) in Other
Liabilities 148,952 (432,282) 168,801
---------- ----------- -----------
Net Cash Provided by Operating Activities 7,991,966 5,368,714 5,932,613
---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Interest Bearing
Deposits in Other Banks (6,462,034) 2,386,061 746,402
Net (Increase) Decrease in Federal Funds Sold 2,445,000 1,950,000 (1,955,000)
Available For Sale Securities:
Proceeds from Calls and Maturity 49,498,081 46,577,991 20,535,193
Purchases (47,610,844) (78,462,013) (24,016,143)
Held To Maturity Securities:
Proceeds from Maturity 6,685,322 23,121,405 7,215,196
Purchases (9,351,725) (5,346,240) (25,389,464)
Net Increase in Loans (20,673,289) (15,934,923) (27,060,604)
Purchases of Premises and Equipment (983,951) (2,405,496) (1,797,173)
Proceeds from Sale of Premises and Equipment 1,886 8,660
Proceeds from Sale of Other Assets 1,621
Proceeds from Sales of Other Real Estate 419,830 201,624 138,030
----------- ----------- -----------
Net Cash Used in Investing Activities (26,033,610) (27,909,705) (51,573,282)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits 25,158,005 25,164,629 44,968,802
Borrowings from the Federal Home Loan Bank 2,530,000 9,041,000 5,332,000
Repayment of Other Borrowed Money (4,029,608) (5,357,496) (2,727,429)
(Decrease) Increase in Fed Funds Purchased (800,000) 800,000
Increase in Repurchase Agreements 200,000 1,200,000
Purchase and Retirement of Fractional Shares (6,754) (2,812) (3,137)
Proceeds from Exercise of Stock Options 218,530
Dividends Paid (2,207,930) (1,699,119) (1,274,321)
----------- ----------- -----------
Net Cash Provided by Financing Activities 21,062,243 29,146,202 46,295,915
----------- ----------- -----------
INCREASE IN CASH AND DUE FROM BANKS 3,020,599 6,605,211 655,246
CASH AND DUE FROM BANKS, BEGINNING OF YEAR 21,610,743 15,005,532 14,350,286
----------- ----------- -----------
CASH AND DUE FROM BANKS, END OF YEAR $24,631,342 $21,610,743 $15,005,532
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest $14,363,572 $14,346,000 $11,194,917
Income Taxes 1,953,000 2,439,418 2,208,452
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
ACTIVITIES:
Other Real Estate Acquired through Loan
Foreclosure 1,092,524 414,917 170,096
Loans granted to facilitate the Sale of
Other Real Estate 708,183 76,900 268,405
Change in Net Unrealized Gain (Loss) on
Securities Available for Sale 240,294 (279,271) 1,513,979
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<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, 1994 $ 3,752,949 $ 7,277,864 $19,412,231 $(1,188,061)
Net Income 4,705,968
Cash Dividends, $.38 per share (1,274,321)
Change in Net Unrealized Gain
(Loss) on Investment Securities
Available for Sale 1,444,508
Purchase & Retirement of
Fractional Shares
(285) (2,852)
----------- ----------- ------------ -----------
Balance at December 31, 1995 3,752,664 7,275,012 22,843,878 256,447
Net Income 5,173,962
Cash Dividends, $.48 per share (1,699,119)
Change in Net Unrealized Gain
(Loss)on Investment
Securities Available for Sale (279,271)
Purchase & Retirement of
Fractional Shares (139) (2,673)
----------- ----------- ------------ -----------
Balance at December 31, 1996 3,752,525 7,272,339 26,318,721 (22,824)
Net Income 5,463,884
Cash Dividends, $.59 per share (2,207,930)
Change in Net Unrealized Gain
(Loss)on Investment
Securities Available for Sale 240,294
Purchase and Retirement of
Fractional Shares (307) (6,447)
Exercise of Stock Options 10,250 208,280
----------- ----------- ----------- -----------
Balance at December 31, 1997 $ 3,762,468 $ 7,474,172 $29,574,675 $ 217,470
=========== =========== =========== ===========
</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"), Metter
Banking Company ("Metter Bank") and First National Bank of Effingham
("Effingham Bank"), (collectively, the "Banks"), wholly owned subsidiaries.
Intracompany balances and transactions have been eliminated in consolidation.
NATURE OF OPERATIONS
The Company's banks have eleven banking locations in Bulloch, Candler and
Effingham counties located in southeast Georgia. The Company's primary source
of revenue is interest 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 rate changes have an impact on the Company's performance. The Company
decreases the effect of interest rate changes 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.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and demand deposits due from banks.
INVESTMENT SECURITIES AVAILABLE FOR SALE
Investment securities available for sale are carried at fair value, and the
related unrealized gain or loss, net of deferred 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
these 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 estimate 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
<PAGE> 7
estimated useful life of each asset. Significant additions and improvements are
capitalized. Maintenance and repairs are charged to expense. The Company
evaluates the estimated useful lives of assets on a periodic basis to determine
whether events or circumstances warrant revised estimated useful lives or
whether any impairment exists. Management believes no material impairment of
premises and equipment exists at December 31, 1997.
INTEREST INCOME ON LOANS
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 estimated fair market value less estimated
costs to sell.
GOODWILL
Goodwill is included in other assets and is being amortized over 25 years. The
carrying value of goodwill is periodically reviewed to assess recoverability
based on expected undiscounted cash flows and operating income for the Company.
Impairments would be recognized in operating results if a permanent diminution
in value was expected. The Company also evaluates the amortization period to
determine whether events or circumstances warrant revision to the amortization
period. Management believes no material impairment of goodwill exists at
December 31, 1997.
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.
NET INCOME PER SHARE
In February 1997, Statement of Financial Accounting Standards ("SFAS") 128,
"Earnings Per Share" was issued. SFAS 128 establishes standards for computing
and presenting earnings per share information for entities with publicly held
common stock. All per share amounts conform to SFAS 128.
Net income and average common shares outstanding used to compute both basic and
diluted earnings per share were the same for 1996 and 1995. Average common
shares used to compute basic earnings per share differed from average common
shares used to compute diluted earnings per share by 2,825 equivalent shares
related to the issuance of stock options in 1997.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the 1997 presentation.
NEW ACCOUNTING PRONOUCEMENT
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
130, "Reporting Comprehensive Income" and SFAS 131 "Disclosures about Segments
of an Enterprise and Related Information." SFAS 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general purpose financial
statements. SFAS 131 establishes standards for, among other things, reporting
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. SFAS 130 and 131
are effective for financial statements issued for periods beginning after
December 15, 1997.
<PAGE> 8
2.ACQUISITION
Effective August 27, 1996, the Company consummated its merger of the
Effingham Bank into the Company. The Company exchanged 340,309 shares of its
common stock and cash of approximately $2,800 for all the outstanding common
stock and options to acquire common stock of FNB Bancshares, Inc. ("FNB"),
parent company of Effingham Bank. The merger was accounted for as a
pooling-of- interests. The financial statements of the Company for the year
ended December 31, 1995 have been restated to include FNB and the Effingham
Bank.
3.INVESTMENT SECURITIES AVAILABLE FOR SALE
The amortized cost, estimated fair value and gross unrealized gains and
losses of investment securities available for sale are as follows:
<TABLE>
<CAPTION>
GROSS GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
DECEMBER 31, 1997
<S> <C> <C> <C> <C>
U.S. Treasury $13,311,448 $ 32,293 $ 11,857 $13,331,884
U.S. Government Agencies 62,329,447 158,803 89,699 62,398,551
States and Political
Subdivisions 5,957,141 239,960 6,197,101
Equity securities 2,549,252 2,549,252
----------- ---------- ---------- -----------
Total $84,147,288 $ 431,056 $ 101,556 $84,476,788
=========== ========== ========== ===========
DECEMBER 31, 1996
U.S. Treasury $22,150,564 $ 39,534 $ 33,696 $22,156,402
U.S. Government Agencies 55,803,683 109,467 234,989 55,678,161
States and Political
Subdivisions 5,336,723 100,581 15,472 5,421,832
Equity securities 2,609,552 2,609,552
----------- ---------- ---------- -----------
Total $85,900,522 $ 249,582 $ 284,157 $85,865,947
=========== ========== ========== ===========
</TABLE>
The amortized cost and estimated fair value of these securities at December
31, 1997, 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. Equity securities
are included in the category "Due after ten years".
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
<S> <C> <C>
Due in one year or less $33,279,299 $33,289,108
Due after one year through five years 39,179,368 39,276,010
Due after five years through ten years 4,343,890 4,446,600
Due after ten years 7,344,731 7,465,070
----------- -----------
Total $84,147,288 $84,476,788
=========== ===========
</TABLE>
During 1997, 1996, and 1995, there were realized gains of $4,414, $991 and
$2,723 from sales and calls of securities of $2,000,000, $800,991 and $50,000,
respectively.
Securities with a fair value of $61,876,541 at December 31, 1997 were pledged
as collateral for public deposits and trust assets.
<PAGE> 9
4.INVESTMENT SECURITIES HELD TO MATURITY
The amortized cost, estimated fair value and gross unrealized gains and
losses of investment securities held to maturity are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
DECEMBER 31, 1997
<S> <C> <C> <C> <C>
U.S. Treasury $ 3,701,283 $ 191 $ 18 $ 3,701,456
U.S. Government Agencies 1,264,194 22,686 1,286,880
States and Political
Subdivisions 15,881,638 673,808 226 16,555,220
----------- ---------- --------- -----------
Total $20,847,115 $ 696,685 $ 244 $21,543,556
=========== ========== ========= ===========
DECEMBER 31, 1996
U.S. Treasury $ 1,999,082 $ 6,548 $ 2,005,630
U.S. Government Agencies 2,377,268 53,329 2,430,597
States and Political
Subdivisions 13,781,394 532,680 $ 12,230 14,301,844
----------- ---------- --------- -----------
Total $18,157,744 $ 592,557 $ 12,230 $18,738,071
=========== ========== ========= ===========
</TABLE>
The amortized cost and estimated fair value of these securities at December
31, 1997, 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 FAIR VALUE
<S> <C> <C>
Due in one year or less $ 6,739,202 $ 6,768,859
Due after one year through five years 5,812,170 5,937,149
Due after five years through ten years 4,061,990 4,349,723
Due after ten years 4,233,753 4,487,825
----------- -----------
Total $20,847,115 $21,543,556
=========== ===========
</TABLE>
During 1997 and 1996, there were realized gains of $1,676 and $6,368 from
total proceeds from calls of securities of $65,000 and $396,800, respectively.
There were no sales or calls of held to maturity securities in 1995 and,
therefore, no gains or losses.
Securities with a carrying amount of $18,793,764 at December 31, 1997 were
pledged as collateral for public deposits and trust assets.
5.LOANS
Loans are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
<S> <C> <C>
Real Estate:
Construction $ 14,175,794 $ 17,366,129
Other 161,563,698 141,015,449
Commercial and Agricultural 52,950,189 49,837,280
Installment and Other Consumer 21,622,026 22,838,620
------------ ------------
Total $250,311,707 $231,057,478
============ ============
</TABLE>
The Banks' loans are concentrated with customers in the Banks' market area of
southeast Georgia, primarily in Bulloch, Candler, Effingham and contiguous
counties.
<PAGE> 10
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Balance, Beginning of Year $4,024,539 $3,856,321 $3,274,587
Provision for Loan Losses 932,285 694,911 859,300
Loans Charged Off (1,229,430) (659,159) (342,070)
Recoveries 193,141 132,466 64,504
---------- ---------- ----------
Balance, End of Year $3,920,535 $4,024,539 $3,856,321
========== ========== ==========
</TABLE>
Nonperforming loans were $1,216,759 at December 31, 1997 and $1,416,324 at
December 31, 1996. These loans included those on a non-accrual status of
$434,296 and $353,389, accruing loans contractually past due at least 90 days
of $133,712 and $207,420, and restructured loans of $648,751 and $855,515 at
December 31, 1997 and 1996, respectively. Interest income that would have been
recorded on these nonperforming loans in accordance with their original terms
was $163,401 in 1997 and $171,952 in 1996, compared with amounts received of
$96,369 and $52,193, respectively.
