<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 June 30, 1998 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
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 June 30, 1998
-------------------------------------------------------------------
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------------------------
(thousands of dollars)
ASSETS
<S> <C> <C>
Cash and Due From Banks $ 16,102 $ 24,631
Interest Bearing Deposits in Other Banks 11,816 16,368
Federal Funds Sold 1,350 3,775
Investment Securities:
Available for Sale 86,909 84,477
Held to Maturity (Estimated Value of
$15,786 in 1998 and $21,178 in 1997) 15,187 20,847
Loans 257,016 250,312
Less: Unearned Interest (12) (17)
Allowance for Loan Losses (4,080) (3,921)
--------- ---------
Loans, Net 252,924 246,374
--------- ---------
Interest Receivable 5,060 5,158
Premises and Equipment, Net 7,070 7,090
Other Real Estate 445 368
Other Assets 2,105 2,135
--------- ---------
TOTAL ASSETS $ 398,968 $ 411,223
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 43,053 $ 45,981
Interest Bearing:
NOW Accounts 82,297 76,036
Money Market Deposit Accounts 26,794 29,112
Savings 15,708 14,593
Time ($100,000 and above) 75,561 88,807
Other Time 96,728 100,276
--------- ---------
Total Deposits 340,141 354,805
Repurchase Agreements 1,400 1,400
Other Borrowed Money 10,703 9,418
Interest Payable 2,957 3,551
Other Liabilities 1,003 1,020
--------- ---------
Total Liabilities 356,204 370,194
--------- ---------
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 31,255 29,575
Accumulated Other Comprehensive Income 284 218
--------- ---------
Shareholders' Equity 42,764 41,029
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 398,968 $ 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
June 30,
1998 1997
---------------------------
(thousands of dollars)
INTEREST INCOME
<S> <C> <C>
Loans (Including fees) $6,486 $6,178
Interest Bearing Deposits 195 139
Investments:
U.S. Treasury 111 353
U.S. Government Agencies 980 770
States and Political Subdivisions 277 274
Dividend Income 22 45
Federal Funds Sold 54 34
------ ------
Total Interest Income 8,125 7,793
------ ------
INTEREST EXPENSE
NOW Accounts 661 461
Money Market Deposits Accounts 228 191
Savings 120 112
Time Deposits ($100,000 and above) 1,147 1,259
Other Time Deposits 1,382 1,424
Other 187 188
------ ------
Total Interest Expense 3,725 3,635
------ ------
NET INTEREST INCOME 4,400 4,158
Provision for Loan Losses 220 236
------ ------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 4,180 3,922
------ ------
NON-INTEREST INCOME
Service Charges on Deposits 544 536
Fees for Trust Services 31 51
Other 241 112
------ ------
Total Non-interest Income 816 699
------ ------
NON-INTEREST EXPENSE
Salaries 1,080 1,044
Other Personnel Expense 388 383
Occupancy Expense, Net 228 219
Equipment Expense 354 315
Other 895 808
------ ------
Total Non-interest Expense 2,945 2,769
------ ------
Income Before Income Taxes 2,051 1,852
Provision for Income Taxes 584 544
------ ------
NET INCOME 1,467 1,308
------ ------
Other Comprehensive Income:
Unrealized holding gains (losses) on
securities Available for Sale arising
during the period, net of a tax credit
of $15,000 in 1998 and taxes of
$145,000 in 1997 (30) 281
------ ------
COMPREHENSIVE INCOME $1,437 $1,589
====== ======
EARNINGS PER SHARE:
Basic $ 0.31 $ 0.28
====== ======
Diluted $ 0.31 $ 0.28
====== ======
</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 Six Months Ended
June 30,
1998 1997
-------------------------
(thousands of dollars)
INTEREST INCOME
<S> <C> <C>
Loans (Including fees) $12,800 $12,146
Interest Bearing Deposits 419 290
Investments:
U.S. Treasury 328 711
U.S. Government Agencies 2,006 1,622
States and Political Subdivisions 565 544
Dividend Income 83 95
Federal Funds Sold 117 116
------- -------
Total Interest Income 16,318 15,524
------- -------
INTEREST EXPENSE
