<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 March 31, 1999 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, 4,715,419 shares as of March 31, 1999
--------------------------------------------------------------------
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
CONSOLIDATED BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------------------------------------
(thousands of dollars)
ASSETS
<S> <C> <C>
Cash and Due From Banks $ 14,287 $ 20,004
Interest Bearing Deposits in Other Banks 24,843 24,773
Federal Funds Sold 10,053 2,975
Investment Securities:
Available for Sale 56,119 61,219
Held to Maturity (Estimated Fair Value of
$13,658 in 1999 and $14,363 in 1998) 13,026 13,623
Stock in the Federal Home Loan Bank of Atlanta 1,434 1,390
Loans 257,244 256,582
Less: Unearned Interest (15) (17)
Allowance for Loan Losses (4,167) (4,022)
-------- --------
Loans, Net 253,062 252,543
-------- --------
Interest Receivable 4,265 4,616
Premises and Equipment, Net 7,923 7,385
Other Real Estate 561 414
Other Assets 2,183 2,054
-------- --------
TOTAL ASSETS $387,756 $390,996
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 49,484 $ 50,754
Interest Bearing:
NOW Accounts 57,127 57,141
Money Market Deposit Accounts 27,061 27,897
Savings 16,630 15,239
Time ($100,000 and above) 78,030 85,054
Other Time 93,108 92,757
-------- --------
Total Deposits 321,440 328,842
Repurchase Agreements 1,400 1,400
Other Borrowed Money 15,397 11,762
Interest Payable 3,182 3,344
Other Liabilities 1,291 837
-------- --------
Total Liabilities 342,710 346,185
======== ========
Shareholders' Equity (Note 3):
Common Stock, 4,715,419 Shares Issued
And Outstanding in 1999 and 1998 4,715 4,715
Additional Paid-In Capital 6,757 6,757
Retained Earnings 33,255 32,845
Accumulated Other Comprehensive Income 319 494
-------- --------
Shareholders' Equity 45,046 44,811
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $387,756 $390,996
======== ========
</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
March 31,
1999 1998
----------------------------------
(thousands of dollars)
INTEREST INCOME
<S> <C> <C>
Loans (Including fees) $ 6,271 $ 6,314
Interest Bearing Deposits 331 224
Investments:
U.S. Treasury 70 217
U.S. Government Agencies 676 1,026
States and Political Subdivisions 259 288
Dividend Income 68 61
Federal Funds Sold 72 63
------- -------
Total Interest Income 7,747 8,193
------- -------
INTEREST EXPENSE
NOW Accounts 448 632
Money Market Deposits Accounts 211 231
Savings 106 114
Time Deposits ($100,000 and above) 1,153 1,279
Other Time Deposits 1,270 1,413
Other 250 175
------- -------
Total Interest Expense 3,438 3,844
------- -------
NET INTEREST INCOME 4,309 4,349
Provision for Loan Losses 172 221
------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 4,137 4,128
------- -------
NON-INTEREST INCOME
Service Charges on Deposits 514 495
Fees for Trust Services 19 18
Other 230 188
------- -------
Total Non-interest Income 763 701
------- -------
NON-INTEREST EXPENSE
Salaries 1,169 1,116
Other Personnel Expense 384 387
Occupancy Expense, Net 212 220
Equipment Expense 330 356
Other 1,110 771
------- -------
Total Non-interest Expense 3,205 2,850
------- -------
Income Before Income Taxes 1,695 1,979
Provision for Income Taxes 579 552
------- -------
NET INCOME 1,116 1,427
------- -------
Other Comprehensive Income:
Unrealized holding gains (losses) on
securities Available for Sale arising during
the period, net of a tax credit of $90,000 in 1999
and taxes of $49,000 in 1998 (175) 95
------- -------
COMPREHENSIVE INCOME $ 941 $ 1,522
======= =======
NET INCOME PER COMMON AND POTENTIAL
COMMON SHARE:
Basic $ 0.24 $ 0.30
======= =======
Diluted $ 0.24 $ 0.30
======= =======
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Three Months ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
March 31,
1999 1998
-------------------------------
(thousands of dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,116 $ 1,427
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Provision for Depreciation 266 285
Provision for Loan Losses 172 221
Gain on Call of Securities (1)
(Gain)Loss on Sale of Premises and Equipment (1) 2
Net Accretion of Premiums and Discounts on Securities (161) (105)
Changes in Assets and Liabilities:
Decrease in Interest Receivable 351 378
Increase in Other Assets (60) (91)