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 original 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 $434,296 and $353,389 as of December 31, 1997
and December 31, 1996, respectively. The average amount of impaired loans
during 1997 was $1,361,500. No specific allowance was necessary for such
loans. The interest income recognized on such loans was $56,975 and $5,562 in
1997 and 1996 as compared to $56,975 and $5,562, respectively, 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
letters 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 letters 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 $25,513,505 and
$24,837,764 and standby letters of credit of $924,185 and $1,070,250 at
December 31, 1997 and 1996, respectively. The loan commitments and standby
letters of credit include $12,209,044 and $533,100, respectively, of fixed rate
commitments and $13,304,461 and $391,085, respectively, of variable rate
commitments at December 31, 1997. 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.
6.PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
<S> <C> <C>
Land $ 923,253 $ 923,253
Buildings 4,593,420 4,471,265
Leasehold Improvements 584,746 527,279
Furniture and Equipment 7,560,613 6,886,549
----------- -----------
Total 13,662,032 12,808,346
Less: Accumulated Depreciation 6,572,473 5,615,037
----------- -----------
Premises and Equipment, Net $ 7,089,559 $ 7,193,309
=========== ===========
</TABLE>
<PAGE> 11
7.INCOME TAXES
The Company provides deferred income taxes based on 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 provisions for income taxes for the years ended
December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current $2,189,707 $2,433,517 $2,262,981
Deferred 69,000 (33,000) (310,281)
---------- ---------- ----------
Total $2,258,707 $2,400,517 $1,952,700
========== ========== ==========
</TABLE>
At December 31, 1997 and 1996, the significant components of the Company's
net deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred Tax Assets:
Allowance for Possible Loan Losses $1,181,000 $1,255,000
Other Postretirement Benefits 95,000 106,000
Other Liabilities 63,000 17,000
Unrealized Loss on Investment Securities
Available for Sale 12,000
---------- ----------
Total Deferred Tax Assets 1,339,000 1,390,000
---------- ----------
Deferred Tax Liabilities:
Accumulated Depreciation (44,000) (55,000)
Other Assets (158,000) (117,000)
Unrealized Gain on Investment Securities
Available for Sale (112,000)
---------- ----------
Total Deferred Tax Liabilities (314,000) (172,000)
---------- ----------
Net Deferred Tax Assets $1,025,000 $1,218,000
========== ==========
</TABLE>
No valuation allowance has been recorded by the Company, as management
considers it more likely than not that all deferred tax assets will be
realized.
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>
1997 1996 1995
<S> <C> <C> <C>
Income Tax Computed at
Statutory Rate $2,625,681 $2,573,323 $2,263,947
Increases (Decreases) Resulting from:
Tax Exempt Interest (419,957) (303,852) (375,512)
Other 52,983 131,046 64,265
---------- ---------- ----------
Income Tax Expense $2,258,707 $2,400,517 $1,952,700
========== ========== ==========
</TABLE>
8.BENEFIT PLANS
At December 31, 1997 and 1996, the Company had recorded liabilities of
approximately $249,322 and $279,451, respectively, for other post-retirement
benefits. The Company did not recognize any expense for other post-retirement
benefits in 1997 and recognized expenses during each of the years ended
December 31, 1996 and 1995 of approximately $8,919 and $23,600, 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 31,1997.
The Company sponsors a contributory profit sharing plan under Internal
Revenue Code Section 401(k), (the "401(k) plan"), which covers substantially
all employees of the Banks. Employees may contribute up to 10% of their
compensation to the 401(k) plan, up to a maximum amount of $9,500 in 1997. 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.
<PAGE> 12
The Company also sponsors a Target Benefit Plan which covers substantially
all employees of the Banks. Under the terms of this plan, a participant's
target benefit will be based on service of up to twenty years subsequent to
January 1, 1986 for employees of the Bulloch Bank, subsequent to January 1,
1989 for employees of the Metter Bank, and subsequent to January 1, 1997 for
employees of the Effingham 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>
1997 1996 1995
<S> <C> <C> <C>
Profit-Sharing Plan $460,418 $283,198 $288,284
Target Benefit Plan 150,129 113,027 134,331
-------- -------- --------
Total $610,547 $396,225 $422,615
======== ======== ========
</TABLE>
9.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. Additional paid-in
capital has been charged and common stock has been credited retroactively with
$998,227 to reflect this stock split. Also, effective June 30, 1997, the
Company declared a five-for-four stock split of its common stock effected in
the form of a 25% stock dividend. Additional paid-in capital has been charged
and common stock has been credit retroactively with $750,505 to reflect this
stock split. All references to share and per share amounts have been
retroactively adjusted to reflect both splits.
The primary source of funds for payment of dividends by the Company to its
shareholders is dividends received from the Banks. 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 $2,731,942 in 1998, without the approval of the Georgia Department
of Banking and Finance.
During the third quarter of 1997, the Company established a Dividend
Reinvestment Plan which allows its shareholders to reinvest their dividends in
shares of the Company at market price average, as defined. The Company has
reserved and registered 100,000 shares for issuance under the Plan.
The Company and the Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have
a direct material effect on the Company's consolidated financial statements.
Under capital adequacy guidelines the Company and the Banks must meet specific
capital guidelines that involve quantitative measures of the Company's and the
Banks' assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Company's and the Banks' capital
amounts and the Bank's classifications under the regulatory framework for
prompt corrective action are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Banks to maintain minimum amounts and ratios of
total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to
average assets, as defined in the regulations and as set forth in the table
below. Management believes that as of December 31, 1997 the Company and the
Banks meet all capital adequacy requirements to which they are subject.
As of December 31, 1997, the most recent notifications from the Federal
Deposit Insurance Corporation categorized each bank as "well-capitalized" under
the regulatory framework for prompt corrective action and as of December 31,
1996 categorized Bulloch Bank and Metter Bank as "well capitalized" and
Effingham Bank as "adequately capitalized." As a result, Effingham Bank was
not allowed to accept brokered deposits without regulatory approval at December
31, 1996. To be categorized as "well-capitalized", each bank must maintain
minimum total risk-based, Tier I risk-based, and Tier 1 leverage ratios as set
forth in the table. There are no conditions or events since that notification
that management believes have changed such institutions' categories.
<PAGE> 13
The Company's and the Banks' actual capital amounts and ratios as of December
31, 1997 and 1996 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
As of December 31, 1997:
<S> <C> <C> <C> <C> <C>
Total Capital (to
Risk-weighted Assets):
Company $43,529 17.4% $19,983 8.0% Not Applicable
Bulloch Bank 27,639 19.7% 11,200 8.0% $14,000 10.0%
Metter Bank 11,201 16.9% 5,302 8.0% 6,628 10.0%
Effingham Bank 4,527 10.3% 3,499 8.0% 4,374 10.0%
Tier I Capital (to
Risk-weighted Assets):
Company $40,397 16.3% $ 9,991 4.0% Not Applicable
Bulloch Bank 25,884 18.5% 5,600 4.0% $ 8,400 6.0%
Metter Bank 10,369 15.6% 2,651 4.0% 3,977 6.0%
Effingham Bank 3,980 9.1% 1,750 4.0% 2,624 6.0%
Tier I Capital (to
Average Assets):
Company $40,397 10.5% $15,396 4.0% Not Applicable
Bulloch Bank 25,884 11.5% 6,724 3.0% $11,207 5.0%
Metter Bank 10,369 10.4% 2,995 3.0% 4,992 5.0%
Effingham Bank 3,980 6.5% 2,431 4.0% 3,039 5.0%
As of December 31, 1996:
Total Capital (to
Risk-weighted Assets):
Company $39,831 17.0% $18,730 8.0% Not Applicable
Bulloch Bank 25,603 19.3% 10,585 8.0% $13,232 10.0%
Metter Bank 10,164 16.6% 4,899 8.0% 6,124 10.0%
Effingham Bank 3,994 9.7% 3,278 8.0% 4,097 10.0%
Tier I Capital (to
Risk-weighted Assets):
Company $36,891 15.8% $ 9,365 4.0% Not Applicable
Bulloch Bank 23,940 18.1% 5,293 4.0% $ 7,939 6.0%
Metter Bank 9,393 15.3% 2,450 4.0% 3,675 6.0%
Effingham Bank 3,584 8.7% 1,639 4.0% 2,458 6.0%
Tier I Capital (to
Average Assets):
Company $36,891 9.8% $14,959 4.0% Not Applicable
Bulloch Bank 23,940 10.8% 6,624 3.0% $11,040 5.0%
Metter Bank 9,393 9.8% 2,863 3.0% 4,772 5.0%
Effingham Bank 3,584 6.2% 2,326 4.0% 2,908 5.0%
</TABLE>
10. STOCK OPTIONS
In 1997 the Company adopted the First Banking Company of Southeast Georgia
1997 Stock Option Plan, which provides that key employees may be granted
nonqualified stock options to purchase shares of common stock of the Company.
The Plan limits the total number of shares which may be awarded to 51,250,
which have been reserved for the Plan. The Options expire five years from the
date of grant. During the year ended December 31, 1997, nonqualified options
were granted to two key employees to purchase 51,250 shares of stock at an
exercise price which increases each year over the five-year term of each option
from $18.80 per share to a maximum of $27.53 per share in the final year of the
option term. Options were immediately exercisable as to 20% of the shares
subject to options and the remaining balance of the options outstanding shall
become exercisable in equal 20% increments on the first day of January in 1998,
1999, 2000, and 2001. For any option increment, 80% of the unexercised portion
of that increment will be carried forward to remain exercisable for the
remainder of the option term.
During 1997, 10,250 stock options were exercised at an exercise price of
$18.80 per share. As of December 31, 1997 the Company had 41,000 options to
purchase common stock outstanding at a weighted average exercise price of
$24.00, and no options were exercisable.
<PAGE> 14
The following table summarizes information about stock options outstanding at
December 31, 1997:
<TABLE>
<CAPTION>
Number Remaining
Exercise Outstanding Contractual Weighted Average
Price At 12-31-97 Life Exercise Price
-------- ----------- ----------- ----------------
<S> <C> <C> <C>
$ 20.68 10,250 4.0 $ 20.68
22.75 10,250 4.0 22.75
25.02 10,250 4.0 25.02
27.53 10,250 4.0 27.53
</TABLE>
The Company accounts for its stock-based compensation plan under Accounting
Principles Board 25. The Company has adopted SFAS No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123") for disclosure purposes. For SFAS 123
purposes, the fair value of each option grant of $3.68 has been estimated as of
the date of the grant using the Black-Scholes option pricing model with the
following weighted average assumptions:
<TABLE>
<S> <C>
Expected Life (years) 2.85
Risk-free interest rate 5.88%
Dividend Rate 2.55%
Expected Volatility 37.82%
Forfeiture Rate 0.00%
</TABLE>
Had compensation cost for the Company's stock options granted been determined
based on the fair value at the grant dates for awards under this plan
consistent with a method prescribed in SFAS 123 utilizing the assumptions
described above, the Company's net income and net income per share for the year
ended December 31, 1997 would have changed to the pro-forma amounts indicated
below:
<TABLE>
<S> <C>
Net Income:
As reported $5,463,884
Pro Forma 5,407,040
Net income per share
- diluted:
As reported $1.45
Pro Forma 1.44
</TABLE>
11. 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 1997 and 1996.
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>
1997 1996
<S> <C> <C>
Balance, Beginning of Year $11,591,083 $ 9,573,707
Amounts Advanced 10,041,133 25,738,381
Repayments (12,096,007) (23,721,005)
----------- -----------
Balance, End of Year $ 9,536,209 $11,591,083
=========== ===========
</TABLE>
12.DEPOSITS AND OTHER BORROWED MONEY
At December 31, 1997, the scheduled maturities of time deposits were as
follows:
<TABLE>
<S> <C>
Within three months $ 64,128,761
Over three months through six months 49,068,665
Over six months through one year 53,012,995
Over one year 22,872,978
------------
Total $189,083,399
============
</TABLE>
Other borrowed money at December 31, 1997 and 1996 consists of $9,418,343 and
$10,917,951, respectively, advanced from the Federal Home Loan Bank of Atlanta
to the Banks. Contractual repayments of these advances are $1,513,164 in 1998,
$1,253,081 in 1999, $1,039,312 in 2000,
<PAGE> 15
$869,778 in 2001, $859,778 in 2002, and $3,883,230 in 2003 and beyond. Average
interest rates on such advances outstanding were 7.00% at December 31, 1997 and
6.98% at December 31, 1996.
