<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
For the Fiscal year ended December 31, 1998
---------------------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
-------- -------------------------------
Commission file number 0-10853
-------
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
- --------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 58-1458268
- -------------------------------- -------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
40 NORTH MAIN STREET, STATESBORO, GEORGIA 30459
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 912-764-6611
------------------------------
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK, $1.00 PAR VALUE
-----------------------------
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
YES X NO
--- ---
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-K is not contained herein, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[ ]
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock sold, or the average bid
and asked prices of such stock, as of a specified date within the past 60 days:
$87,468,813 (as of February 28, 1999).
- --------------------------------------
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 outstanding at February 28, 1999
- --------------------------------------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1998 are incorporated by reference into Parts II and IV.
Portions of the Proxy Statement for the Annual Meeting of Shareholders,
scheduled to be held April 22, 1999, are incorporated by reference into Part
III.
Exhibit Index on Page 5 Page 1 of 110 Pages
<PAGE> 2
Item 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's net interest income and the fair value of its financial
instruments (interest earning assets and interest bearing liabilities) are
influenced by changes in market interest rates. The Company utilizes an interest
rate simulation model to monitor and evaluate the impact of changing interest
rates on net interest income for each subsidiary bank. The estimated impact on
the Company's net interest income sensitivity over a one-year time horizon is
indicated in the table below, which assumes an immediate and sustained parallel
shift in interest rates of 150 basis points and no changes in the composition of
the Company's balance sheet.
<TABLE>
<CAPTION>
Net Interest Income Sensitivity
(In thousands)
Percent Increase (Decrease) in
Principal/Notional Interest Income/Expense Given
Amounts of Earning Immediate and Sustained
Assets/Interest Parallel Interest Rate Shifts
Bearing Liabilities -----------------------------
at Down 150 Up 150
December 31, 1998 Basis Points Basis Points
----------------- ------------ ------------
<S> <C> <C> <C>
Assets repricing or
maturing:
In one year or less $215,846
Over one year and
insensitive 175,150
--------
Total $390,996 -2.99% 2.97%
========
Liabilities repricing or
maturing:
In one year or less $257,522
Over one year and
insensitive 88,663
--------
Total $346,185 -5.90% 5.91%
========
Net Interest Sensitivity -0.94% 0.90%
</TABLE>
<PAGE> 3
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST BANKING COMPANY OF
SOUTHEAST GEORGIA
(Registrant)
Date: March 29, 1998 By: /s/James Eli Hodges
------------------- ---------------------------
JAMES ELI HODGES, PRESIDENT
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C>
Date: March 29, 1999 By: /s/James Eli Hodges
---------------------- ---------------------------------
JAMES ELI HODGES
PRESIDENT & DIRECTOR
(PRINCIPAL EXECUTIVE OFFICER)
Date: March 29, 1999 By: /s/Julian C. Lane, Jr.
---------------------- ---------------------------------
JULIAN C. LANE, JR
VICE PRESIDENT AND DIRECTOR
Date: March 29, 1999 By: /s/Douglas E. Wren
---------------------- --------------------------------
DOUGLAS E. WREN
VICE PRESIDENT AND DIRECTOR
Date: March 29, 1999 By: /s/Dwayne E. Rocker
---------------------- --------------------------------
DWAYNE E. ROCKER
SECRETARY & TREASURER
(PRINCIPAL FINANCIAL &
ACCOUNTING OFFICER)
Date: March 29, 1999 By: /s/ E. Raybon Anderson
---------------------- --------------------------------
E. RAYBON ANDERSON, DIRECTOR
Date: March 29, 1999 By: /s/A. M. Braswell, Jr.
---------------------- --------------------------------
A. M. BRASWELL, JR., DIRECTOR
Date: March 29, 1999 By: /s/W. A. Crider, Jr.
---------------------- --------------------------------
W. A. CRIDER, JR., DIRECTOR
Date: March 29, 1999 By: /s/ C. Arthur Howard
---------------------- --------------------------------
C. ARTHUR HOWARD, DIRECTOR
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
Date: March 29, 1999 By: /s/Joe P. Johnston
---------------------- --------------------------------
JOE P. JOHNSTON, DIRECTOR
Date: March 29, 1999 By: /s/Harry S. Mathews
---------------------- ---------------------------------
HARRY S. MATHEWS, DIRECTOR
Date: March 29, 1999 By: /s/ Dan J. Parrish, Jr.
---------------------- ---------------------------------
DAN J. PARRISH, JR., DIRECTOR
Date: March 29, 1999 By: /s/ Charles M. Robbins, Jr.
---------------------- ----------------------------------
CHARLES M. ROBBINS, JR., DIRECTOR
Date: March 29, 1999 By: /s/Larry D. Weddle
---------------------- --------------------------------
LARRY D. WEDDLE, DIRECTOR
Date: March 29, 1999 By: /s/Alvin Williams
---------------------- ---------------------------------
ALVIN WILLIAMS, DIRECTOR
Date: March 29, 1999 By: /s/Douglas E. Wren
---------------------- ----------------------------------
DOUGLAS E. WREN, DIRECTOR
</TABLE>
<PAGE> 5
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Document Page
- ----------- -------- ----
<S> <C> <C>
3.1 - Amended and Restated Articles of Incorporation
of the Registrant. 6
3.2 - By-Laws of the Registrant, as amended
February 28, 1990. 16
10.1* - Profit Sharing Plan, as restated December 29,
1994. (1) N/A
10.2* - Trust Agreement related to the Registrant's Profit
Sharing Plan, as amended and restated December 30,
1988, effective January 1, 1989. (1) N/A
10.3* - Target Benefit Retirement Plan, as restated
December 29, 1994.(1) N/A
10.4* - Trust Agreement related to the Registrant's Target
Benefit Retirement Plan, as amended and restated
December 30, 1988, effective January 1, 1989. (1) N/A
10.5* - Employment Agreement dated February 20, 1996
between James Eli Hodges and the Registrant
(incorporated herein by reference to exhibit of the
same number in the Registrant's Form 10-KSB for
the year ended December 31, 1995.) N/A
10.6* - Employment Agreement dated April 9, 1996 between
Julian C. Lane, Jr. and the Registrant (incorporated
by reference to Exhibit 10.6 of the Registrant's
Form 10-QSB for the Quarter ended March 31, 1996.) N/A
10.7* - Employment Agreement dated October 20, 1998 between
Douglas E. Wren and the Registrant. (1) N/A
10.8* - 1997 Stock Option Plan (incorporated by reference to
Appendix A to the Registrant's Proxy Statement filed
under cover of Schedule 14-A for the 1997 Annual
Meeting of Shareholders.) N/A
13 - The Registrant's Annual Report to Shareholders for
the year ended December 31, 1998 (except for
those portions specifically incorporated by
reference, the 1998 Annual Report to Shareholders
is not deemed to be filed as part of this report). N/A
21 - Subsidiaries of the Registrant (incorporated herein
by reference to exhibit of the same number in the
Registrant's Form 10-K for the year ended
December 31, 1996.) N/A
</TABLE>
<PAGE> 6
<TABLE>
<S> <C> <C>
23.1 - Consent of Deloitte & Touche LLP. N/A
27 - Financial Data Schedule (for SEC use only) N/A
(1) Incorporated herein by reference to exhibit of the same number
in the Registrant's Form S-4 filed February 9, 1999.
* Denotes Registrant's plans, management contracts and compensatory
arrangements.
</TABLE>
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF AMENDMENT
TO THE
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
1.
Name: The name of the corporation is First Banking Company of Southeast
Georgia (the "Corporation").
Amendment: The Amended and Restated Articles of Incorporation of the
Corporation, as amended effective May 11, 1988, are hereby further amended as
follows:
1. By deleting Article 5 in its entirety and inserting the
following in lieu thereof:
"5.
The Corporation shall have authority to issue ten million
(10,000,000) shares of Common Stock, $1.00 par value per
share."
Adoption by Directors and Shareholders. The foregoing amendment to the
Amended and Restated Articles of Incorporation was duly adopted in accordance
with the provisions of the Georgia Business Corporation Code by the Board of
Directors and shareholders of the Corporation on April 25, 1996 in accordance
with the provisions of Section 14-2-103 of the Georgia Business Corporation
Code.
Effective Time: These Articles of Amendment to the Amended and Restated
Articles of Incorporation of the Corporation set forth herein shall become
effective upon filing with the Office of the Secretary of State of Georgia.
This 3rd day of May, 1996.
/s/ James Eli Hodges
------------------------------
James Eli Hodges
President
<PAGE> 2
ARTICLES OF AMENDMENT TO THE RESTATED
ARTICLES OF INCORPORATION OF
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
1.
The name of the Corporation is:
First Banking Company of Southeast Georgia.
2.
The Restated Articles of Incorporation of the Corporation are amended
by deleting Article 5 in its entirety and inserting in lieu thereof a new
Article 5 as follows ("Amendment 1"):
5.
The Corporation shall have authority to issue Five Million (5,000,000)
shares of $1 par value common stock.
3.
The Restated Articles of Incorporation of the Corporation are further
amended by adding new Articles 14 and 15 as follows ("Amendment 2"):
14.
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of any duty as a
director, except for liability for:
(a) any appropriation, in violation of his duties, of any
business opportunity of the Corporation;
(b) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
(c) the types of liability set forth in Section 14-2-154
of the Official Code of Georgia Annotated; or
(d) any transaction from which the director derives an
improper material tangible personal benefit.
2
<PAGE> 3
If, after approval by the shareholders of this Article, the Official
Code of Georgia Annotated is amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Official Code of Georgia, as so amended. Any repeal or
modification of this Article by the shareholders of the Corporation shall be
prospective only and shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification.
15.
Should any provision of the Articles of Incorporation of the
Corporation, as amended and restated, or any clause thereof, be held to be
invalid, illegal or unenforceable, in whole or in part, the remaining provisions
and clauses of the Articles of Incorporation of the Corporation, as amended and
restated, shall remain valid and fully enforceable.
4.
The foregoing amendments to the Restated Articles of Incorporation were
duly adopted by the shareholders of the Corporation entitled to vote thereon at
a meeting held April 28, 1988. As of the record date, there were 277,323 shares
of the Corporation's common stock issued, outstanding and entitled to vote on
the foregoing amendments. The affirmative vote of the holders of a majority of
the outstanding shares (138,662 shares) was required to adopt the foregoing
amendments. Of the 277,323 shares outstanding and entitled to vote, 187,424
shares were voted in favor of Amendment 1 and 187,647 shares were voted in favor
of Amendment 2.
5.
Amendment 1 effects a change in the amount of stated capital of the
Corporation by reducing the par value of its common stock from $25 per share to
$1 per share so that its stated capital will be reduced from $6,935,375 to
$277,415.
IN WITNESS WHEREOF, the undersigned offices of the Corporation have
hereunto executed these Articles of Amendment to the Restated Articles of
Incorporation this 2nd day of May, 1988.
FIRST BANKING COMPANY OF
SOUTHEAST GEORGIA
By: /s/ James Eli Hodges
------------------------
James Eli Hodges
ATTEST: President
/s/ Mary C. Olliff
- ---------------------------
Mary C. Olliff
Secretary
[CORPORATE SEAL]
3
<PAGE> 4
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
FIRST BULLOCH BANKING CORPORATION
1.
The name of the Corporation is: "First Banking Company of Southeast
Georgia."
2.
The Corporation is organized pursuant to the provisions of the Georgia
Business Corporation Code.
3.
The Corporation shall have perpetual duration.
4.
The object of the Corporation is pecuniary gain and profit, and the
Corporation is formed for the purpose of becoming and operating as a bank
holding company and engaging in such related and permissible activities in
connection therewith as the Board of Directors may from time to time specify by
resolution.
5.
The Corporation shall have authority to issue Five Million (5,000,000)
shares of $25.00 par value common stock.
6.
The Corporation shall be entitled to purchase its own shares out of its
unreserved and unrestricted earned and capital surplus available therefor.
7.
The Corporation shall be entitled to distribute a portion of its assets
to its shareholders out of capital surplus available therefor.
8.
The pre-emptive right of any shareholder to acquire authorized and
unissued shares of the Corporation is denied.
4
<PAGE> 5
9.
(a) The Board of Directors, when it consists of nine or more members,
shall be divided into three (3) classes, Class I, Class II and Class III, which
shall be as nearly equal in number as possible. Each director in Class I shall
be elected to an initial term of one (1) year, each director in Class II shall
be elected to an initial term of two (2) years and each director in Class III
shall be elected to an initial term of three (3) years, and each director shall
serve until the election and qualification of his successor or until his earlier
resignation, death or removal from office. Upon the expiration of the initial
terms of office for each Class of directors, the directors of each Class shall
be elected for terms of three (3) years, to serve until the election and
qualification of their successors or until their earlier resignation, death or
removal from office.
(b) Unless eighty percent (80%) of the directors then in office shall
approve the proposed change, this Article 9 may be amended or rescinded only by
the affirmative vote of the holders of at least eighty percent (80%) of the
issued and outstanding shares of the Corporation entitled to vote in an election
of directors, at any regular or special meeting of the shareholders, and notice
of the proposed change must be contained in the notice of the meeting.
10.
(a) Except as provided in paragraph (b) of this Article 10, the Board
of Directors shall have the right to adopt, amend or repeal the By-laws of the
Corporation by the affirmative vote of a majority of all directors then in
office, and the shareholders shall have such right by the affirmative vote of a
majority of the issued and outstanding shares of the Corporation entitled to
vote in an election of directors.
(b) Notwithstanding subparagraph (a) of this Article 10, any amendment
of the By-laws of the Corporation changing the number of directors shall require
the affirmative vote of at least eighty percent (80%) of the directors then in
office or the affirmative vote of the holders of at least eighty percent (80%)
of the issued and outstanding shares of the Corporation entitled to vote in an
election of directors, at any regular or special meeting of the shareholders,
and notice of the proposed change must be contained in the notice of the
meeting.
(c) Unless eighty percent (80%) of the directors then in office shall
approve the proposed change, this Article 10 may be amended or rescinded only by
the affirmative vote of the holders of at least eighty percent (80%) of the
issued and outstanding shares of the Corporation entitled to vote in an election
of directors, at any regular or special meeting of the shareholders, and notice
of the proposed change must be contained in the notice of the meeting.
11.
(a) At any shareholders' meeting with respect to which notice of such
purpose has been given, the entire Board of Directors or any individual director
may be removed without cause only by the affirmative vote of the holders of at
least eighty percent (80%) of the issued and outstanding shares of the
Corporation entitled to vote in an election of directors.
5
<PAGE> 6
(b) At any shareholders' meeting with respect to which notice of such
purpose has been given, the entire Board of Directors or an individual director
may be removed with cause only by the affirmative vote of the holders of a
majority of the issued and outstanding shares of the Corporation entitled to
vote in an election of directors.
(c) For purposes of this Article 11, a director of the Corporation may
only be removed for cause only if (i) the director has been convicted of a
felony; (ii) any bank regulatory authority having jurisdiction over the
Corporation requests or demands the removal; or (iii) at least two-thirds of the
directors of the Corporation then in office, excluding the director to be
removed, determine that the director's conduct has been inimical to the best
interests of the Corporation.
(d) Unless eighty percent (80%) of the directors then in office shall
approve the proposed change, this Article 11 may be amended or rescinded only by
the affirmative vote of the holders of at least eighty percent (80%) of the
issued and outstanding shares of the Corporation entitled to vote in an election
of directors, at any regular or special meeting of the shareholders, and notice
of the proposed change must be contained in the notice of the meeting.
12.
(a) Except as set forth in subparagraph (d) of this Article 12, the
affirmative vote of the holders of at least eighty percent (80%) of the issued
and outstanding shares of the Corporation entitled to vote thereon shall be
required to approve:
(i) any merger or consolidation of the Corporation with or into
any other corporation; and
(ii) any sale, lease, exchange or other disposition of all
or substantially all of the assets of the Corporation
to any other corporation, person or other entity;
if, as of the record date for determination of shareholders entitled to notice
thereof and to vote thereon, such other corporation, person or entity which is a
party to such a transaction is the beneficial owner, directly or indirectly, of
five percent (5%) or more of the issued and outstanding shares of the
Corporation entitled to vote in an election of directors.
(b) For purposes of this Article 12, any corporation, person or other
entity shall be deemed to be the beneficial owner of any shares of the
Corporation:
(i) which it owns directly, whether or not of record; or
(ii) which it has the right to acquire, pursuant to any agreement
or understanding or upon exercise of conversion rights,
warrants or options or otherwise; or
6
<PAGE> 7
(iii) which are beneficially owned, directly or indirectly
(including shares deemed to be owned through application of
subparagraph (b)(ii) above), by an "affiliate" or "associate"
(as those terms are defined in Rule 12b-2 of the General Rules
and Regulations under the Securities Exchange Act of 1934 as
in effect on January 1, 1985) of the other corporation, person
or entity; or
(iv) which are beneficially owned, directly or indirectly
(including shares deemed owned through application of
subparagraph (b)(ii) above), by any other corporation, person
or entity with which it or its "affiliate" or "associate" (as
defined above) has any agreement or arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of shares of the Corporation.
For the purposes of determining whether a corporation, person or entity is the
beneficial owner of one or more of the issued and outstanding shares of the
Corporation, the issued and outstanding shares of the Corporation shall include
shares not in fact issued and outstanding but deemed owned through the
application of clauses (b)(ii), (iii) and (iv) above, but shall not include any
other shares which are not then issued and outstanding but which may be issuable
pursuant to any agreement or upon exercise of conversion rights, warrants or
options or otherwise.
(c) The Board of Directors shall have the power and duty to determine
for the purposes of this Article 12, on the basis of information known to the
Corporation, whether:
(i) such other corporation, person or entity beneficially owns,
directly or indirectly, more than five percent (5%) of the
issued and outstanding shares of the Corporation entitled to
vote in an election of directors;
(ii) a corporation, person or entity is an "affiliate" or an
"associate" (as defined above) of another;
(iii) any sale, lease, exchange or other disposition of part of the
assets of the Corporation involves substantially all of the
assets of the Corporation;
(iv) the memorandum of understanding referred to in subparagraph
(d) below is substantially consistent with the transaction
covered thereby. Any such determination shall be conclusive
and binding for all purposes of this Article 12.
(d) The provisions of this Article 12 shall not apply to:
(i) any merger or similar transaction with any corporation if
eighty percent (80%) of the directors of the Corporation then
in office has approved a memorandum of understanding with such
other corporation with respect to such transportation prior to
the time that such other corporation shall have become the
beneficial owner of more than five percent (5%) of the issued
and outstanding shares of the Corporation entitled to vote in
an election of
7
<PAGE> 8
directors; or, after such acquisition of 5% of the issued and
outstanding shares, if eighty percent (80%) or more of the
directors then holding office approve such transaction prior
to its consummation; or
(ii) any merger or consolidation of the Corporation with, or any
sale or lease to the Corporation (or any subsidiary thereof)
of any assets of, or any sale or lease by the Corporation (or
any subsidiary thereof) of any of its assets to, any
corporation of which a majority of the outstanding shares of
all classes of stock entitled to vote in an election of
directors is owned of record or beneficially by the
Corporation and its subsidiaries.
(e) Unless eighty percent (80%) of the directors then in office shall
approve the proposed change, this Article 12 may be amended or rescinded only by
the affirmative vote of the holders of at least eighty percent (80%) of the
issued and outstanding shares of the Corporation entitled to vote thereon at any
regular or special meeting of the shareholders, and notice of the proposed
change must be contained in the notice of the meeting.
13.
(a) The Board of Directors, when evaluating any offer of another party
(a) to make a tender offer or exchange offer for any equity security of the
Corporation, (b) to merge or consolidate any other corporation with the
Corporation, or (c) to purchase or otherwise acquire all or substantially all of
the assets of the Corporation, shall, in determining what is in their best
interests of the Corporation and its shareholders, give due consideration to all
relevant factors, including without limitation: (i) the short-term and long-term
social and economic effects on the employees, customers, shareholders and other
constituents of the Corporation and its subsidiaries, and on the communities
within which the Corporation and its subsidiaries operate (it being understood
that any subsidiary banks of the Corporation are charged with providing support
to and being involved in the communities they serve); and (ii) the consideration
being offered by the other party in relation to the then-current value of the
Corporation in a freely negotiated transaction and in relation to the Board of
Directors' then-estimate of the future value of the Corporation as an
independent entity.
(b) Unless eighty percent (80%) of the directors then in office shall
approve the proposed change, this Article 13 may be amended or rescinded only by
the affirmative vote of the holders of at least eighty percent (80%) of the
issued and outstanding shares of the Corporation entitled to vote thereon, at
any regular or special meeting of the shareholders, and notice of the proposed
change must be contained in the notice of the meeting.
----------------------------
The original Articles of Incorporation (the "Original Articles") of the
Corporation are superseded in their entirety by the foregoing Amended and
Restated Articles of Incorporation (the "Restated Articles") of the Corporation.
The Restated Articles reflect the amendment of Article 1 and the addition of
Articles 9 through 13 to the Original Articles. Apart from the foregoing
amendment and additions, the provisions of the Restated Articles merely restate
the provisions of the Original Articles, other than those Articles permitted to
be deleted by O.C.G.A. ss.14-2-196(e).
8
<PAGE> 9
The shareholders adopted the Restated Articles at the Annual Meeting of
Shareholders on April 24, 1985. Of the 183,236 issued and outstanding shares of
common stock, 132,198 shares of common stock were voted for the Restated
Articles. The affirmative vote of a majority of the issued and outstanding
shares was required to adopt the Restated Articles.
IN WITNESS WHEREOF, the undersigned has executed these Amended and
Restated Articles of Incorporation, this 24th day of April, 1985.
FIRST BANKING COMPANY OF
SOUTHEAST GEORGIA (formerly First
Bulloch Banking Corporation)
[CORPORATE SEAL] By: /s/ James Eli Hodges
--------------------------------
James Eli Hodges
President
ATTEST:
/s/ Mary C. Olliff
- ------------------------
Mary C. Olliff
Secretary
9
<PAGE> 1
BY-LAWS
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE ONE - OFFICES...................................................................1
ARTICLE TWO - SHAREHOLDERS' MEETINGS....................................................1
2.1 Annual Meeting........................................................1
2.2 Special Meetings......................................................2
2.3 Place.................................................................2
2.4 Notice................................................................2
2.5 Quorum................................................................3
2.6 Proxies: Required Vote................................................3
2.7 Presiding Officer and Secretary.......................................4
2.8 Shareholder List......................................................4
2.9 Action in Lieu of Meeting.............................................4
ARTICLE THREE - DIRECTORS...............................................................5
3.1 Management............................................................5
3.2 Number of Directors; Quorum...........................................5
3.3 Vacancies.............................................................5
3.4 Election of Directors.................................................6
3.5 Removal...............................................................6
3.6 Resignation...........................................................6
3.7 Compensation..........................................................7
3.8 Honorary Directors....................................................7
</TABLE>
i
<PAGE> 2
<TABLE>
<S> <C>
ARTICLE FOUR - COMMITTEES...............................................................8
4.1 Executive Committee...................................................8
4.2 Other Committees.....................................................10
4.3 Removal..............................................................11
ARTICLE FIVE - MEETINGS OF THE BOARD OF DIRECTORS......................................11
5.1 Time and Place.......................................................11
5.2 Regular Meetings.....................................................12
5.3 Special Meetings.....................................................12
5.4 Content and Waiver of Notice.........................................12
5.5 Quorum...............................................................13
5.6 Action in Lieu of Meeting............................................13
5.7 Interested Directors and Officers....................................14
ARTICLE SIX - OFFICERS, AGENTS AND EMPLOYEES...........................................15
6.1 General Provisions...................................................15
6.2 Powers and Duties of the Chairman of the Board
and the President....................................................16
6.3 Powers and Duties of Vice Presidents.................................17
6.4 Powers and Duties of the Secretary...................................18
6.5 Powers and Duties of the Treasurer...................................18
6.6 Appointment, Powers and Duties of Assistant Secretaries..............19
6.7 Appointment, Powers and Duties of
Assistant Treasurers.................................................19
6.8 Delegation of Duties.................................................20
</TABLE>
ii
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE SEVEN - CAPITAL STOCK..........................................................20
7.1 Certificates.........................................................20
7.2 Shareholder List.....................................................22
7.3 Transfer of Shares...................................................22
7.4 Record Dates.........................................................23
7.5 Registered Owner.....................................................23
7.6 Transfer Agent and Registrars........................................24
7.7 Lost Certificates....................................................24
7.8 Fractional Shares or Scrip...........................................24
ARTICLE EIGHT - BOOKS AND RECORDS, SEAL, ANNUAL STATEMENTS.............................25
8.1 Inspection of Books and Records......................................25
8.2 Seal.................................................................27
8.3 Annual Statements....................................................27
ARTICLE NINE - INDEMNIFICATION.........................................................28
ARTICLE TEN - NOTICES, WAIVERS OF NOTICE...............................................33
10.1 Notices..............................................................33
10.2 Waivers of Notice....................................................33
ARTICLE ELEVEN - EMERGENCY POWERS......................................................34
11.1 By-laws..............................................................34
11.2 Lines of Succession..................................................34
11.3 Head Office..........................................................35
11.4 Period of Effectiveness..............................................35
</TABLE>
iii
<PAGE> 4
<TABLE>
<S> <C>
11.5 Notices..............................................................35
11.6 Officers as Directors Pro Tempore....................................35
11.7 Liability of Officers, Directors and Agents..........................36
ARTICLE TWELVE - CHECKS, NOTES, DRAFTS, ETC............................................36
ARTICLE THIRTEEN - AMENDMENTS..........................................................36
</TABLE>
iv
<PAGE> 5
BY-LAWS
OF
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
ARTICLE ONE
OFFICES
The corporation shall at all times maintain a registered office in the
State of Georgia and a registered agent at that address but may have other
offices located within or outside the State of Georgia as the Board of Directors
may determine.