Decrease in Interest Payable (162) (306)
Increase in Other Liabilities 454 384
-------- --------
Net Cash Provided by Operating Activities 1,975 2,194
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Interest Bearing Deposits in Other Banks (70) 549
Increase in Federal Funds Sold (7,078) (1,700)
Available-for-Sale Securities:
Proceeds from Maturity 33,032 29,489
Purchases (28,037) (25,637)
Held-to-Maturity Securities:
Proceeds from Maturity 598 4,885
Net Purchases of Federal Home Loan Bank Stock (44)
Net (Increase) Decrease in Loans (814) 4,266
Purchases of Premises and Equipment (808) (119)
Improvements to Other Real Estate (25)
Proceeds from Sale of Other Assets 21
Proceeds from Sale of Equipment 5
Proceeds from Sale of Other Real Estate 1 69
-------- --------
Net Cash Used in Investing Activities (3,219) (11,802)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Deposits (7,402) (20,944)
Increase in Other Borrowed Money 5,070 3,100
Repayment of Note Payable (1,435) (4,065)
Dividends Paid (706) (602)
-------- --------
Net Cash Provided by Financing Activities (4,473) (22,511)
Decrease in Cash and Due from Banks (5,717) (8,515)
Cash and Due from Banks at Beginning of Year 20,004 24,631
-------- --------
Cash and Due from Banks at End of Period $ 14,287 $ 16,116
======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid (received) during the year for:
Interest 4,042 4,150
Income Taxes 36
Supplemental Disclosure of Non-Cash Investing Activities:
Other Real Estate Acquired through Loan Foreclosure 132 145
Loans granted to facilitate the Sale of Other Real Estate 9
Change in Net Unrealized Gain (Loss) on
Investment Securities Available for Sale (175) 95
See notes to consolidated financial statements
</TABLE>
<PAGE> 5
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, 1998.
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, 1998. 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 $2,854,000 in 1999 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
March 31,
1999 1998
-------------------------
<S> <C> <C>
Weighted average shares outstanding -
Basic Earnings Per Share 4,715,419 4,703,085
Effect of dilutive outstanding stock options 4,892 12,211
-------------------------
Weighted average shares outstanding -
Diluted Earnings Per Share 4,720,311 4,715,296
=========================
</TABLE>
5. IMPACT OF NEW ACCOUNTING STANDARDS
None
<PAGE> 6
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 MARCH 31, 1999
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. However, loans outstanding have increased $814,000 or 0.3% since
year-end. Investment securities have decreased $5,697,000 (7.6%), while interest
bearing deposits in other banks and federal funds sold have increased $70,000
(0.3%) and $7,078,000 (237.9%), respectively, since year-end.
Total assets have decreased $3,240,000 (0.8%) since year-end, while
total funds (deposits plus Other Borrowed Money) have decreased $3,767,000
(1.1%). Total deposits have decreased $7,402,000 (2.3%) since year-end, and
Other Borrowed Money has increased $3,635,000 (30.9%). Demand deposits have
decreased $1,270,000 (2.5%), and savings deposits (including NOW accounts and
the liquid money market accounts) have increased $531,000 (0.5%). Time deposits
over $100,000 have decreased approximately $7,024,000 (8.3%), while other time
deposits have decreased approximately $351,000 (0.4%).
The decrease in total deposits is primarily the result of a movement of
large public fund time deposits out of the banks. In public fund activity,
approximately $4,489,000 has been redeemed out of time deposits over $100,000
and moved out of the banks, while NOW accounts reflect a net increase of
$554,000 in public funds since year-end. Because public funds are required by
state banking law to be secured by the pledging of investment securities to the
various public entities, these securities are generally purchased to match the
maturities or known movements of public funds. Therefore, the investment
portfolio has been a primary source of liquidity for the withdrawal
requirements.
The $1,270,000 decrease in demand deposits is primarily the result of
fluctuations in commercial account balances since year-end, while an additional
$2,500,000 decrease in time deposits over $100,000 is the result of commercial
and personal account balances moving out of the banks.
