<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, 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, 5,592,274 shares as of September 30, 1999
<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,
1999 1998
-------------------------------
(thousands of dollars)
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 17,844 $ 21,908
Interest Bearing Deposits in Other Banks 13,999 25,115
Federal Funds Sold 3,203 15,335
Investment Securities:
Available for Sale 47,125 62,427
Held to Maturity (Estimated Fair Value of
$19,987 in 1999 and $21,529 in 1998) 19,806 20,376
Stock in the Federal Home Loan Bank of Atlanta 1,496 1,528
Loans 303,267 287,932
Less: Unearned Interest (46) (48)
Allowance for Loan Losses (4,848) (4,419)
--------- ---------
Loans, Net 298,373 283,465
--------- ---------
Interest Receivable 5,403 5,062
Premises and Equipment, Net 8,796 8,455
Other Real Estate 358 413
Other Assets 2,706 2,201
--------- ---------
TOTAL ASSETS $ 419,109 $ 446,285
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 50,807 $ 65,122
Interest Bearing:
NOW Accounts 66,840 62,963
Money Market Deposit Accounts 28,341 29,612
Savings 19,693 18,098
Time ($100,000 and above) 72,451 92,102
Other Time 101,962 107,788
--------- ---------
Total Deposits 340,094 375,685
Federal Funds Purchased and Repurchase Agreements 1,000 1,400
Other Borrowed Money 18,970 11,763
Interest Payable 3,154 3,648
Other Liabilities 1,212 1,112
--------- ---------
Total Liabilities 364,430 393,608
--------- ---------
Shareholders' Equity (Note 3):
Common Stock, 5,592,274 shares issued
and outstanding in 1999 and 5,545,523 shares
issued and outstanding in 1998 5,592 5,546
Additional Paid-In Capital 11,392 11,146
Retained Earnings 37,868 35,457
Accumulated Other Comprehensive Income (Loss) (173) 528
--------- ---------
Shareholders' Equity 54,679 52,677
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 419,109 $ 446,285
========= =========
</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,
1999 1998
---- ----
(thousands of dollars)
<S> <C> <C>
INTEREST INCOME
Loans (Including fees) $ 7,539 $7,459
Interest Bearing Deposits 267 231
Investments:
U.S. Treasury 58 110
U.S. Government Agencies 550 718
States and Political Subdivisions 348 366
Dividend Income 33 31
Federal Funds Sold 27 79
------- ------
Total Interest Income 8,822 8,994
------- ------
INTEREST EXPENSE
NOW Accounts 471 442
Money Market Deposits Accounts 208 261
Savings 115 139
Time Deposits ($100,000 and above) 1,032 1,277
Other Time Deposits 1,308 1,570
Other 287 203
------- ------
Total Interest Expense 3,421 3,892
------- ------
NET INTEREST INCOME 5,401 5,102
Provision for Loan Losses 165 265
------- ------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 5,236 4,837
------- ------
NON-INTEREST INCOME
Service Charges on Deposits 762 692
Fees for Trust Services 47 31
Other 268 240
------- ------
Total Non-interest Income 1,077 963
------- ------
NON-INTEREST EXPENSE
Salaries 1,331 1,265
Other Personnel Expense 464 424
Occupancy Expense, Net 264 265
Equipment Expense 466 387
Other 973 956
------- ------
Total Non-interest Expense 3,498 3,297
------- ------
Income Before Income Taxes 2,815 2,503
Provision for Income Taxes 895 726
------- ------
NET INCOME 1,920 1,777
------- ------
Other Comprehensive Income:
Unrealized holding gains (losses) on
securities Available for Sale arising during
the period, net of a tax credit of $62,000 in 1999
and taxes of $94,000 in 1998 (121) 182
------- ------
COMPREHENSIVE INCOME $ 1,799 $1,959
======= ======
NET INCOME PER COMMON AND POTENTIAL
COMMON SHARE:
Basic $ 0.34 $ 0.33
======= ======
Diluted $ 0.34 $ 0.32
======= ======
</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,
1999 1998
---- ----
(thousands of dollars)
<S> <C> <C>
INTEREST INCOME
Loans (Including fees) $21,965 $21,883
Interest Bearing Deposits 781 652
Investments:
U.S. Treasury 219 448
U.S. Government Agencies 1,801 2,724
States and Political Subdivisions 1,047 1,109
Dividend Income 147 127