ARTICLE TWO
SHAREHOLDERS' MEETINGS
2.1 Annual Meeting. A meeting of shareholders of the corporation shall
be held annually, within six (6) months of the end of each fiscal year of the
corporation. The annual meeting shall be held at such time and place and on such
date as the Directors shall determine from time to time and as shall be
specified in the notice of the meeting.
1
<PAGE> 6
2.2 Special Meetings. Special meetings of the shareholders may be
called at any time by the President or any holder or holders of at least
twenty-five percent of the outstanding capital stock of the corporation. Special
meetings shall be held at such a time and place and on such date as shall be
specified in the notice of the meeting.
2.3 Place. Annual or special meetings of shareholders may be held
within or without the State of Georgia.
2.4 Notice. Notice of annual or special shareholders meetings stating
place, day and hour of the meeting shall be given in writing not less than ten
nor more than fifty days before the date of the meeting, either mailed to the
last known address or personally given to each shareholder. Notice of any
special meeting of shareholders shall state the purpose or purposes for which
the meeting is called. The notice of any meeting at which amendments to or
restatements of the articles of incorporation, merger or consolidation of the
corporation, or the disposition of corporate assets requiring shareholder
approval are to be considered shall state such purpose, and further comply with
all requirements of law. Notice of a meeting may be waived by an instrument in
writing executed before or after the meeting. The waiver need not specify the
purpose of the meeting or the business transacted, unless one of the purposes of
the meeting concerns a plan of merger or
2
<PAGE> 7
consolidation, in which event the waiver shall comply with the further
requirements of law concerning such waivers. Attendance at such meeting in
person or by proxy shall constitute a waiver of notice thereof.
2.5 Quorum. At all meetings of shareholders a majority of the
outstanding shares of stock shall constitute a quorum for the transaction of
business, and no resolution or business shall be transacted without the
favorable vote of the holders of a majority of the shares represented at the
meeting and entitled to vote. A lesser number may adjourn from day to day, and
shall announce the time and place to which the meeting is adjourned.
2.6 Proxies: Required Vote. At every meeting of the shareholders,
including meetings of shareholders for the election of Directors, any
shareholder having the right to vote shall be entitled to vote in person or by
proxy, but no proxy shall be voted after eleven months from its date, unless
said proxy provides for a longer period. Each shareholder shall have one vote
for each share of stock having voting power, registered in his name on the books
of the corporation. If a quorum is present, the affirmative vote of the majority
of the shares represented at the meeting and entitled to vote on the subject
matter shall be the act of the shareholders, except as otherwise provided by
law, by the articles of incorporation or by these by-laws.
3
<PAGE> 8
2.7 Presiding Officer and Secretary. At every meeting of shareholders,
the Chairman of the Board or the President, or, if such officers shall not be
present, the appointee of the meeting, shall preside. The Secretary or an
Assistant Secretary, or if such officers shall not be present, the appointee of
the presiding officer of the meeting, shall act as secretary of the meeting.
2.8 Shareholder List. The officer or agent having charge of the stock
transfer books of the corporation shall produce for inspection of any
shareholder at, and continuously during, every meeting of the shareholders, a
complete alphabetical list of shareholders showing the address and share
holdings of each shareholder. If the record of shareholders readily shows such
information, it may be produced in lieu of such a list.
2.9 Action in Lieu of Meeting. Any action to be taken at a meeting of
the shareholders of the corporation, or any action that may be taken at a
meeting of the shareholders, may be taken without a meeting if a consent in
writing setting forth the action so taken shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof and any
further requirements of law pertaining to such consents have been complied with.
4
<PAGE> 9
ARTICLE THREE
DIRECTORS
3.1 Management. Subject to these By-laws, or any lawful agreement
between the shareholders, the full and entire management of the affairs and
business of the corporation shall be vested in the Board of Directors, which
shall have and may exercise all of the powers that may be exercised or performed
by the corporation.
3.2 Number of Directors; Quorum. The Board of Directors shall consist
of 21 members. A majority of said Directors shall constitute a quorum for the
transaction of business. All resolutions adopted and all business transacted by
the Board of Directors shall require the affirmative vote of a majority of the
Directors present at the meeting.
3.3 Vacancies. The Directors may fill the place of any Director which
may become vacant prior to the expiration of his term, such appointment by the
Directors to continue until the expiration of the term of the Director whose
place has become vacant.
5
<PAGE> 10
Amended
Feb. 15,
1983
3.4 Election of Directors. Directors shall be elected annually, at the
annual meeting of shareholders or at a special meeting in lieu of the annual
meeting of shareholders or by written consent of the holders of shares entitled
to vote thereon in lieu of a meeting. The Directors shall serve for a term of
one year and until their successors are elected. If the annual election of
Directors is not held on the date designated therefor, the Directors shall cause
such election to be held as soon thereafter as convenient. No Director shall
stand for re-election to the Board of Directors at the Annual Meeting of
Shareholders in the calendar year in which such Director shall reach the age of
seventy-two (72) years; provided, however, that this limitation shall not apply
to those individuals who are serving as members of the Board of Directors on
January 19, 1983, and who have reached sixty (60) years of age on that date.
3.5 Removal. Any Director may be removed from office, with or without
cause upon the majority vote of the shareholders, at a meeting with respect to
which notice of such purpose is given.
3.6 Resignation. Any Director may resign at any time either orally at
any meeting of the Board of Directors or by so advising the Chairman of the
Board, or the President or by giving written notice to the corporation. A
Director who
6
<PAGE> 11
resigns may postpone the effectiveness of his resignation to a future date or
upon the occurrence of a future event specified in a written tender of
resignation. If no time of effectiveness is specified therein, a resignation
shall be effective upon tender. A vacancy shall be deemed to exist at the time a
resignation is tendered, and the Board of Directors or the shareholders may,
then or thereafter, elect a successor to take office when the resignation by its
terms becomes effective.
3.7 Compensation. Directors may be allowed such compensation for
attendance at regular or special meetings of the Board of Directors and of any
special or standing committees thereof as may be determined from time to time by
resolution of the Board of Directors.
Amended
Feb. 15,
1983
3.8 Honorary Directors. Any Director of the corporation who has reached
mandatory retirement age or who, having reached age sixty (60) desires to retire
from active service on the Board or who is incapacitated, shall be eligible for
election as an Honorary Director. Honorary Directors shall be elected by the
Board of Directors for a term of one (1) year and shall serve in an advisory
capacity to the Board of Directors. Honorary Directors shall not have a vote,
and shall not be considered for the purpose of determining the presence of a
quorum. The compensation of Honorary Directors shall be fixed
7
<PAGE> 12
by the Board of Directors, but Honorary Directors shall not be required to
attend Board Meetings or otherwise perform active service on behalf of the Bank.
ARTICLE FOUR
COMMITTEES
4.1 Executive Committee. (a) The Board of Directors may by resolution
adopted by a majority of the entire Board designate an Executive Committee of
two or more Directors. Each member of the Executive Committee shall hold office
until the first meeting of the Board of Directors after the annual meeting of
shareholders next following his election and until his successor is elected and
qualified, or until his death, resignation or removal, or until he shall cease
to be a Director.
(b) During the intervals between the meetings of the Board of
Directors, the Executive Committee may exercise all the authority of the Board
of Directors; provided, however, that the Executive Committee shall not have the
power to amend or repeal any resolution of the Board of Directors that by its
terms shall not be subject to amendment or repeal by the Executive Committee,
and the Executive Committee shall not have the authority of the Board of
Directors in reference to (i) amending the Articles of Incorporation or By-laws
of the corporation; (ii) adopting a plan of merger or consolidation; (iii) the
sale,
8
<PAGE> 13
lease, exchange or other disposition of all or substantially all the property
and assets of the corporation; or (iv) a voluntary dissolution of the
corporation or a revocation of any such voluntary dissolution.
(c) The Executive Committee shall meet from time to time on call of the
Chairman of the Board or the President or on call of any two or more members of
the Executive Committee. Meetings of the Executive Committee may be held at such
place or places, within or without the State of Georgia, as the Executive
Committee shall determine or as may be specified or fixed in the respective
notices or waivers of such meetings. The Executive Committee may fix its own
rules of procedures, including a provision for notice of its meetings. It shall
keep a record of its proceedings and shall report these proceedings to the Board
of Directors at the meeting thereof held next after they have been taken, and
all such proceedings shall be subject to revision or alteration by the Board of
Directors except to the extent that action shall have been taken pursuant to or
in reliance upon such proceedings prior to any such revision or alteration.
(d) The Executive Committee shall act by majority vote of its members;
provided, that contracts or transactions of and by the corporation in which
officers or Directors of the corporation are interested shall require the
affirmative vote of
9
<PAGE> 14
a majority of the disinterested members of the Executive Committee, at a meeting
of the Executive Committee at which the material facts as to the interest and as
to the contract or transaction are disclosed or known to the members of the
Executive Committee prior to the vote.
(e) Members of the Executive Committee may participate in committee
proceedings by means of conference telephone or similar communications equipment
by means of which all persons participating in the proceedings can hear each
other, and such participation shall constitute presence in person at such
proceedings.
(f) The Board of Directors, by resolution adopted in accordance with
paragraph (a) of this section, may designate one or more Directors as alternate
members of the Executive Committee who may act in the place and stead of any
absent member or members at any meeting of said committee.
4.2 Other Committees. The Board of Directors, by resolution adopted by
a majority of the entire Board, may designate one or more additional committees,
each committee to consist of two or more of the Directors of the corporation,
which shall have such name or names and shall have and may exercise such powers
of the Board of Directors, except the powers denied to the Executive Committee,
as may be determined from time to time by the Board of Directors. Such
committees
10
<PAGE> 15
shall provide for their own rules of procedure, subject to the same restrictions
thereon as provided above for the Executive Committee.
4.3 Removal. The Board of Directors shall have power at any time to
remove any member of any committee, with or without cause, and to fill vacancies
in and to dissolve any such committee.
ARTICLE FIVE
MEETINGS OF THE BOARD OF DIRECTORS
5.1 Time and Place. Meetings of the Board of Directors may be held at
any place either within or without the State of Georgia. Each newly elected
Board of Directors shall meet immediately following the close of the annual
meeting of shareholders and at the place thereof, or such newly elected Board of
Directors may hold such meeting at such place and time as shall be fixed by the
consent in writing of all the Directors. In any such case no notice of such
meeting to the newly elected Directors shall be necessary in order legally to
constitute the meeting. If the Board of Directors is elected by written consent
without a meeting, then the newly elected Board shall meet as soon as is
reasonably practicable after such consent is duly filed with the corporation, at
the call of the Chairman of the Board or the President or at the call of at
11
<PAGE> 16
least one-third of the Directors then in office at such time and place as shall
be specified by written notice thereof given to each Director either by personal
delivery or by mail, telegram, or cablegram at least two days before the
meeting.
5.2 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, within or without the State of
Georgia, as shall be determined by the Board of Directors from time to time.
5.3 Special Meetings. Special meetings of the Board of Directors may be
called by the Chairman of the Board or the President on not less than two days'
written notice by mail, telegram, cablegram or personal delivery to each
Director and shall be called by the Chairman of the Board, the President or the
Secretary in like manner and on like notice on the written request of any two or
more Directors. Any such special meeting shall be held at such time and place,
within or without the State of Georgia, as shall be stated in the notice of
meeting.
5.4 Content and Waiver of Notice. No notice of any meeting of the Board
of Directors need state the purposes thereof. Notice of any meeting may be
waived by an instrument in writing executed before or after the meeting.
Attendance in person at any such meeting shall constitute a waiver of notice
thereof.
12
<PAGE> 17
5.5 Quorum. At all meetings of the Board of Directors, the presence of
one-third of the authorized number of Directors, but not less than two
Directors, shall be necessary and sufficient to constitute a quorum for the
transaction of business. Directors may participate in any meeting by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting by means of such communications equipment shall constitute the presence
in person at such meeting. The act of a majority of the Directors present at any
meeting at which there is a quorum shall be the act of the Board of Directors,
except as may be otherwise specifically provided by law, the Articles of
Incorporation or these By-laws. In the absence of a quorum a majority of the
Directors present at any meeting may adjourn the meeting from time to time until
a quorum is present. Notice of any adjourned meeting need only be given by
announcement at the meeting at which the adjournment is taken.
5.6 Action in Lieu of Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if a written consent thereto is signed by all members
of the Board of Directors or of such committee, as the case may be, and such
written consent is filed with the minutes of the proceedings of
13
<PAGE> 18
the Board of Directors and any further requirements of law pertaining to such
consents have been complied with.
5.7 Interested Directors and Officers. An interested Director or
officer is one who is a party to a contract or transaction with the corporation
or who is an officer or Director of, or has a financial interest in, another
corporation, partnership or association which is a party to a contract or
transaction with the corporation. Contracts and transactions between the
corporation and one or more interested Directors or officers shall not be void
or voidable solely because of the involvement or vote of such interested persons
as long as (a) the contract or transaction is approved in good faith by the
Board of Directors or appropriate committee by the affirmative votes of a
majority of disinterested Directors, even if the disinterested Directors be less
than a quorum, at a meeting of the Board or committee at which the material
facts as to the interested person or persons and the contract or transaction are
disclosed or known to the Board or committee prior to the vote; or (b) the
contract or transaction is approved in good faith by the shareholders after the
material facts as to the interested person or persons and the contract or
transaction have been disclosed to them; or (c) the contract or transaction is
fair as to the corporation as of the time it is authorized, approved or ratified
by the Board, committee or
14
<PAGE> 19
shareholders. Interested Directors may be counted in determining the presence of
a quorum at a meeting of the Board or committee which authorizes the contract or
transaction.
ARTICLE SIX
OFFICERS, AGENTS AND EMPLOYEES
6.1 General Provisions. The officers of the corporation shall be a
President, a Secretary and a Treasurer, and may include a Chairman of the Board
one or more Vice Presidents, one or more Assistant Secretaries, and one or more
Assistant Treasurers. The officers shall be elected by the Board of Directors at
the first meeting of the Board of Directors after the annual meeting of the
shareholders in each year or shall be appointed as provided in these By-laws.
The Board of Directors may elect other officers, agents and employees, who shall
have such authority and perform such duties as may be prescribed by the Board of
Directors. All officers shall hold office until the meeting of the Board of
Directors following the next annual meeting of the shareholders after their
election or appointment and until their successors shall have been elected or
appointed and shall have qualified. Any two or more offices may be held by the
same person, except the offices of President and Secretary. Any officer, agent
or employee of the corporation may be removed by the Board of Directors with or
without cause.
15
<PAGE> 20
Removal without cause shall be without prejudice to such person's contract
rights, if any, but the election or appointment of any person as an officer,
agent or employee of the corporation shall not of itself create contract rights.
The compensation of officers, agents and employees elected by the Board of
Directors shall be fixed by the Board of Directors, but this power may be
delegated to any officer, agent or employee as to persons under his direction or
control. The Board of Directors may require any officer, agent or employee to
give security for the faithful performance of his duties.
6.2 Powers and Duties of the Chairman of the Board and the President.
The powers and duties of the Chairman of the Board and the President, subject to
the supervision and control of the Board of Directors, shall be those usually
appertaining to their respective offices and whatever other powers and duties
are prescribed by these By-laws or by the Board of Directors.
(a) The Chairman of the Board shall preside at all meetings of the
Board of Directors and at all meetings of the shareholders.
(b) The President shall, unless otherwise provided by the Board of
Directors, be the chief executive officer of the corporation. He shall have
general charge of the business and affairs of the corporation and shall keep the
Board of Directors fully advised. He shall employ and discharge employees and
16
<PAGE> 21
agents of the corporation, except such as shall be elected by the Board of
Directors, and he may delegate these powers. He shall have such powers and
perform such duties as generally pertain to the office of the President, as well
as such further powers and duties as may be prescribed by the Board of
Directors. The President may vote the shares or other securities of any other
domestic or foreign corporation of any type or kind which may at any time be
owned by the corporation, may execute any shareholders' or other consents in
respect thereof and may in his discretion delegate such powers by executing
proxies, or otherwise, on behalf of the corporation. The Board of Directors, by
resolution from time to time, may confer like powers upon any other person or
persons.
6.3 Powers and Duties of Vice Presidents. Each Vice President shall
have such powers and perform such duties as the Board of Directors or the
President may prescribe and shall perform such other duties as may be prescribed
by these By-laws. In the absence or inability to act of the President, unless
the Board of Directors shall otherwise provide, the Vice President who has
served in that capacity for the longest time and who shall be present and able
to act, shall perform all duties and may exercise any of the powers of the
President. The performance of any such duty by a Vice President shall be
conclusive evidence of his power to act.
17
<PAGE> 22
6.4 Powers and Duties of the Secretary. The Secretary shall have charge
of the minutes of all proceedings of the shareholders and of the Board of
Directors and shall keep the minutes of all their meetings at which he is
present. Except as otherwise provided by these by-laws he shall attend to the
giving of all notices to shareholders and Directors. He shall have charge of the
seal of the corporation, shall attend to its use on all documents the execution
of which on behalf of the corporation under its seal is duly authorized and
shall attest the same by his signature whenever required. He shall have charge
of the record of shareholders of the corporation, of all written requests by
shareholders that notices be mailed to them at an address other than their
addresses on the record of shareholders, and of such other books and papers as
the Board of Directors may direct. Subject to the control of the Board of
Directors, he shall have all such powers and duties as generally are incident to
the position of Secretary or as may be assigned to him by the President or the
Board.
6.5 Powers and Duties of the Treasurer. The Treasurer shall have charge
of all funds and securities of the corporation, shall endorse the same for
deposit or collection when necessary and deposit the same to the credit of the
corporation in such banks or depositories as the Board of Directors may
authorize. He may endorse all commercial
18
<PAGE> 23
documents requiring endorsements for or on behalf of the corporation and may
sign all receipts and all commercial documents requiring endorsements for or on
behalf of the corporation and may sign all receipts and vouchers for payments
made to the corporation. He shall have all such powers and duties as generally
are incident to the position of Treasurer or as may be assigned to him by the
President or by the Board of Directors.
6.6 Appointment, Powers and Duties of Assistant Secretaries. Assistant
Secretaries may be appointed by the President or elected by the Board of
Directors. In the absence or inability of the Secretary to act, any Assistant
Secretary may perform all the duties and exercise all the powers of the
Secretary. The performance of any such duty shall be conclusive evidence of his
power to act. An Assistant Secretary shall also perform such other duties as the
Secretary or the Board of Directors may assign to him.
6.7 Appointment, Powers and Duties of Assistant Treasurers. Assistant
Treasurers may be appointed by the President or elected by the Board of
Directors. In the absence or inability of the Treasurer to act, an Assistant
Treasurer may perform all the duties and exercise all the powers of the
Treasurer. The performance of any such duty shall be conclusive evidence of his
power to act. An Assistant Treasurer shall also
19
<PAGE> 24
perform such other duties as the Treasurer or the Board of Directors may assign
to him.
6.8 Delegation of Duties. In case of the absence of any officer of the
corporation, or for any other reason that the Board of Directors may deem
sufficient, the Board of Directors (or in the case of Assistant Secretaries or
Assistant Treasurers only, the President) may confer for the time being the
powers and duties, or any of them, of such officer upon any other officer
(provided that the powers and duties of the President may not be conferred upon
the Secretary, and vice versa), or elect or appoint any new officer to fill a
vacancy created by death, resignation, retirement or termination of any officer.
In such latter event such new officer shall serve until the next annual election
of officers.
ARTICLE SEVEN
CAPITAL STOCK
7.1 Certificates. (a) The interest of each shareholder shall be
evidenced by a certificate or certificates representing shares of the
corporation which shall be in such form as the Board of Directors may from time
to time adopt and shall be numbered and shall be entered in the books of the
corporation as they are issued. Each certificate representing shares shall set
forth upon the face thereof the following:
20
<PAGE> 25
(i) the name of this corporation;
(ii) that the corporation is organized under the laws of the State
of Georgia;
(iii) the name or names of the person or persons to whom the
certificate is issued;
(iv) the number and class of shares, and the designation of the
series, if any, which the certificate represents;
(v) the par value of each share represented by such certificate,
or a statement that the shares are without par value; and
(vi) if any shares represented by the certificate are nonvoting
shares, a statement or notation to that effect; and, if the shares represented
by the certificate are subordinate to shares of any other class or series with
respect to dividends or amounts payable on liquidation, the certificate shall
further set forth on either the face or back thereof a clear and concise
statement to that effect.
(b) Each certificate shall be signed by the President or a Vice
President and the Secretary or an Assistant Secretary and may be sealed with the
seal of the corporation or a facsimile thereof. If a certificate is
countersigned by a transfer agent or registered by a registrar, other than the
corporation itself or an employee of the corporation, the signature of any such
officer of the corporation may be a facsimile. In case any officer or officers
who shall have signed, or whose facsimile signature or signatures shall have
been used on, any such certificate or certificates shall cease to be such
21
<PAGE> 26
officer or officers of the corporation, whether because of death, resignation or
otherwise, before such certificate or certificates shall have been delivered by
the corporation, such certificate or certificates may nevertheless be delivered
as though the person or persons who signed such certificate or certificates or
whose facsimile signatures shall have been used thereon had not ceased to be
such officer or officers.
7.2 Shareholder List. The corporation shall keep or cause to be kept a
record of the shareholders of the corporation which readily shows, in
alphabetical order or by alphabetical index, and by classes or series of stock,
if any, the names of the shareholders entitled to vote, with the address of and
the number of shares held by each. Said record shall be presented and kept open
at all meetings of the shareholders.
7.3 Transfer of Shares. Transfers of stock shall be made on the books
of the corporation only by the person named in the certificate, or by power of
attorney lawfully constituted in writing, and upon surrender of the certificate,
or in the case of a certificate alleged to have been lost, stolen or destroyed,
22
<PAGE> 27
upon compliance with the provisions of Section 7.7 of these By-laws.
7.4 Record Dates. (a) For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or in order
to make a determination of shareholders for any other proper purpose, the Board
of Directors may provide that the stock transfer books shall be closed for a
stated period but not to exceed fifty days. If the stock transfer books shall be
closed for the purpose of determining shareholders entitled to notice of or to
vote at a meeting of shareholders, such books shall be closed for at least ten
days immediately preceding such meeting.
(b) In lieu of closing the stock transfer books, the Board of
Directors may fix in advance a date as the record date for any such
determination of shareholders, such date to be not more than fifty days and, in
case of a meeting of shareholders, not less than ten days, prior to the date on
which the particular action requiring such determination of shareholders is to
be taken.
7.5 Registered Owner. The corporation shall be entitled to treat the
holder of record of any share of stock of the corporation as the person entitled
to vote such share, to receive any dividend or other distribution with respect
to such
23
<PAGE> 28
share, and for all other purposes and accordingly shall not be bound to
recognize any equitable or other claim or interest in such share on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by law.
7.6 Transfer Agent and Registrars. The Board of Directors may appoint
one or more transfer agents and one or more registrars and may require each
stock certificate to bear the signature or signatures of a transfer agent or a
registrar or both.
