<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
-----------------------
For quarter ended September 30, 1998 Commission file number 0-1083
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
(Exact name of registrant as specified in its charter)
-----------------------
<TABLE>
<S> <C>
Georgia 58-1458268
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
</TABLE>
40 NORTH MAIN STREET
P.O. BOX 878
STATESBORO, GEORGIA 30459
-----------------------
(Address of Principal Executive
Offices, including Zip Code)
912-764-6611
-----------------------
(Issuer's telephone number, including area code)
NOT APPLICABLE
-----------------------
(Former name, former address
and former fiscal year, if
changed since last report)
-----------------------
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirement for the past 90 days.
Yes X No
--- ---
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, 4,702,607 shares as of September 30, 1998
------------------------------------------------------------------------
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------------------------
(thousands of dollars)
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 14,733 $ 24,631
Interest Bearing Deposits in Other Banks 18,026 16,368
Federal Funds Sold 8,625 3,775
Investment Securities:
Available for Sale 56,576 84,477
Held to Maturity (Estimated Value of
$14,932 in 1998 and $21,178 in 1997) 14,195 20,847
Loans 255,877 250,312
Less: Unearned Interest (16) (17)
Allowance for Loan Losses (4,136) (3,921)
--------- ---------
Loans, Net 251,725 246,374
--------- ---------
Interest Receivable 4,968 5,158
Premises and Equipment, Net 7,321 7,090
Other Real Estate 360 368
Other Assets 1,958 2,135
--------- ---------
TOTAL ASSETS $ 378,487 $ 411,223
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 47,925 $ 45,981
Interest Bearing:
NOW Accounts 48,410 76,036
Money Market Deposit Accounts 27,319 29,112
Savings 15,487 14,593
Time ($100,000 and above) 78,971 88,807
Other Time 99,355 100,276
--------- ---------
Total Deposits 317,467 354,805
Repurchase Agreements 1,400 1,400
Other Borrowed Money 11,153 9,418
Interest Payable 3,289 3,551
Other Liabilities 1,309 1,020
--------- ---------
Total Liabilities 334,618 370,194
--------- ---------
Shareholders' Equity (Note 3):
Common Stock, 4,702,607 Shares Issued
And Outstanding in 1998 and 4,703,085 in 1997 4,703 4,703
Additional Paid-In Capital 6,522 6,533
Retained Earnings 32,134 29,575
Accumulated Other Comprehensive Income 510 218
--------- ---------
Shareholders' Equity 43,869 41,029
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 378,487 $ 411,223
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 3
\
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the Three Months Ended
September 30,
1998 1997
--------------------------
(thousands of dollars)
<S> <C> <C>
INTEREST INCOME
Loans (Including fees) $6,569 $6,371
Interest Bearing Deposits 231 151
Investments:
U.S. Treasury 100 301
U.S. Government Agencies 718 696
States and Political Subdivisions 272 274
Dividend Income 27 45
Federal Funds Sold 64 40
------ ------
Total Interest Income 7,981 7,878
------ ------
INTEREST EXPENSE
NOW Accounts 418 454
Money Market Deposits Accounts 243 220
Savings 122 114
Time Deposits ($100,000 and above) 1,191 1,247
Other Time Deposits 1,354 1,406
Other 203 185
------ ------
Total Interest Expense 3,531 3,626
------ ------
NET INTEREST INCOME 4,450 4,252
Provision for Loan Losses 220 270
------ ------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 4,230 3,982
------ ------
NON-INTEREST INCOME
Service Charges on Deposits 565 525
Fees for Trust Services 31 69
Other 184 145
------ ------
Total Non-interest Income 780 739
------ ------
NON-INTEREST EXPENSE
Salaries 1,112 1,082
Other Personnel Expense 396 386
Occupancy Expense, Net 243 225
Equipment Expense 354 333
Other 814 748
------ ------
Total Non-interest Expense 2,919 2,774
------ ------
Income Before Income Taxes 2,091 1,947
Provision for Income Taxes 601 580
------ ------
NET INCOME 1,490 1,367
------ ------
Other Comprehensive Income:
Unrealized holding gains (losses) on
securities Available for Sale arising during
the period, net of taxes of $116,000 in 1998
and taxes of $66,000 in 1997 226 129
------ ------
COMPREHENSIVE INCOME $1,716 $1,496
====== ======
EARNINGS PER SHARE:
Basic $ 0.32 $ 0.29
====== ======
Diluted $ 0.32 $ 0.29
====== ======
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
1998 1997