Federal Funds Sold 275 315
------- -------
Total Interest Income 26,235 27,258
------- -------
INTEREST EXPENSE
NOW Accounts 1,382 1,783
Money Market Deposits Accounts 626 752
Savings 351 401
Time Deposits ($100,000 and above) 3,423 3,870
Other Time Deposits 4,135 4,801
Other 822 563
------- -------
Total Interest Expense 10,739 12,170
------- -------
NET INTEREST INCOME 15,496 15,088
Provision for Loan Losses 541 795
------- -------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 14,955 14,293
------- -------
NON-INTEREST INCOME
Service Charges on Deposits 2,099 1,948
Fees for Trust Services 98 80
Other 865 798
------- -------
Total Non-interest Income 3,062 2,826
------- -------
NON-INTEREST EXPENSE
Salaries 3,961 3,737
Other Personnel Expense 1,324 1,247
Occupancy Expense, Net 735 753
Equipment Expense 1,225 1,160
Other 3,334 2,918
------- -------
Total Non-interest Expense 10,579 9,815
------- -------
Income Before Income Taxes 7,438 7,304
Provision for Income Taxes 2,399 2,101
------- -------
NET INCOME 5,039 5,203
------- -------
Other Comprehensive Income:
Unrealized holding gains (losses) on
securities Available for Sale arising during
the period, net of a tax credit of $361,000 in 1999
and taxes of $142,000 in 1998 (701) 276
------- -------
COMPREHENSIVE INCOME $ 4,338 $ 5,479
======= =======
NET INCOME PER COMMON AND POTENTIAL
COMMON SHARE:
Basic $ 0.90 $ 0.96
======= =======
Diluted $ 0.90 $ 0.94
======= =======
</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, 1999 AND 1998
<TABLE>
<CAPTION>
September 30,
1999 1998
---- ----
(thousands of dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 5,039 $ 5,203
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Provision for Depreciation 971 928
Provision for Loan Losses 541 795
Loss on Sale of Other Assets 4 5
(Gain)Loss on Sale of Other Real Estate (7) 9
Gain on Call of Securities (1) (40)
Loss on Sale of Premises and Equipment 1 2
Net Accretion of Premiums and Discounts on Securities (213) (283)
Changes in Assets and Liabilities:
(Increase) Decrease in Interest Receivable (341) 124
Increase in Other Assets (179) (4)
Decrease in Interest Payable (494) (235)
Increase in Other Liabilities 100 165
-------- --------
Net Cash Provided by Operating Activities 5,421 6,669
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase)Decrease in Interest Bearing Deposits in Other Banks 11,116 (1,572)
Net Decrease in Federal Funds Sold 12,132 4,780
Available-for-Sale Securities:
Proceeds from Maturity 59,478 83,973
Purchases (45,114) (58,239)
Held-to-Maturity Securities:
Proceeds from Maturity 764 8,189
Purchases (105) (1,891)
Net Redemptions of Federal Home Loan Bank Stock 32 929
Net Increase in Loans (15,549) (11,170)
Purchases of Premises and Equipment (1,317) (1,352)
Improvements to Other Real Estate (69) (25)
Proceeds from Sale of Other Assets 31 4
Proceeds from Sale of Equipment 5
Proceeds from Sale of Other Real Estate 231 151
-------- --------
Net Cash Provided by Investing Activities 21,635 23,777
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Deposits (35,591) (42,170)
Increase in Other Borrowed Money 11,770 6,600
Repayment of Note Payable (4,563) (4,865)
Decrease in Repurchase Agreements (400)
Purchase and Retirement of Fractional Shares (8) (12)
Proceeds from Exercise of Stock Options 300 340
Dividends Paid (2,628) (1,825)
-------- --------
Net Cash Used in Financing Activities (31,120) (41,932)
-------- --------
DECREASE IN CASH AND DUE FROM BANKS (4,064) (11,486)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 21,908 27,707
-------- --------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 17,844 $ 16,221
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest $ 11,233 $ 12,405
Income Taxes 2,194 2,311
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Other Real Estate Acquired through Loan Foreclosure 414 280
Loans granted to facilitate the Sale of Other Real Estate 314 154
Change in Net Unrealized Gain (Loss) on