7.7 Lost Certificates. Any person claiming a certificate of stock to be
lost, stolen or destroyed shall make an affidavit or affirmation of the fact in
such manner as the Board of Directors may require and, if the Directors so
require, shall give the corporation a bond of indemnity in form and amount and
with one or more sureties satisfactory to the Board of Directors, whereupon an
appropriate new certificate may be issued in lieu of the certificate alleged to
have been lost, stolen or destroyed.
7.8 Fractional Shares or Scrip. The corporation may, when and if
authorized so to do by its Board of Directors, issue certificates for fractional
shares or scrip in order to effect share transfers, share distributions or
reclassifications, mergers, consolidations or reorganizations. Holders of
24
<PAGE> 29
fractional shares shall be entitled, in proportion to their fractional holdings,
to exercise voting rights, receive dividends and participate in any of the
assets of the corporation in the event of liquidation. Holders of scrip shall
not, unless expressly authorized by the Board of Directors, be entitled to
exercise any rights of a shareholder of the corporation, including voting
rights, dividend rights or the right to participate in any assets of the
corporation in the event of liquidation. In lieu of issuing fractional shares or
scrip, the corporation may pay in cash the fair value of fractional interests as
determined by the Board of Directors; and the Board of Directors may adopt
resolutions regarding rights with respect to fractional shares or scrip as it
may deem appropriate, including without limitation the right for persons
entitled to receive fractional shares to sell such fractional shares or purchase
such additional fractional shares as may be needed to acquire one full share, or
sell such fractional shares or scrip for the account of such persons.
ARTICLE EIGHT
BOOKS AND RECORDS, SEAL, ANNUAL STATEMENTS
8.1 Inspection of Books and Records. (a) Any person who shall have
been a shareholder of record for at least six months immediately preceding his
demand or who shall be the holder of
25
<PAGE> 30
record of, or authorized in writing by the holders of record of, at least five
(5%) percent of the outstanding shares of any class or series of the
corporation, upon written demand stating the purpose thereof, shall have the
right to examine in person or by agent or attorney, at any reasonable time or
times, for any proper purpose, the books and records of account, minutes and
record of shareholders and to make extracts therefrom.
(b) Any inspection authorized above may be denied to a shareholder
or other person upon his refusal to furnish an affidavit that such inspection is
not desired for a purpose which is in the interest of a business or object other
than the business of the corporation, that he has not within the five years
preceding the date of the affidavit sold or offered for sale, and does not now
intend to sell or offer for sale, any list of shareholders of the corporation or
any other corporation and that he has not within said five year period aided or
abetted any other person to procure any list of shareholders for that purpose.
(c) If the Secretary or a majority of the Board of Directors or
members of the Executive Committee of the corporation find that the request is
proper, the Secretary shall notify the shareholder within thirty days after
receipt of said request of the time, which shall not be more than thirty days
26
<PAGE> 31
after such notification, and place at which the inspection may be conducted.
(d) If said request is found by the Secretary, the Board of
Directors or the Executive Committee to be improper, the Secretary shall so
notify the requesting shareholder within thirty days after receipt of the
request. The Secretary shall specify in said notice the basis for the rejection
of the shareholder's request.
(e) The Secretary, the Board of Directors and the Executive
Committee shall at all times be entitled to rely on the corporate records in
making any determination hereunder.
8.2 Seal. The corporate seal shall be in such form as the Board of
Directors may from time to time determine. In the event it is inconvenient to
use such a seal at any time, the signature of the corporation followed by the
word "Seal" enclosed in parentheses or scroll shall be deemed the seal of the
corporation.
8.3 Annual Statements. Not later than four months after the close of
each fiscal year, and in any case prior to the next annual meeting of
shareholders, the corporation shall prepare:
(a) A balance sheet showing in reasonable detail the financial
condition of the corporation as of the close of its fiscal year, and
27
<PAGE> 32
(b) A profit and loss statement showing the results of its
operations during its fiscal year. Upon written request, the corporation
promptly shall mail to any shareholder of record a copy of the most recent such
balance sheet and profit and loss statement.
ARTICLE NINE
INDEMNIFICATION
9.1 Under the circumstances prescribed in Sections 9.3 and 9.4, the
corporation shall indemnify and hold harmless any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a Director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
Director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in a manner he reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to
28
<PAGE> 33
believe his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
(a) the person did not act in a manner which he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, (b) that the person had reasonable cause to
believe that his conduct was unlawful.
9.2 Under the circumstances prescribed in Sections 9.3 and 9.4, the
corporation shall indemnify and hold harmless any person who was or is a party
or is threatened to be made a party to any threatened, pending or completed
action or suit by or in the right of the corporation to procure a judgment in
its favor by reason of the fact he is or was a Director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a Director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation; except that no indemnification shall be made in
29
<PAGE> 34
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his
duty to the corporation, unless and only to the extent that the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the court shall deem proper.
9.3 To the extent that a Director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in Sections 9.1 and 9.2, or in defense of
any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
9.4 Except as provided in Section 9.3 and except as may be ordered by a
court, any indemnification under Sections 9.1 and 9.2 shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the Director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections 9.1 and 9.2. Such a determination shall be made (a) by the Board of
Directors by a majority vote
30
<PAGE> 35
of a quorum consisting of Directors who were not parties to such action, suit or
proceeding, or (b) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested Directors so directs, by the firm of independent legal
counsel then employed by the corporation, in a written opinion, or (c) by the
affirmative vote of a majority of the shares entitled to vote thereon.
9.5 Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the corporation in advance of the final disposition of
such action, suit or proceeding as authorized by the Board of Directors in the
specific case upon receipt of an undertaking by or on behalf of the Director,
officer, employee or agent to repay such amount unless it shall ultimately be
determined that he is entitled to be indemnified by the corporation as
authorized in this Article Nine.
9.6 The indemnification provided by this Article Nine shall not be
deemed exclusive of any other rights, in respect of indemnification or
otherwise, to which those seeking indemnification may be entitled under any
by-law or resolution approved by the affirmative vote of the holders of a
majority of the shares entitled to vote thereon taken at a meeting the notice of
which specified that such by-law or resolution would be placed before the
shareholders, both as to action by a
31
<PAGE> 36
Director, officer, employee or agent in his official capacity and as to action
in another capacity while holding such office or position, and shall continue as
to a person who has ceased to be a Director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
9.7 The corporation may purchase and maintain insurance on behalf of
any person who is or was a Director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
Director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article Nine.
9.8 If any expenses or other amounts are paid by way of
indemnification, otherwise than by court order or action by the shareholders or
by an insurance carrier pursuant to insurance maintained by the corporation, the
corporation shall, not later than the next annual meeting of shareholders unless
such meeting is held within three months from the date of such payment, and, in
any event, within 15 months from the date of such payment, send by first class
mail to its shareholders of record at the
32
<PAGE> 37
time entitled to vote for the election of Directors a statement specifying the
persons paid, the amounts paid, and the nature and status at the time of such
payment of the litigation or threatened litigation.
ARTICLE TEN
NOTICES, WAIVERS OF NOTICE
10.1 Notices. Except as otherwise specifically provided in these
By-laws, whenever under the provisions of these By-laws notice is required to be
given to any shareholder, Director or officer, it shall not be construed to mean
personal notice, but such notice may be given by personal notice, by telegram or
cablegram, or by mail by depositing the same in the post office or letter box in
a postage prepaid, sealed wrapper, addressed to such shareholder, officer or
Director at such address as appears on the books of the corporation, and such
notice shall be deemed to be given at the time when the same shall be thus sent
or mailed.
10.2 Waivers of Notice. Except as otherwise provided in these By-laws,
when any notice is required to be given by law, by the Articles of Incorporation
or by these By-laws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. In the case of a shareholder, such waiver
33
<PAGE> 38
of notice may be signed by the shareholder's attorney or proxy duly appointed in
writing.
ARTICLE ELEVEN
EMERGENCY POWERS
11.1 By-laws. The Board of Directors may adopt emergency by-laws,
subject to repeal or change by action of the shareholders, which shall,
notwithstanding any provision of law, the Articles of Incorporation or these
By-laws, be operative during any emergency in the conduct of the business of the
corporation resulting from an attack on the United States or on a locality in
which the corporation conducts its business or customarily holds meetings of its
Board of Directors or its shareholders, or during any nuclear or atomic
disaster, or during the existence of any catastrophe, or other similar emergency
condition, as a result of which a quorum of the Board of Directors or a standing
committee thereof cannot readily be convened for action. The emergency by-laws
may make any provision that may be practical and necessary for the circumstances
of the emergency.
11.2 Lines of Succession. The Board of Directors, either before or
during any such emergency, may provide, and from time to time modify, lines of
succession in the event that during such an emergency any or all officers or
agents of the
34
<PAGE> 39
corporation shall for any reason be rendered incapable of discharging their
duties.
11.3 Head Office. The Board of Directors, either before or during any
such emergency, may (effective during the emergency) change the head office or
designate several alternative head offices or regional offices, or authorize the
officers to do so.
11.4 Period of Effectiveness. To the extent not inconsistent with any
emergency by-laws so adopted, these By-laws shall remain in effect during any
such emergency and upon its termination the emergency by-laws shall cease to be
operative.
11.5 Notices. Unless otherwise provided in emergency by-laws, notice of
any meeting of the Board of Directors during any such emergency may be given
only to such of the Directors as it may be feasible to reach at the time, and by
such means as may be feasible at the time, including publication, radio or
television.
11.6 Officers as Directors Pro Tempore. To the extent required to
constitute a quorum at any meeting of the Board of Directors during any such
emergency, the officers of the corporation who are present shall, unless
otherwise provided in emergency by-laws, be deemed, in order of rank and within
the same rank in order of seniority, Directors for such meeting.
35
<PAGE> 40
11.7 Liability of Officers, Directors and Agents. No officer, Director,
agent or employee acting in accordance with any emergency by-law shall be liable
except for willful misconduct. No officer, Director, agent or employee shall be
liable for any action taken by him in good faith in such an emergency in
furtherance of the ordinary business affairs of the corporation even though not
authorized by the by-laws then in effect.
ARTICLE TWELVE
CHECKS, NOTES, DRAFTS, ETC.
Checks, notes, drafts, acceptances, bills of exchange and other orders
or obligations for the payment of money shall be signed by such officer or
officers or person or persons as the Board of Directors by resolution shall from
time to time designate.
ARTICLE THIRTEEN
AMENDMENTS
The By-laws of the corporation may be altered or amended and new
By-laws may be adopted by the shareholders at any annual or special meeting of
the shareholders or by the Board of Directors at any regular or special meeting
of the Board of Directors; provided, however, that, if such action is to be
taken at a meeting of the shareholders, notice of the general nature of the
proposed change in the By-laws shall be given in
36
<PAGE> 41
the notice of meeting. The shareholders may provide by resolution that any
by-law provision repealed, amended, adopted, or altered by them may not be
repealed, amended, adopted or altered by the Board of Directors. Action by the
shareholders with respect to By-laws shall be taken by an affirmative vote of a
majority of all shares entitled to elect Directors, and action by the Board of
Directors with respect to by-laws shall be taken by an affirmative vote of a
majority of all Directors then holding office.
37
<PAGE> 1
EXHIBIT 13
DELOITTE &
TOUCHE LLP -----------------------------------------------------------
- ----------- Suite 1500 Telephone: (404)220-1500
191 Peachtree Street, N. E. Facsimile: (404)220-1583
Atlanta, Georgia 30303-1924
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
First Banking Company of Southeast Georgia:
We have audited the accompanying consolidated balance sheets of First Banking
Company of Southeast Georgia and subsidiaries (the "Company") as of December 31,
1998 and 1997 and the related consolidated statements of income and
comprehensive income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1998
and 1997 and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
January 22, 1999
<PAGE> 2
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Cash and Due from Banks (Note 16) $ 20,004,044 $ 24,631,342
Interest Bearing Deposits in Other Banks 24,773,286 16,367,519
Federal Funds Sold 2,975,000 3,775,000
Investment Securities:
Available for Sale, at Fair Value (Amortized Cost
of $60,471,537 in 1998 and $81,839,888 in 1997)
(Note 4) 61,219,384 82,169,388
Held to Maturity, at Cost (Estimated Fair Value
of $14,362,535 in 1998 and $21,543,556 in 1997)
(Note 5) 13,622,963 20,847,115
Stock of Federal Home Loan Bank, at Cost 1,389,500 2,307,400
Loans (Notes 6 and 13) 256,582,557 250,311,707
Less: Unearned Interest Income (17,148) (16,698)
Allowance for Loan Losses (Note 6) (4,022,031) (3,920,535)
------------- -------------
Loans - Net 252,543,378 246,374,474
------------- -------------
Interest Receivable 4,615,623 5,157,819
Premises and Equipment, Net (Note 7) 7,385,200 7,089,559
Other Real Estate 413,471 368,524
Other Assets 2,054,329 2,134,736
------------- -------------
TOTAL ASSETS $ 390,996,178 $ 411,222,876
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits (Note 14):
Demand $ 50,753,732 $ 45,981,051
Interest Bearing:
NOW Accounts 57,140,706 76,036,196
Money Market Deposit Accounts 27,897,497 29,111,446
Savings 15,238,567 14,593,108
Time Certificates ($100,000 and above) 85,053,944 88,807,158
Other Time 92,757,204 100,276,241
------------- -------------
Total Deposits 328,841,650 354,805,200
Repurchase Agreements 1,400,000 1,400,000
Other Borrowed Money (Note 14) 11,762,729 9,418,343
Interest Payable 3,343,793 3,550,857
Other Liabilities 836,973 1,019,691
------------- -------------
Total Liabilities 346,185,145 370,194,091
------------- -------------
Commitments and Contingencies (Note 6)
Shareholders' Equity (Notes 10 and 11):
Common Stock, $1.00 Par Value, 10,000,000
Shares Authorized, 4,715,419 Shares Issued and
Outstanding at December 31, 1998 and
4,703,085 Shares Issued and Outstanding at
December 31, 1997 4,715,419 4,703,085
Additional Paid-in Capital 6,756,778 6,533,555
Retained Earnings 32,845,257 29,574,675
Accumulated Other Comprehensive Income, Net
Of Tax of $254,268 in 1998 and $112,030 in 1997 493,579 217,470
------------- -------------
Total Shareholders' Equity 44,811,033 41,028,785
------------- -------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 390,996,178 $ 411,222,876
============= =============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 3
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Loans (Including Fees) $25,804,299 $24,935,274 $23,593,288
Interest Bearing Deposits 999,265 672,159 584,746
Investment Securities:
U.S. Treasury 502,872 1,257,456 1,438,107
U.S. Government Agencies 3,356,175 3,113,072 3,398,383
States and Political Subdivisions 1,103,426 1,098,739 983,163
Dividend Income 137,118 186,043 151,786
Federal Funds Sold 237,183 199,988 418,504
----------- ----------- -----------
Total Interest Income 32,140,338 31,462,731 30,567,977
----------- ----------- -----------
INTEREST EXPENSE
NOW Accounts 2,102,638 1,875,013 1,793,576
Money Market Deposit Accounts 945,859 859,518 1,265,473
Savings 476,618 448,766 418,777
Time Certificates($100,000 and above) 4,803,681 5,057,137 4,528,026
Other Time 5,524,441 5,656,899 5,783,882
Other 770,550 737,760 617,601
----------- ----------- -----------
Total Interest Expense 14,623,787 14,635,093 14,407,335
----------- ----------- -----------
NET INTEREST INCOME 17,516,551 16,827,638 16,160,642
PROVISION FOR LOAN LOSSES 813,450 932,285 694,911
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 16,703,101 15,895,353 15,465,731
----------- ----------- -----------
NON-INTEREST INCOME
Service Charges on Deposit Accounts 2,162,591 2,099,425 1,918,032
Fees for Trust Services 105,998 208,864 215,946
Other 794,159 626,554 405,434
----------- ----------- -----------
Total Non-interest Income 3,062,748 2,934,843 2,539,412
----------- ----------- -----------
NON-INTEREST EXPENSE
Salaries 4,476,252 4,249,429 4,110,004
Other Personnel Expense 1,526,137 1,494,100 1,157,196
Occupancy Expense, Net 927,982 893,338 767,941
Equipment Expense 1,425,880 1,314,450 1,051,469
Other (Note 15) 3,435,592 3,156,288 3,344,054
----------- ----------- -----------
Total Non-interest Expense 11,791,843 11,107,605 10,430,664
----------- ----------- -----------
INCOME BEFORE INCOME TAXES 7,974,006 7,722,591 7,574,479
PROVISION FOR INCOME TAXES (NOTE 8) 2,265,747 2,258,707 2,400,517
----------- ----------- -----------
NET INCOME 5,708,259 5,463,884 5,173,962
----------- ----------- -----------
</TABLE>
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- -----------
<S> <C> <C> <C>
OTHER COMPREHENSIVE INCOME:
Unrealized holding gains(losses) on
Securities Available for Sale arising
during the period 268,646 240,294 (279,271)
Less: Reclassification adjustment
for gains included in net income 7,463
---------- ---------- -----------
Other Comprehensive Income, net of
taxes of ($142,238), ($123,788)
and $143,867 in 1998, 1997 and
1996, respectively 276,109 240,294 (279,271)
---------- ---------- -----------
COMPREHENSIVE INCOME $5,984,368 $5,704,178 $ 4,894,691
========== ========== ===========
NET INCOME PER COMMON AND POTENTIAL COMMON SHARE:
Basic $ 1.21 $ 1.16 $ 1.10
========== ========== ===========
Diluted $ 1.21 $ 1.16 $ 1.10
========== ========== ===========
WEIGHTED AVERAGE COMMON AND POTENTIAL COMMON SHARES OUTSTANDING:
Basic 4,703,267 4,691,164 4,690,769
========== ========== ===========
Diluted 4,714,360 4,694,695 4,690,769
========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 5,708,259 $ 5,463,884 $ 5,173,962
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Provision for Depreciation 1,123,607 1,084,048 845,621
Provision for Loan Losses 813,450 932,285 694,911
Loss on Disposition of Other Assets 4,500
Loss (Gain) on Sales of Other Real Estate 18,708 42,487 (3,607)
Gain on Call of Securities (15,493) (6,090) (7,359)
Loss on Disposition of Premises
and Equipment 33,946 3,653 11,751
Net Accretion of Premiums and
Discounts on Securities (318,869) (150,874) (537,317)
Amortization of Goodwill 37,688 37,688 37,688
Changes in Assets and Liabilities:
(Increase) Decrease in Interest Receivable 542,196 225,248 (426,124)
Increase in Other Assets (115,019) (60,836) (49,864)
Increase (Decrease)in Interest Payable (207,064) 271,521 61,334
Increase (Decrease) in Other Liabilities (182,718) 148,952 (432,282)
------------ ------------ ------------
Net Cash Provided by Operating Activities 7,443,191 7,991,966 5,368,714
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Interest Bearing
Deposits in Other Banks (8,405,767) (6,462,034) 2,386,061
Net (Increase) Decrease in Federal Funds Sold 800,000 2,445,000 1,950,000
Available For Sale Securities:
Proceeds from Calls and Maturities 93,895,554 49,350,681 46,438,891
Purchases (73,165,376) (47,523,744) (77,310,813)
Held To Maturity Securities:
Proceeds from Calls and Maturities 8,761,947 6,685,322 23,121,405
Purchases (565,260) (9,351,725) (5,346,240)
Net Redemptions (Purchases)of
Federal Home Loan Bank stock 917,900 60,300 (1,012,100)
Net Increase in Loans (7,171,781) (20,673,289) (15,934,923)
Purchases of Premises and Equipment (1,462,194) (983,951) (2,405,496)
Improvements to Other Real Estate (25,146)
Proceeds from Sales of Premises and Equipment 9,000 1,886
Proceeds from Sales of Other Assets 11,000
Proceeds from Sales of Other Real Estate 150,918 419,830 201,624
------------ ------------ ------------
Net Cash Provided by (Used in)
Investing Activities 13,750,795 (26,033,610) (27,909,705)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease)in Deposits (25,963,550) 25,158,005 25,164,629
Borrowings from the Federal Home Loan Bank 7,600,000 2,530,000 9,041,000
Repayment of Other Borrowed Money (5,255,614) (4,029,608) (5,357,496)
(Decrease) Increase in Fed Funds Purchased (800,000) 800,000
Increase in Repurchase Agreements 200,000 1,200,000
Purchase and Retirement of Fractional Shares (12,058) (6,754) (2,812)
Proceeds from Exercise of Stock Options 247,615 218,530
Dividends Paid (2,437,677) (2,207,930) (1,699,119)
------------ ------------ ------------
Net Cash (Used in)Provided by
Financing Activities (25,821,284) 21,062,243 29,146,202
------------ ------------ ------------
INCREASE (DECREASE)IN CASH AND DUE FROM BANKS (4,627,298) 3,020,599 6,605,211
CASH AND DUE FROM BANKS, BEGINNING OF YEAR 24,631,342 21,610,743 15,005,532
------------ ------------ ------------
CASH AND DUE FROM BANKS, END OF YEAR $ 20,004,044 $ 24,631,342 $ 21,610,743
============ ============ ============
</TABLE>
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $14,830,851 $14,363,572 $ 14,346,000
Income Taxes 2,497,000 1,953,000 2,439,418
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Other Real Estate Acquired through Loan
Foreclosure 451,169 1,092,524 414,917
Loans granted to facilitate the Sale of
Other Real Estate 261,742 708,183 76,900
Change in Net Unrealized Gain (Loss) on
Securities Available for Sale 276,109 240,294 (279,271)
</TABLE>
See notes to consolidated financial statements.
<PAGE> 7
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
ADDITIONAL COMPREHENSIVE
COMMON PAID-IN RETAINED INCOME
STOCK CAPITAL EARNINGS (LOSS) TOTAL
----------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 4,690,830 $ 6,336,846 $22,843,878 $ 256,447 $34,128,001
Net Income 5,173,962 5,173,962
Cash Dividends, $.38 per share (1,699,119) (1,699,119)
Other Comprehensive Income (279,271) (279,271)
Purchase and Retirement of
Fractional Shares (173) (2,639) (2,812)
----------- ----------- ------------ ----------- -----------
Balance at December 31, 1996 4,690,657 6,334,207 26,318,721 (22,824) 37,320,761
Net Income 5,463,884 5,463,884
Cash Dividends, $.47 per share (2,207,930) (2,207,930)
Other Comprehensive Income 240,294 240,294
Purchase and Retirement of
Fractional Shares (384) (6,370) (6,754)
Exercise of Stock Options 12,812 205,718 218,530
----------- ----------- ------------ ----------- -----------
Balance at December 31, 1997 4,703,085 6,533,555 29,574,675 217,470 41,028,785
Net Income 5,708,259 5,708,259
Cash Dividends, $.52 per share (2,437,677) (2,437,677)
Other Comprehensive Income 276,109 276,109
Purchase and Retirement of
Fractional Shares (478) (11,580) (12,058)
Exercise of Stock Options 12,812 234,803 247,615
----------- ----------- ----------- ----------- -----------
Balance at December 31, 1998 $ 4,715,419 $ 6,756,778 $32,845,257 $ 493,579 $44,811,033
=========== =========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION
First Banking Company of Southeast Georgia (the "Company") owns all of
the outstanding stock of First Bulloch Bank & Trust Company ("Bulloch Bank"),
Metter Banking Company ("Metter Bank") and First National Bank of Effingham
("Effingham Bank")(collectively, "the Banks"). The Company's primary market area
is comprised of Bulloch, Candler, Effingham and contiguous counties of southeast
Georgia. Each of the Banks derives its revenues primarily from extending loans
to individuals or to commercial enterprises within its respective geographic
location. Loans are funded by customer deposits, and remaining customer deposits
are placed in short-term investments or in investment securities to generate
additional interest income for the Company. All of the Banks' revenues are
derived from customers located in the United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting and reporting policies of the Company conform with generally
accepted accounting principles and with general practice within the banking
industry. The following is a summary of the more significant policies:
CONSOLIDATION
The consolidated financial statements of the Company include the
financial statements of Bulloch Bank, Metter Bank and Effingham Bank,
wholly owned subsidiaries. Intracompany balances and transactions have
been eliminated in consolidation.
NATURE OF OPERATIONS
The Company's banks have eleven banking locations in Bulloch, Candler
and Effingham counties located in southeast Georgia. The Company's
primary source of revenue is interest from loans to businesses and
individuals located in its market area.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
INTEREST RATE RISK
The Company's assets and liabilities are generally monetary in nature,
and interest rate changes have an impact on the Company's performance.
The Company decreases the effect of interest rate changes on its
performance by striving to match maturities and interest sensitivity
between loans, investment securities, deposits and other borrowings.