<PAGE> 7
CAPITAL RESOURCES
The Banks are required to maintain minimum amounts of capital to total
"risk-weighted" assets, as defined by the banking regulators. At March 31, 1999,
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% 11.0%
Total Risk-based Capital ratio 21.4 17.2 12.2
Leverage ratio 12.8 10.7 7.6
</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 March 31, 1999 and 11.5% at
December 31, 1998.
LIQUIDITY
The percentage of loans net of unearned interest to total funds was
76.0% at March 31, 1999 and 75.0% at December 31, 1998. At March 31, 1999 the
Banks had $49,183,000 in cash and due from banks, interest bearing deposits in
other banks and federal funds sold as compared with $47,752,000 at December 31,
1998. 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 March 31 1999, while Bulloch Bank and Metter Bank exceeded this ratio,
the Effingham Bank reflected a liquidity ratio of 17%. The liquidity of the
Company and the Banks is considered adequate to repay deposits and other
obligations, meet expected loan demand and pay dividends.
MARKET RISK
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
<PAGE> 8
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. Conversely, 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 Company has not identified any material change in its market risk
exposure from December 31, 1998 to March 31, 1999. Its balance sheet structure
has not altered materially nor has the interest rate environment in which it
operates changed materially since December 31, 1998.
Presented below is an interest rate sensitivity analysis of the Company
at March 31, 1999. The analysis indicates that the Company is
liability-sensitive through one year, meaning that a greater amount of
liabilities are maturing or repricing than assets, which is beneficial in a
falling rate environment. Beyond one year, the Company is asset-sensitive, which
is beneficial in a rising rate environment.
<PAGE> 9
Interest Rate Sensitivity Analysis - March 31, 1999
<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 $ 24,843 $ 24,843
Investment Securities 14,402 $ 8,612 $ 29,820 $ 16,311 69,145
Stock in the FHLB Atlanta 1,434 1,434
Federal Funds Sold 10,053 10,053
Loans 100,169 55,898 74,256 26,906 257,229
--------- --------- --------- --------- --------
Total Interest Earning
Assets 149,467 64,510 104,076 44,651 362,704
Non-interest Earning Assets 25,052 25,052
--------- --------- --------- --------- --------
TOTAL ASSETS $ 149,467 $ 64,510 $ 104,076 $ 69,703 $387,756
========= ========= ========= ========= ========
Interest Bearing Liabilities:
Interest Bearing Deposits $ 148,746 $ 101,254 $ 21,956 $ 271,956
Other Borrowed Money 1,400 230 1,074 14,093 16,797
--------- --------- --------- --------- --------
Total Interest Bearing
Liabilities 150,146 101,484 23,030 14,093 288,753
Interest Free Deposits 49,484 49,484
Other Interest Free
Liabilities and Equity 49,519 49,519
--------- --------- --------- --------- --------
TOTAL LIABILITIES AND EQUITY $ 150,146 $ 101,484 $ 23,030 $ 113,096 $387,756
========= ========= ========= ========= ========
Net Interest Rate
Sensitivity Gap $ (679) $ (36,974) $ 81,046 $ 43,393
Cumulative Gap (679) (37,653) 43,393
Net Interest Rate
Sensitivity Gap as a Percent
of Interest Earning Assets (0.45) (57.32) 77.87 (62.25)
Cumulative Gap as a Percent of
Cumulative Interest Earning
Assets (0.45) (17.60) 13.64
</TABLE>
<PAGE> 10
RESULTS OF OPERATIONS
INTEREST INCOME
Total interest income decreased $446,000 (5.4%) in the first three
months of 1999 as compared to the first three months of 1998. Interest on loans
decreased $43,000 (0.7%) in the first three months of 1999 as compared to the
first three months of 1998, as a result of a decrease in yield on the loan
portfolio from March 31, 1998 to March 31, 1999 from 10.42% to 10.10% offset by
an increase of $9,438,000 in the year-to-date average balance of loans
outstanding for these periods. Interest on investments decreased $519,000
(32.6%) in the first three months of this year as compared to the first three
months of 1998 as a result of a decrease in the average balance of the
investment portfolio of $33,461,000 as well as a decrease in yield on the
portfolio from 6.40% to 5.93%.