Investment Securities Available for Sale (701) 276
See notes to consolidated financial statements
</TABLE>
<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, First National Bank of
Effingham and Wayne National Bank, 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 $3,332,000 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
September 30,
1999 1998
--------- ---------
<S> <C> <C>
Weighted average shares outstanding -
Basic Earnings Per Share 5,592,274 5,421,669
Effect of dilutive outstanding stock options 4,892 78,965
--------- ---------
Weighted average shares outstanding -
Diluted Earnings Per Share 5,597,166 5,500,634
========= =========
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
--------- ---------
<S> <C> <C>
Weighted average shares outstanding -
Basic Earnings Per Share 5,592,702 5,423,171
Effect of dilutive outstanding stock options 5,398 95,671
--------- ---------
Weighted average shares outstanding -
Diluted Earnings Per Share 5,598,100 5,518,842
========= =========
</TABLE>
5. MERGER
Effective April 2, 1999, the Company consummated its merger of Wayne
National Bank ("Wayne Bank") into the Company. The Company exchanged 876,855
shares and approximately $8,200 for all the outstanding common stock of Wayne
Bancorp, Inc. ("WBI"), parent company of Wayne Bank. The merger was accounted
for as a pooling-of-interests. The financial statements of the Company for all
periods presented have been restated to include the accounts and operations of
Wayne Bank and WBI.
The results of operations for the three months and nine months ended
September 30, 1999 and 1998 include the consolidated WBI results of operations
prior to the consummation date as follows:
Three months ended September 30, 1999 and 1998(in thousands):
<TABLE>
<CAPTION>
Total Revenue Net Income
----------------------------- -----------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Company $9,899 $ 8,762 $1,920 $1,490
WBI 1,195 287
------ ------- ------ ------
Combined $9,899 $ 9,957 $1,920 $1,777
====== ======= ====== ======
Nine months ended September 30, 1999 and 1998:
Total Revenue Net Income
----------------------------- -----------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Company $28,089 $26,597 $4,770 $4,384
WBI 1,208 3,487 269 819
------- ------- ------ ------
Combined $29,297 $30,084 $5,039 $5,203
======= ======= ====== ======
</TABLE>
A reconciliation of consolidated total revenues, net income, and net
income per share as previously reported with restated amounts for the three
months and nine months ended September 30, 1998 is as follows:
Three months ended September 30, 1998:
<TABLE>
<CAPTION>
Net Income
Total Net Per Common
Revenues Income Share
-------- ------ -----------
<S> <C> <C> <C>
Company, as previously
reported $ 8,762 $ 1,490 $ 0.32
WBI 1,195 287
-------- -------
Company, as restated $ 9,957 $ 1,777 $ 0.33
======== =======
Nine months ended September 30, 1998:
Net Income
Total Net Per Common
Revenues Income Share
-------- ------ -----------
<S> <C> <C> <C>
Company, as previously
reported $26,597 $ 4,384 $ 0.93
WBI 3,487 819
------- -------
Company, as restated $30,084 $ 5,203 $ 0.96
======= =======
</TABLE>
<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, 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"), First National Bank of
Effingham ("Effingham Bank"), and Wayne National Bank ("Wayne 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.
The Company acquired Wayne Bank on April 2, 1999 through the merger of
Wayne Bancorp, Inc. with and into the Company. The Company issued 876,852 shares
of common stock and approximately $8,200 in cash in the merger. The financial
statements appearing herein and the discussion and analysis set forth below
reflect the combined operations of the Company and Wayne Bancorp, Inc. See Note
5 to the Consolidated Financial Statements.
FINANCIAL CONDITION
The Company functions as the sole owner of four 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 $15,549,000 or 5.4% since year-end.