-------------------------
(thousands of dollars)
<S> <C> <C>
INTEREST INCOME
Loans (Including fees) $19,369 $18,517
Interest Bearing Deposits 650 440
Investments:
U.S. Treasury 428 1,012
U.S. Government Agencies 2,724 2,319
States and Political Subdivisions 837 817
Dividend Income 111 142
Federal Funds Sold 180 155
------- -------
Total Interest Income 24,299 23,402
------- -------
INTEREST EXPENSE
NOW Accounts 1,711 1,367
Money Market Deposits Accounts 702 618
Savings 357 334
Time Deposits ($100,000 and above) 3,617 3,797
Other Time Deposits 4,149 4,233
Other 565 560
------- -------
Total Interest Expense 11,101 10,909
------- -------
NET INTEREST INCOME 13,198 12,493
Provision for Loan Losses 660 737
------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 12,538 11,756
------- -------
NON-INTEREST INCOME
Service Charges on Deposits 1,604 1,558
Fees for Trust Services 80 158
Other 614 375
------- -------
Total Non-interest Income 2,298 2,091
------- -------
NON-INTEREST EXPENSE
Salaries 3,308 3,142
Other Personnel Expense 1,172 1,148
Occupancy Expense, Net 691 648
Equipment Expense 1,063 946
Other 2,480 2,246
------- -------
Total Non-interest Expense 8,714 8,130
------- -------
Income Before Income Taxes 6,122 5,717
Provision for Income Taxes 1,738 1,708
------- -------
NET INCOME 4,384 4,009
------- -------
Other Comprehensive Income:
Unrealized holding gains on securities
Available for Sale arising during the
period, net of taxes of $151,000 in 1998
and $91,000 in 1997 292 176
------- -------
COMPREHENSIVE INCOME $ 4,676 $ 4,185
======= =======
EARNINGS PER SHARE:
Basic $ 0.93 $ 0.85
======= =======
Diluted $ 0.93 $ 0.85
======= =======
</TABLE>
See notes to consolidated financial statements
<PAGE> 5
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
September 30,
1998 1997
(thousands of dollars)
-----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 4,384 $ 4,009
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Provision for Depreciation 847 784
Provision for Loan Losses 660 737
Loss on Sale of Other Assets 5
Loss on Sale of Other Real Estate 8 6
Gain on Call of Securities (13) (6)
Loss on Sale of Premises and Equipment 1 15
Net Accretion of Premiums and Discounts on Securities (282) (152)
Changes in Assets and Liabilities:
Decrease in Interest Receivable 190 311
Decrease in Other Assets 17 46
Decrease in Interest Payable (262) (30)
Increase in Other Liabilities 289 398
-------- --------
Net Cash Provided by Operating Activities 5,844 6,118
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Increase in Interest Bearing Deposits in Other Banks (1,658) (2,908)
(Increase) Decrease in Federal Funds Sold (4,850) 2,895
Available-for-Sale Securities:
Proceeds from Maturity 84,950 37,761
Purchases (57,293) (21,905)
Held-to-Maturity Securities:
Proceeds from Maturity 8,188 6,645
Purchases (554) (7,952)
Net Increase in Loans (6,137) (15,099)
Purchases of Premises and Equipment (1,079) (860)
Improvements to Other Real Estate (25)
Proceeds from Sale of Other Assets 4
Proceeds from Sale of Other Real Estate 151 285
-------- --------
Net Cash Used in Investing Activities 21,697 (1,138)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Deposits (37,338) (6,989)
Increase in Other Borrowed Money 6,600 1,800
Repayment of Note Payable (4,865) (4,558)
Purchase and Retirement of Fractional Shares (12) (7)
Dividends Paid (1,824) (1,644)
-------- --------
Net Cash Provided by Financing Activities (37,439) (11,398)
-------- --------
DECREASE IN CASH AND DUE FROM BANKS (9,898) (6,418)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 24,631 21,611
-------- --------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 14,733 $ 15,193
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest 11,363 10,939
Income Taxes 1,789 1,435
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Other Real Estate Acquired through Loan Foreclosure 280 990
Loans granted to facilitate the Sale of Other Real Estate 154 302
Change in Net Unrealized Gain (Loss) on
Investment Securities Available for Sale 292 176
</TABLE>
See notes to consolidated financial statements
<PAGE> 6
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements of First Banking Company of Southeast
Georgia (the "Company") include the financial statements of First Bulloch Bank &
Trust Company, Metter Banking Company and First National Bank of Effingham,
wholly-owned subsidiaries. Intercompany balances and transactions have been
eliminated in consolidation.