13.OTHER EXPENSE
Items comprising other expense for the years ended December 31, 1997, 1996
and 1995 follow:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Office Supplies $ 425,374 $ 441,952 $ 400,785
Outside Services 491,164 568,065 533,259
Computer Services 98,196 164,753 143,455
Advertising and Public Relations 547,343 526,176 512,102
Directors' Fees 165,400 195,860 192,800
Postage 260,747 247,450 224,382
FDIC, FICO and OCC Assessments 103,279 8,521 257,578
Correspondent Service Charges 198,362 133,525 105,000
Other 866,423 1,057,752 728,803
---------- ---------- ----------
Total $3,156,288 $3,344,054 $3,098,164
========== ========== ==========
</TABLE>
14.CASH RESTRICTIONS
The Federal Reserve System requires that a certain level of average cash be
maintained. At December 31, 1997 and 1996, such required balances were
$4,778,000 and $3,120,000, respectively.
15.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>
1997 1996
----------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- --------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and Due from Banks $ 24,631 $ 24,631 $ 21,611 $ 21,611
Interest Bearing Deposits
in Other Banks 16,368 16,368 9,905 9,905
Federal Funds Sold 3,775 3,775 6,220 6,220
Investment Securities 105,324 106,020 104,024 104,604
Loans 250,295 244,069 231,042 226,121
Liabilities:
Deposits 354,805 356,934 329,647 332,138
Other Borrowed Money 10,818 11,485 12,918 13,419
Off-Balance-Sheet Instruments:
Commitments to
Extend Credit 25,514 24,838
Standby Letters of Credit 924 1,070
</TABLE>
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
<PAGE> 16
on an entry-value basis. The fair value of nonperforming loans with a recorded
book value of $1,216,759 at December 31, 1997 and $1,416,324 at December 31,
1996 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 of commitments to extend credit and standby letters of
credit is estimated to approximate the amount outstanding (see Note 5).
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1997. 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.
16.CONDENSED FINANCIAL STATEMENTS OF FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
(PARENT ONLY)
The condensed financial statements of First Banking Company of Southeast
Georgia (parent only) are as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 237,632 $ 2,338
Investment in Subsidiaries 40,864,338 37,345,826
Other Assets 51,287
----------- -----------
Total Assets $41,101,970 $37,399,451
=========== ===========
LIABILITIES
Other Liabilities $ 73,185 $ 78,690
----------- -----------
Total Liabilities 73,185 78,690
----------- -----------
SHAREHOLDERS' EQUITY
Common Stock 3,762,468 3,752,525
Additional Paid-in Capital 7,474,172 7,272,339
Retained Earnings 29,574,675 26,318,721
Net Unrealized Gain (Loss) on Investment
Securities Available for Sale 217,470 (22,824)
----------- -----------
Total Shareholders' Equity 41,028,785 37,320,761
----------- -----------
Total Liabilities and
Shareholders' Equity $41,101,970 $37,399,451
=========== ===========
</TABLE>
CONDENSED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C>
Dividends from Subsidiaries $2,458,425 $2,070,243 $1,489,895
Fees from Subsidiaries 436,116
---------- ---------- ----------
Total Income 2,458,425 2,070,243 1,926,011
General and Administrative Expenses 446,347 738,595 649,542
---------- ---------- ----------
Income Before Income Taxes and Equity in
Undistributed Income of Subsidiaries 2,012,078 1,331,648 1,276,469
Income Tax Benefit 135,900 264,594 59,139
---------- ----------- ----------
Income Before Equity in Undistributed
Income of Subsidiaries 2,147,978 1,596,242 1,335,608
Equity in Undistributed Income of
Subsidiaries 3,315,906 3,577,720 3,370,360
---------- ---------- ----------
Net Income $5,463,884 $5,173,962 $4,705,968
========== ========== ==========
</TABLE>
<PAGE> 17
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 5,463,884 $ 5,173,962 $ 4,705,968
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities:
Amortization of Goodwill 37,688 37,688 37,688
Earnings of Subsidiaries (5,774,331) (5,647,962) (4,860,256)
Changes in Assets and Liabilities:
(Increase) Decrease in Other Assets 51,287 70,099 (98,819)
Increase(Decrease) in Other
Liabilities (5,505) (18,308) 16,718
----------- ----------- -----------
Net Cash Used by Operating Activities (226,977) (384,521) (198,701)
----------- ----------- -----------
Cash Flows From Investing Activities:
Dividends Received from Subsidiaries 2,458,425 2,070,243 1,489,895
----------- ----------- -----------
Cash Flows From Financing Activities:
Exercise of Stock Options 218,530
Purchase and Retirement of
Fractional Shares (6,754) (2,813) (3,137)
Dividends Paid (2,207,930) (1,699,119) (1,274,321)
----------- ----------- -----------
Net Cash Used by Financing Activities (1,996,154) (1,701,932) (1,277,458)
----------- ----------- -----------
Increase(Decrease)in Cash and
Due From Banks 235,294 (16,210) 13,736
Cash and Due From Banks,
Beginning of Year 2,338 18,548 4,812
----------- ----------- -----------
Cash and Due From Banks, End of Year $ 237,632 $ 2,338 $ 18,548
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid (Received) During the Year for:
Income Taxes $ (282,540) $ (227,063) $ (67,950)
</TABLE>
<PAGE> 18
17.QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years ended December 31, 1997 and 1996 is
summarized as follows (thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
1997
Interest Income $7,731 $7,793 $7,878 $8,060
Interest Expense 3,648 3,635 3,626 3,726
------ ------ ------ ------
Net Interest Income 4,083 4,158 4,252 4,334
Provision for Loan Losses 231 236 270 195
------ ------ ------ ------
Net Interest Income after
Provision for Loan Losses 3,852 3,922 3,982 4,139
Non-Interest Income 653 699 739 844
Non-Interest Expense 2,588 2,769 2,774 2,977
------ ------ ------ ------
Income Before Income Taxes 1,917 1,852 1,947 2,006
Provision for Income Taxes 583 544 580 551
------ ------ ------ ------
Net Income $1,334 $1,308 $1,367 $1,455
====== ====== ====== ======
Earnings Per Share:
Basic $ 0.36 $ 0.35 $ 0.36 $ 0.39
====== ====== ====== ======
Diluted $ 0.36 $ 0.35 $ 0.36 $ 0.38
====== ====== ====== ======
1996
Interest Income $7,497 $7,490 $7,740 $7,841
Interest Expense 3,619 3,495 3,603 3,690
------ ------ ------ ------
Net Interest Income 3,878 3,995 4,137 4,151
Provision for Loan Losses 228 233 169 65
------ ------ ------ ------
Net Interest Income after
Provision for Loan Losses 3,650 3,762 3,968 4,086
Non-Interest Income 600 662 602 675
Non-Interest Expense 2,426 2,447 2,885 2,673
------ ------ ------ ------
Income Before Income Taxes 1,824 1,977 1,685 2,088
Provision for Income Taxes 547 582 549 722
------ ------ ------ ------
Net Income $1,277 $1,395 $1,136 $1,366
====== ====== ====== ======
Earnings Per Share:
Basic $ 0.34 $ 0.37 $ 0.30 $ 0.37
====== ====== ====== ======
Diluted $ 0.34 $ 0.37 $ 0.30 $ 0.37
====== ====== ====== ======
</TABLE>
<PAGE> 19
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Interest Income $ 31,462,731 $ 30,567,977 $ 27,447,803 $ 21,319,846 $ 19,192,984
Interest Expense 14,635,093 14,407,335 12,418,044 8,271,364 7,557,384
------------ ------------ ------------ ------------ ------------
Net Interest
Income 16,827,638 16,160,642 15,029,759 13,048,482 11,635,600
------------ ------------ ------------ ------------ ------------
Provision for
Loan Losses 932,285 694,911 859,300 632,073 726,768
Net Interest Income
After Provision 15,895,353 15,465,731 14,170,459 12,416,409 10,908,832
Non-Interest Income 2,934,843 2,539,412 2,329,914 2,330,957 2,265,727
Non-Interest
Expense 11,107,605 10,430,664 9,841,705 9,256,325 8,459,465
------------ ------------ ------------ ------------ ------------
Income Before
Income Taxes 7,722,591 7,574,479 6,658,668 5,491,041 4,715,094
------------ ------------ ------------ ------------ ------------
Provision for
Income Taxes 2,258,707 2,400,517 1,952,700 1,658,918 1,340,865
------------ ------------ ------------ ------------ ------------
Net Income $ 5,463,884 $ 5,173,962 $ 4,705,968 $ 3,832,123 $ 3,374,229
============ ============ ============ ============ ============
Earnings Per Share:
Basic $ 1.46 $ 1.38 $ 1.25 $ 1.02 $ 0.90
============ ============ ============ ============ ============
Diluted $ 1.45 $ 1.38 $ 1.25 $ 1.02 $ 0.90
============ ============ ============ ============ ============
Cash Dividends:
Declared $ 2,207,930 $ 1,699,119 $ 1,274,321 $ 998,227 $ 798,582
Per Share $ 0.59 $ 0.48 $ 0.38 $ 0.30 $ 0.24
Book Value at Year
End-Per Share $ 10.90 $ 9.95 $ 9.09 $ 7.80 $ 7.44
Weighted Average Shares
Outstanding:
Basic 3,752,931 3,752,615 3,752,769 3,752,949 3,752,949
Diluted 3,755,756 3,752,615 3,752,769 3,752,949 3,752,949
Total Assets $411,222,876 $384,035,982 $350,366,037 $296,510,542 $264,499,807
Other Borrowed
Money $ 9,418,343 $ 10,917,951 $ 7,234,447 $ 4,629,876 $ 819,323
</TABLE>
The book value per share, cash dividends, and average shares outstanding have
been restated to reflect the 8-for-5 stock split effected in the form of a 60%
stock dividend effective May 15, 1995, the five-for-four stock split effected
in the form of a 25% stock dividend effective June 30, 1997, and the
acquisition of Effingham Bank.
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,
-----------------------------------------
1997 1996 1995
-----------------------------------------
<S> <C> <C> <C>
Percentage of Net Income to:
Average Total Assets............. 1.45% 1.42% 1.49%
Average Shareholders' Equity..... 13.98 14.52 14.73
Percentage of Dividends Declared
per Common Share to Net Income
per Common Share................. 40.41 34.88 30.57
Percentage of Average Shareholders'
Equity to Average Total Assets... 10.34 9.81 10.10
</TABLE>
<PAGE> 20
MARKET FOR STOCK AND RELATED SHAREHOLDER MATTERS
The common stock of the Company is traded on the Nasdaq Stock Market
("Nasdaq") under the symbol FBCG. At December 31, 1997 First Banking Company
had 1,132 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 1997 and 1996,
adjusted for the 25% stock dividend paid in June 1997.
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
<S> <C> <C> <C>
1997
First Quarter $ 19.60 $ 17.50 $0.144
Second Quarter 22.80 17.50 0.144
Third Quarter 24.875 21.50 0.15
Fourth Quarter 33.00 23.50 0.15
1996
First Quarter $ 21.60 $ 16.00 $0.12
Second Quarter 22.40 20.80 0.12
Third Quarter 22.00 19.20 0.12
Fourth Quarter 20.40 18.10 0.12
</TABLE>
<PAGE> 21
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, Metter Banking
Company and First National Bank of Effingham("the Banks"). Effective August
27, 1996, the Company consummated its merger of the Effingham Bank into the
Company. The Company exchanged 340,309 shares of its common stock and cash of
approximately $2,800 for all of the outstanding common stock and options to
acquire the common stock of FNB Bancshares, Inc. ("FNB"), parent company of
Effingham Bank. The merger was accounted for as a pooling-of-interests. The
financial statements of the Company for the year ended December 31, 1995 have
been restated to include FNB and the Effingham Bank. 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 and the Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have
a direct material effect on the Company's consolidated financial statements.
Under capital adequacy guidelines the Company and the Banks must meet specific
capital guidelines that involve quantitative measures of the Company's and the
Banks' assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Company's and the Banks'
classifications under the regulatory framework for prompt corrective action are
also subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Banks to maintain minimum amounts and ratios of
total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to
average assets, as defined in the regulations and as set forth in the table
below. Management believes that as of December 31, 1997 the Company and the
Banks meet all capital adequacy requirements to which they are subject.