Investment securities have decreased $15,872,000 (19.2%), while interest bearing
deposits in other banks and federal funds sold have decreased $11,116,000
(44.3%) and $12,132,000 (79.1%), respectively, since year-end.
Total assets have decreased $27,176,000 (6.1%) since year-end, while
total funds (Deposits plus Federal Funds Purchased, Repurchase Agreements and
Other Borrowed Money) have decreased $28,784,000 (7.4%). Total deposits have
decreased $35,591,000 (9.5%) since year-end, and Other Borrowed Money has
increased $7,207,000 (61.3%). Demand deposits have decreased $14,315,000
(22.0%), and savings deposits (including NOW accounts and the liquid money
market accounts) have increased $4,201,000 (3.8%). Time deposits over $100,000
have decreased approximately $19,651,000 (21.3%), while other time deposits have
decreased approximately $5,826,000 (5.4%).
The decrease in total deposits is primarily the result of a movement of
large public fund demand and time deposits out of the banks. In demand deposit
public fund activity, approximately $12,000,000 has moved out of the Banks since
year end. This movement is attributable to one public fund account at Bulloch
Bank, which closed during the second quarter of 1999 and carried a balance of
approximately $5,300,000 at year end, and one public fund account at Wayne Bank,
which is a cyclical account that maximizes its balances at year-end and moved
out approximately $6,000,000 during January 1999. In public fund time deposit
activity, approximately $12,846,000 has been redeemed
<PAGE> 9
out of time deposits over $100,000 and moved out of Bulloch Bank. These time
deposits are obtained through competitive bids among other local financial
institutions and are a more expensive source of funds. A strategic decision was
made to reduce the level of public funds in the Company if these deposits could
not be retained at average market rates during the bidding process. 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
these withdrawals. An additional $4,367,000 in time deposits over $100,000 of
personal and commercial depositors has also moved out of the Bulloch Bank, also
as a result of a realigning the pricing of this type of deposit account.
The $5,862,000 decrease in other time deposits and an additional
$2,484,000 decrease in time deposits over $100,000 is primarily the result of
the movement out of Effingham Bank of some known volatile personal and
commercial accounts. During late summer and early fall of 1998, Effingham Bank
promoted a special CD product to attract and retain deposits as a result of the
local competitive environment. This promotion attracted new personal deposits
from outside its market area that did not renew at maturity.
The $7,207,000 increase in Other Borrowed Money represents additional
borrowings from the Federal Home Loan Bank of Atlanta. Of this increase,
$4,000,000 were borrowed long-term as a means of match funding long-term credit
products for the Company's loan customers. Maturities and principal repayments
are structured to generally match those of the loans funded by these borrowings.
Approximately $3,200,000 represent short-term borrowings maturing within one
year.
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,
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>
Tier 1 Total
Risk-based Risk-based Leverage
Capital Ratio Capital Ratio Ratio
------------- ------------- -----
<S> <C> <C> <C>
Bulloch Bank 21.2% 22.5% 14.2%
Metter Bank 16.5% 17.7% 11.6%
Effingham Bank 10.9% 12.2% 8.5%
Wayne Bank 18.5% 19.7% 13.6%
</TABLE>
<PAGE> 10
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 13.0% at September 30, 1999 and 11.8%
at December 31, 1998.
LIQUIDITY
The percentage of loans net of unearned interest to total funds was
84.2% at September 30, 1999 and 74.0% at December 31, 1998. At September 30,
1999 the Banks had $35,046,000 in cash and due from banks, interest bearing
deposits in other banks and federal funds sold as compared with $62,358,000 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 September 30, 1999, while Bulloch Bank, Metter
Bank, and Wayne Bank exceeded this ratio, Effingham Bank reflected a liquidity
ratio of less than 10%, primarily as a result of the movement of over $7,000,000
in time deposits out of that Bank, as previously discussed, and continued loan
growth. 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.
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 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.
<PAGE> 11
The Company has not identified any material change in its market risk
exposure from December 31, 1998 to September 30, 1999. The interest rate
environment in which it operates has not changed materially since December 31,
1998. Presented below is an interest rate sensitivity analysis of the Company at
September 30, 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, and beyond five years it is
liability-sensitive.