The consolidated statements contained in this report are unaudited but
reflect all adjustments, consisting only of normal recurring accruals, which
are, in the opinion of management, necessary to a fair statement of the results
for the interim period reflected. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
applicable rules and regulations of the Securities and Exchange Commission. The
results of operations for the interim period reported herein are not necessarily
indicative of results to be expected for the full year.
The consolidated financial statements included herein should be read in
conjunction with the financial statements and notes thereto, and the Independent
Auditors' Report included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.
2. ACCOUNTING POLICIES
Reference is made to the accounting policies of the Company described in
the notes to consolidated financial statements contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997. The Company has
followed those policies in preparing this report.
3. COMMON STOCK
The par value of the Company's common stock is $1, and 10,000,000 shares
are authorized. The Banks may pay dividends to the Company in any year up to 50%
of the previous year's net income or $2,732,000 in 1998 without the approval of
the Georgia Department of Banking and Finance.
Effective May 29, 1998, the Company declared a 5-for-4 split of its common
stock effected in the form of a 25% stock dividend. In connection with the
split, $940,617 has been transferred from surplus to common stock. All
references to number of shares and to per share amounts have been retroactively
adjusted to reflect the split.
4. EARNINGS 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 basic and diluted earnings per share information for entities
with publicly held common stock. All per share amounts conform to SFAS 128.
The number of shares used in computing basic and diluted per share amounts
is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
------------------------ ------------------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding -
Basic Earnings Per Share 4,702,607 4,690,273 4,702,866 4,690,525
Effect of dilutive outstanding stock options 12,401 3,565 12,142 1,190
--------- --------- --------- ---------
Weighted average shares outstanding -
Diluted Earnings Per Share 4,715,008 4,693,838 4,715,008 4,691,715
========= ========= ========= =========
</TABLE>
<PAGE> 7
5. IMPACT OF NEW ACCOUNTING STANDARDS
In June 1997, Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131") was issued. SFAS 131 establishes annual and interim reporting standards
for an enterprise's business segments and related disclosures about its
products, services, geographic areas and major customers. Adoption of this
statement will not impact the Company's consolidated financial position, results
of operations or cash flows. The Company will adopt this statement in its annual
financial statements for the year ending December 31, 1998.
In February 1998, Statement of Financial Accounting Standards No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS
132") was issued. SFAS 132 standardizes the disclosure requirements for pensions
and other postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair value of plan assets
that will facilitate financial analysis, and eliminates certain disclosures that
are no longer useful. SFAS 132 is effective for fiscal years beginning after
December 15, 1997. The Statement is not expected to have an effect on the
Company's financial statements.
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was
issued. SFAS 133 establishes standards for derivative instruments and hedging
activities and requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. This statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. The Statement is not expected to
have an effect on the Company's financial statements.
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 1998
This discussion relates to the consolidated financial condition and results
of operations of First Banking Company of Southeast Georgia (the "Company") and
its wholly-owned subsidiaries, First Bulloch Bank & Trust Company ("Bulloch
Bank"), Metter Banking Company ("Metter Bank") and First National Bank of
Effingham ("Effingham Bank") (the "Banks"). Since the Company has no
subsidiaries other than the Banks and no activities other than those of the
Banks, the following narrative refers to the operations of the Banks.
FINANCIAL CONDITION
The Company functions as the sole owner of three commercial banks, and its
financial condition should be examined in terms of trends in sources and uses of
funds. The Company's primary use of funds historically comes from loan demand.