As of December 31, 1997, the most recent notifications from the Federal
Deposit Insurance Corporation categorized each bank as "well-capitalized" under
the regulatory framework for prompt corrective action. To be categorized as
"well-capitalized", each bank must maintain minimum total risk-based, Tier I
risk-based, and Tier 1 leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed such institutions' category.
The Company's and the Banks' actual capital amounts and ratios as of December
31, 1997 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to
Risk-weighted Assets):
Company $43,529 17.4% $19,983 8.0% Not Applicable
Bulloch Bank 27,639 19.7% 11,200 8.0% $14,000 10.0%
Metter Bank 11,201 16.9% 5,302 8.0% 6,628 10.0%
Effingham Bank 4,527 10.3% 3,499 8.0% 4,374 10.0%
Tier I Capital (to
Risk-weighted Assets):
Company $40,397 16.3% $ 9,991 4.0% Not Applicable
Bulloch Bank 25,884 18.5% 5,600 4.0% $ 8,400 6.0%
Metter Bank 10,369 15.6% 2,651 4.0% 3,977 6.0%
Effingham Bank 3,980 9.1% 1,750 4.0% 2,624 6.0%
Tier I Capital (to
Average Assets):
Company $40,397 10.5% $15,396 4.0% Not Applicable
Bulloch Bank 25,884 11.5% 6,724 3.0% $11,207 5.0%
Metter Bank 10,369 10.4% 2,995 3.0% 4,992 5.0%
Effingham Bank 3,980 6.5% 2,431 4.0% 3,039 5.0%
</TABLE>
<PAGE> 22
LIQUIDITY
The percentage of net loans to deposits was 69.4% at December 31, 1997 and
68.9% at December 31, 1996. At December 31, 1997, the Banks held $44,773,861 in
cash and due from banks, interest bearing deposits and federal funds sold as
compared to $37,736,228 at December 31, 1996. 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, 1997, each Bank's liquidity ratio exceeded 20.1%. 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 $7,991,966 and
$5,368,714 in 1997 and 1996, respectively. Investing activities, which
primarily consist of granting loans to customers and purchasing investment
securities, used cash of $26,033,610 and $27,909,705 in 1997 and 1996,
respectively. The Banks invested $983,951 and $2,405,496 in premises and
equipment in 1997 and 1996, respectively. Cash provided by financing
activities was $21,062,243 and $29,146,202 in 1997 and 1996, respectively.
Financing activities consist primarily of accepting deposits from customers,
the payment of dividends to shareholders, and occasional strategic borrowing
from the Federal Home Loan Bank. Dividend payments were $2,207,930 in 1997 and
$1,699,119 in 1996.
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, and effective June
30, 1997, the Company declared a five-for-four split of its common stock
effected in the form of a 25% stock dividend. All references to share and per
share amounts have been retroactively adjusted to reflect both splits.
FINANCIAL CONDITION
Total assets increased $27,186,894 (7.1%) at December 31, 1997 from December
31, 1996 and increased $33,669,945 (9.6%) at December 31, 1996 from December
31, 1995. The 1997 growth was primarily in interest-bearing deposits and loans
and was funded by an increase in total deposits of $25,158,005 and by
operations of $7,991,966. The 1996 increase was primarily in investment
securities and loans and was funded by an increase in total deposits of
$25,164,629, other borrowings of $5,683,504 and by operations of $5,368,714. 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, 1997 and 1996, $84,476,788 and $85,865,947, respectively, of
investment securities were classified as available for sale. A net unrealized
gain of $217,470 at December 31, 1997 and a net unrealized loss of $22,824 at
December 31, 1996 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 1997 and 1996. Gross unrealized losses for all
investment securities at December 31, 1997 were $101,800. Such losses are not
expected to have any adverse impact on future operations of the Company.
The following table sets forth the carrying amounts of investment securities
available for sale at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
U.S. Treasury Securities..................$13,331,884 $22,156,402 $22,594,548
U.S. Government Agencies.................. 62,398,551 55,678,161 24,923,867
States and Political Subdivisions......... 6,197,101 5,421,832 4,899,323
Other..................................... 2,549,252 2,609,552 1,597,452
----------- ----------- -----------
$84,476,788 $85,865,947 $54,015,190
=========== =========== ===========
</TABLE>
The following table sets forth the maturities of investment securities
available for sale at December 31, 1997, 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):
<PAGE> 23
<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>
U.S. Treasury Securities............ $ 9,496,291 5.65% $ 3,835,593 5.93%
U.S. Government Agencies............ $23,792,817 5.72 34,053,389 5.69 $1,913,613 5.76% $2,638,732 5.99%
States and Political Subdivisions(1) 1,387,028 6.85 2,532,987 6.69 2,277,086 6.84
Other............................... 2,549,252
----------- ----- ----------- ---- ---------- ---- ---------- ----
$33,289,108 5.70% $39,276,010 5.75% $4,446,600 6.29% $7,465,070 6.38%
=========== ==== =========== ==== ========== ==== ========== ====
</TABLE>
The following table sets forth the carrying amounts of investment securities
held to maturity at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
U.S. Treasury Securities........... $ 3,701,283 $ 1,999,082 $ 6,985,104
U.S. Government Agencies........... 1,264,194 2,377,268 17,221,506
States and Political Subdivisions.. 15,881,638 13,781,394 11,571,495
----------- ----------- -----------
$20,847,115 $18,157,744 $35,778,105
=========== =========== ===========
</TABLE>
The following table sets forth the maturities of investment securities held
to maturity at December 31, 1997, 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.......... $ 3,701,283 5.55%
U.S. Government Agencies.......... 999,904 8.16 $ 248,283 9.21% $ 16,007 10.42%
States and Political Subdivisions(1) 2,038,015 9.75 5,563,887 7.17 $4,061,990 7.48% 4,217,746 7.52
----------- ---- ----------- ---- ---------- ---- ---------- -----
$ 6,739,202 7.24% $ 5,812,170 7.26% $4,061,990 7.48% $4,233,753 7.53%
=========== ==== =========== ==== ========== ==== ========== =====
</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.
No securities of a single issuer held by the Company, excluding U. S.
Treasury and U. S. Government Agencies, exceeded 10% of total shareholders'
equity in 1997, 1996, and 1995.
LOANS. Loans net of unearned interest increased $20,673,289 or 8.3% in 1997 as
compared to 1996 and increased $15,934,923 or 7.4% in 1996 as compared to 1995.
These increases were the result of continued strong economic activity, both
consumer and commercial, in the Company's market.
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 generally 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 types of 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.
<PAGE> 24
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 consist
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. Agriculturally related loans comprise
approximately 8.9% of the total loan portfolio at December 31, 1997.
Agriculturally related loans are defined as those loans secured by farmland as
well as those originated to finance agricultural production, which includes
irrigated and non-irrigated row crops, food and feed grain, livestock and other
enterprises, such as timber and pecans. 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.
Agriculturally related loans made for real estate or for equipment follow the
general guidelines discussed below in "Credit Underwriting and Monitoring."
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.
Risks associated with such loans are typically those identified above in
"Commercial, Financial and Agricultural," but also include poor production
associated with unfavorable weather conditions as well as an unfavorable
farm-to-market economic relationship.
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.
The Company operates under 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 has in place 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, Effingham, 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 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 other retail businesses
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.
Springfield-Rincon-Effingham County is included as part of the Savannah-Chatham
County, Georgia Metropolitan Statistical Area. This area has experienced
tremendous growth in recent years as a result of population movement from
Savannah-Chatham County, and the correlating growth in retail and service
businesses from the increased population, and of the establishment of a large
paper mill in the county.
In the manufacturing sector the Company's market area is home to seventy
manufacturers, ranging from meat packing, lumber mills, a paper mill, grey-iron
foundry, meter and valve production, and garment manufacturing to computer form
production, steel recycling, and lawn mower engines. Agriculture and
agribusiness account for approximately one-third of the local economy in terms
of economic impact. Major cash producers include Vidalia onions, peanuts,
cotton, forestry,
<PAGE> 25
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.
The following tables present the composition of the Company's loan portfolio
at December 31 for the past five years as well as the maturities and
sensitivities of loans to changes in interest rates.
LOAN PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Commercial, Financial and Agricultural.. $ 52,950,189 $ 49,837,280 $ 54,600,117 $ 64,999,750 $ 63,548,257
Real Estate - Construction.............. 14,175,794 17,366,129 12,505,746 7,534,115 7,272,112
Real Estate - Mortgage.................. 161,563,698 141,015,449 127,203,963 93,688,443 77,795,102
Installment Loans to Individuals........ 21,622,026 22,838,620 21,686,523 22,945,822 23,307,496
------------ ------------ ------------ ------------ ------------
Total............................... $250,311,707 $231,057,478 $215,996,349 $189,168,130 $171,922,967
============ ============ ============ ============ ============
</TABLE>
The maturities of the indicated loans at December 31, 1997 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....................... $ 28,858,989 $13,611,143 $10,480,057 $ 52,950,189
Real Estate- Construction............ 10,712,954 956,838 2,506,002 14,175,794
Real Estate- Mortgage................ 66,172,253 66,743,447 28,647,998 161,563,698
Installment Loans to Individuals..... 9,463,231 11,905,775 253,020 21,622,026
------------ ----------- ----------- ------------
Total............................ $115,207,427 $93,217,203 $41,887,077 $250,311,707
============ =========== =========== ============
</TABLE>
<TABLE>
<CAPTION>
INTEREST SENSITIVITY
DECEMBER 31, 1997
---------------------------------------
FIXED VARIABLE
RATE RATE TOTAL
---------------------------------------
<S> <C> <C> <C>
Due Within One Year.............................. $ 84,837,405 $30,370,022 $115,207,427
Due After One But Within
Five Years..................................... 59,235,554 33,981,649 93,217,203
Due After Five Years............................. 22,179,287 19,707,790 41,887,077
----------- ----------- -----------
Total........................................ $166,252,246 $84,059,461 $250,311,707
============ =========== ============
</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 "Market Risk."
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.
NONPERFORMING ASSETS. The following table presents a history of the Company's
nonperforming assets at year-end for the past five years.
<PAGE> 26
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Nonaccrual Loans........... $ 434,296 $ 353,389 $ 549,297 $474,045 $ 562,123
Accruing Loans Past Due
at least 90 days......... 133,712 207,420 367,663 419,115 241,560
Restructured Loans......... 648,751 855,515 750,550 1,039,729 413,897
---------- ---------- ---------- ---------- ----------
Total Nonperforming Loans.. 1,216,759 1,416,324 1,667,510 1,932,889 1,217,580
Other Real Estate.......... 368,524 446,500 306,500 492,692 504,000
---------- ---------- ---------- ---------- ----------
Total Nonperforming Assets $1,585,283 $1,862,824 $1,974,010 $2,425,581 $1,721,580
========== ========== ========== ========== ==========
</TABLE>
Interest income that would have been recorded on these nonperforming loans in
accordance with their original terms amounted to $163,401, $171,952, $110,345,
$115,293 and $94,358 in 1997, 1996, 1995, 1994 and 1993, respectively, compared
with amounts received of $96,369, $52,193, $53,462, $53,961 and $23,553 for
such years, respectively. Restructured loans are performing in accordance with
their restructured terms.
Nonaccrual loans by loan category in 1997 included $140,500 in real
estate-construction, $41,011 in real estate- mortgage, $51,324 in consumer
loans $148,621 in commercial loans, and $52,840 in agricultural 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.
DEPOSITS. Average deposits increased $9,869,870 in 1997 and $38,891,138 in
1996. The 1997 increase is primarily the result of a net increase of
$11,565,185 in total time deposits, of $4,352,212 in demand deposits and
$3,108,412 in NOW accounts offset by a $10,426,124 decrease in money market
accounts. The overall cost of funds decreased 0.10% from 1996 to 1997. The
decrease in money market accounts in 1997 is primarily the result of a transfer
out of the Company of $8,300,000 from an established public fund account. The
increase in time deposits is in time deposits over $100,000. The 1996 increase
in NOW accounts is primarily attributable to one new public fund account
obtained through competitive bid and opened on January 2, 1996. This account
maintained an average balance of approximately $5,900,000 in 1997 and
$10,700,000 during 1996. At December 31, 1997 and 1996, time deposits $100,000
and above comprised 25.0% and 24.9% of total deposits and 21.6% and 21.4% of
total assets, respectively. Peer average of time deposits $100,000 and above
to total assets was 9.5% at December 31, 1996. At December 31, 1997 and 1996,
30.1% and 33.8%, 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.