During the first three months of 1999, interest on federal funds sold
increased $9,000 (14.3%) from the first three months of 1998. Interest on
Interest-bearing Deposits in Other Banks increased $107,000 (47.7%) during the
first three months of 1999 from the first three months of 1998. These short-term
investments are the two means of investing any excess cash from day to day. The
total net increase in the combined income of Federal Funds Sold and
Interest-bearing deposits in other banks is the result of an increase of
$13,511,000 in the combined year-to-date average balance offset by a decrease in
the weighted average yield from 5.60% to 4.76%.
INTEREST EXPENSE
During the first three months of 1999, the total interest expense
decreased $406,000 (10.6%) from the first three months of 1998. Interest on
deposits decreased $481,000 (13.1%) in the first three months of 1999 from the
first three months of 1998. This decrease is attributable to a $26,194,000
decrease in the average balance of interest bearing deposits as well as a
decrease in the cost of funds from 4.90% in the first quarter of 1998 to 4.66%
in the first quarter of 1999. Interest on Other Borrowed Money increased $75,000
(42.9%) in the first three months of 1999 from the first three months of 1998 as
a result of an increase of $5,509,000 in the average balance outstanding of
Other Borrowed Money offset by a decrease in the average interest rate of 0.52%
from 7.02% in 1998 to 6.50% in 1999.
PROVISIONS FOR LOAN LOSSES
Provisions for loan losses for the first three months of 1999 decreased
$49,000 (22.2%) from the first three months of 1998. 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 March 31, 1999 the
allowance for loan losses was 1.62% of outstanding loans less unearned interest.
Nonperforming loans were $989,000 at March 31,1999 and $1,071,000 at
December 31, 1998. These loans included those on a nonaccrual status of $238,000
and $225,000, respectively, accruing loans contractually past due at least 90
days of $229,000 and $316,000, respectively, and restructured loans of $522,000
and $530,000, respectively. Net loans charged off totaled $27,000 during the
first three months of 1999 as compared to $49,000 during the first three months
of 1998.
<PAGE> 11
NONINTEREST INCOME AND EXPENSE
Noninterest income increased $62,000 (8.8%) in the first three months
of 1999 from the first three months of 1998. This increase is reflected
primarily in an increase in other noninterest income of $42,000 during the first
three months of this year as well as a $19,000 increase in service charges on
deposit accounts. The increase in other noninterest income is the result of an
increase of $51,000 in ATM fees, a $7,000 increase in safe deposit box rent and
a $4,000 increase in commissions on credit life and A&H insurance premiums. The
$19,000 increase in deposit accounts is the result of a $13,000 increase in NSF
charges, which in turn are the result of an increase in the volume of NSF items
charged, and a $6,000 increase in account service charges. The increase in ATM
fees is the result of implementing a non-customer transaction fee for ATM useage
for the Bulloch Bank and Effingham Bank ATMs in late 1998.
Noninterest expense increased $355,000 (12.5%) in the first three
months of 1999 compared to the first three months of 1998. This increase is the
result of an increase in salary and personnel expense of $50,000 and an increase
in Other Expense of $339,000 during the first three months of 1999 as compared
to the first three months of 1998 offset by a decrease in occupancy and
equipment expense of $34,000. The increase in salary and personnel expense is
primarily the result of salary increases from the prior year as well as the
addition in late 1998 of a new senior company executive. The increase in Other
Expense is the result of several increases in this category. The increase is
primarily attributable to the $271,000 merger and acquisition cost incurred
during the first quarter relating to the merger with Wayne Bancorp, Inc. in
Jesup, Georgia. This acquisition became effective on April 2, 1999. Other larger
increases in this expense include an increase of $29,000 in offices supplies, a
$45,000 increase in data processing expense and a $12,000 increase in
advertising and public relations all offset by a $16,000 decrease in
correspondent bank services charges. The decrease in occupancy and equipment
expense is the result of a $19,000 decrease in depreciation expense as well as
decreases in repairs and utilities expense.
SUBSEQUENT EVENT
On April 2, 1999 the Company completed its merger with Wayne Bancorp,
Inc. into the Company. As a result of the merger, each outstanding share of
common stock of Wayne Bancorp, Inc. will be exchanged for 1.57024 shares of the
Company's common stock, with cash paid in lieu of fractional shares. Based on
this exchange ratio, the Company will issue 877,211.44 shares in the
transaction; the number of fractional shares to be paid cash, however, has not
yet been determined by the Exchange Agent.