Loans outstanding have increased $6,137,000 or 2.5% since year-end. Interest
bearing deposits in other banks and federal funds sold have increased $1,658,000
(10.1%) and $4,850,000 (128.5%), respectively, while investment securities have
decreased $34,996,000 (33.3%) since year-end.
Total assets have decreased $32,736,000 (8.0%) since year-end, while total
funds (deposits plus Other Borrowed Money) have decreased $35,603,000 (9.8%).
Total deposits have decreased $37,338,000 (10.5%) since year-end, and Other
Borrowed Money has increased $2,095,000 (22.2%). Demand deposits have increased
$1,944,000 (4.2%), and savings deposits (including NOW accounts and the liquid
money market accounts) have decreased $28,525,000 (23.8%). Time deposits over
$100,000 have decreased approximately $9,836,000 (11.1%), while other time
deposits have decreased approximately $921,000 (0.9%).
The decrease in deposits since year end is primarily the result of a
movement of approximately $24.7 million of public funds out of the Banks. Public
funds in savings deposits that have moved out of the Banks total $19.5 million,
while those in time deposits over $100,000 moving out of the Banks total $5.2
million. The flow of public funds out of the Banks is the result of several
factors, including special construction projects with one local public entity,
the awarding of a banking services bid to another local financial institution
for a state public entity, the distribution of tax deposits among the various
local public entities, and the reinvestment outside the local economy of matured
public fund time deposits over $100,000 for still another local public entity.
The $1.9 million increase in demand deposits is the result of a $5.2 million
shift from NOW accounts into demand deposits for one specific public fund
account. The remaining $3.8 million decrease in savings deposits, the $4.6
million decrease in time deposits over $100,000 and the $0.9 million decrease in
other time deposits is the result of a movement of both business and individual
accounts out of the Banks.
<PAGE> 9
Effective May 29, 1998, the Company declared a 5-for-4 stock split of its
common stock effected in the form of a 25 percent stock dividend. All references
to number of shares and to per share amounts have been retroactively adjusted to
reflect the split.
CAPITAL RESOURCES
The Banks are required to maintain minimum amounts of capital to total
"risk-weighted" assets, as defined by the banking regulators. At September 30,
1998, the Banks were required to have minimum Tier 1 and Total Risk-Based
Capital ratios of 4% and 8%, respectively, and a leverage ratio of at least 3%.
At that date the Banks' actual ratios were as follows:
<TABLE>
<CAPTION>
Bulloch Bank Metter Bank Effingham Bank
------------ ----------- --------------
<S> <C> <C> <C>
Tier 1 Risk-based Capital ratio 20.1% 15.9% 10.0%
Total Risk-based Capital ratio 21.4 17.1 11.3
Leverage ratio 13.0 10.6 7.2
</TABLE>
These ratios qualify each Bank for the "well-capitalized" classification as
defined by the banking regulators. The Company's ratio of shareholders' equity
to total assets was 11.6% at September 30, 1998 and 10.0% at December 31, 1997.
LIQUIDITY
The percentage of net loans to total funds was 77.5% at September 30, 1998
and 70.3% at December 31, 1997. At September 30, 1998 the Banks had $41,384,000
in cash and due from banks, interest bearing deposits in other banks and federal
funds sold as compared with $44,774,000 at December 31, 1997. The Banks'
liquidity policies typically require that the ratio of cash and certain
short-term investments to net withdrawable deposit accounts be at least 20.0%.
At September 30, 1998, all three banks reflected a liquidity ratio of 21.3% or
better. The liquidity of the Company and the Banks is considered adequate to
repay deposits and other obligations, meet expected loan demand and pay
dividends.
Presented below is an interest rate sensitivity analysis of the Company at
September 30, 1998. NOW, money market, and savings accounts have been included
in "less than three months". The analysis results in a negative one year gap of
$45,315,000, which means that the Company is liability-sensitive through one
year (a greater amount of liabilities are maturing or repricing than assets),
which is beneficial in a falling rate environment. However, the Banks'
experience has indicated that NOW, money market, and savings accounts of
$91,216,000 are not interest rate sensitive. Beyond one year, the Company is
asset-sensitive, which is beneficial in a rising rate environment.