The following table presents the average amount outstanding and the average
rate paid on deposits by the Company for the years 1997, 1996 and 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995
-------------------- ------------------- --------------------
AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------------ ----- ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Deposits:
Demand....................... $ 40,128,073 0.00% $ 35,775,861 0.00% $ 32,728,690 0.00%
NOW........................... 57,994,847 3.23 54,886,435 3.27 39,170,751 2.95
Money Market.................. 26,797,217 3.21 37,223,341 3.40 36,363,393 3.56
Savings....................... 14,380,510 3.12 13,110,326 3.19 12,181,251 3.17
Time ($100,000 and above)..... 84,007,293 6.02 74,498,750 6.08 66,101,805 6.05
Other Time.................... 100,672,800 5.62 98,616,158 5.87 88,673,843 5.85
------------ ---- ------------ ---- ------------ ----
Total...................... $323,980,740 4.29% $314,110,871 4.39% $275,219,733 4.37%
============ ==== ============ ==== ============ ====
</TABLE>
<PAGE> 27
As of December 31, 1997, time deposits of $100,000 or more totaled
$88,807,158. The maturities of all time deposits over $100,000 are as follows:
<TABLE>
<S> <C>
Three months or less......................... $33,788,512
Over three months through six months......... 23,140,502
Over six months through twelve months........ 22,904,418
Over twelve months........................... 8,973,726
-----------
Total...................................... $88,807,158
===========
</TABLE>
OTHER BORROWED MONEY. Other borrowed money decreased $1,499,608 from December
31, 1996 to December 31, 1997 and increased $3,683,504 from December 31, 1995
to December 31, 1996. Funds are strategically borrowed from the Federal Home
Loan Bank of Atlanta as a means of 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. At December 31, 1997, the Company also had
short-term borrowings outstanding of $1,400,000 in repurchase agreements.
There were no short-term borrowings for which the average balance outstanding
during the period was more than 30% of shareholders' equity for each of the
years ended December 31, 1997, 1996 and 1995.
MARKET RISK
ASSET AND LIABILITY MANAGEMENT. The Company's principal business is the making
of loans, funded by customer deposits and, occasionally, other borrowed funds.
Consequently, a significant portion of the Company's assets and liabilities are
monetary in nature and fluctuations in interest rates will affect the Company's
future net interest income and cash flows. This interest rate risk is the
Company's primary market risk exposure. The Company does not enter into
derivative financial instruments such as futures, forwards, swaps, and options.
Also, the Company has no market risk- sensitive instruments held for trading
purposes. The Company's exposure to market risk is reviewed on a regular basis
by its management.
The Company measures interest rate sensitivity as the difference between
amounts of interest- earning assets and interest-bearing liabilities which
either reprice or mature within a given period of time. The difference, or the
interest rate repricing "gap," provides an indication of the extent to which an
institution's interest rate spread will be affected by changes in interest
rates. A gap is considered positive when the amount of interest-rate sensitive
assets exceeds the amount of interest-rate sensitive liabilities and is
considered negative when the amount of interest rate sensitive liabilities
exceeds the amount of interest-rate sensitive assets. Generally, during a
period of rising interest rates, a negative gap within shorter maturities would
adversely affect net interest income, while a positive gap within shorter
maturities would result in an increase in net interest income, and during a
period of falling interest rates, a negative gap within shorter maturities
would result in an increase in net interest income while a positive gap within
shorter maturities would have the opposite effect.
The table below depicts the Company's interest risk at December 31, 1997.
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
$63,227,000 (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 $119,740,750 are not
interest rate sensitive.
<PAGE> 28
INTEREST RATE SENSITIVITY ANALYSIS
December 31, 1997 (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 $ 16,367 $ 16,367
Investment Securities 20,199 $ 19,830 $ 45,088 $ 20,207 105,324
Federal Funds Sold 3,775 3,775
Loans 112,410 52,854 62,194 22,854 250,312
-------- -------- -------- -------- --------
Total Interest
Earning Assets 152,751 72,684 107,282 43,061 375,778
Non-interest Earning
Assets 35,445 35,445
-------- -------- -------- -------- --------
Total Assets $152,751 $ 72,684 $107,282 $ 78,506 $411,223
======== ======== ======== ======== ========
Interest Bearing Liabilities:
Interest Bearing Deposits $190,185 $ 95,964 $ 22,675 $308,824
Short-term Borrowings 300 700 400 1,400
Other Borrowed Money 785 728 4,022 $ 3,883 9,418
-------- -------- -------- -------- --------
Total Interest Bearing 191,270 97,392 27,097 3,883 319,642
Liabilities
Interest Free Deposits 45,981 45,981
Other Interest Free
Liabilities and Equity 45,600 45,600
-------- -------- -------- -------- --------
Total Liabilities & Equity $191,270 $ 97,392 $ 27,097 $ 95,464 $411,223
======== ======== ======== ======== ========
Net Interest Rate
Sensitivity Gap $(38,519) $(24,708) $80,185 $(16,958)
Cumulative Gap $(38,519) $(63,227) $16,958
Net Interest Rate
Sensitivity Gap as a
Percent of Interest
Earning Assets (25.22) (33.99) 74.74 (39.38)
Cumulative Gap as a Percent
of Cumulative Interest
Earning Assets (25.22) (28.05) 5.10
</TABLE>
<PAGE> 29
The following table sets forth the consolidated average balance sheets for
the Company, total interest earned on earning assets, total interest paid on
deposits, and average rates earned on earning assets and paid on interest
bearing liabilities. This information is presented for the years ended
December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEETS, INCOME/EXPENSE AND AVERAGE
YIELDS EARNED AND RATES PAID
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------------------------------------
1997 1996 1995
--------------------------------- --------------------------------- ---------------------------------
AVERAGE INTEREST YIELD/ AVERAGE INTEREST YIELD/ AVERAGE INTEREST YIELD/
BALANCE EARNED/PAID RATE BALANCE EARNED/PAID RATE BALANCE EARNED/PAID RATE
------------ ----------- ------ ------------ ----------- ------ ------------ ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Assets:
Interest Bearing Deposits
in Other Banks......... $11,910,890 $ 672,159 5.64% $10,633,446 $ 584,746 5.50% $12,556,038 $ 755,892 6.01%
Investment Securities:
Taxable................ 76,139,093 4,571,210 6.00 83,224,586 5,111,510 6.14 63,315,691 3,815,850 6.03
Tax Exempt(1).......... 20,193,215 1,084,100 7.60 16,981,576 859,929 7.14 14,342,909 881,278 8.78
Federal Funds Sold....... 3,191,193 199,988 5.53 8,263,873 418,504 5.35 4,909,650 268,331 5.47
Loans (Less Unearned):
Taxable (2)............ 236,880,257 24,613,628 10.39 218,746,182 23,358,479 10.68 198,786,488 21,477,088 10.80
Tax Exempt(1).......... 4,828,943 321,646 9.56 2,976,186 234,809 11.42 3,498,118 249,364 10.27
------------ ----------- ----- ----------- ----------- ----- ------------ ------------ -----
Interest Earning
Assets(1)................. 353,143,591 31,462,731 9.08 340,825,849 30,567,977 9.10 297,408,894 27,447,803 9.39
Non-Interest Earning
Assets:
Cash and Non-interest
bearing Deposits........ 13,931,555 12,690,146 10,391,126
Interest Receivable...... 4,844,170 4,652,260 4,026,487
Premises and Equipment,
Net..................... 7,254,940 6,389,377 5,251,465
Other Real Estate........ 630,429 369,197 450,852
Other Assets............. 2,264,412 2,314,288 2,406,137
Less: Allowance for
Loan Losses........ (4,056,133) (4,075,648) (3,517,734)
------------ ------------ ------------
Total.................. $378,012,964 $363,165,469 $316,417,227
============ ============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Deposits:
NOW .................... $ 57,994,847 $ 1,875,013 3.23% $ 54,886,435 $ 1,793,576 3.27% $ 39,170,751 $ 1,155,231 2.95%
Money Market Deposit
Accounts............... 26,797,217 859,518 3.21 37,223,341 1,265,473 3.40 36,363,393 1,292,854 3.56
Savings................ 14,380,510 448,766 3.12 13,110,326 418,777 3.19 12,181,251 386,571 3.17
Time:
Certificates of Deposits
over $100,000.......... 84,007,293 5,057,137 6.02 74,498,750 4,528,026 6.08 66,101,805 3,998,332 6.05
Other Time.............. 100,672,800 5,656,899 5.62 98,616,158 5,783,882 5.87 88,673,843 5,184,666 5.85
Other Borrowed Money....... 10,651,997 737,760 6.93 9,194,557 617,601 6.72 5,539,147 400,390 7.23
------------ ---------- ----- ------------ ---------- ----- ------------ ---------- ----
Total Interest Bearing
Liabilities............... 294,504,664 14,635,093 4.97 287,529,567 14,407,335 5.01 248,030,190 12,418,044 5.01
---------- ---------- ----------
Non-Interest Bearing
Liabilities:
Demand Deposits......... 40,128,073 35,775,861 32,728,690
Interest Payables....... 3,203,323 3,174,297 2,464,105
Other Liabilities....... 1,086,226 1,057,999 1,250,224
Shareholders' Equity...... 39,090,678 35,627,745 31,944,018
------------ ------------ ------------
Total................... $378,012,964 $363,165,469 $316,417,227
============ ============ ============
Net Interest Earnings..... $16,827,638 $16,160,642 $15,029,759
=========== =========== ===========
Net Yield on Interest
Earning Assets (1)..... 4.93% 4.88% 5.22%
==== ==== ====
</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 percent
to allow for estimated disallowance of interest expense.
(2). Total interest income includes loan fees of $797,924 in 1997, $789,618 in
1996 and $721,902 in 1995. No separate treatment has been made for
non-accrual loans.
<PAGE> 30
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>
1997 COMPARED TO 1996 1996 COMPARED TO 1995
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
---------------------------------------------- ------------------------------------------
VOLUME(1) RATE(1) NET VOLUME(1) RATE(1) NET
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Interest Bearing Deposits......... $ 72,130 $ 15,283 $ 87,413 $ (110,119) $ (61,027) $ (171,146)
Loans:
Taxable......................... 1,866,519 (611,370) 1,255,149 2,115,491 (234,100) 1,881,391
Tax-Exempt...................... 117,607 (30,770) 86,837 (58,336) 43,781 (14,555)
Investments:
Taxable......................... (426,165) (114,135) (540,300) 1,223,860 64,440 1,288,300
Tax-Exempt...................... 167,210 56,961 224,171 14,085 (12,476) 1,609
Federal Funds Sold................ (231,188) 12,672 (218,516) 168,680 (18,506) 150,174
---------- ----------- ---------- ----------- ---------- ----------
Total Interest Income............... 1,566,113 (671,359) 894,754 3,353,661 (217,888) 3,135,773
---------- ----------- ---------- ----------- ---------- ----------
Interest Expense:
NOW............................... 103,873 (22,436) 81,437 502,488 135,857 638,345
Savings........................... 38,770 (8,781) 29,989 29,745 2,461 32,206
Money Market Deposit Accounts..... (338,434) (67,521) (405,955) 30,407 (57,788) (27,381)
Certificate of Deposits
Over $100,000.................... 573,449 (44,338) 529,111 509,794 19,900 529,694
Other Time........................ 121,845 (248,828) (126,983) 581,485 17,730 599,215
Other Borrowed Money.............. 100,371 19,788 120,159 243,208 (25,996) 217,212
---------- ----------- ---------- ----------- ---------- ----------
Total Interest Expense.............. 599,874 (372,116) 227,758 1,897,127 92,164 1,989,291
---------- ----------- ---------- ----------- ---------- ----------
Net Interest Earnings............... $ 966,239 $ (299,243) $ 666,996 $1,456,534 $ (310,052) $1,146,482
========== =========== ========== =========== ========== ==========
</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.