However, a significant change in interest rates could have a material
effect on the Company's results of operations.
CASH AND DUE FROM BANKS
For purposes of reporting cash flows, cash and due from banks include
cash on hand and demand deposits due from banks.
INVESTMENT SECURITIES AVAILABLE FOR SALE
Investment securities available for sale are carried at fair value, and
the related unrealized gain or loss, net of deferred income taxes, is
included as other comprehensive income. Gains and losses on sales and
calls are based on the net proceeds and adjusted carrying amounts of
the securities sold or called, using the specific identification
method.
<PAGE> 9
INVESTMENT SECURITIES HELD TO MATURITY
Investment securities held to maturity are stated at cost adjusted for
amortization of premiums and accretion of discounts, which are
recognized as adjustments to interest income. The Company has the
intent and ability to hold these investment securities to maturity.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level estimated to be
adequate to absorb potential losses in the loan portfolio. Management's
estimate of the adequacy of the allowance is based upon reviews of
individual loans, recent loss experience, the estimated value of any
underlying collateral, current economic conditions, the risk
characteristics of the various categories of loans and other pertinent
factors. The adequacy of the allowance is reviewed on a quarterly basis
by management and by the Board of Directors. The allowance is allocated
by a formula developed internally and deemed adequate by bank
regulators. The allocation includes 15% of the principal balance of
loans graded "Substandard," 50% of the principal balance of loans
graded "Doubtful," and 100% of the principal balance of loans graded
"Loss" plus 100% of the greater of three year or five year average net
charge-offs plus 0.5% of off-balance sheet items plus 10% of loans past
due 30 days or more and not internally rated plus a subjective
component related to judgments about local economic conditions, loan
officer performance, concentrations and other factors. For the year
ended December 31, 1998, the allocation formula was expanded to include
a component for potential loan losses relating to the potential adverse
effect of the Year 2000 issue on the Company's loan customers. Loans
deemed uncollectible are charged to the allowance. Provisions for loan
losses and recoveries on loans previously charged off are added to the
allowance.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using accelerated and straight
line methods over the estimated useful life of each asset. Significant
additions and improvements are capitalized. Maintenance and repairs are
charged to expense. The Company evaluates the estimated useful lives of
assets on a periodic basis to determine whether events or circumstances
warrant revised estimated useful lives or whether any impairment
exists. Management believes no impairment of premises and equipment
exists at December 31, 1998.
INTEREST INCOME ON LOANS
Interest income on commercial, real estate and simple interest
installment loans is recognized based upon the principal amount
outstanding. The Banks discontinue accruing interest income on loans
when, in the opinion of management, the interest is not collectible
currently.
OTHER REAL ESTATE
Other real estate represents properties acquired through foreclosure
and is carried at the lower of cost or estimated fair market value less
estimated costs to sell.
GOODWILL
Goodwill is included in other assets and is being amortized over 25
years. The carrying value of goodwill is periodically reviewed to
assess recoverability based on expected undiscounted cash flows and
operating income for the Company. Impairments would be recognized in
operating results if a permanent diminution in value was expected. The
Company also evaluates the amortization period to determine whether
events or circumstances warrant revision to the amortization period.
Management believes no impairment of goodwill exists at December 31,
1998.
OPERATING SEGMENTS
The Company has identified Bulloch Bank, Metter Bank and Effingham Bank
as operating segments of the Company, as the operating results of each
Bank are regularly reviewed by the Company's Chief Executive Officer to
assess each Bank's performance and to determine any allocation of
resources.
<PAGE> 10
INCOME TAXES
Provisions for income taxes are based upon amounts reported in the
statements of income (after exclusion of non-taxable income such as
interest on state and municipal securities) and include deferred taxes
for temporary differences between financial statement and tax bases of
assets and liabilities using enacted tax rates for the year in which
the temporary differences are expected to reverse.
NET INCOME PER SHARE
Basic net income per share is computed based on the weighted average
number of common shares outstanding during the period. Diluted net
income per share is computed based on the weighted average number of
common and potential dilutive common shares outstanding during the
period. The only potential dilutive common shares outstanding in 1998
and 1997 were stock options. There were no stock options outstanding in
1996.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1996 financial
statements to conform to the 1998 presentation.
NEW ACCOUNTING PRONOUNCEMENTS
As of January 1, 1998, the Company adopted SFAS 130, "Reporting
Comprehensive Income" and restated prior periods to conform to the
presentation required by SFAS 130. SFAS 130 establishes new rules for
the reporting and display of comprehensive income and its components.
SFAS 130 requires unrealized gains or losses on the Company's available
for sale securities to be included in other comprehensive income. The
adoption of SFAS 130 had no impact on the Company's net income or
shareholder's equity.
As of December 31, 1998, the Company adopted SFAS 131, "Disclosures
about Segments of an Enterprise and Related Information". SFAS 131
established annual and interim reporting standards for an enterprise's
business segments and related disclosures about its products, services,
geographic areas and major customers. Appropriate disclosures have been
included in the notes to the Company's financial statements for the
year ended December 31, 1998.
In June 1998, SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities" 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. SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. As the Company does not engage in
derivative instruments or hedging activities, SFAS 133 will not have an
effect on the Company's financial statements.
<PAGE> 11
3. ACQUISITION
Effective August 27, 1996, the Company consummated its merger of the
Effingham Bank into the Company. The Company exchanged 340,309 shares of its
common stock and cash of approximately $2,800 for all the outstanding common
stock and options to acquire common stock of FNB Bancshares, Inc. ("FNB"),
parent company of Effingham Bank. The merger was accounted for as a
pooling-of-interests.
4. INVESTMENT SECURITIES AVAILABLE FOR SALE
The amortized cost, estimated fair value and gross unrealized gains and
losses of investment securities available for sale are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
U.S. Treasury $ 4,805,941 $ 53,998 $ 4,859,939
U.S. Government Agencies 48,448,364 359,300 $ 9,450 48,798,214
States and Political
Subdivisions 6,975,380 343,999 7,319,379
Equity securities 241,852 241,852
----------- ---------- ---------- -----------
Total $60,471,537 $ 757,297 $ 9,450 $61,219,384
=========== ========== ========== ===========
DECEMBER 31, 1997
U.S. Treasury $13,311,448 $ 32,293 $ 11,857 $13,331,884
U.S. Government Agencies 62,329,447 158,803 89,699 62,398,551
States and Political
Subdivisions 5,957,141 239,960 6,197,101
Equity securities 241,852 241,852
----------- ---------- ---------- -----------
Total $81,839,888 $ 431,056 $ 101,556 $82,169,388
=========== ========== ========== ===========
</TABLE>
The amortized cost and estimated fair value of these securities at
December 31, 1998, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because the borrower may have the right
to call or prepay obligations with or without call or prepayment penalties.
Mortgage-backed securities, which are included above in U. S. Government
Agencies, are included in the year of their final maturity. Equity securities
are included in the category "Due after ten years".
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
<S> <C> <C>
Due in one year or less $26,475,320 $26,527,001
Due after one year through five years 21,718,192 22,129,705
Due after five years through ten years 4,689,728 4,861,559
Due after ten years 7,588,297 7,701,119
----------- -----------
Total $60,471,537 $61,219,384
=========== ===========
</TABLE>
During 1998, 1997, and 1996, there were realized gains of $12,840,
$4,414 and $991 from calls of securities of $4,000,000, $2,000,000 and $800,991,
respectively.
Securities with a fair value of $46,728,156 at December 31, 1998 were
pledged as collateral for public deposits and trust assets.
<PAGE> 12
5. INVESTMENT SECURITIES HELD TO MATURITY
The amortized cost, estimated fair value and gross unrealized gains and
losses of investment securities held to maturity are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
U.S. Government Agencies $ 167,064 $ 8,960 $ 176,024
States and Political
Subdivisions 13,455,899 738,165 $ 7,553 14,186,511
----------- ---------- --------- -----------
Total $13,622,963 $ 747,125 $ 7,553 $14,362,535
=========== ========== ========= ===========
DECEMBER 31, 1997
U.S. Treasury $ 3,701,283 $ 191 $ 18 $ 3,701,456
U.S. Government Agencies 1,264,194 22,686 1,286,880
States and Political
Subdivisions 15,881,638 673,808 226 16,555,220
----------- ---------- --------- -----------
Total $20,847,115 $ 696,685 $ 244 $21,543,556
=========== ========== ========= ===========
</TABLE>
The amortized cost and estimated fair value of these securities at
December 31, 1998, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because the borrower may have the right
to call or prepay obligations with or without call or prepayment penalties.
Mortgage-backed securities, which are included above in U. S. Government
Agencies, are included in the year of their final maturity.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
<S> <C> <C>
Due in one year or less $ 549,278 $ 551,003
Due after one year through five years 5,432,063 5,552,956
Due after five years through ten years 4,388,046 4,724,124
Due after ten years 3,253,576 3,534,452
----------- -----------
Total $13,622,963 $14,362,535
=========== ===========
</TABLE>
During 1998, 1997 and 1996, there were realized gains of $2,583, $1,676
and $6,368 from total proceeds from calls of securities of $820,000, $65,000 and
$396,800, respectively.
Securities with a carrying amount of $12,078,575 at December 31, 1998
were pledged as collateral for public deposits and trust assets.
6. LOANS
Loans are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
<S> <C> <C>
Real Estate:
Construction $ 13,787,636 $ 14,175,794
Other 166,052,242 161,563,698
Commercial and Agricultural 54,878,254 52,950,189
Installment and Other Consumer 21,864,425 21,622,026
------------ ------------
Total $256,582,557 $250,311,707
============ ============
</TABLE>
<PAGE> 13
The Banks' loans are concentrated with customers in the Banks' market
area of southeast Georgia, primarily in Bulloch, Candler, Effingham and
contiguous counties.
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Balance, Beginning of Year $3,920,535 $4,024,539 $3,856,321
Provision for Loan Losses 813,450 932,285 694,911
Loans Charged Off (847,455) (1,229,430) (659,159)
Recoveries 135,501 193,141 132,466
---------- ---------- ----------
Balance, End of Year $4,022,031 $3,920,535 $4,024,539
========== ========== ==========
</TABLE>
Nonperforming loans were $1,070,636 at December 31, 1998 and $1,216,759
at December 31, 1997. Interest income that would have been recorded on these
nonperforming loans in accordance with their original terms was $90,019 in 1998
and $163,401 in 1997, compared with amounts received of $29,063 and $96,369,
respectively. A summary of nonperforming loans follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
<S> <C> <C>
Nonaccrual loans $ 225,024 $ 434,296
Accruing loans contractually past
due at least 90 days 315,981 133,712
Restructured loans 529,631 648,751
---------- ----------
Total $1,070,636 $1,216,759
========== ==========
</TABLE>
The Company considers a loan to be impaired when it is probable that it
will be unable to collect all amounts due according to the original terms of the
loan agreement. The Company measures impairment of a loan on a loan-by-loan
basis for real estate, commercial and agricultural loans. Installment and other
consumer loans are considered smaller balance, homogeneous loans. Amounts of
impaired loans that are not probable of collection are charged off immediately.
The Company had impaired loans of $225,024 and $434,296 as of December 31, 1998
and December 31, 1997, respectively. The average amount of impaired loans during
1998 was $569,000. No specific allowance was necessary for such loans. The
interest income recognized on such loans was $1,391, $56,975 and $5,562 in 1998,
1997 and 1996 as compared to $1,391, $56,975 and $5,562, respectively, of
interest received on a cash basis.
The Banks are parties to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
standby letters of credit. The Banks' exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the contractual
amount of those instruments. The Banks use the same credit policies in making
these commitments as they do for on-balance-sheet instruments. The Banks expect
no loss from loan commitments of $29,916,233 and $25,513,505 and standby letters
of credit of $1,161,200 and $924,185 at December 31, 1998 and 1997,
respectively. The loan commitments and standby letters of credit include
$14,373,259 and $966,200, respectively, of fixed rate commitments and
$15,542,974 and $195,000, respectively, of variable rate commitments at December
31, 1998. The Banks evaluate each customer's credit-worthiness on a case-by-case
basis. The amount of collateral obtained for these commitments, if deemed
necessary by the Banks, is based on management's credit evaluation of the
customer. Collateral held varies, but may include inventory, equipment, and real
estate.
<PAGE> 14
7. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
<S> <C> <C>
Land $ 923,253 $ 923,253
Buildings 4,904,784 4,593,420
Leasehold Improvements 592,274 584,746
Furniture and Equipment 7,895,521 7,560,613
----------- -----------
Total 14,315,832 13,662,032
Less: Accumulated Depreciation 6,930,632 6,572,473
----------- -----------
Premises and Equipment, Net $ 7,385,200 $ 7,089,559
=========== ===========
</TABLE>
8. INCOME TAXES
The Company provides deferred income taxes based on temporary
differences between financial statement and tax bases of assets and liabilities
using enacted tax rates in effect for the year in which the temporary
differences are expected to reverse. The provisions for income taxes for the
years ended December 31, 1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current $2,278,747 $2,189,707 $2,433,517
Deferred (13,000) 69,000 (33,000)
---------- ---------- ----------
Total $2,265,747 $2,258,707 $2,400,517
========== ========== ==========
</TABLE>
At December 31, 1998 and 1997, the significant components of the Company's net
deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Deferred Tax Assets:
Allowance for Possible Loan Losses $1,267,000 $1,181,000
Other Postretirement Benefits 98,000 95,000
Other Liabilities 189,000 63,000
---------- ----------
Total Deferred Tax Assets 1,554,000 1,339,000
---------- ----------
Deferred Tax Liabilities:
Accumulated Depreciation (75,000) (44,000)
Other Assets (329,000) (158,000)
Unrealized Gain on Investment Securities
Available for Sale (254,000) (112,000)
---------- ----------
Total Deferred Tax Liabilities (658,000) (314,000)
---------- ----------
Net Deferred Tax Assets $ 896,000 $1,025,000
========== ==========
</TABLE>
No valuation allowance has been recorded by the Company, as management
considers it more likely than not that all deferred tax assets will be realized.
The provision for income taxes is less than that computed by applying
the federal statutory rate of 34% to pretax income as indicated by the
following:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Income Tax Computed at
Statutory Rate $2,711,162 $2,625,681 $2,573,323
Increases (Decreases) Resulting from:
Tax Exempt Interest (479,200) (419,957) (303,852)
Other 33,785 52,983 131,046
---------- ---------- ----------
Income Tax Expense $2,265,747 $2,258,707 $2,400,517
========== ========== ==========
</TABLE>
<PAGE> 15
9. BENEFIT PLANS
At December 31, 1998 and 1997, the Company had recorded liabilities of
approximately $244,862 and $249,322, respectively, for post-retirement benefits
other than pensions or profit-sharing plans. The Company recognized expenses
during each of the years ended December 31, 1998 and 1996 of approximately
$13,560 and $8,919, respectively, and did not recognize any expense for these
post-retirement benefits in 1997. A discount of 6.5% and an annual medical
insurance cost trend rate of 6% reduced by 1% each year until 1% were used in
calculating the other post-retirement benefit obligation. If the annual medical
insurance cost trend rate assumption were increased by 1%, the liability would
be increased by 8% at December 31,1998.
The Company sponsors a contributory profit sharing plan under Internal
Revenue Code Section 401(k), (the "401(k) plan"), which covers substantially all
employees of the Banks. Employees may contribute up to 10% of their compensation
to the 401(k) plan, up to a maximum amount of $10,000 in 1998. The Banks
contribute between 50% and 187.5% of the participant's initial 4% contribution.
The Banks may make an additional contribution each year under certain
circumstances.
The Company also sponsors a Target Benefit Plan which covers
substantially all employees of the Banks. Under the terms of this plan, a
participant's target benefit will be based on service of up to twenty years
subsequent to January 1, 1986 for employees of the Bulloch Bank, subsequent to
January 1, 1989 for employees of the Metter Bank, and subsequent to January 1,
1997 for employees of the Effingham Bank. For each year of service performed,
the Banks contribute percentages of the participant's compensation as set forth
in the plan.
A summary of profit-sharing and target benefit expenses follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Profit-Sharing Plan $442,641 $460,418 $283,198
Target Benefit Plan 158,025 150,129 113,027
-------- -------- --------
Total $600,666 $610,547 $396,225
======== ======== ========
</TABLE>
10. SHAREHOLDERS' EQUITY
Effective June 30, 1997, the Company declared a five-for-four stock split of its
common stock effected in the form of a 25% stock dividend. Additional paid-in
capital was charged and common stock was credited with $750,505 to reflect this
stock split. Effective May 29, 1998, the Company declared a 5-for-4 stock split
of its common stock effected in the form of a 25% stock dividend. Additional
paid-in capital was charged and common stock was credited with $940,617 to
reflect this stock split. All references to share and per share amounts have
been retroactively adjusted to reflect these splits.
The primary source of funds for payment of dividends by the Company to
its shareholders is dividends received from the Banks. The Banks may pay
dividends to the Company in any year in an amount up to 50% of the previous
year's net income, or $2,854,130 in 1999, without the approval of the Georgia
Department of Banking and Finance.
During the third quarter of 1997, the Company established a Dividend
Reinvestment Plan which allows its shareholders to reinvest their dividends in
shares of the Company at market price average, as defined. The Company has
reserved and registered 100,000 shares for issuance under the Plan.
The Company and the Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's consolidated financial statements. Under
capital adequacy guidelines the Company and the Banks must meet specific
<PAGE> 16
capital guidelines that involve quantitative measures of the Company's and the
Banks' assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Company's and the Banks' capital
amounts and the Bank's classifications under the regulatory framework for prompt
corrective action are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Banks to maintain minimum amounts and
ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital
to average assets, as defined in the regulations and as set forth in the table
below. Management believes that as of December 31, 1998 the Company and the
Banks meet all capital adequacy requirements to which they are subject.
As of December 31, 1998 and 1997, the most recent notifications from
the Federal Deposit Insurance Corporation categorized each bank as
"well-capitalized" under the regulatory framework for prompt corrective action.
To be categorized as "well-capitalized", each bank must maintain minimum total
risk-based, Tier I risk-based, and Tier 1 leverage ratios as set forth in the
table. There are no conditions or events since that notification that management
believes have changed such institutions' categories.
The Company's and the Banks' actual capital amounts and ratios as of
December 31, 1998 and 1997 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital (to Risk-weighted Assets):
Company $47,114 18.6% $20,242 8.0% Not Applicable
Bulloch Bank 29,614 21.4% 11,064 8.0% $13,830 10.0%
Metter Bank 12,332 17.4% 5,683 8.0% 7,104 10.0%
Effingham Bank 5,098 11.6% 3,510 8.0% 4,387 10.0%
Tier I Capital (to Risk-weighted Assets):
Company $43,941 17.4% $10,121 4.0% Not Applicable
Bulloch Bank 27,878 20.2% 5,532 4.0% $ 8,298 6.0%
Metter Bank 11,441 16.1% 2,842 4.0% 4,262 6.0%
Effingham Bank 4,550 10.4% 1,755 4.0% 2,632 6.0%
Tier I Capital (to Average Assets):
Company $43,941 11.5% $15,263 4.0% Not Applicable
Bulloch Bank 27,878 13.2% 6,343 3.0% $10,572 5.0%
Metter Bank 11,441 10.7% 3,205 3.0% 5,341 5.0%
Effingham Bank 4,550 7.2% 2,524 4.0% 3,155 5.0%
</TABLE>
<PAGE> 17
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to Risk-weighted Assets):
Company $43,529 17.4% $19,983 8.0% Not Applicable
Bulloch Bank 27,639 19.7% 11,200 8.0% $14,400 10.0%
Metter Bank 11,201 16.9% 5,302 8.0% 6,628 10.0%
Effingham Bank 4,527 10.3% 3,499 8.0% 4,374 10.0%
Tier I Capital (to Risk-weighted Assets):
Company $40,397 16.3% $ 9,991 4.0% Not Applicable
Bulloch Bank 25,884 18.5% 5,600 4.0% $ 8,400 6.0%
Metter Bank 10,369 15.6% 2,651 4.0% 3,977 6.0%
Effingham Bank 3,980 9.1% 1,750 4.0% 2,624 6.0%
Tier I Capital (to Average Assets):
Company $40,397 10.5% $15,396 4.0% Not Applicable
Bulloch Bank 25,884 11.5% 6,724 3.0% $11,207 5.0%
Metter Bank 10,369 10.4% 2,995 3.0% 4,992 5.0%
Effingham Bank 3,980 6.5% 2,431 4.0% 3,039 5.0%
</TABLE>
11. STOCK OPTIONS
In 1997 the Company adopted the First Banking Company of Southeast
Georgia 1997 Stock Option Plan (the "Plan"), which provides that key employees
may be granted nonqualified stock options to purchase shares of common stock of
the Company. The Plan limits the total number of shares which may be awarded to
64,063, which have been reserved for the Plan. The Options expire five years
from the date of grant. During the year ended December 31, 1997, nonqualified
options were granted to key employees to purchase 64,063 shares of stock at an
exercise price which increases each year over the five year term of each option
from $15.04 per share to a maximum of $22.02 per share in the final year of the
option term. Options were immediately exercisable as to 20% of the shares
subject to options and the remaining balance of the options outstanding became
or shall become exercisable in equal 20% increments on the first day of January
in 1998, 1999, 2000, and 2001. For any option increment, 80% of the unexercised
portion of that increment will be carried forward to remain exercisable for the
remainder of the option term. No options were exercisable at December 31, 1998.
A summary of the status of the Plan and the activity follows:
<TABLE>
<CAPTION>
Weighted Average Weighted Average
1998 Exercise Price 1997 Exercise Price
-------- ---------------- -------- ----------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 51,250 $19.20
Granted 64,062 $18.36
Exercised 12,812 16.54 12,812 15.04
------- -------
Outstanding at end of year 38,438 20.08 51,250 19.20
======= =======
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Number Remaining
Exercise Outstanding Contractual Weighted Average
Price At 12-31-98 Life Exercise Price
-------- ----------- ----------- ----------------
<S> <C> <C> <C>
$ 18.20 12,812.50 3.0 $ 18.20
20.02 12,812.50 3.0 20.02
22.02 12,812.50 3.0 22.02
</TABLE>
<PAGE> 18
The Company accounts for its stock-based compensation plan under
Accounting Principles Board 25. The Company has adopted SFAS No. 123 "Accounting
for Stock-Based Compensation" ("SFAS 123") for disclosure purposes. For SFAS 123
purposes, the fair value of each option grant of $2.94 has been estimated as of
the date of the grant using the Black-Scholes option pricing model with the
following weighted average assumptions:
<TABLE>
<S> <C>
Expected Life (years) 2.85%
Risk-free interest rate 5.88%
Dividend Rate 2.55%
Expected Volatility 37.82%
Forfeiture Rate 0.00%
</TABLE>
Had compensation cost for the Company's stock options granted been
determined based on the fair value at the grant dates for awards under this plan
consistent with a method prescribed in SFAS 123 utilizing the assumptions
described above, the Company's net income and net income per share for the year
ended December 31, 1997 would have changed to the pro-forma amounts indicated
below:
<TABLE>
<S> <C>
Net Income:
As reported $5,463,884
Pro Forma 5,407,040
Net income per share:
As reported - Basic $1.16
- Diluted 1.16
Pro Forma - Basic $1.15
- Diluted 1.15
</TABLE>
12. EARNINGS PER SHARE
Basic and diluted net income per common and potential common share has
been calculated based on the weighted average number of shares outstanding in
accordance with SFAS 128. In accordance with SFAS 128, the following schedule
reconciles the numerators and denominators of the basic and diluted net income
per common and potential common share for the years presented. There were no
options outstanding at December 31, 1996 and therefore no dilutive effect.
<TABLE>
<CAPTION>
For the year ended For the year ended
December 31, 1998 December 31, 1997
----------------------------------------- -------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ---------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 5,708,259 $ 5,463,884
Basic EPS 5,708,259 4,703,267 $1.21 5,463,884 4,691,164 $1.16
Effect of Dilutive
Securities - Options to
purchase common shares 11,093 3,531
----------- --------- ----- ---------- --------- -----
Diluted EPS $ 5,708,259 4,714,360 $1.21 $5,463,884 4,694,695 $1.16
</TABLE>
13. RELATED PARTY TRANSACTIONS
Certain directors, executive officers and principal shareholders of the
Company and the Banks, including their associates and companies in which they
are principal owners, were loan customers of the Banks during 1998 and 1997.