Interest Rate Sensitivity Analysis - September 30, 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 $ 13,999 $ 13,999
Investment Securities 836 $16,682 $ 27,616 $21,797 66,931
Stock in the FHLB Atlanta 1,496 1,496
Federal Funds Sold 3,203 3,203
Loans 121,360 53,158 92,048 36,701 303,267
-------- -------- --------- -------- --------
Total Interest Earning
Assets 139,398 69,840 119,664 59,994 388,896
Non-interest Earning Assets 30,213 30,213
-------- -------- --------- -------- --------
TOTAL ASSETS $139,398 $ 69,840 $119,664 $90,207 $419,109
======== ======== ======== ======= ========
Interest Bearing Liabilities:
Interest Bearing Deposits $156,361 $111,168 $ 21,758 $289,287
Other Borrowed Money 200 4,037 2,979 $12,754 19,970
-------- -------- --------- -------- --------
Total Interest Bearing
Liabilities 156,561 115,205 24,737 12,754 309,257
Interest Free Deposits 50,807 50,807
Other Interest Free
Liabilities and Equity 59,045 59,045
-------- -------- --------- -------- --------
TOTAL LIABILITIES AND EQUITY $156,561 $115,205 $ 24,737 $122,606 $419,109
======== ======== ========= ======== ========
Net Interest Rate
Sensitivity Gap $(17,163) $(45,365) $94,927 $(32,399)
Cumulative Gap $(17,163) (62,528) 32,399
Net Interest Rate
Sensitivity Gap as a Percent
of Interest Earning Assets (12.31) (64.96) 79.33 (35.92)
Cumulative Gap as a Percent of
Cumulative Interest Earning
Assets (12.31) (29.88) 9.85
</TABLE>
<PAGE> 12
RESULTS OF OPERATIONS
INTEREST INCOME
Total interest income decreased $1,023,000 (3.8%) in the first nine
months of 1999 as compared to the first nine months of 1998 and decreased
$172,000 (1.9%) in the third quarter of 1999 as compared to the third quarter of
1998. Interest on loans increased $82,000 in the first nine months of 1999 as
compared to the first nine months of 1998 and increased $80,000 in the third
quarter of 1999 as compared to the third quarter of 1998. These fluctuations are
the result of an increase of $13,000,000 in the year-to-date average balance of
loans outstanding from September 30, 1998 to September 30, 1999 offset by a
decrease in yield on the loan portfolio for these periods from 10.6% to 10.1%.
Interest on investments decreased $1,194,000 (27.1%) in the first nine months of
this year as compared to the first nine months of 1998 and decreased $236,000
(19.3%) in the third quarter of 1999 from the third quarter of 1998, primarily
as a result of a $25,766,000 decrease in the year to date average balance of the
investment portfolio.
During the first nine months of 1999, interest on federal funds sold
decreased $40,000 (12.7%) from the first nine months of 1998 and decreased
$52,000 (65.8%) during the third quarter of 1999. Interest on Interest-Bearing
Deposits in Other Banks increased $129,000 (19.8%) during the first nine months
of 1999 from the first nine months of 1998 and increased $36,000 (15.6%) during
the third quarter of 1999. 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 for the nine months is the result of an increase of $5,804,000 in the
combined year-to-date average balance offset by a decrease in the weighted
average yield from 5.6% to 4.9%.
INTEREST EXPENSE
During the first nine months of 1999, the total interest expense
decreased $1,431,000 (11.8%) from the first nine months of 1998 and decreased
$471,000 (12.1%) during the third quarter of 1999 as compared to the third
quarter of 1998. Interest on deposits decreased $1,690,000 (14.6%) in the first
nine months of 1999 from the first nine months of 1998 and decreased $555,000
(15.0%) during the third quarter of 1999. These decreases are attributable to a
$1,690,000 decrease in the average balance of interest bearing deposits as well
as a decrease in the cost of funds from 4.8% in the first nine months of 1998 to
4.4% in the first nine months of 1999. Interest on Other Borrowed Money
increased $259,000 (46.0%) in the first nine months of 1999 from the first nine
months of 1998 and increased $84,000 (41.4%) in the third quarter of 1999 from
the third quarter of 1998, primarily as a result of a $6,063,000 increase in the
average balance outstanding of Other Borrowed Money offset by a decrease in the
average interest rate from 6.6% in 1998 to 6.3% in 1999.