RESULTS OF OPERATIONS
INTEREST INCOME
Total interest income increased $894,754 (2.9%) in 1997 from 1996 and
increased $3,120,174 (11.4%) in 1996 from 1995. Interest on loans increased
$1,341,986 in 1997 from 1996 and increased $1,866,836 in 1996 from 1995. The
increase in 1997 is the result of an increase in average loans outstanding of
$19,986,832 offset by a decrease in the taxable equivalent yield on the loan
portfolio from 10.7% in 1996 to 10.4% in 1997. The increase in 1996 is
primarily the result of an increase in average loans outstanding of
$19,437,762. The loan growth in 1997 and 1996 is reflected primarily in Real
Estate-Mortgage loans, which are made for commercial, financial or agricultural
purposes.
Interest on investments decreased $316,129 (5.3%) in 1997 from 1996 and
increased $1,274,311 (27.1%) in 1996 from 1995. The decrease in 1997 is the
result of a decrease in the average investment portfolio of $3,873,854 offset
by a nominal increase in taxable equivalent yield of 0.03% from 1996 to 1997.
The increase in 1996 is the result of an increase in the average investment
portfolio of $22,547,562 offset by lower average yields within the portfolio
from 6.5% in 1995 to 6.3% in 1996.
During 1997, interest on federal funds sold decreased $218,516 (52.2%) from
1996 and increased $150,173 (56.0%) in 1996 from 1995, while interest on
interest bearing deposits increased $87,413 (14.9%) in 1997 from 1996 and
decreased $171,146 (22.6%) in 1996 from 1995. The decrease in income from
federal funds sold and the increase in income from interest bearing deposits in
other banks during 1997 is primarily the result of an overall decrease in total
funds available for short-term investment offset by higher rates paid on these
short-term investments from 5.4% in 1996 to 5.6% in 1997. The net decrease of
$20,972 in total interest on interest bearing deposits and federal funds sold
in 1996 is the result of a decrease in the yield on such investments from 5.86%
in 1995 to 5.31% in 1996 offset by an increase in the average balance of
$1,431,631.
INTEREST EXPENSE
During 1997 interest paid on deposits increased $107,599 (0.8%) from 1996 and
increased $1,772,080 (14.7%) in 1996 from 1995. The 1997 increase is the
result of an increase in average interest bearing deposits of $5,517,657 offset
by a decrease in the average rate paid on deposits from 5.0% in 1996 to 4.9% in
1997. The 1996 increase is solely the result of an increase of $35,843,967 in
average interest bearing deposits.
<PAGE> 31
NET INTEREST MARGIN
The interest margin of the Company, the spread between interest income and
interest expense, was 4.9% in both 1997 and 1996 and 5.2% in 1995. The margin
is the result of careful management of both the growth and the pricing of loans
and deposits in a competitive interest rate environment.
PROVISION FOR LOAN LOSSES
Provision for loan losses increased $237,374 in 1997 from 1996 and decreased
$164,389 in 1996 from 1995. 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, 1997 and 1996, the allowance for loan losses was 1.6% and 1.8%,
respectively, of outstanding loans less unearned interest. Total nonperforming
loans were $1,216,759 at December 31, 1997 and $1,416,324 at December 31, 1996.
The allowance for loan losses was 3.2 and 2.8 times total nonperforming loans
at December 31, 1997 and 1996, respectively. Net charge-offs amounted to
$1,036,289 in 1997 as compared to $526,693 in 1996. The increase in net
charge-offs in 1997 is directly the result of a charge-off of $632,110 on one
credit line. 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, 1997.
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,
--------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Average Amount of Loans......................... $241,709,200 $221,722,368 $202,284,606 $180,191,264 $171,448,186
============ ============ ============ ============ ============
Analysis of the Allowance for Loan Losses:
Balance at Beginning of Period.................. $ 4,024,539 $ 3,856,321 $ 3,274,587 $ 2,852,712 $ 2,783,559
------------ ------------ ------------ ------------ -----------
Loans Charged off:
Commercial, Financial and Agricultural........ 851,356 254,876 88,777 70,117 312,463
Real Estate - Mortgage........................ 155,341 336 2,514 34,738
Installment Loans to Individuals.............. 222,733 403,947 253,294 254,231 406,597
------------ ------------ ------------ ------------ -----------
Total Loans Charged off................... 1,229,430 659,159 342,071 326,862 753,798
------------ ------------ ------------ ------------ -----------
Recoveries on Loans Previously Charged off:
Commercial, Financial and Agriculture......... 63,934 55,393 12,907 33,123 35,904
Real Estate - Mortgage........................ 5,450
Installment Loans to Individuals.............. 123,757 77,073 51,598 83,541 60,279
------------ ----------- ------------ ------------ -----------
Total Recoveries.......................... 193,141 132,466 64,505 116,664 96,183
------------ ----------- ------------ ------------ -----------
Net Loans Charged off........................... 1,036,289 526,693 277,566 210,198 657,615
Additions to Allowance Charged to Expense....... 932,285 694,911 859,300 632,073 726,768
------------ ----------- ------------ ------------ -----------
Balance at End of Period........................ $ 3,920,535 $ 4,024,539 $ 3,856,321 $ 3,274,587 $ 2,852,712
============ =========== ============ ============ ===========
Ratio of Net Charge-offs during the period
to Average Loans Outstanding................... 0.43% 0.24% 0.14% 0.12% 0.38%
============ =========== ============ ============ ===========
Provision for Loan Losses shown on the
Selected Financial Data........................ $ 932,285 $ 694,911 $ 859,300 $ 632,073 $ 726,768
============ =========== ============ ============ ===========
</TABLE>
The Company'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 1998 is
as follows:
<TABLE>
<S> <C>
Commercial, Financial and Agricultural.......................................... $175,000
Real Estate - Mortgage.......................................................... 25,000
Installment Loans to Individuals................................................ 200,000
--------
Total........................................................................ $400,000
========
</TABLE>
<PAGE> 32
NON-INTEREST INCOME AND EXPENSE
Non-interest income increased $395,431 in 1997 from 1996 and increased
$209,498 in 1996 from 1995. The increase in 1997 non-interest income is the
result of increases in service charges on deposit accounts of $181,393 and in
other income of $221,120 offset by a $7,082 decrease in trust income. The
increase in service charges on deposit accounts is the result of a full year
effect of service charge adjustments made in the later part of 1996, and the
increase in Other Service Charges is primarily the result of an increase of
$54,154 in income from long-term mortgage loans originated for other banks, of
an increase of $27,455 in commissions on mutual funds, annuities, and life
insurance, and from a gain of $110,516 from the sale of a pool of
SBA-guaranteed loans. The increase in non-interest income in 1996 is primarily
the result of an increase of $166,617 in service charges on deposit accounts,
of $15,710 in trust income, and of $26,188 in income from long-term mortgage
loans originated for other banks.
Non-interest expense increased $676,941 in 1997 from 1996 and $588,959 in
1996 from 1995. The increases in non- interest expense resulted from an
increase in total salary and personnel expense of $476,329 in 1997 and $134,204
in 1996, an increase in total occupancy and equipment expense of $388,378 in
1997 and $208,865 in 1996, and a decrease in Other Expense of $187,766 in 1997
and an increase in such expense of $245,890 in 1996. The increase in salary
and employee expense is the result of increases in health insurance premiums,
the adoption of benefit plans for employees of Effingham Bank, and increases in
benefit plan expense at Bulloch Bank and Metter Bank related to the restatement
of the benefit plans in prior years. The increase in occupancy and equipment
expense is primarily the result of an increase in depreciation expense of
$238,000 related to various capital projects in 1996. The decrease in Other
Expense was offset by an increase of $94,578 in assessments paid to the FDIC
and OCC for deposit insurance premiums and for FICO bond payments and also
offset by an increase in service charges paid to correspondent banks of
$64,837. The increase in other expense in 1996 included approximately $374,000
in non-recurring merger expenses related to the Effingham Bank transaction.
INCOME TAXES
The decrease in the provision for income taxes of $141,810 in 1997 and the
increase of $447,817 in 1996 resulted from changes in taxable income. The
effective tax rate for 1997, 1996 and 1995 was 29%, 32%, and 29%, respectively.
The effective tax rate is lower than the statutory rate of 34% because of the
Banks' investments in tax-exempt securities and loans.
NEW ACCOUNTING STANDARD
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" and SFAS No. 131 "Disclosures about Segments of an
Enterprise and Related Information." SFAS 130 establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general purpose financial
statements. SFAS 131 establishes standards for, among other things, reporting
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. SFAS 130 and 131
are effective for financial statements issued for periods beginning after
December 15, 1997.
YEAR 2000 ISSUES
Year 2000 issues relate to the anticipated failure of computer systems to
accurately process dates falling in the next century as a result of a common
programming convention of representing years with two digits rather than four
digits. Programs that are time sensitive may recognize a date using "00" as
the year 1900 rather than the year 2000. This misinterpretation of the year
could result in an incorrect computation or a computer shutdown.
The Company has completed an evaluation of the Company's computer information
systems and has identified those systems which will require program
modifications or new software installations in order to function properly for
the year 2000. The Company has developed a plan to resolve the issue. The
plan contemplates, among other things, the replacement or modification of
existing information systems as necessary. Because the primary hardware and
software systems are presently Year 2000 compliant, the Company does not expect
to incur any significant costs relating to software modifications or new
installations for the other systems by December 1998. Most systems are made
compliant through periodic software upgrades provided by the various vendors as
a part of the license agreements. The Company does not expect significant
internal resources to be used in this process.
<PAGE> 33
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 Company's business is presently conducted by its
wholly- owned subsidiaries, First Bulloch Bank & Trust Company ("Bulloch
Bank"), Metter Banking Company ("Metter Bank"), and First National Bank of
Effingham ("Effingham 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. On August 27, 1996, FNB Bancshares, Inc. ("FNB") combined with the
Company, and FNB's subsidiary, Effingham Bank, became a wholly-owned subsidiary
of the Company.
As of December 31, 1997, the Company had consolidated assets of
approximately $411 million, consolidated deposits of approximately $355 million
and consolidated shareholders' equity of approximately $41 million.
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 and Effingham Bank.
As of December 31, 1997, Bulloch Bank had a headquarters building,
four branch offices and eight ATM installations, and Metter Bank had a
headquarters building, a drive-in facility, three ATM installations and a
supermarket branch office. The Effingham Bank had a headquarters building, two
branch offices and three ATM installations.
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 50,400.
Bulloch Bank competes for all types of loans, deposits, and other financial
services with three other commercial banks and a branch of a regional bank in
Bulloch County. As of December 31, 1997, 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 9,000. 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 three financial institutions in
its primary service area, based upon total deposits and total assets.
Effingham Bank's primary market area consists of Effingham County,
Georgia, which is included in the Savannah- Chatham County Metropolitan
Statistical Area. The county has been recognized as one of the "bedroom"
communities of Savannah and had an estimated population of 33,400 at December
31, 1997. The Bank competes for all types of loans, deposits and other
financial services with one community bank and two branches of a regional
bank. As of December 31, 1997 Effingham Bank was the largest of the two
community banks in its market area, based upon total deposits and total assets.
The Company also competes with other financial institutions that are
located in Bulloch, Candler and Effingham counties as well as with commercial
banks, savings and loan associations, other financial institutions and
brokerage houses located in Chatham, Evans, Bryan, Screven, Tattnall 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.
<PAGE> 34
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, 1997,
Bulloch Bank had ninety (90) full-time employees and twelve (12) part-time
employees; Metter Bank had thirty-nine (39) full-time employees and four (4)
part-time employees; and Effingham Bank had twenty-nine (29) full-time
employees and six (6) part-time employees. Management considers employee
relations to be generally good. Neither the Company nor the Banks have
collective bargaining agreements with any employees.
SUPERVISION AND REGULATION
The following discussion sets forth the material elements of the
regulatory framework applicable to banks and bank holding companies and
provides certain specific information related to the Company.
GENERAL
The Company is a bank holding company registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve") under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). As such, the Company
and any non-bank subsidiaries are subject to the supervision, examination, and
reporting requirements of the BHC Act and the regulations of the Federal
Reserve.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (a) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or
control more than 5% of the voting shares of the bank; (b) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of any bank; or (c) it may merge or consolidate with any other bank
holding company.