The transaction will be recorded as a pooling of interests. The effects
of the transaction are presented on a pro forma basis for the three months ended
March 31, 1999 and 1998 (dollars in thousands):
<PAGE> 12
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
--------------------------------------------- ---------------------------------------------
Company Wayne Total Company Wayne Total
------------ ----- ----- ------- ----- -----
(As reported) (Pro forma) (As reported) (Pro forma)
<S> <C> <C> <C> <C> <C> <C>
Total Income $8,510 $1,194 $9,704 $ 8,894 $ 1,128 $10,022
Net Interest Income 4,309 682 4,991 4,349 614 4,963
Net Income 1,116 266 1,382 1,427 261 1,688
Basic Earnings per
Common Share $ 0.24 $0.25 $0.30 $ 0.30
Diluted earnings per common
and potential common
share 0.24 0.25 0.30 0.30
</TABLE>
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 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 that 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 by their vendors as Year 2000 compliant, the Company has not incurred
any significant costs to date relating to software modifications or new
installations for the other systems. Most systems are made compliant through
periodic software upgrades provided by the various vendors as part of the
license agreements. The Company expects that the costs of becoming Year 2000
compliant will not be material to its financial position or any year's operating
results. The Company has budgeted $50,000 for the year 1999 to cover costs of
becoming Year 2000 compliant; however, the Company cannot assure that the costs
it actually incurs will not have a material effect on its financial condition or
operating results .
The Company has developed a testing strategy in which all mission
critical systems, such as heating and air, security and phone systems, as well
as information systems, will be tested and documented by March 31, 1999. The
Company has assigned responsibility for specific areas in the testing plan to
different teams of employees, and these teams report on the progress of this
testing to the Boards of Directors of the subsidiary banks and of the Company on
a regular basis. The Company's primary systems have been tested by proxy with
the software provider, who has tested in environments with like software and
hardware systems as the Company. Banking regulators have approved this type of
testing as a valid means of testing. The Company has received the results of
this testing and the results are available for review. The Company has also
<PAGE> 13
completed compliance testing of all personal computers and terminals in each
bank location to provide assurance that customer service and other business
operations would continue during the Year 2000 transition. These testing
processes did not reveal any problems relating to Year 2000. The Company has not
incurred any material costs related to Year 2000 remediation and does not expect
to incur any such material cost. The Company estimates that its total cost of
completing any required modifications, upgrades or replacements of these
internal systems will not exceed $50,000 in the year 1999, and this amount has
been budgeted for such costs.
The Company has completed a survey of its vendors, suppliers and other
third parties to determine their Year 2000 readiness. If any vendor, supplier or
other third party had not provided a Year 2000 compliant application or product
or a statement of compliance schedule by December 31, 1998, the Company planned
to search for a replacement. Through this survey, however, the Company has not
identified any vendors, suppliers or other third parties that it relies on which
are not Year 2000 compliant. If the Company determines any vendor, supplier or
other third party to be noncompliant during the testing phase, which concluded
March 31, 1999, then the Company plans to select a replacement product or
application and install it prior to June 30, 1999. However, as of March 31,
1999, no vendor, supplier or other third party was found to be noncompliant or
in need of replacement. While the Company expects that it will be able to
resolve any significant Year 2000 problems with its own systems, the Company
cannot guarantee that its vendors, suppliers or others will resolve any Year
2000 problems with their systems before the occurrence of a material disruption
to their business. If the Company's vendors, suppliers or others fail to resolve
any Year 2000 problems with their systems in a timely manner, there could be a
material adverse effect on the Company's business, financial condition or
operating results.
The Company's loan officers have completed assessments of their
individual credit lines of large loan customers. Most credit lines were deemed
to pose a low risk of loss to the Company as a result of Year 2000
noncompliance. Twenty- two credit lines were identified as medium to high risk
lines. The Company has developed a questionnaire for use by the loan officers to
follow up on Year 2000 preparedness for these riskier credit lines. If the
Company's large borrowers do not sufficiently address Year 2000 problems, the
Company may experience an increase in loan defaults. The Company has evaluated
the adequacy of its loan loss reserve and believes that the reserve is presently
sufficient to cover current estimates of losses.