Such loans are made in the ordinary course of business at the Banks' normal
credit terms, including interest rates and collateralization, and do not
represent more than a normal risk of collection. An analysis of the activity in
loans to executive officers, directors, and principal shareholders is as
follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Balance, Beginning of Year $ 9,536,209 $11,591,083
Amounts Advanced 10,647,377 10,041,133
Repayments 9,744,636 (12,096,007)
----------- -----------
Balance, End of Year $10,438,950 $ 9,536,209
=========== ===========
</TABLE>
<PAGE> 19
14. DEPOSITS AND OTHER BORROWED MONEY
At December 31, 1998, the scheduled maturities of time deposits were as
follows:
<TABLE>
<S> <C>
Within three months $ 58,429,580
Over three months through six months 44,950,968
Over six months through one year 52,464,450
Over one year 21,966,150
------------
Total $177,811,148
============
</TABLE>
Other borrowed money at December 31, 1998 and 1997 consists of
$11,762,729 and $9,418,343, respectively, advanced from the Federal Home Loan
Bank of Atlanta to the Banks. Contractual repayments of advances outstanding at
December 31, 1998 are $1,671,353 in 1999, $1,441,474 in 2000, $1,204,711 in
2001, $1,178,211 in 2002, $1,117,205 in 2003, and $5,149,775 in 2004 and beyond.
Average interest rates on such advances outstanding were 6.65% at December 31,
1998 and 7.00% at December 31, 1997.
15. OTHER EXPENSE
Items comprising other expense for the years ended December 31, 1998,
1997 and 1996 follow:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Office Supplies $ 468,950 $ 425,374 $ 441,952
Outside Services 581,136 491,164 568,065
Computer Services 160,038 98,196 164,753
Advertising and Public Relations 567,664 547,343 526,176
Directors' Fees 204,025 165,400 195,860
Postage 276,118 260,747 247,450
FDIC, FICO and OCC Assessments 67,012 103,279 8,521
Correspondent Service Charges 193,629 198,362 133,525
Other 917,020 866,423 1,057,752
---------- ---------- ----------
Total $3,435,592 $3,156,288 $3,344,054
========== ========== ==========
</TABLE>
16. CASH RESTRICTIONS
The Federal Reserve System requires that a certain level of average
cash be maintained. At December 31, 1998 and 1997, such required balances were
$3,795,000 and $4,778,000, respectively.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
<PAGE> 20
<TABLE>
<CAPTION>
1998 1997
----------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
(IN THOUSANDS) (IN THOUSANDS)
Assets:
Cash and Due from Banks $ 20,004 $ 20,004 $ 24,631 $ 24,631
Interest Bearing Deposits
in Other Banks 24,773 24,773 16,368 16,368
Federal Funds Sold 2,975 2,975 3,775 3,775
Investment Securities 74,842 75,582 105,324 106,020
Loans 256,565 250,813 250,295 244,069
Liabilities:
Deposits 328,842 330,772 354,805 356,934
Other Borrowed Money 13,163 14,562 10,818 11,485
Off-Balance-Sheet Instruments:
Commitments to
Extend Credit 29,916 25,514
Standby Letters of Credit 1,161 924
</TABLE>
The carrying amounts of cash and due from banks, interest bearing
deposits in other banks, and federal funds sold are a reasonable estimate of
their fair value due to the short-term nature of these financial instruments.
The fair value of investment securities is based on quoted market prices and
dealer quotes. The fair value of loans, deposits, and other borrowed money is
estimated by discounting the future cash flows using the Banks' current interest
rates for such financial instruments. No adjustment was made to the entry-value
interest rates for changes in credit of performing loans for which there are no
known credit concerns. Management segregates loans in appropriate risk
categories. Management believes that the risk factor embedded in the entry-value
interest rates along with the general reserves applicable to the performing loan
portfolio for which there are no known credit concerns result in a fair
valuation of such loans on an entry-value basis. The fair value of nonperforming
loans with a recorded book value of $1,070,636 at December 31, 1998 and
$1,216,759 at December 31, 1997 has been estimated to be the recorded book value
based on the fair value of the underlying collateral.
As required by SFAS 107, demand deposits are shown at their face value.
No additional value has been ascribed to core deposits, which generally bear a
low rate of or no interest and do not fluctuate in response to changes in
interest rates. The fair value of commitments to extend credit and standby
letters of credit is estimated to approximate the amount outstanding (see Note
6).
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1998 and 1997. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date and,
therefore, current estimates of fair value may differ significantly from the
amounts presented herein.
18. OPERATING SEGMENTS
The Company has identified Bulloch Bank, Metter Bank and Effingham Bank
as operating segments of the Company. The table below presents financial
information related to the operating segments. No operating segments have been
aggregated. All intracompany transactions have been eliminated. (Dollars in
thousands).
<PAGE> 21
<TABLE>
<CAPTION>
Unallocated
Items and
Bulloch Metter Effingham Eliminations
1998: Bank Bank Bank (Net) Total
--------- --------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
Net Interest Income $ 10,023 $ 4,550 $ 2,939 $ 5 $ 17,517
Expenses 8,363 3,863 2,647 (2) 14,871
Net Income 3,550 1,707 817 (366) 5,708
Other Comprehensive
Income 138 95 43 276
Comprehensive Income 3,688 1,802 860 (366) 5,984
Total Assets 221,013 107,105 63,007 (129) 390,996
1997:
Net Interest Income $ 9,705 $ 4,353 $ 2,770 $ 16,828
Expenses 8,058 3,595 2,666 (20) 14,299
Net Income 3,535 1,612 627 (310) 5,464
Other Comprehensive
Income 145 35 60 240
Comprehensive Income 3,680 1,647 687 (310) 5,704
Total Assets 243,098 105,288 62,963 (126) 411,223
1996:
Net Interest Income $ 9,657 $ 4,269 $ 2,235 $ 16,161
Expenses 7,589 3,378 2,286 273 13,526
Net Income 3,686 1,563 399 (474) 5,174
Other Comprehensive
Income (Loss) (183) (108) 12 (279)
Comprehensive Income 3,503 1,455 411 (474) 4,895
Total Assets 231,843 96,216 57,772 (1,795) 384,036
</TABLE>
19. ACQUISITION AGREEMENT
On October 20, 1998, the Company entered into a nonbinding letter of
intent to merge with Wayne Bancorp, Inc., parent company of Wayne National Bank
("Wayne"), Jesup, Georgia. The Company will be the surviving corporation
resulting from the proposed merger, and following the merger, Wayne will be
operated as a separate subsidiary of the Company. As of December 31, 1998, Wayne
recorded total assets of $54,616,000 and total capital of $6,147,000. A
definitive agreement was executed on November 30, 1998, and normal due diligence
has been exercised and regulatory approvals have been obtained. The combination
of the two organizations remains subject to the approval of the shareholders of
Wayne Bancorp, Inc. The shareholders of Wayne Bancorp, Inc. will meet on March
31, 1999 to vote on the merger agreement. It is intended that the merger will be
accounted for as a pooling-of-interests.
<PAGE> 22
20. CONDENSED FINANCIAL STATEMENTS OF FIRST BANKING COMPANY OF SOUTHEAST
GEORGIA (PARENT ONLY)
The condensed financial statements of First Banking Company of
Southeast Georgia (parent only) are as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 211,064 $ 237,632
Investment in Subsidiaries 44,739,073 40,864,338
Other Assets 340
----------- -----------
Total Assets $44,950,477 $41,101,970
=========== ===========
LIABILITIES
Other Liabilities $ 139,444 $ 73,185
----------- -----------
Total Liabilities 139,444 73,185
----------- -----------
SHAREHOLDERS' EQUITY
Common Stock 4,715,419 4,703,085
Additional Paid-in Capital 6,756,778 6,533,555
Retained Earnings 32,845,257 29,574,675
Accumulated Other Comprehensive Income, Net of tax 493,579 217,470
----------- -----------
Total Shareholders' Equity 44,811,033 41,028,785
----------- -----------
Total Liabilities and
Shareholders' Equity $44,950,477 $41,101,970
=========== ===========
</TABLE>
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Dividends from Subsidiaries $2,437,677 $2,458,425 $ 2,070,243
Other Income 4,770
---------- ---------- -----------
Total Income 2,442,447 2,458,425 2,070,243
General and Administrative Expenses 537,718 446,347 738,595
---------- ---------- -----------
Income Before Income Taxes and Equity in
Undistributed Income of Subsidiaries 1,904,729 2,012,078 1,331,648
Income Tax Benefit 167,216 135,900 264,594
---------- ---------- -----------
Income Before Equity in Undistributed
Income of Subsidiaries 2,071,945 2,147,978 1,596,242
Equity in Undistributed Income of
Subsidiaries 3,636,314 3,315,906 3,577,720
---------- ---------- -----------
Net Income 5,708,259 5,463,884 5,173,962
Other Comprehensive Income 276,109 240,294 (279,271)
---------- ---------- -----------
Comprehensive Income $5,984,368 $5,704,178 $ 4,894,691
========== ========== ===========
</TABLE>
<PAGE> 23
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 5,708,259 $ 5,463,884 $ 5,173,962
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities:
Amortization of Goodwill 37,688 37,688 37,688
Earnings of Subsidiaries (6,073,991) (5,774,331) (5,647,962)
Changes in Assets and Liabilities:
(Increase) Decrease in Other Assets (340) 51,287 70,099
Increase (Decrease) in Other
Liabilities 66,259 (5,505) (18,308)
----------- ----------- -----------
Net Cash Used by Operating Activities (262,125) (226,977) (384,521)
----------- ----------- -----------
Cash Flows From Investing Activities:
Dividends Received from Subsidiaries 2,437,677 2,458,425 2,070,243
----------- ----------- -----------
Cash Flows From Financing Activities:
Exercise of Stock Options 247,615 218,530
Purchase and Retirement of
Fractional Shares (12,058) (6,754) (2,813)
Dividends Paid (2,437,677) (2,207,930) (1,699,119)
----------- ----------- -----------
Net Cash Used by Financing Activities (2,202,120) (1,996,154) (1,701,932)
----------- ----------- -----------
Increase (Decrease) in Cash and
Due From Banks (26,568) 235,294 (16,210)
Cash and Due From Banks,
Beginning of Year 237,632 2,338 18,548
----------- ----------- -----------
Cash and Due From Banks, End of Year $ 211,064 $ 237,632 $ 2,338
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash Paid Received During the Year for:
Income Taxes $ (224,244) $ (282,540) $ (227,063)
</TABLE>
<PAGE> 24
21. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years ended December 31, 1998 and 1997
is summarized as follows (thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
1998
Interest Income $8,193 $8,125 $7,981 $7,841
Interest Expense 3,844 3,725 3,532 3,523
------ ------ ------ ------
Net Interest Income 4,349 4,400 4,449 4,318
Provision for Loan Losses 220 220 220 153
------ ------ ------ ------
Net Interest Income after
Provision for Loan Losses 4,129 4,180 4,229 4,165
Non-Interest Income 701 816 781 765
Non-Interest Expense 2,851 2,945 2,919 3,077
------ ------ ------ ------
Income Before Income Taxes 1,979 2,051 2,091 1,853
Provision for Income Taxes 552 585 601 528
------ ------ ------ ------
Net Income $1,427 $1,466 $1,490 $1,325
====== ====== ====== ======
Net Income per common and potential
common share outstanding:
Basic $ 0.30 $ 0.31 $ 0.32 $ 0.28
====== ====== ====== ======
Diluted $ 0.30 $ 0.31 $ 0.32 $ 0.28
====== ====== ====== ======
1997
Interest Income $7,731 $7,793 $7,878 $8,060
Interest Expense 3,648 3,635 3,626 3,726
------ ------ ------ ------
Net Interest Income 4,083 4,158 4,252 4,334
Provision for Loan Losses 231 236 270 195
------ ------ ------ ------
Net Interest Income after
Provision for Loan Losses 3,852 3,922 3,982 4,139
Non-Interest Income 653 699 739 844
Non-Interest Expense 2,588 2,769 2,774 2,977
------ ------ ------ ------
Income Before Income Taxes 1,917 1,852 1,947 2,006
Provision for Income Taxes 583 544 580 551
------ ------ ------ ------
Net Income $1,334 $1,308 $1,367 $1,455
====== ====== ====== ======
Net Income per common and potential
common share outstanding:
Basic $ 0.28 $ 0.28 $ 0.29 $ 0.31
====== ====== ====== ======
Diluted $ 0.28 $ 0.28 $ 0.29 $ 0.31
====== ====== ====== ======
</TABLE>
<PAGE> 25
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Interest Income $ 32,140,338 $ 31,462,731 $ 30,567,977 $ 27,447,803 $ 21,319,846
Interest Expense 14,623,787 14,635,093 14,407,335 12,418,044 8,271,364
------------ ------------ ------------ ------------ ------------
Net Interest
Income 17,516,551 16,827,638 16,160,642 15,029,759 13,048,482
------------ ------------ ------------ ------------ ------------
Provision for
Loan Losses 813,450 932,285 694,911 859,300 632,073
Net Interest Income
After Provision 16,703,101 15,895,353 15,465,731 14,170,459 12,416,409
Non-Interest Income 3,062,748 2,934,843 2,539,412 2,329,914 2,330,957
Non-Interest
Expense 11,791,843 11,107,605 10,430,664 9,841,705 9,256,325
------------ ------------ ------------ ------------ ------------
Income Before
Income Taxes 7,974,006 7,722,591 7,574,479 6,658,668 5,491,041
------------ ------------ ------------ ------------ ------------
Provision for
Income Taxes 2,265,747 2,258,707 2,400,517 1,952,700 1,658,918
------------ ------------ ------------ ------------ ------------
Net Income $ 5,708,259 $ 5,463,884 $ 5,173,962 $ 4,705,968 $ 3,832,123
============ ============ ============ ============ ============
Net Income per common and
potential shares outstanding:
Basic $ 1.21 $ 1.16 $ 1.10 $ 1.00 $ 0.82
============ ============ ============ ============ ============
Diluted $ 1.21 $ 1.16 $ 1.10 $ 1.00 $ 0.82
============ ============ ============ ============ ============
Cash Dividends:
Declared $ 2,437,677 $ 2,207,930 $ 1,699,119 $ 1,274,321 $ 998,227
Per Share $ 0.52 $ 0.47 $ 0.38 $ 0.31 $ 0.24
Book Value at Year
End-Per Share $ 9.50 $ 8.72 $ 7.96 $ 7.27 $ 6.24
Weighted average common and
potential shares outstanding:
Basic 4,703,267 4,691,164 4,690,769 4,690,961 4,691,186
Diluted 4,714,396 4,694,695 4,690,769 4,690,961 4,691,186
Total Assets $390,996,178 $411,222,876 $384,035,982 $350,366,037 $296,510,542
Other Borrowed
Money $ 11,762,729 $ 9,418,343 $ 10,917,951 $ 7,324,447 $ 4,629,876
</TABLE>
The book value per share, cash dividends, and average shares
outstanding have been restated to reflect the 8-for-5 stock split effected in
the form of a 60% stock dividend effective May 15, 1995, the five-for-four stock
split effected in the form of a 25% stock dividend effective June 30, 1997, the
five-for-four split effected in the form of a 25% stock dividend effective May
29, 1998, and the acquisition of Effingham Bank.
<PAGE> 26
RETURN ON EQUITY AND ASSETS
The ratio of net income to average shareholders' equity and to average total
assets, and certain other ratios are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Percentage of Net Income to:
Average Total Assets............. 1.47% 1.45% 1.42%
Average Shareholders' Equity..... 13.26 13.98 14.52
Percentage of Dividends Declared
per Common Share to Net Income
per Common Share................. 42.71 40.41 34.88
Percentage of Average Shareholders'
Equity to Average Total Assets... 11.08 10.34 9.81
</TABLE>
MARKET FOR STOCK AND RELATED SHAREHOLDER MATTERS
The common stock of the Company is traded on the Nasdaq Stock Market
("Nasdaq") under the symbol FBCG. At December 31, 1998 First Banking Company had
1,155 shareholders of record. The following table sets forth on a per share
basis the high and low sale prices of the Company's common stock and the cash
dividends paid by the Company on a quarterly basis for 1998 and 1997, adjusted
for the 25% stock dividend paid in June 1997 and the 25% stock dividend paid in
May 1998.
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
<S> <C> <C> <C>
1998
First Quarter $ 27.20 $ 20.80 $ 0.13
Second Quarter 27.00 23.80 0.13
Third Quarter 28.75 24.00 0.13
Fourth Quarter 26.50 22.25 0.13
1997
First Quarter $ 15.68 $ 14.00 $0.115
Second Quarter 18.24 14.00 0.115
Third Quarter 19.90 17.20 0.12
Fourth Quarter 26.40 18.80 0.12
</TABLE>
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
ORGANIZATION
First Banking Company of Southeast Georgia (the "Company") owns all of
the outstanding stock in First Bulloch Bank & Trust Company, Metter Banking
Company and First National Bank of Effingham("the Banks"). Effective August 27,
1996, the Company consummated its merger of the Effingham Bank into the Company.
The Company exchanged 340,309 shares of its common stock and cash of
approximately $2,800 for all of the outstanding common stock and options to
acquire the common stock of FNB Bancshares, Inc. ("FNB"), parent company of
Effingham Bank. The merger was accounted for as a pooling-of-interests. All of
the operations of the Company are conducted by the Banks. Management's
discussion and analysis, which follows, relates primarily to the Banks.
CAPITAL RESOURCES
The Company and the Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's consolidated financial statements. Under
capital adequacy guidelines the Company and the Banks must meet specific capital
guidelines that involve quantitative measures of the Company's and the Banks'
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company's and the Banks' classifications
under the regulatory framework for prompt corrective action are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Banks to maintain minimum amounts and
ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital
to average assets, as defined in the regulations and as set forth in the table
below. Management believes that as of December 31, 1998 the Company and the
Banks meet all capital adequacy requirements to which they are subject.
As of December 31, 1998, the most recent notifications from the Federal
Deposit Insurance Corporation categorized each bank as "well-capitalized" under
the regulatory framework for prompt corrective action. To be categorized as
"well-capitalized", each bank must maintain minimum total risk-based, Tier I
risk-based, and Tier 1 leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed such institutions' category.
On October 20, 1998 the Company entered into a nonbinding letter of
intent to merge with Wayne Bancorp, Inc., parent company of Wayne National Bank,
Jesup, Georgia. The Company will be the surviving corporation resulting from the
proposed merger, and following the merger, Wayne will be operated as a separate
subsidiary of the Company. The proposed merger will not reduce the capital
levels of the Company below the regulatory capital requirements.
The Company's and the Banks' actual capital amounts and ratios as of
December 31, 1998 are as follows (dollars in thousands):
<PAGE> 28
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
FOR CAPITAL UNDER PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital (to Risk-weighted Assets):
Company $47,114 18.6% $20,242 8.0% Not Applicable
Bulloch Bank 29,614 21.4% 11,064 8.0% $13,830 10.0%
Metter Bank 12,332 17.4% 5,683 8.0% 7,104 10.0%
Effingham Bank 5,098 11.6% 3,510 8.0% 4,387 10.0%
Tier I Capital (to Risk-weighted Assets):
Company $43,941 17.4% $10,121 4.0% Not Applicable
Bulloch Bank 27,878 20.2% 5,532 4.0% $ 8,298 6.0%
Metter Bank 11,441 16.1% 2,842 4.0% 4,262 6.0%
Effingham Bank 4,550 10.4% 1,755 4.0% 2,632 6.0%
Tier I Capital (to Average Assets):
Company $43,941 11.5% $15,263 4.0% Not Applicable
Bulloch Bank 27,878 13.2% 6,343 3.0% $10,572 5.0%
Metter Bank 11,441 10.7% 3,205 3.0% 5,341 5.0%
Effingham Bank 4,550 7.2% 2,524 4.0% 3,155 5.0%
</TABLE>
LIQUIDITY
The percentage of net loans to deposits was 76.8% at December 31, 1998
and 69.4% at December 31, 1997. At December 31, 1998, the Banks held $47,752,330
in cash and due from banks, interest bearing deposits and federal funds sold as
compared to $44,773,861 at December 31, 1997. The Banks' liquidity policies
require a minimum ratio of 20.0% of cash and certain investments to net
withdrawable deposits and short-term maturities of other borrowed money. At
December 31, 1998, each Bank's liquidity ratio exceeded the 20.0% minimum except
Effingham Bank, which reflected a 17.8% ratio. Management considers the Company
and the Banks' liquidity to be adequate to repay deposits and other obligations,
to meet expected loan demands, and to pay cash dividends.
Operating activities provided cash to the Company of $7,443,191 and
$7,991,966 in 1998 and 1997, respectively. Investing activities, which primarily
consist of granting loans to customers and purchasing investment securities,
provided cash of $13,750,795 in 1998 and used cash of $26,033,610 in 1997. The
Banks invested $1,462,194 and $983,951 in premises and equipment in 1998 and
1997, respectively. Financing activities used cash of $25,821,284 in 1998 and
provided cash of $21,062,243 in 1997. Financing activities consist primarily of
accepting deposits from customers, the payment of dividends to shareholders, and
occasional strategic borrowing from the Federal Home Loan Bank. Dividend
payments were $2,437,677 in 1998 and $2,207,930 in 1997.
Effective June 30, 1997 and May 29, 1998, the Company declared at each date a
five-for-four split of its common stock effected in the form of a 25% stock
dividend. All references to share and per share amounts have been retroactively
adjusted to reflect these splits.
FINANCIAL CONDITION
Total assets decreased $20,226,698 (4.9%) at December 31, 1998 from
December 31, 1997 and increased $27,186,894 (7.1%) at December 31, 1997 from
December 31, 1996. The 1998 decline was primarily in investment securities,
which funded the deposit runoff of $25,963,550, most of which was public funds.
The 1997 growth was primarily in interest bearing deposits and loans and was
funded by an increase in total deposits of $25,164,629 and by operations of
$7,991,966. A detailed discussion of the major components of the changes
follows.
INVESTMENT SECURITIES. The Company has classified its investment securities as
either available for sale or held to maturity depending upon whether the Company
has the intent and ability to hold investment securities to maturity. At
December 31, 1998 and 1997, $61,219,384 and $82,169,388, respectively, of
investment securities were classified as available for sale. A net unrealized
gain of $493,579 and $217,470 at December 31, 1998 and 1997, respectively, were
included in accumulated comprehensive income related to available for sale
securities. There was a $70 realized loss in
<PAGE> 29
1998 and no loss in 1997 from the call of investment securities. Gross
unrealized losses for all investment securities at December 31, 1998 were
$17,003. Such losses are not expected to have any adverse impact on future
operations of the Company.
The following table sets forth the carrying amounts of investment
securities available for sale at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
U.S. Treasury Securities..................$ 4,859,939 $13,331,884 $22,156,402
U.S. Government Agencies.................. 48,798,214 62,398,551 55,678,161
States and Political Subdivisions......... 7,319,379 6,197,101 5,421,832
Other..................................... 241,852 241,852 241,852
----------- ----------- -----------
$61,219,384 $82,169,388 $83,498,247
=========== =========== ===========
</TABLE>
The following table sets forth the maturities of investment securities
available for sale at December 31, 1998, and the weighted average yields of such
securities (calculated on the basis of the cost and effective yields weighted
for the scheduled maturity of each security):
<TABLE>
<CAPTION>
MATURING
----------------------------------------------------------------------------------
WITHIN AFTER ONE BUT AFTER FIVE BUT AFTER
ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS TEN YEAR
------------------- ------------------- ------------------ -----------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------------------- ------------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities............ $ 3,018,750 5.63% $ 1,841,189 6.27%
U.S. Government Agencies............ $23,508,251 5.45 17,973,542 6.06 $ 1,753,385 5.59% $ 5,563,036 6.06%
States and Political Subdivisions(1) 2,314,974 6.78 3,108,174 6.98 1,896,231 6.93
Other............................... 241,852
----------- ------ ----------- ----- ----------- ----- ----------- -----
$26,527,001 5.47% $22,129,705 6.15% $ 4,861,559 6.48% $ 7,701,119 6.28%
=========== ====== =========== ===== =========== ===== =========== =====
</TABLE>
The following table sets forth the carrying amounts of investment
securities held to maturity at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
U.S. Treasury Securities........... $ 3,701,283 $ 1,999,082
U.S. Government Agencies........... $ 167,064 1,264,194 2,377,268
States and Political Subdivisions.. 13,455,899 15,881,638 13,781,394
----------- ----------- -----------
$13,622,963 $20,847,115 $18,157,744
=========== =========== ===========
</TABLE>
The following table sets forth the maturities of investment securities
held to maturity at December 31, 1998, and the weighted average yields of such
securities (calculated on the basis of the cost and effective yields weighted
for the scheduled maturity of each security):
<TABLE>
<CAPTION>
MATURING
----------------------------------------------------------------------------------
WITHIN AFTER ONE BUT AFTER FIVE BUT AFTER
ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS TEN YEARS
------------------- ------------------- ----------------- ------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------------------- ------------------- ----------------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government Agencies.......... $ 166,177 8.87% $ 887 10.37%
States and Political Subdivisions(1)$ 549,278 8.33% 5,265,886 7.20 4,387,159 7.57 $3,253,576 7.71%
----------- ----- ----------- ----- ---------- ----- ---------- ------
$ 549,278 8.33% $ 5,432,063 7.25% $4,388,046 7.57% $3,253,576 7.71%
=========== ===== =========== ===== ========== ===== ========== ======
</TABLE>
(1) Weighted average yields on tax exempt obligations have been
computed on a fully tax-equivalent basis assuming a tax rate of 34 percent. The
tax equivalent rate has been reduced by 0.35% to allow for estimated
disallowance of interest expense.