The BHC Act further provides that the Federal Reserve may not approve
any transaction that would result in a monopoly or would be in furtherance of
any combination or conspiracy to monopolize or attempt to monopolize the
business of banking in any section of the United States, or the effect of which
may be substantially to lessen competition or to tend to create a monopoly in
any section of the country, or that in any other manner would be in restraint
of trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to
consider the financial and managerial resources and future prospects of the
bank holding companies and banks concerned and the convenience and needs of the
community to be served. Consideration of financial resources generally focuses
on capital adequacy, which is discussed below.
The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"), which became effective on September 29, 1995,
repealed the prior statutory restrictions on interstate acquisitions of banks
by bank holding companies, such that the Company, and any other bank holding
company located in Georgia, may now acquire a bank located in any other state,
and any bank holding company located outside Georgia may lawfully acquire any
Georgia-based bank, regardless of state law to the contrary, in either case
subject to certain deposit-percentage, aging requirements, and other
restrictions. The Interstate Banking Act also generally provides that, as of
June 1, 1997, national and state-chartered banks may now branch interstate
through acquisitions of banks in other states. By adopting legislation prior
to that date, a state has the ability either to "opt in" and accelerate the
date after which interstate branching is permissible or "opt out" and prohibit
interstate branching altogether.
In response to the Interstate Banking Act, the Georgia General
Assembly adopted the Georgia Interstate Banking Act, which was effective on
July 1, 1995. The Georgia Interstate Banking Act provides that (i) interstate
acquisitions by institutions located in Georgia will be permitted in states
that also allow national interstate acquisitions and (ii) interstate
acquisitions of institutions located in Georgia will be permitted by
institutions in states that allow national interstate acquisitions.
Additionally, on January 26, 1996, the Georgia General Assembly
adopted the Georgia Interstate Branching Act, which permits 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 to merge any lawfully acquired bank into an interstate branch network.
The Georgia Interstate Branching Act also allows banks to establish de novo
branches on a limited basis as of July 1, 1996. Beginning July 1, 1998, the
number of de novo branches that may be established will no longer be limited.
<PAGE> 35
The BHC Act generally prohibits the Company from engaging in
activities other than banking or managing or controlling banks or other
permissible subsidiaries and from acquiring or retaining direct or indirect
control of any company engaged in any activities other than those activities
determined by the Federal Reserve to be so closely related to banking or
managing or controlling banks as to be a proper incident thereto. In
determining whether a particular activity is permissible, the Federal Reserve
must consider whether the performance of such an activity reasonably can be
expected to produce benefits to the public, such as greater convenience,
increased competition, or gains in efficiency, that outweigh possible adverse
effects, such as undue concentration of resources, decreased or unfair
competition, conflicts of interest, or unsound banking practices. For example,
factoring accounts receivable, acquiring or servicing loans, leasing personal
property, conducting discount securities brokerage activities, performing
certain data processing services, acting as agent or broker in selling credit
life insurance and certain other types of insurance in connection with credit
transactions, and performing certain insurance underwriting activities all have
been determined by the Federal Reserve to be permissible activities of bank
holding companies. The BHC Act does not place territorial limitations on
permissible non-banking activities of bank holding companies. Despite prior
approval, the Federal Reserve has the power to order a holding company or its
subsidiaries to terminate any activity or to terminate its ownership or control
of any subsidiary when it has reasonable cause to believe that continuation of
such activity or such ownership or control constitutes a serious risk to the
financial safety, soundness, or stability of any bank subsidiary of that bank
holding company.
Each of the bank subsidiaries of the Company is a member of the
Federal Deposit Insurance Corporation (the "FDIC"), and as such, its deposits
are insured by the FDIC to the maximum extent provided by law. Each such
subsidiary is also subject to numerous state and federal statutes and
regulations that affect its business, activities, and operations, and each is
supervised and examined by one or more state or federal bank regulatory
agencies.
The regulatory agencies having supervisory jurisdiction over the bank
subsidiaries (the FDIC and the Georgia Department of Banking and Finance ((the
"Georgia Department")) for state-chartered banks and the Office of the
Comptroller ((the "OCC")) for national banks) regularly examine the operations
of the subsidiary banks and are given authority to approve or disapprove
mergers, consolidations, the establishment of branches, and similar corporate
actions. The regulatory agencies also have the power to prevent the
continuance or development of unsafe or unsound banking practices or other
violations of law.
PAYMENT OF DIVIDENDS
The Company is a legal entity separate and distinct from its banking
and other subsidiaries. The principal sources of cash flow of the Company,
including cash flow to pay dividends to its shareholders, are dividends by its
subsidiary banks. There are statutory and regulatory limitations on the
payment of dividends by the subsidiary banks to the Company as well as by the
Company to its shareholders.
If, in the opinion of the federal banking regulator, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
depository institution, could include the payment of dividends), such authority
may require, after notice and hearing, that such institution cease and desist
from such practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. See "-- Prompt
Corrective Action." Moreover, the federal agencies have issued policy
statements that provide that bank holding companies and insured banks should
generally only pay dividends out of current operating earnings.
Under dividend restrictions imposed under federal and state laws, the
subsidiary banks, without obtaining governmental approvals, could declare
aggregate dividends to the Company of up to $2,731,942 (representing 50% of the
previous year's net income) in 1998.
The payment of dividends by the Company and the subsidiary banks may
also be affected or limited by other factors, such as the requirement to
maintain adequate capital above regulatory guidelines.
<PAGE> 36
CAPITAL ADEQUACY
The Company and its subsidiary banks are required to comply with the
capital adequacy standards established by the Federal Reserve and the
appropriate federal banking regulator in the case of its banking subsidiaries.
There are two basic measures of capital adequacy for bank holding companies
that have been promulgated by the Federal Reserve: a risk-based measure and a
leverage measure. All applicable capital standards must be satisfied for a
bank holding company to be considered in compliance.
The risk-based capital standards are designed to make regulatory
capital requirements more sensitive to differences in risk profile among banks
and bank holding companies, to account for off-balance-sheet exposure, and to
minimize disincentives for holding liquid assets. Assets and off-balance-sheet
items are assigned to broad risk categories, each with appropriate weights.
The resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance-sheet items.
The minimum guideline for the ratio (the "Total Risk-Based Capital
Ratio") of total capital ("Total Capital") to risk-weighted assets (including
certain off-balance-sheet items, such as standby letters of credit) is 8%. At
least half of Total Capital must comprise common stock, minority interests in
the equity accounts of consolidated subsidiaries, noncumulative perpetual
preferred stock, and a limited amount of cumulative perpetual preferred stock,
less goodwill and certain other intangible assets ("Tier 1 Capital"). The
remainder may consist of subordinated debt, other preferred stock, and a
limited amount of loan loss reserves ("Tier 2 Capital"). At December 31, 1997,
the Company's consolidated Total Risk-Based Capital Ratio and its Tier 1
Risk-Based Capital Ratio (i.e., the ratio of Tier 1 Capital to risk-weighted
assets) were 17.4% and 16.3% respectively.
In addition, the Federal Reserve has established minimum leverage
ratio guidelines for bank holding companies. These guidelines provide for a
minimum ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less
goodwill and certain other intangible assets, of 3% for bank holding companies
that meet certain specified criteria, including having the highest regulatory
rating. All other bank holding companies generally are required to maintain a
Leverage Ratio of at least 3%, plus an additional cushion of 100 to 200 basis
points. The Company's Leverage Ratio at December 31, 1997 was 10.5%. The
guidelines also provide that bank holding companies experiencing internal
growth or making acquisitions will be expected to maintain strong capital
positions substantially above the minimum supervisory levels without
significant reliance on intangible assets. Furthermore, the Federal Reserve
has indicated that it will consider a "tangible Tier 1 Capital Leverage Ratio"
(deducting all intangibles) and other indicia of capital strength in evaluating
proposals for expansion or new activities.
The subsidiary banks are subject to risk-based and leverage capital
requirements adopted by the FDIC, which are substantially similar to those
adopted by the Federal Reserve for bank holding companies.
Each of the subsidiary banks was in compliance with applicable minimum
capital requirements as of December 31, 1997. The Company has not been advised
by any federal banking agency of any specific minimum capital ratio requirement
applicable to it or its subsidiary depository institutions.
Failure to meet capital guidelines could subject a bank to a variety
of enforcement remedies, including issuance of a capital directive, the
termination of deposit insurance by the FDIC, a prohibition on the taking of
brokered deposits, and certain other restrictions on its business. As
described below, substantial additional restrictions can be imposed upon
FDIC-insured depository institutions that fail to meet applicable capital
requirements. See "-- Prompt Corrective Action."
The federal bank regulators continue to indicate their desire to raise
capital requirements applicable to banking organizations beyond their current
levels. In this regard, the Federal Reserve and the FDIC have, pursuant to
FDICIA, recently adopted final regulations requiring regulators to consider
interest rate risk (when the interest rate sensitivity of an institution's
assets does not match the sensitivity of its liabilities or its
off-balance-sheet position) in the evaluation of a bank's capital adequacy.
The bank regulatory agencies' methodology for evaluating interest rate risk
requires banks with excessive interest rate risk exposure to hold additional
amounts of capital against such exposures.
SUPPORT OF SUBSIDIARY INSTITUTIONS
Under Federal Reserve policy, the Company is expected to act as a
source of financial strength for, and to commit resources to support, each of
its banking subsidiaries. This support may be required at times when, absent
such Federal Reserve policy, the Company may not be inclined
<PAGE> 37
to provide it. In addition, any capital loans by a bank holding company to any
of its banking subsidiaries are subordinate in right of payment to deposits and
to certain other indebtedness of such banks. In the event of a bank holding
company's bankruptcy, any commitment by the bank holding company to a federal
bank regulatory agency to maintain the capital of a banking subsidiary will be
assumed by the bankruptcy trustee and entitled to a priority of payment.
Under the Federal Deposit Insurance Act ("FDIA"), a depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC after August 9, 1989, in
connection with (a) the default of a commonly controlled FDIC-insured
depository institution or (b) any assistance provided by the FDIC to any
commonly controlled FDIC-insured depository institution "in danger of default."
"Default" is defined generally as the appointment of a conservator or receiver,
and "in danger of default" is defined generally as the existence of certain
conditions indicating that a default is likely to occur in the absence of
regulatory assistance. The FDIC's claim for damages is superior to claims of
shareholders of the insured depository institution or its holding company, but
is subordinate to claims of depositors, secured creditors, and holders of
subordinated debt (other than affiliates) of the commonly controlled insured
depository institution. The subsidiary depository institutions of the Company
are subject to these cross-guarantee provisions. As a result, any loss
suffered by the FDIC in respect of these subsidiaries would likely result in
assertion of the cross-guarantee provisions, the assessment of such estimated
losses against the depository institution's banking affiliates, and a potential
loss of the Company's investment in such other subsidiary depository
institutions.
PROMPT CORRECTIVE ACTION
FDICIA establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system, which became
effective in December 1992, the federal banking regulators are required to
establish five capital categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized) and to take certain mandatory supervisory actions, and are
authorized to take other discretionary actions, with respect to institutions in
the three undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed. Generally, subject to
a narrow exception, FDICIA requires the banking regulator to appoint a receiver
or conservator for an institution that is critically undercapitalized. The
federal banking agencies have specified by regulation the relevant capital
level for each category.
The capital levels established for each of the categories are as
follows:
<TABLE>
<CAPTION>
Total Tier 1 Risk-
Capital Category Tier 1 Capital Risk-Based 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 4% or more 8% or more 4% or more --
Capitalized
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>
For purposes of the regulation, the term "tangible equity" includes
core capital elements counted as Tier 1 Capital for purposes of the risk-based
capital standards, plus the amount of outstanding cumulative perpetual
preferred stock (including related surplus), minus all intangible assets with
certain exceptions. A depository institution may be deemed to be in a
capitalization category that is lower than is indicated by its actual capital
position if it receives an unsatisfactory examination rating.
<PAGE> 38
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
Under FDICIA, a bank holding company must guarantee that a subsidiary
depository institution meets its capital restoration plan, subject to certain
limitations. The obligation of a controlling holding company under FDICIA to
fund a capital restoration plan is limited to the lesser of 5% of an
undercapitalized subsidiary's assets or the amount required to meet regulatory
capital requirements. An undercapitalized institution is also generally
prohibited from increasing its average total assets, making acquisitions,
establishing any branches, or engaging in any new line of business, except in
accordance with an accepted capital restoration plan or with the approval of
the FDIC. In addition, the appropriate federal banking agency is given
authority with respect to any undercapitalized depository institution to take
any of the actions it is required to or may take with respect to a
significantly undercapitalized institution as described below if it determines
"that those actions are necessary to carry out the purpose" of FDICIA.