<PAGE> 13
PROVISIONS FOR LOAN LOSSES
Provisions for loan losses for the first nine months of 1999 decreased
$254,000 (31.9%) from the first nine months of 1998 and decreased $100,000
(37.7%) in the third quarter of 1999 from the third quarter 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
September 30, 1999 the allowance for loan losses was 1.60% of outstanding loans
less unearned interest, compared to 1.53% at December 31, 1998.
Nonperforming loans were $1,501,000 at September 30, 1999 and
$1,205,000 at December 31, 1998. These loans included those on a nonaccrual
status of $679,000 and $325,000, respectively, accruing loans contractually past
due at least 90 days of $249,000 and $350,000, respectively, and restructured
loans of $573,000 and $530,000, respectively. Net loans charged off totaled
$112,000 during the first nine months of 1999 as compared to $479,000 during the
first nine months of 1998.
NONINTEREST INCOME AND EXPENSE
Noninterest income increased $236,000 (8.4%) in the first nine months
of 1999 from the first nine months of 1998 and increased $114,000 (11.8%) during
the third quarter of 1999 as compared to the third quarter of 1998. These
increases are reflected primarily in increases in service charges on deposits of
$151,000 for the first nine months of 1999 as compared to the first nine months
of 1998 and of $70,000 for the third quarter of 1999 as compared to the third
quarter of 1998. Other fee income also reflected an increase of $67,000 for the
first nine months of 1999 and an increase of $28,000 for the third quarter. The
increases in service charges on deposits is the result of a nine month increase
of $137,000 in NSF charges and of $15,000 in checking account service charges
while the third quarter increase is the result of a $77,000 increase in NSF
charges offset by an $8,000 decrease in checking account service charges. The
increase in NSF charges is the result of a procedural change at Bulloch Bank in
assessing and refunding charges and the resulting increase in the volume of
items subject to NSF charges. The nine month increase in checking account
service charges is the result of an increase in account fees implemented in the
latter part of 1998 at Metter Bank. The $67,000 increase in other fee income for
the first nine months of 1999 is primarily the result of increases of $114,000
in ATM fees, $8,000 in safe deposit box rent, $10,000 in debit card commissions
and $33,000 in credit life and A&H insurance commissions offset by decreases of
$55,000 in mortgage loan origination income, $6,000 on commissions on annuities,
life insurance and mutual funds, $10,000 in check cashing fees and $26,000 on
gain on sale of available for sale securities recorded in 1998. The increased
ATM fees are the result of implementing a non-customer transaction fee for ATM
usage for Bulloch Bank and Effingham Bank in late 1998. The decrease in
mortgage loan income for the first nine months of 1999 is the result of a
decrease in the volume of refinancing mortgages from the first nine months of
1998, which in turn is the result of higher mortgage rates during 1999 than in
the first half of 1998.
<PAGE> 14
Noninterest expense increased $764,000 (7.8%) in the first nine months
of 1999 compared to the first nine months of 1998 and increased $201,000 (6.1%)
in the third quarter of 1999 as compared to the third quarter of 1998. These
increases are the result of an increase in salary and personnel expense of
$301,000 and $106,000, an increase in occupancy and equipment expense of $47,000
and $78,000, and an increase in Other Expense of $416,000 and $17,000 during the
first nine months of 1999 as compared to the first nine months of 1998 and
during the third quarter of 1999 as compared to the third quarter of 1998,
respectively. The increase in salary and personnel expense is primarily the
result of the addition in late 1998 of a new senior company executive as well as
overall salary increases. Other factors are an increase of $28,000 for the nine
month period in medical insurance premiums and a $27,000 additional net expense
in 1999 for the adoption of the Company's profit-sharing and retirement benefits
for employees of Wayne Bank offset by reductions in these expenses in the other
banks. The increases in occupancy and equipment expense are the result of a
$43,000 nine month increase in depreciation on technology upgrades completed in
late 1998 and early 1999 and an $18,000 nine month increase in repairs and
maintenance offset by a $9,000 decrease in utilities expense. The increase in
Other Expense is primarily attributable to the $333,000 expense incurred during
the first quarter relating to the merger with Wayne Bancorp, Inc. and
acquisition of Wayne Bank in Jesup, Georgia. This acquisition became effective
on April 2, 1999. Other larger increases in this expense include increases of
$35,000 in offices supplies, $90,000 in expenses relating to data processing and
telecommunication services, $28,000 in telephone expense and $81,000 in
consulting fees, all offset by a $39,000 decrease in correspondent bank services
charges, a $48,000 decrease in charge card fees and a $48,000 decrease in
advertising and public relations.