NOW Accounts 1,293 913
Money Market Deposits Accounts 459 398
Savings 234 220
Time Deposits ($100,000 and above) 2,426 2,550
Other Time Deposits 2,795 2,827
Other 362 375
------- -------
Total Interest Expense 7,569 7,283
------- -------
NET INTEREST INCOME 8,749 8,241
Provision for Loan Losses 441 467
------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 8,308 7,774
------- -------
NON-INTEREST INCOME
Service Charges on Deposits 1,039 1,033
Fees for Trust Services 50 89
Other 429 230
------- -------
Total Non-interest Income 1,518 1,352
------- -------
NON-INTEREST EXPENSE
Salaries 2,196 2,060
Other Personnel Expense 775 762
Occupancy Expense, Net 449 423
Equipment Expense 710 613
Other 1,666 1,498
------- -------
Total Non-interest Expense 5,796 5,356
------- -------
Income Before Income Taxes 4,030 3,770
Provision for Income Taxes 1,136 1,128
------- -------
NET INCOME 2,894 2,642
------- -------
Other Comprehensive Income:
Unrealized holding gains on securities Available
for Sale arising during the period, net of
taxes of $34,000 in 1998 and $24,000 in 1997 66 47
------- -------
COMPREHENSIVE INCOME $ 2,960 $ 2,689
======= =======
EARNINGS PER SHARE:
Basic $ 0.62 $ 0.56
======= =======
Diluted $ 0.61 $ 0.56
======= =======
</TABLE>
See notes to consolidated financial statements
<PAGE> 5
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
June 30,
1998 1997
----------------------------
(thousands of dollars)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 2,894 $ 2,642
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Provision for Depreciation 562 510
Provision for Loan Losses 441 467
Loss on Sale of Other Real Estate 11 4
Gain on Call of Securities (1) (5)
Loss on Sale of Premises and Equipment 1
Net Accretion of Premiums and Discounts on Securities (230) (133)
Changes in Assets and Liabilities:
Decrease in Interest Receivable 98 224
Increase in Other Assets (9) (57)
Decrease in Interest Payable (594) (334)
Decrease in Other Liabilities (17) (224)
-------- --------
Net Cash Provided by Operating Activities 3,156 3,094
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Interest Bearing Deposits in Other Banks 4,552 (3,604)
(Increase) Decrease in Federal Funds Sold 2,425 4,570
Available-for-Sale Securities:
Proceeds from Maturity 47,205 23,844
Purchases (49,302) (12,384)
Held-to-Maturity Securities:
Proceeds from Maturity 5,747 5,440
Purchases (90) (7,952)
Net Increase in Loans (7,204) (15,114)
Purchases of Premises and Equipment (543) (676)
Improvements to Other Real Estate (25)
Proceeds from Sale of Other Assets 4
Proceeds from Sale of Other Real Estate 150 116
-------- --------
Net Cash Used in Investing Activities 2,919 (5,760)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Deposits (14,664) (386)
Increase in Other Borrowed Money 5,600 3,800
Repayment of Note Payable (4,315) (5,617)
Maturity of Repurchase Agreements (300)
Purchase and Retirement of Fractional Shares (12) (7)
Dividends Paid (1,213) (1,081)
-------- --------
Net Cash Provided by Financing Activities (14,604) (3,591)
-------- --------
DECREASE IN CASH AND DUE FROM BANKS (8,529) (6,257)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 24,631 21,611
-------- --------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 16,102 $ 15,354
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest 8,163 7,617
Income Taxes 1,170 1,077
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Other Real Estate Acquired through Loan Foreclosure 255 430
Loans granted to facilitate the Sale of Other Real Estate 42 185
Change in Net Unrealized Gain (Loss) on
Investment Securities Available for Sale 66 47
</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 June 30, 1997, 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, $750,505 has been transferred from Surplus to Common Stock. Also,
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 both splits.