At December 31, 1997, each subsidiary bank had the requisite capital
levels to qualify as well capitalized.
FDIC INSURANCE ASSESSMENTS
Pursuant to FDICIA, 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,
assigns an institution to one of three capital categories: (a) well
capitalized; (b) adequately capitalized; and (c) 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 in May 1995, the
FDIC reduced the assessment rate applicable to BIF deposits in two stages, so
that, beginning 1996, the deposit insurance premiums for 92% of all BIF members
in the highest capital and supervisory categories were set at $2,000 per year,
regardless of deposit size. The FDIC elected to retain the existing assessment
rate range of 23 to 31 basis points for SAIF members for the foreseeable future
given the undercapitalized nature of that insurance fund.
Recognizing that the disparity between the SAIF and BIF premium rates
had adverse consequences for SAIF-insured institutions and other banks with
SAIF assessed deposits, including reduced earnings and an impaired ability to
raise funds in capital markets and to attract deposits, in July 1995, the FDIC,
the Treasury Department, and the Office of Thrift Supervision released
statements outlining a proposed plan to recapitalize the SAIF, the principal
feature of which was a special one-time assessment on depository institutions
holding SAIF-insured deposits, which was intended to recapitalize the SAIF at a
reserve ratio of 1.25%. This proposal contemplated elimination of the
disparity between the assessment rates on BIF and SAIF deposits following
recapitalization of the SAIF.
A variation of this proposal designated the Deposit Insurance Funds
Act of 1996 (the "Funds Act") was enacted by Congress as part of the omnibus
budget legislation and signed into law on September 30, 1996. As directed by
the Funds Act, the FDIC implemented a special one- time assessment of
approximately 65.7 basis points (0.657%) on a depository institution's
SAIF-insured deposits held as of March 31, 1995 (or approximately 52.6 basis
points on SAIF deposits acquired by banks in certain qualifying transactions).
In addition, the FDIC has implemented a revision in the SAIF assessment rate
schedule that effected, as of October 1, 1996 (a) a widening in the
<PAGE> 39
assessment rate spread among institutions in the different capital and risk
assessment categories, (b) an overall reduction of the assessment rate range
assessable on SAIF deposits of from 0 to 27 basis points, and (c) a special
interim assessment rate range for the last quarter of 1996 of from 18 to 27
basis points on institutions subject to Financing Corporation ("FICO")
assessments. Effective as of January 1, 1997, assessments to help pay off the
$780 million in annual interest payments on the $8 billion FICO bonds issued in
the late 1980s as part of the government rescue of the thrift industry are
imposed on both BIF- and SAIF-insured deposits in annual amounts presently
estimated at 1.29 basis points and 6.44 basis points, respectively. Beginning
in January 2000, BIF- and SAIF- insured institutions will share the FICO
interest costs at equal rates currently estimated 2.43 basis points.
Under the FDIA, 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.
PROPOSED LEGISLATION AND REGULATORY ACTION
New regulations and statutes are regularly proposed that 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 regulation or statute will be adopted or the
extent to which the business of the Company may be affected by such regulation
or statute.
PROPERTIES
The Company's and Bulloch Bank's main office is located at 40 North
Main Street, Statesboro, Georgia.
The first of Bulloch Bank's four 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 two miles 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 opened its fourth branch office in October 1996 in the Wal-Mart
Supercenter located approximately two miles east of the main office on U. S.
Highway 80 East. Bulloch Bank maintains eight automated teller machines
located at the Mall Office, the College Plaza Office, the Wal-Mart Office, near
the junction of U.S. Highways 301 and 80 (the "Northside ATM"), in the main
lobby of Ogeechee Technical Institute, and three machines on the campus of
Georgia Southern University, one on Chandler Road, one in the University Union
Building and one on Lanier Drive near Paulson Stadium. 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 the Wal-Mart location and
five of the other ATM locations. The Wal-Mart location is leased for a term
of five years until October 2001. The Northside ATM land is currently leased
on a month to month basis. The Chandler Road location is currently leased for
a five year term until December 2001, and the University Union location is
leased on a month to month basis. The Lanier Drive ATM location is leased for
a term of five years until September 2002. The Ogeechee Technical Institute
location is leased for a one year term until November 1998.
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 maintains three ATM locations, one at the drive-in
facility, one near the Interstate 16 interchange, and one at the supermarket
location. Metter Bank owns all the properties except the supermarket branch
facility, which is currently under a five year lease expiring in September
2002, and the Interstate 16 ATM location, which is leased for a five year term
until February 2001.
Effingham Bank's main office is located at 501 South Laurel Street,
Springfield, Georgia. Effingham Bank opened its first branch office in Rincon
in 1995, located approximately ten miles southeast of the main office, and
opened a branch in the Wal-Mart Supercenter in Rincon in July 1996. The Bank
maintains three ATM installations, one located at each branch. Effingham Bank
owns all the properties except the Wal-Mart branch location, which is leased
for a five year term until July 2001.
All properties of the Banks are in good condition and are adequate for
the current operations of the Banks.
<PAGE> 40
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.
<PAGE> 41
1997 FORM 10-K
Securities and Exchange Commission
Washington, D. C. 2059
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 For the Fiscal Year Ended December 31, 1997
Commission File Number 0-10853
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
Incorporated in the State of Georgia
I. R. S. Employer Identification Number 58-1458268
Address: 40 North Main Street
Statesboro, Georgia 30458
Telephone: (912)764-6611
Securities Registered Pursuant to Section 12(g)of the Exchange Act: Common
Stock - $1.00 Par Value
First Banking Company of Southeast Georgia has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding twelve 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.
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-K 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-K or any
amendment to this Form 10-K.[ ]
As of February 28, 1998, First Banking Company of Southeast Georgia
had 3,762,468 shares of common stock outstanding. The aggregate market value
of First Banking Company of Southeast Georgia common stock held by non-
affiliates on February 28, 1997 was $95,319,017.
DOCUMENTS INCORPORATED BY REFERENCE
Part III information is incorporated herein by reference from First
Banking Company of Southeast Georgia's Proxy Statement for its 1998 Annual
Shareholders' Meeting, which will be filed with the Commission by April 2,
1998. Certain Part I and Part II information required by Form 10-K is
incorporated by reference from the 1997 First Banking Company of Southeast
Georgia Annual Report to Shareholders as indicated below. Except for those
portions specifically incorporated by reference, the 1997 Annual Report to
Shareholders is not deemed filed with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
Annual Report
Part I. Page
------- ----
<S> <C> <C>
Item 1 Business 35
Item 2 Properties 40
Item 3 Legal Proceedings 41
Item 4 Submission of Matters to a Vote
of Security Holders NA
Annual Report
Part II. Page
-------- ----
Item 5 Market for the Registrant's Common Equity
and Related Stockholder Matters 23
Item 6 Selected Financial Data 22
Item 7 Management's Discussion and Analysis
of Financial Condition and Results of
Operations 24-34
Item 8 Financial Statements and
Supplementary Data 2-21
Item 9 Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure NA
</TABLE>
<PAGE> 42
<TABLE>
<CAPTION>
Proxy Statement
Part III Page
-------- ----
<S> <C> <C>
Item 10 Directors and Executive Officers of
the Registrant 2-4, 6
Item 11 Executive Compensation 7-10, 13-14
Item 12 Security Ownership of Certain
Beneficial Owners and Management 10-12
Item 13 Certain Relationships and Related
Transactions 10
</TABLE>
Part IV.
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K
(A)(1). Financial Statements Filed. See
Consolidated Financial Statements on
pages 3 through 22 of this Annual
Report and Form 10-K.
(2). Financial Statement Schedules. All
financial statement schedules are
omitted because the data is either
not applicable or is discussed in
the Management's Discussion and
Analysis of Financial Condition and
Results of Operations, the financial
statements or related footnotes.
(3). Exhibits. The Company's Articles of
Incorporation, Bylaws and certain
other documents are filed as
Exhibits to this Report or
incorporated by reference herein
pursuant to the Securities Exchange
Act of 1934. Shareholders may
obtain the list of such Exhibits and
copies of such documents upon
request to: Secretary, First Banking
Company of Southeast Georgia, P. O.
Box 878, Statesboro, Georgia
30459. A copying fee will be
charged for the Exhibits.
(B) Reports on Form 8-K: None
<PAGE> 43
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 on March 27, 1998 by the undersigned, thereunto duly authorized.
FIRST BANKING COMPANY OF
SOUTHEAST GEORGIA
(Registrant)
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-K, 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 on March 27, 1998 by the following persons on
behalf of the Registrant and in the capacities indicated.
James Eli Hodges
President
(Principal Executive Officer)
Julian C. Lane, Jr.
Vice President
John M. Wilson, Sr.
Vice President
Dwayne E. Rocker
Secretary & Treasurer
(Principal Financial &
Accounting Officer)
DIRECTORS: E. Raybon Anderson
A. M. Braswell, Jr.
W. A. Crider, Jr.
James Eli Hodges
C. Arthur Howard
Lanier A. Hunnicutt
Joe P. Johnston
Julian C. Lane, Jr.
Harry S. Mathews
Dan J. Parrish, Jr.
Charles M. Robbins, Jr.
Larry D. Weddle
John M. Wilson, Jr.
Alvin Williams
<PAGE> 1
EXHIBIT 23.1
DELOITTE &
TOUCHE LLP
Suite 1700 Telephone: (404)220-1500
100 Peachtree Street Facsimile: (404)220-1583
Atlanta, Georgia 30303-1911
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-33853 and 333-33763 of First Banking Company of Southeast Georgia on Form
S-8 and Form S-3, respectively, of our report dated January 30, 1998, appearing
in this Annual Report on Form 10-K of First Banking Company of Southeast
Georgia for the year ended December 31, 1997.
/s/ Deloittte & Touche LLP
Atlanta, Georgia
March 27, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC AUDITORS
We consent to the incorporation by reference in Registration Statement
Nos. 333-33853 and 333-33763, respectively, of First Banking Company of
Southeast Georgia on Forms S-8 and S-3 of our report dated February 2, 1996,
appearing in this Annual Report on Form 10-K of First Banking Company of
Southeast Georgia for the year ended December 31, 1997.
/s/ McNair, McLemore, Middlebrooks & Co.
Macon, Georgia
March 25, 1998
<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, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 24,631
<INT-BEARING-DEPOSITS> 16,368
<FED-FUNDS-SOLD> 3,775
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 84,477
<INVESTMENTS-CARRYING> 20,847
<INVESTMENTS-MARKET> 21,544
<LOANS> 250,295
<ALLOWANCE> 3,921
<TOTAL-ASSETS> 411,223
<DEPOSITS> 354,805
<SHORT-TERM> 2,513
<LIABILITIES-OTHER> 4,571
<LONG-TERM> 8,305
0
0
<COMMON> 3,762
<OTHER-SE> 37,266
<TOTAL-LIABILITIES-AND-EQUITY> 411,223
<INTEREST-LOAN> 24,935
<INTEREST-INVEST> 5,656
<INTEREST-OTHER> 872
<INTEREST-TOTAL> 31,463
<INTEREST-DEPOSIT> 13,897
<INTEREST-EXPENSE> 14,635
<INTEREST-INCOME-NET> 16,828
<LOAN-LOSSES> 932
<SECURITIES-GAINS> 6
<EXPENSE-OTHER> 11,108
<INCOME-PRETAX> 7,723
<INCOME-PRE-EXTRAORDINARY> 7,723
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,464
<EPS-PRIMARY> 1.46
<EPS-DILUTED> 1.45
<YIELD-ACTUAL> 4.93
<LOANS-NON> 434
<LOANS-PAST> 134
<LOANS-TROUBLED> 649
<LOANS-PROBLEM> 1,217
<ALLOWANCE-OPEN> 4,024
<CHARGE-OFFS> 932
<RECOVERIES> 193
<ALLOWANCE-CLOSE> 3,921
<ALLOWANCE-DOMESTIC> 3,921
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