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 and testing of the Company's
computer information systems and has made replacements and upgrades to any
noncompliant installation. Because the primary hardware and software systems
were already 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 and has not incurred any such material costs. The Company estimates that
its total costs of completing any required modifications, upgrades or
replacements of these internal systems will not exceed $50,000 for the year
1999; however, the Company cannot assure that the costs it actually incurs will
not have a material effect on its financial condition or operating results.
<PAGE> 15
The Company has completed a testing phase in which all mission critical
systems, such as heating and air, security and phone systems, as well as
information systems, were tested and documented by March 31, 1999. The Company's
primary systems have been tested by proxy with the software provider, who has
tested in environments with like software and hardware system configurations 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 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 also completed a survey of its vendors, suppliers and
other third parties to determine their Year 2000 readiness and has not
determined any vendors, suppliers or other third parties on which it relies to
be Year 2000 noncompliant and 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. For these riskier credit lines, the loan officers have reviewed and
completed a questionnaire with these loan customers so identified to determine
and monitor efforts toward Year 2000 preparedness. 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 have identified and resolved 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 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:
<PAGE> 16
- 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 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 back-up sources of funding available 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.
With testing completed, the Company plans to place heavier emphasis on
customer awareness and education for the remainder of the year. The Company will
continue with brochure displays, bank statement flyers, media advertisements and
civic club presentations relating to Year 2000 preparedness. Employees will
continue to receive training in dealing with customer concerns and questions,
and because of the potential for fraud, those customers requesting out of the
ordinary large dollar volume withdrawals will be counseled by a senior manager
of the respective bank.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
<PAGE> 17
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:
None
<PAGE> 18
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 8, 1999 BY: /s/ James Eli Hodges
---------------------- ------------------------------------
JAMES ELI HODGES
PRESIDENT
DATE: November 8, 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 NINE
MONTHS ENDED SEPTEMBER 30, 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 17,844
<INT-BEARING-DEPOSITS> 13,999
<FED-FUNDS-SOLD> 3,203
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 48,621
<INVESTMENTS-CARRYING> 19,806
<INVESTMENTS-MARKET> 19,987
<LOANS> 303,221
<ALLOWANCE> 4,848
<TOTAL-ASSETS> 419,109
<DEPOSITS> 340,094
<SHORT-TERM> 4,237
<LIABILITIES-OTHER> 4,366
<LONG-TERM> 15,733
0
0
<COMMON> 5,592
<OTHER-SE> 49,087
<TOTAL-LIABILITIES-AND-EQUITY> 419,109
<INTEREST-LOAN> 21,965
<INTEREST-INVEST> 3,214
<INTEREST-OTHER> 1,056
<INTEREST-TOTAL> 26,235
<INTEREST-DEPOSIT> 9,917
<INTEREST-EXPENSE> 10,739
<INTEREST-INCOME-NET> 15,496
<LOAN-LOSSES> 541
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 10,579
<INCOME-PRETAX> 7,438
<INCOME-PRE-EXTRAORDINARY> 7,438
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,039
<EPS-BASIC> 0.90
<EPS-DILUTED> 0.90
<YIELD-ACTUAL> 5.35
<LOANS-NON> 679
<LOANS-PAST> 249
<LOANS-TROUBLED> 573
<LOANS-PROBLEM> 1,501
<ALLOWANCE-OPEN> 4,419
<CHARGE-OFFS> 288
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