<PAGE> 10
Interest Rate Sensitivity Analysis - September 30, 1998
<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 $ 18,026 $ 18,026
Investment Securities 7,310 $ 16,663 $ 31,082 $ 15,716 70,771
Federal Funds Sold 8,625 8,625
Loans 97,817 57,175 76,668 24,201 255,861
--------- --------- -------- --------- --------
Total Interest Earning
Assets 131,778 73,838 107,750 39,917 353,283
Non-interest Earning Assets 25,204 25,204
--------- --------- -------- --------- --------
TOTAL ASSETS $ 131,778 $ 73,838 $107,750 $ 65,121 $378,487
========= ========= ======== ========= ========
Interest Bearing Liabilities:
Interest Bearing Deposits $ 133,868 $ 114,232 $ 21,442 $ 269,542
Other Borrowed Money and
Repurchase Agreements 334 2,497 5,029 $ 4,693 12,553
--------- --------- -------- --------- --------
Total Interest Bearing
Liabilities 134,202 116,729 26,471 4,693 282,095
Interest Free Deposits 47,925 47,925
Other Interest Free
Liabilities and Equity 48,467 48,467
--------- --------- -------- --------- --------
TOTAL LIABILITIES AND EQUITY $ 134,202 $ 116,729 $ 26,471 $ 101,085 $378,487
========= ========= ======== ========= ========
Net Interest Rate
Sensitivity Gap $ (2,424) $ (42,891) $ 81,279 $ (35,964)
Cumulative Gap (2,424) (45,315) 35,964
Net Interest Rate
Sensitivity Gap as a Percent
of Interest Earning Assets (1.8) (58.1) 75.4 (55.2)
Cumulative Gap as a Percent of
Cumulative Interest Earning
Assets (1.8) (22.0) 11.5
</TABLE>
<PAGE> 11
RESULTS OF OPERATIONS
INTEREST INCOME
Total interest income increased $897,000 (3.8%) in the first nine months of
1998 as compared to the first nine months of 1997 and increased $103,000 (1.3%)
in the third quarter of 1998 as compared to the third quarter of 1997. Interest
on loans increased $852,000 (4.6%) in the first nine months of 1998 as compared
to the first nine months of 1997 and increased $198,000 (3.1%) in the third
quarter of 1998 as compared to the third quarter of 1997, as a result of an
increase of $7,257,000 in the year-to-date average balance of loans outstanding
from September 30, 1997 to September 30, 1998 as well as an increase in yield on
the loan portfolio of approximately 0.2% for that period. Interest on
investments decreased $190,000 (4.4%) in the first nine months of this year as
compared to the first nine months of 1997 and decreased $199,000 (15.1%) in the
third quarter of 1998 from the third quarter of 1997, primarily as a result of a
nominal decrease in yield on the portfolio from 6.4% during the first nine
months of 1997 to 6.3% during the first nine months of 1998, as well as a
decrease in the average balance of the investment portfolio of $2,851,000 for
that period.
During the first nine months of 1998, interest on federal funds sold
increased $25,000 (16.1%) from the first nine months of 1997 and increased
$24,000 (60.0%) in the third quarter of 1998 as compared to the third quarter of
1997. Interest on Interest-bearing Deposits in Other Banks increased $210,000
(47.7%) during the first nine months of 1998 from the first nine months of 1997
and increased $80,000 (53.0%) in the third quarter of 1998 from the third
quarter of 1997. These increases were the result of an increase of 0.2% in the
weighted average yield on these short-term investments from September 30, 1997
to September 30, 1998 as well as an increase of $4,979,000 in the combined
average balance carried in interest bearing deposits in other banks and federal
funds sold for that period, which are the two means of investing any excess cash
from day to day.
INTEREST EXPENSE
During the first nine months of 1998, the total interest expense increased
$192,000 (1.8%) from the first nine months of 1997 and decreased $95,000 (2.6%)
in the third quarter of 1998 from the third quarter of 1997. Interest on
deposits increased $187,000 (1.8%) in the first nine months of 1998 from the
first nine months of 1997 and decreased $113,000 (3.1%) in the third quarter of
this year from the third quarter of 1997. The increase for the first nine months
is attributable to an increase in the year-to-date average balance of interest
bearing deposits of $6,560,000 from September 30, 1997 to September 30, 1998
offset by a nominal decrease in the cost of these funds from 4.90% to 4.87% for
that period. Interest on Other Borrowed Money increased $5,000 (0.9%) in the
first nine months of 1998 from the first nine months of 1997 and increased
$18,000 (9.7%) in the third quarter of 1998 as compared to the third quarter of
1997. This increase is the result of an increase of $436,000 from September 30,
1997 to September 30, 1998 in the year-to-date average balance outstanding of
Other Borrowed Money offset by a
<PAGE> 12
lower average interest rate of 6.70% for the first nine months of 1998 as
compared to 7.14% for the first nine months of 1997.