The Company expects to identify and resolve all Year 2000 problems that
could materially adversely effect its business, financial condition or operating
results. However, the Company believes that it is not possible to determine with
complete certainty that all year 2000 problems affecting it have been identified
and corrected. The number of devices that could be affected and the interactions
among these devices are simply too numerous. In addition, the Company cannot
accurately predict how many failures related to the Year 2000 problem will occur
with its suppliers, customers or other third
<PAGE> 14
parties or the severity, duration or financial consequences of such failures. As
a result, the Company expects that it could possibly suffer the following
consequences:
- A number of operational inconveniences and inefficiencies for
the Company, its service providers or its customers that may
divert the Company's time and attention and financial and
human resources from its ordinary business activities.
- System malfunctions that may require significant efforts by
the Company, its service providers or its customers to prevent
or alleviate material business disruptions.
The Company has adopted a Year 2000 Business Continuity and Contingency
Plan (the "Year 2000 Contingency 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. Back-up
documentation of account and department information will be stored at two
off-site locations. The Year 2000 Contingency Plan also addresses a plan of
action in the event of failure of systems such as telephones, water and heating
and air. The Company has identified local vendors that can provide services and
equipment in case of Year 2000 failure and has included contact information for
these vendors in the Year 2000 Contingency Plan. The Company plans to make
arrangements by June 30, 1999 to reserve these products and services in order to
ensure availability at year-end. The Company has also adopted a Year 2000
Asset/Liability Management and Liquidity Plan. The purpose of this plan is to
document the Company's strategy for managing large dollar volume withdrawals
that have been predicted for the banking system at the end of 1999. This plan
sets forth a strategy for structuring the balance sheets of the Banks and
specifies the outside sources to be used as back-up sources of funding in order
to meet large dollar volume withdrawals without disrupting normal business
operations of the Company.
The Company has also been subject to regulatory review of its overall
Year 2000 plan and will continue to be monitored closely 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 to
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:
On January 4, 1999 the Company filed with the Securities and Exchange
Commission a current report on Form 8-K (Commission File No. 0-10853)
reporting that on November 30, 1998 the Company entered into an
Agreement and Plan of Merger with Wayne Bancorp, Inc., pursuant to
which Wayne Bancorp, Inc. will be merged with and into the Company,
with the Company surviving the merger. This Agreement and Plan of
Merger was filed as an exhibit to the Form 8-K.
<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: May 12, 1999 BY: /s/James Eli Hodges
-------------- ------------------------------------------
JAMES ELI HODGES
PRESIDENT
DATE: May 12, 1999 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 THREE
MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 14,287
<INT-BEARING-DEPOSITS> 24,843
<FED-FUNDS-SOLD> 10,053
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 56,119
<INVESTMENTS-CARRYING> 13,026
<INVESTMENTS-MARKET> 13,658
<LOANS> 257,229
<ALLOWANCE> 4,167
<TOTAL-ASSETS> 387,756
<DEPOSITS> 321,440
<SHORT-TERM> 1,400
<LIABILITIES-OTHER> 4,473
<LONG-TERM> 15,397
0
0
<COMMON> 4,715
<OTHER-SE> 40,331
<TOTAL-LIABILITIES-AND-EQUITY> 387,756
<INTEREST-LOAN> 6,271
<INTEREST-INVEST> 1,073
<INTEREST-OTHER> 403
<INTEREST-TOTAL> 7,747
<INTEREST-DEPOSIT> 3,188
<INTEREST-EXPENSE> 3,438
<INTEREST-INCOME-NET> 4,309
<LOAN-LOSSES> 172
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,205
<INCOME-PRETAX> 1,695
<INCOME-PRE-EXTRAORDINARY> 1,695
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,116
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
<YIELD-ACTUAL> 4.93
<LOANS-NON> 238
<LOANS-PAST> 229
<LOANS-TROUBLED> 522
<LOANS-PROBLEM> 989
<ALLOWANCE-OPEN> 4,022
<CHARGE-OFFS> 63
<RECOVERIES> 36
<ALLOWANCE-CLOSE> 4,167
<ALLOWANCE-DOMESTIC> 4,167
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