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 Six Months Ended
June 30, June 30,
1998 1997 1998 1997
-------------------------- --------------------------
<S> <C> <C> <C> <C>
Weighted average shares outstanding -
Basic Earnings Per Share 4,702,912 4,690,652 4,702,998 4,690,654
Effect of dilutive outstanding stock options 12,094 0 12,153 0
--------- --------- --------- ---------
Weighted average shares outstanding -
Diluted Earnings Per Share 4,715,006 4,690,652 4,715,151 4,690,654
========= ========= ========= =========
</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
THREE MONTHS ENDED JUNE 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 $7,204,000 or 2.9% since year-end.
Interest bearing deposits in other banks have decreased $4,552,000 (27.8%),
while federal funds and investment securities have decreased $2,425,000 (64.2%)
and $3,228,000 (3.1%), respectively, since year-end.
Total assets have decreased $12,255,000 (3.0%) since year-end, while
total funds (deposits plus Other Borrowed Money) have decreased $13,379,000
(3.7%). Total deposits have decreased $14,664,000 (4.1%) since year-end, and
Other Borrowed Money has increased $1,285,000 (13.6%). Demand deposits have
decreased $2,928,000 (6.4%), and savings deposits (including NOW accounts and
the liquid money market accounts) have increased $5,058,000 (4.2%). Time
deposits over $100,000 have decreased approximately $13,246,000 (14.9%), while
other time deposits have decreased approximately $3,548,000 (3.5%).
The $14,700,000 decrease in deposits is the result of a $16,800,000
decrease in total time deposits offset by a net increase of $2,100,000 in total
demand and savings accounts. The $16,800,000 decrease in time deposits is
primarily the result of a movement out of the bank of approximately $11,000,000
in public funds from time deposits over $100,000. The remaining $5,800,000
decrease in time deposits is the result of a movement of both business and
individual time deposits over and under $100,000 out of the banks.
Effective both May 29, 1998 and June 30, 1997, 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 both splits.
<PAGE> 9
CAPITAL RESOURCES
The Banks are required to maintain minimum amounts of capital to total
"risk-weighted" assets, as defined by the banking regulators. At June 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 19.2% 16.1% 9.6%
Total Risk-based Capital ratio 20.5 17.3 10.9
Leverage ratio 11.9 10.6 7.0
</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 10.7% at June 30, 1998 and 10.0% at December 31, 1997.
LIQUIDITY
The percentage of net loans to total funds was 73.0% at June 30, 1998 and
70.3% at December 31, 1997. At June 30, 1998 the Banks had $29,268,000 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 June 30,
1998, only the Metter Bank exceeded this ratio. However, 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
June 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
$57,442,000, 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
$124,799,000 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 - June 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
Interest Earning Assets:
<S> <C> <C> <C> <C> <C>
Interest Bearing
Deposits in Other Banks $ 11,816 $ 11,816
Investment Securities 30,603 $ 18,701 $ 38,620 $ 14,172 102,096
Federal Funds Sold 1,350 1,350
Loans 100,957 56,749 73,438 25,872 257,016
--------- --------- --------- --------- ---------
Total Interest Earning
Assets 144,726 75,450 112,058 40,044 372,278
Non-interest Earning Assets 26,690 26,690
--------- --------- --------- --------- ---------
TOTAL ASSETS $ 144,726 $ 75,450 $ 112,058 $ 66,734 $ 398,698
========= ========= ========= ========= =========
Interest Bearing Liabilities:
Interest Bearing Deposits $ 167,271 $ 107,392 $ 22,425 $ 297,088
Other Borrowed Money and
Repurchase Agreements 238 2,717 4,670 $ 4,478 12,103
--------- --------- --------- --------- ---------
Total Interest Bearing
Liabilities 167,509 110,109 27,095 4,478 309,191
Interest Free Deposits 43,053 43,053
Other Interest Free
Liabilities and Equity 46,724 46,724
--------- --------- --------- --------- ---------
TOTAL LIABILITIES AND EQUITY $ 167,509 $ 110,109 $ 27,095 $ 94,255 $ 398,968
========= ========= ========= ========= =========
Net Interest Rate
Sensitivity Gap $ (22,783) $ (34,659) $ 84,963 $ (27,521)
Cumulative Gap (22,783) (57,442) 27,521
Net Interest Rate
Sensitivity Gap as a Percent
of Interest Earning Assets (15.7) (45.9) 75.8 (41.2)
Cumulative Gap as a Percent of
Cumulative Interest Earning
Assets (15.7) (26.1) 24.6
</TABLE>
<PAGE> 11
RESULTS OF OPERATIONS
INTEREST INCOME
Total interest income increased $794,000 (5.1%) in the first six months
of 1998 as compared to the first six months of 1997 and increased $332,000
(4.3%) in the second quarter of 1998 as compared to the second quarter of 1997.