PROVISIONS FOR LOAN LOSSES
Provisions for loan losses for the first nine months of 1998 decreased
$77,000 (10.4%) from the first nine months of 1997 and decreased $50,000 (18.5%)
in the third quarter of 1998 from the third quarter of 1997. After considering
the credit worthiness of the loan portfolios, it is the opinion of the
management of the Banks that the allowance for loan losses is adequate. At
September 30, 1998 the allowance for loan losses was 1.6% of outstanding loans
less unearned interest.
Nonperforming loans were $1,508,000 at September 30, 1998 and $1,217,000 at
December 31, 1997. These loans included those on a nonaccrual status of $596,000
and $434,000, respectively, accruing loans contractually past due at least 90
days of $293,000 and $134,000, respectively, and restructured loans of $619,000
and $649,000, respectively. Net loans charged off totaled $445,000 during the
first nine months of 1998 as compared to $854,000 during the first nine months
of 1997.
NONINTEREST INCOME AND EXPENSE
Noninterest income increased $207,000 (9.9%) in the first nine months of
1998 from the first nine months of 1997 and increased $41,000 (5.5%) in the
third quarter of 1998 from the third quarter of 1997. These increases are
reflected primarily in an increase in Other Service Charges of $239,000 and of
$39,000 and in Service Charges on Deposit Accounts of $46,000 and of $40,000
during the first nine months of this year and during the third quarter,
respectively, offset by a decrease of $78,000 and $38,000 in Fees for Trust
Services for the first nine months of this year and for the third quarter,
respectively. The year to date increases in Other Service Charges is the result
of a $152,000 increase in income from long-term mortgage loans (which are
acquired by other banks on a non-recourse basis concurrent with the closing of
the loan), a $60,000 increase in commissions on life insurance and mutual funds,
and a $24,000 increase in ATM fees. The increase in Service Charges on Deposit
Accounts is primarily the result of increases in deposit account fees
implemented in the late second quarter and early third quarter of 1998 and of
increases in the volume of accounts subject to service charge. The nine month
and quarterly decreases in Trust Fees are the result of having outsourced trust
administration activities and sharing fees with the third party.
Noninterest expense increased $584,000 (7.2%) in the first nine months of
1998 compared to the first nine months of 1997 and increased $145,000 (5.2%) in
the third quarter of 1998 as compared to the third quarter of 1997. These
increases are the result of increases in salary and personnel expense of
$190,000 and $40,000, respectively, increases in occupancy and equipment expense
of $160,000 and $39,000, respectively, and increases in Other Expense of
$234,000 and $66,000, respectively, during the first nine months of 1998 as
compared to the first nine months of 1997 and during the third quarter of 1998
as compared to the third quarter of 1997. The
<PAGE> 13
increase in salary and personnel expense is primarily the result of nine month
increases in salaries of $161,000 and in medical insurance premiums of $24,000.
The increase in occupancy and equipment expense is the result of increases in
maintenance and repairs and in depreciation expense related to equipment
installation and upgrades in the latter part of 1997. The increase in Other
Expense is the result of nine month increases in several items, including a
$70,000 increase in advertising and public relations, a $34,000 increase in
charge card processing fees, a $34,000 expense accrual in 1998 for a Year 2000
contingency, a $34,000 increase in data processing and electronic banking
expense, a $28,000 increase in director fees and a $25,000 increase in check
fraud losses.
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 misrepresentation of the year could
result in an incorrect computation or a computer shutdown.
The Company has completed an evaluation of its 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 which provides for, among other things, the
replacement or modification of existing information systems as necessary.