No securities of a single issuer held by the Company, excluding U. S.
Treasury and U. S. Government Agencies, exceeded 10% of total shareholders'
equity in 1998, 1997, and 1996.
<PAGE> 30
LOANS. Loans net of unearned interest increased $7,171,781 or 2.8% in 1998 as
compared to 1997 and increased $20,673,289 or 8.3% in 1997 as compared to 1996.
These increases were the result of continued strong economic activity, both
consumer and commercial, in the Company's market.
The Company's loan portfolio consists of the following categories of
loans:
Commercial and Agricultural. Commercial and Agricultural loans consist
of all business and agricultural loans not secured by real estate. The borrowers
in this category are generally small to medium sized businesses located in the
market area of the Company. Most loans in this category are collateralized.
Types of collateral include accounts receivable, inventory, equipment, furniture
and fixtures, and certificates of deposit. Risks associated with these types of
loans include bankruptcy, economic downturn, deteriorating collateral, crop
failure as a result of extreme or poor weather, and changes in market prices for
underlying crops in the case of agricultural loans.
Real Estate - Construction. Loans classified as construction loans are
typically made short-term to finance the construction of residential (1-4
family) dwellings, have permanent take-out mortgages approved and will be fully
repaid upon completion of construction. Builder financing is generally
discouraged. Such loans require site inspections and evaluations prior to the
payment of any draws. Risks associated with such loans include cost overruns and
interest rate movements.
Real Estate - Other. Loans classified as real estate - other include
all loans secured by real estate which were made for commercial, financial or
agricultural purposes and which are not construction loans. The primary
collateral on such loans is first lien mortgages, but also includes
second-mortgage positions. Risks associated with this type loan are typically
the same as those classified "Commercial and Agricultural".
Installment and Other Consumer. Installment and Other Consumer consists
of consumer loans made for personal, household and family purposes, such as home
improvement and automobile purchases. Types of collateral include automobiles,
mobile homes, savings accounts, and stock. Risks associated with such loans
include deteriorating collateral, general economic downturn, and bankruptcy.
Agriculturally-related loans. Agriculturally related loans comprise
approximately 9.3% of the total loan portfolio at December 31, 1998.
Agriculturally related loans are defined as those loans secured by farmland as
well as those originated to finance agricultural production, which includes
irrigated and non-irrigated row crops, food and feed grain, livestock and other
enterprises, such as timber and pecans. The Company limits such loans to
operators who exhibit strong financial ability and proven performance and can
offer the collateral deemed necessary for their individual lines of credit.
Agriculturally related loans made for real estate or for equipment follow the
general guidelines discussed below in "Credit Underwriting and Monitoring." Crop
production and livestock operation loans typically require liens on the
livestock or the current year crop production. Farm visits and inspections are
performed periodically to assess the collateral and the overall soundness of the
operation. A customized repayment plan is developed for each operator based upon
his projected cash flow from crop production or livestock sales. Risks
associated with such loans are typically those identified above in "Commercial
and Agricultural," but also include poor production associated with unfavorable
weather conditions as well as an unfavorable farm-to-market economic
relationship.
Credit Underwriting and Monitoring. It is the practice of the Company
to meet the credit needs of qualified borrowers within its market area at a
reasonable price. The extent and amount of collateral required is based on
factors such as the character of the borrower, his financial condition, his
ability to service the debt according to a predetermined repayment plan, his
credit history, and the loan purpose. Because each loan is evaluated on its own
merit, there are no predetermined or minimal loan-to-value ratios or lien
positions, except as provided by bank regulators in the case of real estate
loans. State banking regulations require that, in the absence of other
acceptable collateral, a real estate loan be less than or equal to 90% and 75%
of the appraised value of the real estate taken as security in the case of an
amortizing loan and of a nonamortizing loan, respectively.
<PAGE> 31
The Company operates under a comprehensive loan policy which
individually addresses the various types and purposes of loans the Banks can
make and defines acceptable collateral. The lending policy emphasizes the
financial strength and cash flow position of the borrower and considers
collateral as the last resort source of repayment. The Company also has in place
a formal loan classification and grading system, performed as a separate and
independent function within the Company. All loans are assigned a grade and are
subject to review based on the perceived risk of loss to the Company. Such
review includes verification of all necessary documentation as well as financial
statement analysis and compliance with regulations and bank policy.
Economy of the Market Area. The Company's primary market area is
comprised of Bulloch, Candler, Effingham, and contiguous counties of southeast
Georgia. The local economy is a diversified mix of manufacturing, retail and
service and agriculture. Statesboro-Bulloch County is a retail hub which draws
from an eight county area and is also the home of Georgia Southern University,
enrolling 14,000 students and employing 2,000 faculty and staff. Ogeechee
Technical Institute is a drawing card for industries looking to locate in
southeast Georgia. Metter-Candler County has also experienced commercial
development in terms of motels, restaurants, and other retail businesses around
the Interstate 16 interchange which cater to travelers. Several companies have
relocated their distribution facilities to Metter. The American Language
Institute, established near Metter several years ago, is designed to provide
intense instruction in the English language to foreign executives.
Springfield-Rincon-Effingham County is included as part of the Savannah-Chatham
County, Georgia Metropolitan Statistical Area. This area has experienced
tremendous growth in recent years as a result of population movement from
Savannah-Chatham County, and the correlating growth in retail and service
businesses from the increased population, and of the establishment of a large
paper mill in the county.
In the manufacturing sector the Company's market area is home to
seventy manufacturers, ranging from meat packing, lumber mills, a paper mill,
grey-iron foundry, meter and valve production, and garment manufacturing to
computer form production, steel recycling, structural glass panel manufacturing
and lawn mower engines. Agriculture and agribusiness account for approximately
one-third of the local economy in terms of economic impact. Major cash producers
include Vidalia onions, peanuts, cotton, forestry, tobacco, corn, poultry, beef
and swine. The resurgence of cotton has led to the construction of three cotton
gins in the area and the major upgrading of an existing one. A technological
advance in controlled atmospheric storage enables Vidalia onion growers to store
their crop and ship year-round all across the nation.
The following tables present the composition of the Company's loan
portfolio at December 31 for the past five years as well as the maturities and
sensitivities of loans to changes in interest rates.
LOAN PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Commercial and Agricultural............. $ 54,878,254 $ 52,950,189 $ 49,837,280 $ 54,600,117 $ 64,999,750
Real Estate - Construction.............. 13,787,636 14,175,794 17,366,129 12,505,746 7,534,115
Real Estate - Other..................... 166,052,242 161,563,698 141,015,449 127,203,963 93,688,443
Installment and Other Consumer.......... 21,864,425 21,622,026 22,838,620 21,686,523 22,945,822
------------ ------------ ------------ ------------ ------------
Total............................... $256,582,557 $250,311,707 $231,057,478 $215,996,349 $189,168,130
============ ============ ============ ============ ============
</TABLE>
The maturities of the indicated loans at December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
MATURING
------------------------------------------------------
AFTER ONE
WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and Agricultural.......... $ 32,390,650 $ 14,079,107 $ 8,408,497 $ 54,878,254
Real Estate - Construction............ 9,804,486 1,049,150 2,934,000 13,787,636
Real Estate - Other................... 73,618,656 67,145,419 25,288,167 166,052,242
Installment and Other Consumer....... 8,716,329 12,580,300 567,796 21,864,425
------------ ------------ ----------- ------------
Total............................ $124,530,121 $ 94,853,976 $37,198,460 $256,582,557
============ ============ =========== ============
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
INTEREST SENSITIVITY
DECEMBER 31, 1998
----------------------------------------
FIXED VARIABLE
RATE RATE TOTAL
----------------------------------------
<S> <C> <C> <C>
Due Within One Year.............................. $ 99,066,273 $25,463,848 $124,530,121
Due After One But Within
Five Years..................................... 64,030,851 30,823,125 94,853,976
Due After Five Years............................. 20,936,738 16,261,722 37,198,460
------------ ----------- -----------
Total........................................ $184,033,862 $72,548,695 $256,582,557
============ =========== ============
</TABLE>
The risks associated with granting loans at fixed rates is that the
deposits funding such loans may reprice at higher rates prior to the loan's
maturity. The Company mitigates such risk by managing the maturity and repricing
match of interest bearing assets and liabilities. See "Market Risk."
The Banks have no foreign loans or significant potential problem loans
that are not already disclosed herein nor any other significant interest bearing
assets required to be disclosed.
NONPERFORMING ASSETS. The following table presents a history of the Company's
nonperforming assets at year-end for the past five years.
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Nonaccrual Loans........... $ 225,024 $ 434,296 $ 353,389 $ 549,297 $ 474,045
Accruing Loans Past Due
at least 90 days......... 315,981 133,712 207,420 367,663 419,115
Restructured Loans......... 529,631 648,751 855,515 750,550 1,039,729
---------- ---------- ---------- ---------- ----------
Total Nonperforming Loans.. 1,070,636 1,216,759 1,416,324 1,667,510 1,932,889
Other Real Estate.......... 413,471 368,524 446,500 306,500 492,692
---------- ---------- ---------- ---------- ----------
Total Nonperforming Assets $1,484,107 $1,585,283 $1,862,824 $1,974,010 $2,425,581
========== ========== ========== ========== ==========
</TABLE>
Interest income that would have been recorded on these nonperforming
loans in accordance with their original terms amounted to $90,019, $163,401,
$171,952, $110,345 and $115,293 in 1998, 1997, 1996, 1995 and 1994,
respectively, compared with amounts received of $29,063, $96,369, $52,193,
$53,462 and $53,961 for such years, respectively. At December 31, 1998, all
restructured loans were performing in accordance with their restructured terms,
except one loan with a principal balance of $27,159, which was over 90 days past
due and still accruing.
Nonaccrual loans by loan category in 1998 included, $21,974 in real
estate-other, $59,045 in consumer loans $29,529 in commercial loans, and
$114,476 in agricultural loans.
Loans are placed on non-accrual status when management does not
consider the collection of interest to be reasonably assured. It is the
Company's policy to allow any loan past due greater than 90 days to remain on an
accrual basis if it is well collateralized and in process of collection. All
loans 120 days past due, however, are charged-off.
DEPOSITS. Average deposits increased $5,119,250 in 1998 and $9,869,870 in 1997.
The 1998 increase in average deposits is the result of increases of $5,591,000
in NOW accounts, $1,223,000 in money market accounts, $1,031,000 in savings
accounts, and $4,048,000 in demand deposits, all offset by a $6,774,000 decrease
in total time deposits. The overall cost of funds decreased 0.08% from 1997 to
1998. The increase in average demand deposits in 1998 is attributable to one
public fund account converting from the NOW account classification to demand
deposits as of June 30, 1998. The increase in NOW accounts is primarily the
result of a new local public fund account which opened in December 1997 and
carried an average balance of approximately $4,850,000 during 1998. The decrease
in total time deposits is attributable to a $4,635,000 decrease in time deposits
over $100,000 and a $2,139,000 decrease in other time deposits. The decrease in
time deposits over $100,000 is attributable to a third public fund entity which
redeemed $5,000,000 at maturity in
<PAGE> 33
early 1998 for reinvestment outside the local market area. The 1997 growth is
primarily the result of a net increase of $11,565,185 in total time deposits, of
$4,352,212 in demand deposits and $3,108,412 in NOW accounts offset by a
$10,426,124 decrease in money market accounts. The decrease in money market
accounts in 1997 is primarily the result of a transfer out of the Company of
$8,300,000 from an established public fund account. The 1997 increase in time
deposits is reflected in time deposits over $100,000.
At December 31, 1998 and 1997, time deposits $100,000 and above
comprised 25.9% and 25.0% of total deposits and 21.8% and 21.6% of total assets,
respectively. Peer average of time deposits $100,000 and above to total assets
was 9.8% at December 31, 1997. At December 31, 1998 and 1997, 26.9% and 30.1%,
respectively, of total time deposits over $100,000 were deposits of state and
local governmental entities. Such deposits are acquired from, and rates paid are
based on, competitive bids with other local commercial banks in the market area.
State banking regulations require public fund deposits in excess of the FDIC
coverage of $100,000 be collateralized by pledging securities in the investment
portfolio. Because of the volatility of such deposits, securities are generally
purchased to match maturities of the corresponding time deposit.
The following table presents the average amount outstanding and the
average rate paid on deposits by the Company for the years 1998, 1997 and 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1998 1997 1996
---------------------- --------------------- ---------------------
AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------------ ---- ------------ ---- ------------ ----
<S> <C> <C> <C> <C> <C> <C>
Deposits:
Demand .................. $ 44,176,136 0.00% $ 40,128,073 0.00% $ 35,775,861 0.00%
NOW ..................... 63,586,086 3.31 57,994,847 3.23 54,886,435 3.27
Money Market ............ 28,020,437 3.38 26,797,217 3.21 37,223,341 3.40
Savings ................. 15,411,210 3.09 14,380,510 3.12 13,110,326 3.19
Time ($100,000 and above) 79,372,487 6.05 84,007,293 6.02 74,498,750 6.08
Other Time .............. 98,533,634 5.61 100,672,800 5.62 98,616,158 5.87
------------ ---- ------------ ---- ------------ ----
Total ................. $329,099,990 4.21% $323,980,740 4.29% $314,110,871 4.39%
============ ==== ============ ==== ============ ====
</TABLE>
As of December 31, 1998, time deposits of $100,000 or more totaled
$85,053,944. The maturities of all time deposits over $100,000 are as follows:
<TABLE>
<S> <C>
Three months or less......................... $30,251,232
Over three months through six months......... 21,960,220
Over six months through twelve months........ 24,282,236
Over twelve months........................... 8,560,256
-----------
Total...................................... $85,053,944
===========
</TABLE>
OTHER BORROWED MONEY. Other borrowed money increased $2,344,386 from December
31, 1997 to December 31, 1998 and decreased $1,499,608 from December 31, 1996 to
December 31, 1997. Funds are strategically borrowed from the Federal Home Loan
Bank of Atlanta as a means of providing funding for long-term credit products to
the Company's loan customers. Maturities and principal repayments of other
borrowed money are structured to generally match those of the loans funded by
these borrowings. At December 31, 1998 and 1997, the Company also had short-term
borrowings outstanding of $1,400,000 in repurchase agreements.
There were no short-term borrowings for which the average balance
outstanding during the period was more than 30% of shareholders' equity for each
of the years ended December 31, 1998, 1997 and 1996.
MARKET RISK
ASSET AND LIABILITY MANAGEMENT. The Company's principal business is the making
of loans, funded by customer deposits and, occasionally, other borrowed funds.
Consequently, a significant portion of the Company's assets and liabilities are
monetary in nature and fluctuations in interest rates will affect the Company's
future net interest income and cash flows. This interest rate risk is the
Company's primary market risk exposure. The Company does not enter
<PAGE> 34
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.
The table below presents a "gap analysis" based solely on the maturity
of the Company's financial instruments and does not take into account the
repricing opportunities of variable rate instruments. The table is presented to
comply with required disclosures about market risk. Because a significant
portion of the loan portfolio is comprised of variable rate loans, a gap
analysis based solely on maturity rather than repricing opportunities fails to
provide an accurate indication of the Company's interest rate risk. The time
period indicated in the table represents the time period during which the asset
or liability matures. NOW, money market, and savings accounts have been included
in "less than three months."
INTEREST RATE SENSITIVITY ANALYSIS
December 31, 1998 (Dollars in thousands)
<TABLE>
<CAPTION>
TERM TO MATURITY
--------------------------------------------------------------------- WEIGHTED
YEAR OVER FIVE AVERAGE
------------------------------------------------------- YEARS AND INTEREST
ONE TWO THREE FOUR FIVE INSENSITIVE TOTAL FAIR VALUE RATE
-------- -------- -------- -------- -------- ----------- ------ ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Interest Bearing Deposits
in Other Banks $ 24,773 $ 24,773 $ 24,773 4.90%
Federal Funds Sold 2,975 2,975 2,975 4.37
Investment Securities 27,070 $ 16,838 $ 5,151 $ 3,791 $ 1,782 $ 20,210 74,842 75,582 5.60
Stock of FHLB of Atlanta 1,390 1,390 1,390
Loans 126,948 37,142 37,230 13,806 13,202 28,255 256,583 250,830 9.39
-------- -------- -------- -------- -------- -------- -------- --------
Total Interest
Earning Assets 181,766 53,980 42,381 17,597 14,984 49,855 360,563 355,550
Non-interest Earning
Assets 30,433 30,433 30,433
-------- -------- -------- -------- -------- -------- -------- --------
Total Assets $181,766 $ 53,980 $ 42,381 $ 17,597 $ 14,984 $ 80,288 $390,996 $385,983
======== ======== ======== ======== ======== ======== ======== ========
Interest Bearing Liabilities:
Interest Bearing Deposits $256,122 $ 14,176 $ 6,435 $ 885 $ 470 $278,088 $280,018 4.74
Other Borrowed Money 2,771 1,741 1,205 1,178 1,117 $ 5,150 13,162 14,562 6.65
-------- -------- -------- -------- -------- -------- -------- ---------
Total Interest Bearing
Liabilities 258,893 15,917 7,640 2,063 1,587 5,150 291,250 294,580
Interest Free Deposits 50,754 50,754 50,754
Other Interest Free
Liabilities and Equity 48,992 48,992 48,992
-------- -------- -------- -------- -------- -------- -------- --------
Total Liabilities & Equity $258,893 $ 15,917 $ 7,640 $ 2,063 $ 1,587 $104,896 $390,996 $394,326
======== ======== ======== ======== ======== ======== ======== ========
Net Interest Rate
Sensitivity Gap $(77,127) $ 38,063 $ 34,741 $ 15,534 $ 13,397 $(24,608)
Cumulative Gap $(77,127) $(39,064) $ (4,323) $ 11,211 $ 24,608
Net Interest Rate
Sensitivity Gap as a
Percent of Interest
Earning Assets (42.4) 70.5 82.0 88.3 89.4 (30.6)
Cumulative Gap as a Percent
of Cumulative Interest
Earning Assets (42.4) (16.6) (1.6) 3.8 7.9
</TABLE>
<PAGE> 35
The following table sets forth the consolidated average balance sheets
for the Company, total interest earned on earning assets, total interest paid on
deposits, and average rates earned on earning assets and paid on interest
bearing liabilities. This information is presented for the years ended December
31, 1998, 1997 and 1996.
AVERAGE BALANCE SHEETS, INCOME/EXPENSE AND AVERAGE
YIELDS EARNED AND RATES PAID
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
1998 1997 1996
--------------------------------- --------------------------------- --------------------------------
AVERAGE INTEREST YIELD/ AVERAGE INTEREST YIELD/ AVERAGE INTEREST YIELD/
BALANCE EARNED/PAID RATE BALANCE EARNED/PAID RATE BALANCE EARNED/PAID RATE
----------- ----------- ------- ----------- ----------- ------ ---------- ----------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Assets:
Interest Bearing Deposits
in Other Banks......... $18,522,025 $ 999,265 5.40% $11,910,890 $ 672,159 5.64% $10,633,446 $ 584,746 5.50%
Investment Securities:
Taxable................ 67,615,459 3,999,100 5.91 76,139,093 4,571,210 6.00 83,224,586 5,111,510 6.14
Tax Exempt(1).......... 20,974,038 1,100,491 7.42 20,193,215 1,084,100 7.60 16,981,576 859,929 7.14
Federal Funds Sold....... 4,462,807 237,002 5.31 3,191,193 199,988 5.53 8,263,873 418,504 5.35
Loans (Less Unearned):
Taxable (2)............ 247,938,476 25,495,377 10.28 236,880,257 24,613,628 10.39 218,746,182 23,358,479 10.68
Tax Exempt(1).......... 4,454,313 308,922 9.98 4,828,943 321,646 9.56 2,976,186 234,809 11.42
------------ ----------- ----- ----------- ----------- ----- ------------ ------------ -----
Interest Earning
Assets(1)................. 363,967,118 32,140,157 8.99 353,143,591 31,462,731 9.08 340,825,849 30,567,977 9.10
Non-Interest Earning
Assets:
Cash and Non-interest
bearing Deposits........ 14,196,908 13,931,555 12,690,146
Interest Receivable...... 4,728,816 4,844,170 4,652,260
Premises and Equipment,
Net..................... 7,157,210 7,254,940 6,389,377
Other Real Estate........ 436,122 630,429 369,197
Other Assets............. 2,102,271 2,264,412 2,314,288
Less: Allowance for
Loan Losses........ (4,096,921) (4,056,133) (4,075,648)
------------ ------------ ------------
Total.................. $388,491,524 $378,012,964 $363,165,469
============ ============ ============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest Bearing
Liabilities:
Deposits:
NOW .................... $ 63,586,086 $ 2,102,638 3.31% $ 57,994,847 $ 1,875,013 3.23% $ 54,886,435 $ 1,793,576 3.27%
Money Market Deposit
Accounts............... 28,020,437 945,859 3.38 26,797,217 859,518 3.21 37,223,341 1,265,473 3.40
Savings................ 15,411,210 476,618 3.09 14,380,510 448,766 3.12 13,110,326 418,777 3.19
Time:
Certificates of Deposits
over $100,000.......... 79,372,487 4,803,681 6.05 84,007,293 5,057,137 6.02 74,498,750 4,528,026 6.08
Other Time.............. 98,533,634 5,524,441 5.61 100,672,800 5,656,899 5.62 98,616,158 5,783,882 5.87
Other Borrowed Money....... 11,734,962 770,550 6.57 10,651,997 737,760 6.93 9,194,557 617,601 6.72
------------ ---------- ----- ------------ ---------- ----- ------------ ---------- ----
Total Interest Bearing
Liabilities............... 296,658,816 14,623,787 4.93 294,504,664 14,635,093 4.97 287,529,567 14,407,335 5.01
---------- ---------- ----------
Non-Interest Bearing
Liabilities:
Demand Deposits......... 44,176,136 40,128,073 35,775,861
Interest Payables....... 3,311,225 3,203,323 3,174,297
Other Liabilities....... 1,296,218 1,086,226 1,057,999
Shareholders' Equity...... 43,049,129 39,090,678 35,627,745
------------ ------------ ------------
Total................... $388,491,524 $378,012,964 $363,165,469
============ ============ ============
Net Interest Earnings..... $17,516,370 $16,827,638 $16,160,642
=========== =========== ===========
Net Yield on Interest
Earning Assets (1)..... 4.98% 4.93% 4.88%
==== ==== ====
</TABLE>
(1). Yields have been calculated on a tax equivalent basis assuming a tax
rate of 34 percent. The tax equivalent rate has been reduced by 0.35
percent to allow for estimated disallowance of interest expense.
(2). Total interest income includes loan fees of $840,991 in 1998, $797,294
in 1997 and $789,618 in 1996. No separate treatment has been made for
non-accrual loans.
<PAGE> 36
The following table sets forth a summary of the changes in interest
income and interest expense resulting from changes in volume and rate for the
periods indicated. There were no out- of-period items and adjustments required
to be excluded from the table.