Interest on loans increased $654,000 (5.4%) in the first six months of 1998 as
compared to the first six months of 1997 and increased $308,000 (5.0%) in the
second quarter of 1998 as compared to the second quarter of 1997, as a result of
an increase of $12,423,000 in the year-to-date average balance of loans
outstanding from June 30, 1997 to June 30, 1998 as well as an increase in yield
on the loan portfolio of approximately 0.2% for that period. Interest on
investments increased $10,000 (0.3%) in the first six months of this year as
compared to the first six months of 1997 and increased $52,000 (3.6%) in the
second quarter of 1998 from the second quarter of 1997, primarily as a result of
a nominal increase in yield on the portfolio from 6.18% during the first six
months of 1997 to 6.20% during the first six months of 1998, as well as an
increase in the average balance of the investment portfolio of $1,459,000 for
that period.
During the first six months of 1998 interest on federal funds sold
increased $1,000 (1.3%) from the first six months of 1997 and increased $20,000
(57.1%) in the second quarter of 1998 as compared to the second quarter of 1997.
Interest on Interest-bearing Deposits in Other Banks increased $129,000 (44.6%)
during the first six months of 1998 from the first six months of 1997 and
increased $56,000 (40.6%) in the second quarter 1998 from the second quarter of
1997. These increases were the result of an increase of 0.6% in the weighted
average yield on these short-term investments from June 30, 1997 to June 30,
1998 as well as an increase of $3,818,000 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 six months of 1998, the total interest expense
increased $286,000 (3.9%) from the first six months of 1997 and increased
$90,000 (2.5%) in the second quarter of 1998 from the second quarter of 1997.
Interest on deposits increased $299,000 (4.3%) in the first six months of 1998
from the first six months of 1997 and increased $91,000 (2.6%) in the second
quarter of this year from the second quarter of 1997. This increase is
attributable to an increase in the average balance of interest bearing deposits
of $13,827,000 from June 30, 1997 to June 30, 1998 offset by a nominal decrease
in the cost of these funds from 4.91% to 4.88% for that period. Interest on
Other Borrowed Money decreased $13,000 (3.6%) in the first six months of 1998
from the first six months of 1997 and decreased $1,000 (0.6%) in the second
quarter of 1998 as compared to the second quarter of 1997. This decrease is the
result of a decrease of $94,000 from June 30, 1997 to June 30, 1998 in the
average balance outstanding of Other Borrowed Money at a lower average interest
rate of 6.7% for the first six months of 1998 as compared to 6.9% for the first
six months of 1997.
<PAGE> 12
PROVISIONS FOR LOAN LOSSES
Provisions for loan losses for the first six months of 1998 decreased
$26,000 (5.7%) from the first six months of 1997 and decreased $16,000 (6.8%) in
the second quarter of 1998 from the second 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 June
30, 1998 the allowance for loan losses was 1.6% of outstanding loans less
unearned interest.
Nonperforming loans were $1,281,000 at June 30, 1998 and $1,217,000 at
December 31, 1997. These loans included those on a nonaccrual status of $578,000
and $434,000, respectively, accruing loans contractually past due at least 90
days of $170,000 and $134,000, respectively, and restructured loans of $533,000
and $649,000, respectively. Net loans charged off totaled $281,000 during the
first six months of 1998 as compared to $629,000 during the first six months of
1997.