Because the primary hardware and software systems are presently certified as
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 has completed a survey of its suppliers and large loan
customers to determine their Year 2000 readiness. If any supplier cannot provide
a Year 2000 compliant application or product by December 31, 1998, the Company
will begin research for a replacement supplier; if the original supplier cannot
provide a Year 2000 compliant application or product by March 31, 1999, then a
replacement supplier will be selected and the product replaced and installed. In
surveying its large loan customers, the Company has not received an adequate
response. There will be more aggressive efforts in the fourth quarter of 1998 to
determine loan customer readiness. The Company will also evaluate the adequacy
of its loan loss reserve and allocate as deemed necessary a portion of the
reserve for potential loan loss relating to Year 2000.
The Company has also developed a testing strategy in which all its critical
systems, including heating and air, security and phone systems as well as
information systems, will be tested by a target date of December 31, 1998. Teams
have been assigned specific areas of responsibility in the testing plan, and the
progress of this testing is reported to the Boards of Directors of the
subsidiary banks and of the Company on a regular basis. The Company's primary
systems will be tested by proxy with its software provider, who will test in
environments with
<PAGE> 14
like software and hardware systems as the Company. This testing has been
approved by the banking regulators as a valid means of testing, and results will
be documented and provided to the Company.
While the Company has not incurred any material costs related to Year 2000
remediation and does not expect to incur any such material cost, it has
established a contingency reserve totaling $34,000 at September 30, 1998 and is
accruing approximately $4,000 per month for this contingency. The Company does
not expect any Year 2000 expenditures to have a significant impact on its
results of operations, liquidity, or capital resources.
The Company has adopted a Year 2000 contingency addendum to its existing
Disaster Recovery Plan. Should the primary processing system fail as a result of
any natural or other disaster or as a result of Year 2000 problems, the Company
has contracted with its software provider to process for the Company on systems
that are Year 2000 compliant in another location. The Year 2000 addendum also
addresses a plan of action in the event of failure of systems such telephones,
water and heating and air.
The Company has also been subject to regulatory review of its overall Year
2000 plan and will continue to be monitored by its regulators for its progress.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
<PAGE> 15
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor any 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 banks, nor the
knowledge of management are any such proceedings contemplated or threatened
against the Registrant or its subsidiaries.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K: None
<PAGE> 16
SIGNATURES
In accordance with the requirements of the Exchange Act, 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
DATE: November 10, 1998 BY: /s/James Eli Hodges
------------------------ -------------------------------------
JAMES ELI HODGES
PRESIDENT
DATE: November 10, 1998 BY: /s/Dwayne E. Rocker
------------------------ -------------------------------------
DWAYNE E. ROCKER
SECRETARY-TREASURER
(PRINCIPAL FINANCIAL OFFICER)
<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 NINE
MONTHS ENDED SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 14,733
<INT-BEARING-DEPOSITS> 18,026
<FED-FUNDS-SOLD> 8,625
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 56,576
<INVESTMENTS-CARRYING> 14,195
<INVESTMENTS-MARKET> 14,932
<LOANS> 255,861
<ALLOWANCE> 4,136
<TOTAL-ASSETS> 378,487
<DEPOSITS> 317,467
<SHORT-TERM> 1,400
<LIABILITIES-OTHER> 4,598
<LONG-TERM> 11,153
0
0
<COMMON> 4,703
<OTHER-SE> 39,166
<TOTAL-LIABILITIES-AND-EQUITY> 378,487
<INTEREST-LOAN> 19,369
<INTEREST-INVEST> 4,100
<INTEREST-OTHER> 830
<INTEREST-TOTAL> 24,299
<INTEREST-DEPOSIT> 10,536
<INTEREST-EXPENSE> 11,101
<INTEREST-INCOME-NET> 13,198
<LOAN-LOSSES> 660
<SECURITIES-GAINS> 13
<EXPENSE-OTHER> 8,714
<INCOME-PRETAX> 6,122
<INCOME-PRE-EXTRAORDINARY> 6,122
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,384
<EPS-PRIMARY> 0.93
<EPS-DILUTED> 0.93
<YIELD-ACTUAL> 4.98
<LOANS-NON> 596
<LOANS-PAST> 293
<LOANS-TROUBLED> 619
<LOANS-PROBLEM> 1,508
<ALLOWANCE-OPEN> 3,921
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