<TABLE>
<CAPTION>
1998 COMPARED TO 1997 1997 COMPARED TO 1996
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
-------------------------------------------- ---------------------------------------------
VOLUME(1) RATE(1) NET VOLUME(1) RATE(1) NET
---------- ----------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Interest Bearing Deposits......... $ 354,266 $ (27,160) $ 327,106 $ 72,130 $ 15,283 $ 87,413
Loans:
Taxable......................... 1,140,372 (258,623) 881,749 1,866,519 (611,370) 1,255,149
Tax-Exempt...................... (27,148) 14,424 (12,724) 117,607 (30,770) 86,837
Investments:
Taxable......................... (504,510) (67,600) (572,110) (426,165) (114,135) (540,300)
Tax-Exempt...................... 39,622 (23,231) 16,391 167,210 56,961 224,171
Federal Funds Sold................ 41,300 (4,105) 37,195 (231,188) 12,672 (218,516)
---------- ----------- ---------- ----------- ---------- ----------
Total Interest Income............... 1,043,902 (366,295) 677,607 1,566,113 (671,359) 894,754
---------- ----------- ---------- ----------- ---------- ----------
Interest Expense:
NOW............................... 181,100 46,525 227,625 103,873 (22,436) 81,437
Savings........................... 32,167 (4,315) 27,852 38,770 (8,781) 29,989
Money Market Deposit Accounts..... 39,969 46,372 86,341 (338,434) (67,521) (405,955)
Certificate of Deposits
Over $100,000.................... (278,623) 25,167 (253,456) 573,449 (44,338) 529,111
Other Time........................ (122,223) (10,235) (132,458) 121,845 (248,828) (126,983)
Other Borrowed Money.............. 67,050 (34,260) 32,790 100,371 19,788 120,159
---------- ----------- ---------- ----------- ---------- ----------
Total Interest Expense.............. (80,560) 69,254 (11,306) 599,874 (372,116) 227,758
---------- ----------- ---------- ----------- ---------- ----------
Net Interest Earnings............... $1,124,462 $ (435,549) $ 688,913 $ 966,239 $ (299,243) $ 666,996
========== =========== ========== =========== ========== ==========
</TABLE>
(1) The change in interest due to both rate and volume has been
allocated to volume and rate changes in proportion to the relationship of the
absolute dollar amount of the change of each.
RESULTS OF OPERATIONS
INTEREST INCOME
Total interest income increased $677,607 (2.2%) in 1998 from 1997 and
increased $894,754 (2.9%) in 1997 from 1996. Interest on loans increased
$869,025 in 1998 from 1997 and increased $1,341,986 in 1997 from 1996. The
increase in 1998 is the result of an increase in average loans outstanding of
$10,683,589 offset by a decrease in the taxable equivalent yield on the loan
portfolio from 10.4% in 1997 to 10.3% in 1998. The increase in 1997 is primarily
the result of an increase in average loans outstanding of $19,986,832 offset by
a decrease in the taxable equivalent yield on the loan portfolio from 10.7% in
1996 to 10.4% in 1997. The loan growth in 1998 and 1997 is reflected primarily
in the categories Real Estate-Other and Commercial and Agricultural loans, both
of which are made for commercial or agricultural purposes.
Interest on investments decreased $555,719 (9.8%) in 1998 from 1997 and
decreased $316,129 (5.3%) in 1997 from 1996. The decrease in 1998 is the result
of a decrease in the average investment portfolio of $7,742,811 with the same
taxable equivalent yield of 6.3% for 1998 and 1997. The decrease in 1997 is the
result of a decrease in the average investment portfolio of $3,873,854 offset by
a nominal increase in taxable equivalent yield of 0.03% from 1996 to 1997.
During 1998, interest on federal funds sold increased $37,014 (18.6%)
from 1997 and decreased $218,516 (52.2%) in 1997 from 1996, while interest on
interest bearing deposits increased $327,106 (48.7%) in 1998 from 1997 and
increased $87,413 (14.9%) in 1997 from 1996. The increase of $364,301 in total
interest on interest bearing deposits and federal funds sold in 1998 is the
result of an increase in the combined average balance of $7,882,749 from 1997 to
1998 offset by a decrease in the weighted average yield on those investments
from 5.6% in 1997 to 5.4% in 1998. The decrease in income from federal funds
sold and the increase in income from interest bearing deposits in other banks
during 1997 is primarily the result of an overall
<PAGE> 37
decrease in total funds available for short-term investment offset by higher
rates paid on these short-term investments from 5.4% in 1996 to 5.6% in 1997.
INTEREST EXPENSE
During 1998 interest paid on deposits decreased $44,096 (0.3%) from
1997 and increased $107,599 (0.8%) in 1997 from 1996. The 1998 decrease is the
result of an increase in average interest bearing deposits of $1,071,187 offset
by a decrease in the average rate paid on deposits from 4.90% in 1997 to 4.86%
in 1998. The 1997 increase is the result of an increase of $5,517,657 in average
interest bearing deposits offset by a decrease in the average rate paid on
deposits from 5.0% in 1996 to 4.9% in 1997.
NET INTEREST MARGIN
The interest margin of the Company, the spread between interest income
and interest expense, was 5.0% in 1998 and 4.9% in both 1997 and 1996. The
margin is the result of careful management of both the growth and the pricing of
loans and deposits in a competitive interest rate environment.
PROVISION FOR LOAN LOSSES
Provision for loan losses decreased $118,835 in 1998 from 1997 and
increased $237,374 in 1997 from 1996. Changes in the amount of the provision for
loan losses are the result of judgments made by management of the Banks after
considering the credit worthiness and growth of the loan portfolios. At December
31, 1998 and 1997, the allowance for loan losses was 1.6% of outstanding loans
less unearned interest. Total nonperforming loans were $1,070,636 at December
31, 1998 and $1,216,759 at December 31, 1997. The allowance for loan losses was
3.8 and 3.2 times total nonperforming loans at December 31, 1998 and 1997,
respectively. Net charge-offs amounted to $711,954 in 1998 as compared to
$1,036,289 in 1997. The increase in net charge-offs in 1997 is directly the
result of a charge-off of $632,110 on one credit line. The amount of the
allowance for loan losses is determined by management after considering, among
other things, factors such as classified and past due loans as well as portfolio
growth and diversification. Management believes such allowance is adequate to
absorb future losses on loans outstanding at December 31, 1998.
In an effort to determine potential loss relating to the Year 2000
issue, the Company has attempted to survey its larger loan customers but has not
received an adequate response to date. Less than 30% of loan customers contacted
from each subsidiary bank have responded thus far. However, the Company's loan
officers have completed their own assessment of their individual credit lines,
and 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 is planning to develop 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.
<PAGE> 38
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes average loan balances; changes in the
allowance for possible loan losses arising from loans charged off and recoveries
on loans previously charged off, by loan category; and additions to the
allowance which have been charged to expense:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Average Amount of Loans......................... $252,392,789 $241,709,200 $221,722,368 $202,284,606 $180,191,264
============ ============ ============ ============ ============
Analysis of the Allowance for Loan Losses:
Balance at Beginning of Period.................. $ 3,920,535 $ 4,024,539 $ 3,856,321 $ 3,274,587 $ 2,852,712
------------ ------------ ------------ ------------ -----------
Loans Charged off:
Commercial and Agricultural................... 529,531 851,356 254,876 88,777 70,117
Real Estate - Construction.................... 20,300
Real Estate - Other........................... 5,964 155,341 336 2,514
Installment and Other Consumer................ 291,660 222,733 403,947 253,294 254,231
------------ ------------ ------------ ------------ -----------
Total Loans Charged off................... 847,455 1,229,430 659,159 342,071 326,862
------------ ------------ ------------ ------------ -----------
Recoveries on Loans Previously Charged off:
Commercial and Agriculture.................... 31,276 63,934 55,393 12,907 33,123
Real Estate - Other........................... 19,063 5,450
Installment and Other Consumer................ 85,162 123,757 77,073 51,598 83,541
------------ ----------- ------------ ------------ -----------
Total Recoveries.......................... 135,501 193,141 132,466 64,505 116,664
------------ ----------- ------------ ------------ -----------
Net Loans Charged off........................... 711,954 1,036,289 526,693 277,566 210,198
Additions to Allowance Charged to Expense....... 813,450 932,285 694,911 859,300 632,073
------------ ----------- ------------ ------------ -----------
Balance at End of Period........................ $ 4,022,031 $ 3,920,535 $ 4,024,539 $ 3,856,321 $ 3,274,587
============ =========== ============ ============ ===========
Ratio of Net Charge-offs during the period
to Average Loans Outstanding................... 0.28% 0.43% 0.24% 0.14% 0.12%
============ =========== ============ ============ ===========
Provision for Loan Losses shown on the
Selected Financial Data........................ $ 813,450 $ 932,285 $ 694,911 $ 859,300 $ 632,073
============ =========== ============ ============ ===========
</TABLE>
The Company's provision for loan losses is based upon management's
continuing review and evaluation of the portfolio and is intended to create an
allowance adequate to absorb losses on loans outstanding as of the end of each
reporting period. For individually significant amounts, management's review
consists of evaluations of the financial strength of the borrowers and the
related collateral. Such evaluation is made by classifying loans based on values
for financial strength. These classifications are assigned by responsible loan
officers and reviewed by the Loan Review Officer. The totals by loan
classification, along with related historical loss ratios, are used to determine
the allowance required to provide for potential losses. The review of groups of
loans which are individually insignificant is based upon delinquency status of
the group, lending policies and previous collection experience by each category.
Also, the effects of current economic conditions on specific industries or
classes of borrowers are considered in determining allowance for loan loss
requirements.
The adequacy of the allowance is reviewed on a quarterly basis by
management and by the Board of Directors. The allowance is allocated by a
formula developed internally and deemed adequate by bank regulators. The
allocation includes 15% of the principal balance of loans graded "Substandard,"
50% of the principal balance of loans graded "Doubtful," and 100% of the
principal balance of loans graded "Loss" plus 100% of the greater of three year
or five year average net charge-offs plus 0.5% of off-balance sheet items plus
10% of loans past due 30 days or more and not internally rated plus a subjective
component related to judgments about local economic conditions, loan officer
performance, concentrations and other factors. For the year ended December 31,
1998, the allocation formula was expanded to include a component for potential
loan losses relating to the potential adverse effect of the Year 2000 issue on
the Company's loan customers. From December 31, 1997 to December 31, 1998, the
allocation of the allowance increased by approximately $939,000 or 76.3%. Of
this total increase, $743,000 was related to the new allocation for Year 2000
losses while adversely graded loans accounted for an increase of $150,000 and
historical losses accounted for an increase of approximately $142,000 offset by
a $111,700 decrease in the subjective component. While the Company did
experience an increase in the allocation, the amount of the provision in 1998
decreased from that in 1997.
<PAGE> 39
The approximate anticipated amount of charge-offs by category during
1999 is as follows:
<TABLE>
<S> <C>
Commercial and Agricultural..................................................... $450,000
Real Estate - Other............................................................. 50,000
Installment and Other Consumer.................................................. 250,000
--------
Total........................................................................ $750,000
========
</TABLE>
NON-INTEREST INCOME AND EXPENSE
Non-interest income increased $127,905 in 1998 from 1997 and increased
$395,431 in 1997 from 1996. The increase in 1998 non-interest income is the
result of increases in service charges on deposit accounts of $63,166 and in
other non-interest income of $167,605 offset by a $102,866 decrease in trust
service fees. The increase in service charges on deposits is the result of a
$9,000 increase in NSF fees and a $44,000 increase in account services charges.
The increase in account service charges is primarily the result of increases in
deposit account service fees implemented in the late second quarter and early
third quarter of 1998. The increase in Other Non-interest Income is the result
of a $171,000 increase in income from mortgage loans (which are originated for,
and acquired by, other banks on a non-recourse basis concurrent with the closing
of each loan), of a $58,000 increase in commissions on mutual funds, annuities
and life insurance, of a $32,000 increase in ATM fees and of a $15,000 increase
in commissions on debit card transactions, all offset by the gain of $110,516
recognized in 1997 from the sale of a pool of SBA guaranteed loans. The $102,866
decrease in Trust Services Fees is the result of outsourcing trust
administration activities and sharing fees with that party. The increase in
non-interest income in 1997 is the result of increases in service charges on
deposit accounts of $181,393 and in Other Non-interest Income of $221,120 offset
by a $7,082 decrease in Trust Service Fees. The 1997 increase in service charges
on deposit accounts is the result of a full year effect of service charge
adjustments made in the later part of 1996, while the increase in Other Service
Charges is primarily the result of an increase of $54,154 in income from
mortgage loans originated for other banks, of an increase of $27,455 in
commissions on mutual funds, annuities, and life insurance, and from a gain of
$110,516 from the sale of a pool of SBA-guaranteed loans.
Non-interest expense increased $684,238 in 1998 from 1997 and $676,941
in 1997 from 1996. The increases in non-interest expense resulted from an
increase in total salary and personnel expense of $258,860 in 1998 and $476,329
in 1997, an increase in total occupancy and equipment expense of $146,074 in
1998 and $388,378 in 1997, and an increase in Other Expense of $279,304 in 1998
and a decrease in such expense of $187,766 in 1997. The increase in salary and
employee expense in 1998 is primarily the result of an increase of $243,000 in
salaries and executive bonuses as well as an increase of $26,000 in medical
insurance premiums offset by a $10,000 decrease in retirement benefit plan
expense. The 1997 increase in salary and personnel expense is the result of
increases in health insurance premiums, the adoption of benefit plans for
employees of Effingham Bank, and increases in benefit plan expense at Bulloch
Bank and Metter Bank related to the restatement of the benefit plans in prior
years. The increase in occupancy and equipment expense in 1998 is the result of
a $40,000 increase in depreciation expense, a $69,000 increase in repairs to
buildings and equipment, a $10,000 increase in rental expense as a result of new
ATM locations, and a $20,000 increase in property taxes. The 1997 increase in
occupancy and equipment expense is primarily the result of an increase in
depreciation expense of $238,000 related to various capital projects in 1996.
The increase in Other Expense in 1998 is the result of an increases of
approximately $90,000 in outside services (which includes legal, accounting,
courier and telephone expense), of $62,000 in computer expense, of $39,000 in
director fees, of $44,000 in office supplies and of $46,000 in all other
expense, all offset by a $36,000 decrease in FDIC, FICO and OCC assessments. The
decrease in Other Expense in 1997 was offset by an increase of $94,578 in
assessments paid to the FDIC and OCC for deposit insurance premiums and for FICO
bond payments and also offset by an increase in service charges paid to
correspondent banks of $64,837.
INCOME TAXES
The increase in the provision for income taxes of $7,040 in 1998 and
the decrease of $141,810 in 1997 resulted from changes in taxable income. The
effective tax rate for 1998, 1997 and 1996 was 28%, 29%, and 32%, respectively.
The effective tax rate is lower than the statutory rate of 34% because of the
Banks' investments in tax-exempt securities and loans.
<PAGE> 40
NEW ACCOUNTING STANDARD
As of January 1, 1998, the Company adopted SFAS 130, "Reporting
Comprehensive Income" and restated prior periods to conform to the presentation
required by SFAS 130. SFAS 130 establishes new rules for the reporting and
display of comprehensive income and its components. SFAS 130 requires unrealized
gains or losses on the Company's available for sale securities, which prior to
adoption were reported separately in shareholder's equity, to be included in
other comprehensive income. The adoption of SFAS 130 had no impact on the
Company's net income or shareholder's equity.
As of December 31, 1998, the Company adopted SFAS 131, "Disclosures
about Segments of an Enterprise and Related Information". SFAS 131 established
annual and interim reporting standards for an enterprise's business segments and
related disclosures about its products, services, geographic areas and major
customers. Appropriate disclosures have been included in the Company's financial
statements for the year ending December 31, 1998.
In June 1998, SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities" 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. SFAS 133 is effective for
all fiscal quarters of fiscal years beginning after June 15, 1999. As the
Company does not engage in derivative instruments or hedging activities, SFAS
133 will not have an effect on the Company's financial statements.
YEAR 2000 ISSUES
Year 2000 issues relate to the anticipated failure of computer systems
to accurately process dates falling in the next century as a result of a common
programming convention of representing years with two digits rather than four
digits. Programs that are time sensitive may recognize a date using "00" as the
year 1900 rather than the year 2000. This misinterpretation of the year could
result in an incorrect computation or a computer shutdown.
The Company has completed an evaluation of the Company's computer
information systems and has identified those systems which will require program
modifications or new software installations in order to function properly for
the year 2000. The Company has developed a plan 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.
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
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.
<PAGE> 41
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 First Banking
relies on which is not Year 2000 compliant. If the Company determines any
vendor, supplier or other third party to be noncompliant during the testing
phase, which concludes March 31, 1999, then the Company will select a
replacement product or application and install it prior to June 30, 1999. 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.
In surveying its large loan customers, the Company has not received an
adequate response. Less than 30% of loan customers contacted from each
subsidiary bank have responded to date. However, the Company's loan officers
have completed their own assessment of their individual credit lines, and 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 is planning to develop 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 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.
<PAGE> 42
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.
HISTORY AND BUSINESS
First Banking Company of Southeast Georgia (the "Company") is a bank
holding company which was organized on October 27, 1981. All of the Company's
business is presently conducted by its wholly-owned subsidiaries, First Bulloch
Bank & Trust Company ("Bulloch Bank"), Metter Banking Company ("Metter Bank"),
and First National Bank of Effingham ("Effingham Bank"), (collectively, the
"Banks"), which are engaged in bank and bank-related activities. The Company
does not engage in any non-bank activities. Bulloch Bank was organized under the
laws of the State of Georgia in 1934 as a state banking corporation. On December
31, 1985, Metter Financial Services, Inc. ("Metter Financial") combined with the
Company and Metter Financial's subsidiary, Metter Bank, became a wholly-owned
subsidiary of the Company. On August 27, 1996, FNB Bancshares, Inc. ("FNB")
combined with the Company, and FNB's subsidiary, Effingham Bank, became a
wholly-owned subsidiary of the Company.
As of December 31, 1998, the Company had consolidated assets of
approximately $391 million, consolidated deposits of approximately $329 million
and consolidated shareholders' equity of approximately $45 million.
The Banks accept customary types of demand and time deposits, make
installment and commercial loans and offer safe deposit services and individual
retirement accounts to their customers. Bulloch Bank also performs corporate,
pension and personal trust services as well as other financial services for its
customers and for those of Metter Bank and Effingham Bank.
As of December 31, 1998, Bulloch Bank had a headquarters building, four
branch offices and eight ATM installations, and Metter Bank had a headquarters
building, a drive-in facility, four ATM installations and a supermarket branch
office. The Effingham Bank had a headquarters building, two branch offices and
three ATM installations.
COMPETITION
The banking business is highly competitive. The Banks emphasize the
quality of services they provide. The prices of the Banks' financial products
relative to those of other financial institutions is another important variable
influencing customer choice. Bulloch Bank's primary market area consists of
Bulloch County, Georgia, which has a population of approximately 50,400. Bulloch
Bank competes for all types of loans, deposits, and other financial services
with three other commercial banks and a branch of a regional bank in Bulloch
County. As of December 31, 1998, Bulloch Bank was the largest of the five
commercial banks located in Bulloch County, based upon total deposits and total
assets.
Metter Bank's primary market area consists of Candler County, Georgia,
which is adjacent to Bulloch County. Candler County has a population of
approximately 9,000. Metter Bank competes for all types of loans, deposits and
other financial services with one other commercial bank and a local thrift in
the county, as well as other providers of financial services in adjacent
counties. Metter Bank is the largest of the three financial institutions in its
primary service area, based upon total deposits and total assets.
Effingham Bank's primary market area consists of Effingham County,
Georgia, which is included in the Savannah-Chatham County Metropolitan
Statistical Area. The county has been recognized as one of the "bedroom"
communities of Savannah and had an estimated population of 32,800 at December
31, 1998. The Bank competes for all types of loans, deposits and other financial
services with two community banks and two branches of a regional bank. As of
December 31, 1998 Effingham Bank was the largest of the three community banks in
its market area, based upon total deposits and total assets.
The Company also competes with other financial institutions that are
located in Bulloch, Candler and Effingham counties as well as with commercial
banks, savings and loan associations,
<PAGE> 43
other financial institutions and brokerage houses located in Chatham, Evans,
Bryan, Screven, Tattnall and Jenkins Counties. To a lesser extent, the Company
competes for loans with insurance companies, regulated small loan companies,
credit unions and certain governmental agencies. Recent legislation, together
with other regulatory changes by the primary regulators of the various financial
institutions and competition from unregulated entities, has resulted in the
elimination of many traditional distinctions between commercial banks, thrift
institutions and other providers of financial services. Consequently,
competition among financial institutions of all types is virtually unlimited
with respect to legal ability and authority to provide most financial services.
EMPLOYEES
Except for the six officers of the Company, who are also officers of
the Banks, the Company does not have any employees. As of December 31, 1998,
Bulloch Bank had eighty-nine (89) full-time employees and seventeen (17)
part-time employees; Metter Bank had thirty-seven (37) full-time employees and
seven (7) part-time employees; and Effingham Bank had twenty-six (26) full-time
employees and seven (7) part-time employees. Management considers employee
relations to be generally good. Neither the Company nor the Banks have
collective bargaining agreements with any employees.
SUPERVISION AND REGULATION
The following discussion sets forth the material elements of the
regulatory framework applicable to banks and bank holding companies and provides
certain specific information related to the Company.
GENERAL
The Company is a bank holding company registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve") under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). As such, the Company
and any non-bank subsidiaries are subject to the supervision, examination, and
reporting requirements of the BHC Act and the regulations of the Federal
Reserve.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (a) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or control
more than 5% of the voting shares of the bank; (b) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of any bank; or (c) it may merge or consolidate with any other bank
holding company.
The BHC Act further provides that the Federal Reserve may not approve
any transaction that would result in a monopoly or would be in furtherance of
any combination or conspiracy to monopolize or attempt to monopolize the
business of banking in any section of the United States, or the effect of which
may be substantially to lessen competition or to tend to create a monopoly in
any section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy, which is discussed below.
The BHC Act, as amended by the interstate banking provisions of the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Interstate Banking Act"), which became effective on September 29, 1995,
repealed the prior statutory restrictions on interstate acquisitions of banks by
bank holding companies, such that the Company, and any other bank holding
company located in Georgia, may now acquire a bank located in any other state,
and any bank holding company located outside Georgia may lawfully acquire any
Georgia-based bank, regardless of state law to the contrary, in either case
subject to certain deposit-percentage,
<PAGE> 44
aging requirements, and other restrictions. The Interstate Banking Act also
generally provides that, as of June 1, 1997, national and state-chartered banks
may now branch interstate through acquisitions of banks in other states. By
adopting legislation prior to that date, a state has the ability either to "opt
in" and accelerate the date after which interstate branching is permissible or
"opt out" and prohibit interstate branching altogether.
In response to the Interstate Banking Act, the Georgia General Assembly
adopted the Georgia Interstate Banking Act, which was effective on July 1, 1995.
The Georgia Interstate Banking Act provides that (i) interstate acquisitions by
institutions located in Georgia will be permitted in states that also allow
national interstate acquisitions and (ii) interstate acquisitions of
institutions located in Georgia will be permitted by institutions in states that
allow national interstate acquisitions.
Additionally, on January 26, 1996, the Georgia General Assembly adopted
the Georgia Interstate Branching Act, which permits Georgia-based banks and bank
holding companies owning or acquiring banks outside of Georgia and all
non-Georgia banks and bank holding companies owning or acquiring banks in
Georgia to merge any lawfully acquired bank into an interstate branch network.
The Georgia Interstate Branching Act also allows banks to establish de novo
branches on a limited basis as of July 1, 1996. Effective July 1, 1998, there is
no limit on the number of de novo branches that may be established.
The BHC Act generally prohibits the Company from engaging in activities
other than banking or managing or controlling banks or other permissible
subsidiaries and from acquiring or retaining direct or indirect control of any
company engaged in any activities other than those activities determined by the
Federal Reserve to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. In determining whether a particular
activity is permissible, the Federal Reserve must consider whether the
performance of such an activity reasonably can be expected to produce benefits
to the public, such as greater convenience, increased competition, or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices. For example, factoring accounts receivable, acquiring or
servicing loans, leasing personal property, conducting discount securities
brokerage activities, performing certain data processing services, acting as
agent or broker in selling credit life insurance and certain other types of
insurance in connection with credit transactions, and performing certain
insurance underwriting activities all have been determined by the Federal
Reserve to be permissible activities of bank holding companies. The BHC Act does
not place territorial limitations on permissible non-banking activities of bank
holding companies. Despite prior approval, the Federal Reserve has the power to
order a holding company or its subsidiaries to terminate any activity or to
terminate its ownership or control of any subsidiary when it has reasonable
cause to believe that continuation of such activity or such ownership or control
constitutes a serious risk to the financial safety, soundness, or stability of
any bank subsidiary of that bank holding company.