NONINTEREST INCOME AND EXPENSE
Noninterest income increased $166,000 (12.3%) in the first six months
of 1998 from the first six months of 1997 and increased $117,000 (16.8%) in the
second quarter of 1998 from the second quarter of 1997. These increases are
reflected primarily in an increase in Other Service Charges of $199,000 during
the first six months of this year offset by a $39,000 decrease in Fees for Trust
Services for that period. The increase in Other Service Charges is the result of
a $134,000 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)
and a $55,000 increase in commissions on life insurance and mutual funds. The
$39,000 decrease in Trust Fees is the result of having outsourced trust
administration activities and sharing fees with the third party.
Noninterest expense increased $440,000 (8.2%) in the first six months
of 1998 compared to the first six months of 1997 and increased $176,000 (6.4%)
in the second quarter of 1998 as compared to the second quarter of 1997. These
increases are the result of increases in salary and personnel expense of
$149,000 and $41,000, respectively, increases in occupancy and equipment expense
of $123,000 and $48,000, respectively, and increases in Other Expense of
$168,000 and $87,000, respectively, during the first six months of 1998 as
compared to the first six months of 1997 and during the second quarter of 1998
as compared to the second quarter of 1997. The increase in salary and personnel
expense is primarily the result of salary increases of $136,000 and increases in
medical insurance premiums of $19,000. The increase in occupancy and equipment
expense is the result of increases in depreciation expense related to equipment
installation and upgrades in the latter part of 1997. The increase in Other
Expense is the result of increases in several items, including a $44,000
increase in advertising and public relations, a $33,000 increase in charge card
fees, and a $25,000 expense accrual in 1998 for a Year 2000 contingency.
<PAGE> 13
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 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 has completed a survey of its suppliers and large loan
customers to determine their Year 2000 readiness. It has also developed a
testing strategy in which all 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 does not expect any Year 2000 expenditures to have a
significant impact on its results of operations, liquidity, or capital
resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
<PAGE> 14
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
At the Company's Annual Meeting of Shareholders on April 23, 1998, the
shareholders of the Company elected the following persons as Class III directors
of the Company by the votes indicated.
<TABLE>
<CAPTION>
Broker
Nominee For Against Non-votes Abstentions
<S> <C> <C> <C> <C>
E. Raybon Anderson 2,600,070 0 0 34,527
A. M. Braswell, Jr. 2,611,320 0 0 23,277
W. A. Crider, Jr. 2,611,320 0 0 23,277
Dan J. Parrish, Jr. 2,609,025 0 0 25,572
</TABLE>
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> 15
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: August 12, 1998 BY: /s/James Eli Hodges
----------------------- ---------------------------------
JAMES ELI HODGES
PRESIDENT
DATE: August 12, 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 SIX
MONTHS ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 16,102
<INT-BEARING-DEPOSITS> 11,816
<FED-FUNDS-SOLD> 1,350
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 86,909
<INVESTMENTS-CARRYING> 15,187
<INVESTMENTS-MARKET> 15,786
<LOANS> 257,004
<ALLOWANCE> 4,080
<TOTAL-ASSETS> 398,968
<DEPOSITS> 340,141
<SHORT-TERM> 1,400
<LIABILITIES-OTHER> 3,960
<LONG-TERM> 10,703
0
0
<COMMON> 4,703
<OTHER-SE> 38,061
<TOTAL-LIABILITIES-AND-EQUITY> 398,968
<INTEREST-LOAN> 12,800
<INTEREST-INVEST> 2,982
<INTEREST-OTHER> 536
<INTEREST-TOTAL> 16,318
<INTEREST-DEPOSIT> 7,207
<INTEREST-EXPENSE> 7,569
<INTEREST-INCOME-NET> 8,749
<LOAN-LOSSES> 441
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 5,796
<INCOME-PRETAX> 4,030
<INCOME-PRE-EXTRAORDINARY> 4,030
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,894
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.61
<YIELD-ACTUAL> 4.94
<LOANS-NON> 578
<LOANS-PAST> 170
<LOANS-TROUBLED> 533
<LOANS-PROBLEM> 1,281
<ALLOWANCE-OPEN> 3,921
<CHARGE-OFFS> 338
<RECOVERIES> 57
<ALLOWANCE-CLOSE> 4,080
<ALLOWANCE-DOMESTIC> 4,080
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