Each of the bank subsidiaries of the Company is a member of the Federal
Deposit Insurance Corporation (the "FDIC"), and as such, its deposits are
insured by the FDIC to the maximum extent provided by law. Each such subsidiary
is also subject to numerous state and federal statutes and regulations that
affect its business, activities, and operations, and each is supervised and
examined by one or more state or federal bank regulatory agencies.
The regulatory agencies having supervisory jurisdiction over the bank
subsidiaries (the FDIC and the Georgia Department of Banking and Finance ((the
"Georgia Department")) for state-chartered banks and the Office of the
Comptroller ((the "OCC")) for national banks) regularly examine the operations
of the subsidiary banks and are given authority to approve or disapprove
mergers, consolidations, the establishment of branches, and similar corporate
actions. The regulatory agencies also have the power to prevent the continuance
or development of unsafe or unsound banking practices or other violations of
law.
PAYMENT OF DIVIDENDS
The Company is a legal entity separate and distinct from its banking
and other subsidiaries. The principal sources of cash flow of the Company,
including cash flow to pay
<PAGE> 45
dividends to its shareholders, are dividends by its subsidiary banks. There are
statutory and regulatory limitations on the payment of dividends by the
subsidiary banks to the Company as well as by the Company to its shareholders.
If, in the opinion of the federal banking regulator, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
depository institution, could include the payment of dividends), such authority
may require, after notice and hearing, that such institution cease and desist
from such practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA"), a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. See "-- Prompt Corrective
Action." Moreover, the federal agencies have issued policy statements that
provide that bank holding companies and insured banks should generally only pay
dividends out of current operating earnings.
Under dividend restrictions imposed under federal and state laws, the
subsidiary banks, without obtaining governmental approvals, could declare
aggregate dividends to the Company of up to $2,854,130 (representing 50% of the
previous year's net income) in 1999.
The payment of dividends by the Company and the subsidiary banks may
also be affected or limited by other factors, such as the requirement to
maintain adequate capital above regulatory guidelines.
CAPITAL ADEQUACY
The Company and its subsidiary banks are required to comply with the
capital adequacy standards established by the Federal Reserve and the
appropriate federal banking regulator in the case of its banking subsidiaries.
There are two basic measures of capital adequacy for bank holding companies that
have been promulgated by the Federal Reserve: a risk-based measure and a
leverage measure. All applicable capital standards must be satisfied for a bank
holding company to be considered in compliance.
The risk-based capital standards are designed to make regulatory
capital requirements more sensitive to differences in risk profile among banks
and bank holding companies, to account for off-balance-sheet exposure, and to
minimize disincentives for holding liquid assets. Assets and off-balance-sheet
items are assigned to broad risk categories, each with appropriate weights. The
resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance-sheet items.
The minimum guideline for the ratio (the "Total Risk-Based Capital
Ratio") of total capital ("Total Capital") to risk-weighted assets (including
certain off-balance-sheet items, such as standby letters of credit) is 8%. At
least half of Total Capital must comprise common stock, minority interests in
the equity accounts of consolidated subsidiaries, noncumulative perpetual
preferred stock, and a limited amount of cumulative perpetual preferred stock,
less goodwill and certain other intangible assets ("Tier 1 Capital"). The
remainder may consist of subordinated debt, other preferred stock, and a limited
amount of loan loss reserves ("Tier 2 Capital"). At December 31, 1998, the
Company's consolidated Total Risk-Based Capital Ratio and its Tier 1 Risk-Based
Capital Ratio (i.e., the ratio of Tier 1 Capital to risk-weighted assets) were
18.6% and 17.4% respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3% for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating. All
other bank holding companies generally are required to maintain a Leverage Ratio
of at least 3%, plus an additional cushion of 100 to 200 basis points. The
Company's Leverage Ratio at December 31, 1998 was 11.5%. The guidelines also
provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels without
<PAGE> 46
significant reliance on intangible assets. Furthermore, the Federal Reserve has
indicated that it will consider a "tangible Tier 1 Capital Leverage Ratio"
(deducting all intangibles) and other indicia of capital strength in evaluating
proposals for expansion or new activities.
The subsidiary banks are subject to risk-based and leverage capital
requirements adopted by the FDIC, which are substantially similar to those
adopted by the Federal Reserve for bank holding companies.
Each of the subsidiary banks was in compliance with applicable minimum
capital requirements as of December 31, 1998. The Company has not been advised
by any federal banking agency of any specific minimum capital ratio requirement
applicable to it or its subsidiary depository institutions.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the termination
of deposit insurance by the FDIC, a prohibition on the taking of brokered
deposits, and certain other restrictions on its business. As described below,
substantial additional restrictions can be imposed upon FDIC-insured depository
institutions that fail to meet applicable capital requirements. See "-- Prompt
Corrective Action."
The federal bank regulators continue to indicate their desire to raise
capital requirements applicable to banking organizations beyond their current
levels. In this regard, the Federal Reserve and the FDIC have, pursuant to
FDICIA, recently adopted final regulations requiring regulators to consider
interest rate risk (when the interest rate sensitivity of an institution's
assets does not match the sensitivity of its liabilities or its
off-balance-sheet position) in the evaluation of a bank's capital adequacy. The
bank regulatory agencies' methodology for evaluating interest rate risk requires
banks with excessive interest rate risk exposure to hold additional amounts of
capital against such exposures.
ALLOWANCE FOR LOAN LOSSES
The Company maintains an allowance for loan losses at a level estimated
to be adequate to absorb potential losses in the loan portfolio. Management's
estimate of the adequacy of the allowance is based upon reviews of individual
loans, recent loss experience, the estimated value of any underlying collateral,
current economic conditions, the risk characteristics of the various categories
of loans and other pertinent factors. The adequacy of the allowance is reviewed
on a quarterly basis by management and by the Board of Directors. The allowance
is allocated by a formula developed internally and deemed adequate by bank
regulators. The allocation includes 15% of the principal balance of loans graded
"Substandard," 50% of the principal balance of loans graded "Doubtful," and 100%
of the principal balance of loans graded "Loss" plus 100% of the greater of
three year or five year average net charge-offs plus 0.5% of off-balance sheet
items plus 10% of loans past due 30 days or more and not internally rated plus a
subjective component related to judgments about local economic conditions, loan
officer performance, concentrations and other factors. For the year ended
December 31, 1998, the allocation formula was expanded to include a component
for potential loan losses relating to the potential adverse effect of the Year
2000 issue on the Company's loan customers. Loans deemed uncollectible are
charged to the allowance, while provisions for loan losses and recoveries on
loans previously charged off are added to the allowance.
SUPPORT OF SUBSIDIARY INSTITUTIONS
Under Federal Reserve policy, the Company is expected to act as a
source of financial strength for, and to commit resources to support, each of
its banking subsidiaries. This support may be required at times when, absent
such Federal Reserve policy, the Company may not be inclined to provide it. In
addition, any capital loans by a bank holding company to any of its banking
subsidiaries are subordinate in right of payment to deposits and to certain
other indebtedness of such banks. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a banking subsidiary will be
assumed by the bankruptcy trustee and entitled to a priority of payment.
<PAGE> 47
Under the Federal Deposit Insurance Act ("FDIA"), a depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC after August 9, 1989, in
connection with (a) the default of a commonly controlled FDIC-insured depository
institution or (b) any assistance provided by the FDIC to any commonly
controlled FDIC-insured depository institution "in danger of default." "Default"
is defined generally as the appointment of a conservator or receiver, and "in
danger of default" is defined generally as the existence of certain conditions
indicating that a default is likely to occur in the absence of regulatory
assistance. The FDIC's claim for damages is superior to claims of shareholders
of the insured depository institution or its holding company, but is subordinate
to claims of depositors, secured creditors, and holders of subordinated debt
(other than affiliates) of the commonly controlled insured depository
institution. The subsidiary depository institutions of the Company are subject
to these cross-guarantee provisions. As a result, any loss suffered by the FDIC
in respect of these subsidiaries would likely result in assertion of the
cross-guarantee provisions, the assessment of such estimated losses against the
depository institution's banking affiliates, and a potential loss of the
Company's investment in such other subsidiary depository institutions.
PROMPT CORRECTIVE ACTION
FDICIA establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system, which became
effective in December 1992, the federal banking regulators are required to
establish five capital categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized) and to take certain mandatory supervisory actions, and are
authorized to take other discretionary actions, with respect to institutions in
the three undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed. Generally, subject to a
narrow exception, FDICIA requires the banking regulator to appoint a receiver or
conservator for an institution that is critically undercapitalized. The federal
banking agencies have specified by regulation the relevant capital level for
each category.
The capital levels established for each of the categories are as
follows:
<TABLE>
<CAPTION>
==================================================================================================================
Total Tier 1 Risk-
Capital Category Tier 1 Risk-Based Based Capital Other
Capital Capital
==================================================================================================================
<S> <C> <C> <C> <C>
Well Capitalized 5% or more 10% or more 6% or more Not
subject to
a capital
directive
- ------------------------------------------------------------------------------------------------------------------
Adequately 4% or more 8% or more 4% or more --
Capitalized
- ------------------------------------------------------------------------------------------------------------------
Undercapitalized less than less than 8% less than 4% --
4%
- ------------------------------------------------------------------------------------------------------------------
Significantly less than less than 6% less than 3% --
Undercapitalized 3%
- ------------------------------------------------------------------------------------------------------------------
Critically 2% or less -- -- --
Undercapitalized tangible
equity
==================================================================================================================
</TABLE>
For purposes of the regulation, the term "tangible equity" includes
core capital elements counted as Tier 1 Capital for purposes of the risk-based
capital standards, plus the amount of outstanding cumulative perpetual preferred
stock (including related surplus), minus all intangible assets with certain
exceptions. A depository institution may be deemed to be in a
<PAGE> 48
capitalization category that is lower than is indicated by its actual capital
position if it receives an unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
Under FDICIA, a bank holding company must guarantee that a subsidiary depository
institution meets its capital restoration plan, subject to certain limitations.
The obligation of a controlling holding company under FDICIA to fund a capital
restoration plan is limited to the lesser of 5% of an undercapitalized
subsidiary's assets or the amount required to meet regulatory capital
requirements. An undercapitalized institution is also generally prohibited from
increasing its average total assets, making acquisitions, establishing any
branches, or engaging in any new line of business, except in accordance with an
accepted capital restoration plan or with the approval of the FDIC. In addition,
the appropriate federal banking agency is given authority with respect to any
undercapitalized depository institution to take any of the actions it is
required to or may take with respect to a significantly undercapitalized
institution as described below if it determines "that those actions are
necessary to carry out the purpose" of FDICIA.
At December 31, 1998, each subsidiary bank had the requisite capital
levels to qualify as well capitalized.
FDIC INSURANCE ASSESSMENTS
Pursuant to FDICIA, the FDIC adopted a new risk-based assessment system
for insured depository institutions that takes into account the risks
attributable to different categories and concentrations of assets and
liabilities. The new system, which went into effect on January 1, 1994, assigns
an institution to one of three capital categories: (a) well capitalized; (b)
adequately capitalized; and (c) undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the "undercapitalized" category including institutions that are
undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes. An institution is also
assigned by the FDIC to one of three supervisory subgroups within each capital
group. The supervisory subgroup to which an institution is assigned is based on
a supervisory evaluation provided to the FDIC by the institution's primary
federal regulator and information which the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's insurance assessment rate is
then determined based on the capital category and supervisory category to which
it is assigned. Under the final risk-based assessment system, as well as the
prior transitional system, there are nine assessment risk classifications (i.e.,
combinations of capital groups and supervisory subgroups) to which different
assessment rates are applied. Assessment rates for members of both the Bank
Insurance Fund ("BIF") and the Savings Association Insurance Fund ("SAIF") for
the first half of 1995, as they had during 1994, ranged from 23 basis points
(0.23% of deposits) for an institution in the highest category (i.e., "well
capitalized" and "healthy") to 31 basis points (0.31% of deposits) for an
institution in the lowest category (i.e., "undercapitalized" and "substantial
supervisory concern"). These rates were established for both funds to achieve a
designated ratio of reserves to insured deposits (i.e., 1.25%) within a
specified period of time.
Once the designated ratio for the BIF was reached in May 1995, the FDIC
reduced the assessment rate applicable to BIF deposits in two stages, so that,
beginning in 1996, the deposit insurance premiums for 92% of all BIF members in
the highest capital and supervisory categories were set at $2,000 per year,
regardless of deposit size. The FDIC elected to retain the existing assessment
rate range of 23 to 31 basis points for SAIF members for the foreseeable future
given the undercapitalized nature of that insurance fund.
Recognizing that the disparity between the SAIF and BIF premium rates
had adverse consequences for SAIF-insured institutions and other banks with SAIF
assessed deposits, including reduced earnings and an impaired ability to raise
funds in capital markets and to attract deposits, in July 1995, the FDIC, the
Treasury Department, and the Office of Thrift Supervision released statements
outlining a proposed plan to recapitalize the SAIF, the
<PAGE> 49
principal feature of which was a special one-time assessment on depository
institutions holding SAIF-insured deposits, which was intended to recapitalize
the SAIF at a reserve ratio of 1.25%. This proposal contemplated elimination of
the disparity between the assessment rates on BIF and SAIF deposits following
recapitalization of the SAIF.
A variation of this proposal designated the Deposit Insurance Funds Act
of 1996 (the "Funds Act") was enacted by Congress as part of the omnibus budget
legislation and signed into law on September 30, 1996. As directed by the Funds
Act, the FDIC implemented a special one-time assessment of approximately 65.7
basis points (0.657%) on a depository institution's SAIF-insured deposits held
as of March 31, 1995 (or approximately 52.6 basis points on SAIF deposits
acquired by banks in certain qualifying transactions). In addition, the FDIC has
implemented a revision in the SAIF assessment rate schedule that effected, as of
October 1, 1996 (a) a widening in the assessment rate spread among institutions
in the different capital and risk assessment categories, (b) an overall
reduction of the assessment rate range assessable on SAIF deposits of from 0 to
27 basis points, and (c) a special interim assessment rate range for the last
quarter of 1996 of from 18 to 27 basis points on institutions subject to
Financing Corporation ("FICO") assessments. Effective as of January 1, 1997,
assessments to help pay off the $780 million in annual interest payments on the
$8 billion FICO bonds issued in the late 1980s as part of the government rescue
of the thrift industry are imposed on both BIF- and SAIF-insured deposits in
annual amounts presently estimated at 1.29 basis points and 6.44 basis points,
respectively. Beginning in January 2000, BIF- and SAIF-insured institutions
will share the FICO interest costs at equal rates currently estimated 2.43 basis
points.
Under the FDIA, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe and unsound practices,
is in an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC.
PROPOSED LEGISLATION AND REGULATORY ACTION
New regulations and statutes are regularly proposed that contain
wide-ranging proposals for altering the structures, regulations and competitive
relationships of the nation's financial institutions. It cannot be predicted
whether or what form any proposed regulation or statute will be adopted or the
extent to which the business of the Company may be affected by such regulation
or statute.
PROPERTIES
The Company's and Bulloch Bank's main office is located at 40 North
Main Street, Statesboro, Georgia.
The first of Bulloch Bank's four branches was opened January 17, 1972,
and is located in Portal, Georgia, a farming community twelve miles north of
Statesboro, Georgia. A second branch is located at the Statesboro Mall, which is
approximately two miles east of the main office. Bulloch Bank's third branch
office is approximately one mile south of the main office and near Georgia
Southern University in the College Plaza Shopping Center. Bulloch Bank opened
its fourth branch office in October 1996 in the Wal-Mart Supercenter located
approximately two miles east of the main office on U. S. Highway 80 East.
Bulloch Bank maintains eight automated teller machines located at the Mall
Office, the College Plaza Office, the Wal-Mart Office, near the junction of U.S.
Highways 301 and 80 (the "Northside ATM"), in the main lobby of Ogeechee
Technical Institute, and three machines on the campus of Georgia Southern
University, one on Chandler Road, one in the University Union Building and one
on Lanier Drive near Paulson Stadium. The Northside ATM is equipped with a night
depository, a service not available at the other ATMs. These machines enable the
Bank to provide twenty-four hour banking services to its customers.
Bulloch Bank owns all the properties except the Wal-Mart location and
five of the other ATM locations. The Wal-Mart location is leased for a term of
five years until October 2001. The Northside ATM land is currently leased on a
month to month basis. The Chandler Road location is currently leased for a five
year term until December 2001, and the University Union location is leased on a
month to month basis. The Lanier Drive ATM location is leased for a
<PAGE> 50
term of five years until September 2002. The Ogeechee Technical Institute
location is leased for a one year term until November 1998.
Metter Bank's main office is located at 2 S.E. Broad Street, Metter,
Georgia. Metter Bank has one drive-in facility and an ATM located approximately
200 yards southeast of the main office and during 1990 opened a branch in a
supermarket which is approximately one-half mile from the main office. Metter
Bank maintains four ATM locations, one at the drive-in facility, two near the
Interstate 16 interchange, and one at the supermarket location. Metter Bank owns
all the properties except the supermarket branch facility, which is currently
under a five year lease expiring in September 2002, and the Interstate 16 ATM
locations, which are leased for five year terms, one until February 2001 and the
other until July 2003.
Effingham Bank's main office is located at 501 South Laurel Street,
Springfield, Georgia. Effingham Bank opened its first branch office in Rincon in
1995, located approximately ten miles southeast of the main office, and opened a
branch in the Wal-Mart Supercenter in Rincon in July 1996. The Bank maintains
three ATM installations, one located at each branch. Effingham Bank owns all the
properties except the Wal-Mart branch location, which is leased for a five year
term until July 2001.
All properties of the Banks are in good condition and are adequate for
the current operations of the Banks.
LEGAL PROCEEDINGS
Neither the Registrant nor either of its subsidiaries is a party to,
nor is any of their property the subject of, any material pending legal
proceedings, other than ordinary routine proceedings incidental to the business
of the Banks, nor to the knowledge of management are any such proceedings
contemplated or threatened against the Registrant or its subsidiaries.
<PAGE> 51
1998 FORM 10-K
Securities and Exchange Commission
Washington, D. C. 2059
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the Fiscal Year Ended December 31, 1998
Commission File Number 0-10853
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
Incorporated in the State of Georgia
I. R. S. Employer Identification Number 58-1458268
Address: 40 North Main Street
Statesboro, Georgia 30458
Telephone: (912)764-6611
Securities Registered Pursuant to Section 12(g)of the Exchange Act: Common
Stock - $1.00 Par Value
First Banking Company of Southeast Georgia has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act during the
preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained herein, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.[ ]
As of February 28, 1999, First Banking Company of Southeast Georgia had
4,715,419 shares of common stock outstanding. The aggregate market value of
First Banking Company of Southeast Georgia common stock held by non-affiliates
on February 28, 1999 was $87,468,813.
DOCUMENTS INCORPORATED BY REFERENCE
Part III information is incorporated herein by reference from First
Banking Company of Southeast Georgia's Proxy Statement for its 1999 Annual
Shareholders' Meeting, which will be filed with the Commission by April 1, 1999.
Certain Part I and Part II information required by Form 10-K is incorporated by
reference from the 1998 First Banking Company of Southeast Georgia Annual Report
to Shareholders as indicated below. Except for those portions specifically
incorporated by reference, the 1998 Annual Report to Shareholders is not deemed
filed with the Securities and Exchange Commission.
<TABLE>
<CAPTION>
Annual Report
Part I. Page
------- ----
<S> <C> <C>
Item 1 Business 41
Item 2 Properties 47
Item 3 Legal Proceedings 47
Item 4 Submission of Matters to a Vote
of Security Holders NA
Annual Report
Part II. Page
------- ----
Item 5 Market for the Registrant's Common Equity
and Related Stockholder Matters 26
Item 6 Selected Financial Data 25
Item 7 Management's Discussion and Analysis
of Financial Condition and Results of
</TABLE>
<PAGE> 52
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Operations 27-41
Item 8 Financial Statements and
Supplementary Data 2-24
Item 9 Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure NA
Proxy Statement
Part III Page
------- ----
Item 10 Directors and Executive Officers of
the Registrant 2-4, 6
Item 11 Executive Compensation 7-9, 12-13
Item 12 Security Ownership of Certain
Beneficial Owners and Management 9-11
Item 13 Certain Relationships and Related
Transactions 9
Part IV.
-------
Item 14 Exhibits, Financial Statement Schedules
and Reports on Form 8-K
</TABLE>
(A)(1). Financial Statements Filed. See Consolidated
Financial Statements on pages 3 through 25 of this
Annual Report and Form 10-K.
(2). Financial Statement Schedules. All financial
statement schedules are omitted because the data is
either not applicable or is discussed in the
Management's Discussion and Analysis of Financial
Condition and Results of Operations, the financial
statements or related footnotes.
(3). Exhibits. The Company's Articles of Incorporation,
Bylaws and certain other documents are filed as
Exhibits to this Report or incorporated by reference
herein pursuant to the Securities Exchange Act of
1934. Shareholders may obtain the list of such
Exhibits and copies of such documents upon request
to: Secretary, First Banking Company of Southeast
Georgia, P. O. Box 878, Statesboro, Georgia 30459. A
copying fee will be charged for the Exhibits.
(B) Reports on Form 8-K: None
<PAGE> 53
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf on March 29, 1999 by the undersigned, thereunto duly authorized.
FIRST BANKING COMPANY OF
SOUTHEAST GEORGIA
(Registrant)
James Eli Hodges
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 29, 1999 by the following persons on
behalf of the Registrant and in the capacities indicated.
James Eli Hodges
President
(Principal Executive Officer)
Julian C. Lane, Jr.
Vice President
Douglas E. Wren
Vice President
Dwayne E. Rocker
Secretary & Treasurer
(Principal Financial &
Accounting Officer)
DIRECTORS: E. Raybon Anderson
A. M. Braswell, Jr.
W. A. Crider, Jr.
James Eli Hodges
C. Arthur Howard
Joe P. Johnston
Julian C. Lane, Jr.
Harry S. Mathews
Dan J. Parrish, Jr.
Charles M. Robbins, Jr.
Larry D. Weddle
Alvin Williams
Douglas E. Wren
<PAGE> 1
EXHIBIT 23.1
DELOITTE &
TOUCHE LLP
- ----------- ---------------------------------------------------------
Suite 1500 Telephone: (404)220-1500
191 Peachtree Street, N. E. Facsimile: (404)220-1583
Atlanta, Georgia 30303-1924
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-33853, 333-33763 and 333-72061 of First Banking Company of Southeast
Georgia on Forms S-8, S-3 and S-4, respectively, of our report dated January 22,
1999, incorporated by reference in this Annual Report on Form 10-K of First
Banking Company of Southeast Georgia for the year ended December 31, 1998.
/s/ Deloittte & Touche LLP
Atlanta, Georgia
March 17, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST BANKING COMPANY OF SOUTHEAST GEORGIA FOR THE YEAR
ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 20,004
<INT-BEARING-DEPOSITS> 24,773
<FED-FUNDS-SOLD> 2,975
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 61,219
<INVESTMENTS-CARRYING> 13,623
<INVESTMENTS-MARKET> 14,363
<LOANS> 256,565
<ALLOWANCE> 4,022
<TOTAL-ASSETS> 390,996
<DEPOSITS> 328,842
<SHORT-TERM> 3,071
<LIABILITIES-OTHER> 4,181
<LONG-TERM> 10,092
0
0
<COMMON> 4,715
<OTHER-SE> 40,096
<TOTAL-LIABILITIES-AND-EQUITY> 390,996
<INTEREST-LOAN> 25,804
<INTEREST-INVEST> 5,100
<INTEREST-OTHER> 1,236
<INTEREST-TOTAL> 32,140
<INTEREST-DEPOSIT> 13,853
<INTEREST-EXPENSE> 14,624
<INTEREST-INCOME-NET> 17,516
<LOAN-LOSSES> 813
<SECURITIES-GAINS> 15
<EXPENSE-OTHER> 11,792
<INCOME-PRETAX> 7,974
<INCOME-PRE-EXTRAORDINARY> 7,974
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,708
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.21
<YIELD-ACTUAL> 4.98
<LOANS-NON> 225
<LOANS-PAST> 316
<LOANS-TROUBLED> 530
<LOANS-PROBLEM> 1,071
<ALLOWANCE-OPEN> 3,921
<CHARGE-OFFS> 847
<RECOVERIES> 135
<ALLOWANCE-CLOSE> 4,022
<ALLOWANCE-DOMESTIC> 4,022
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
