<PAGE> 1
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended June 30, 1999 Commission file number 0-10853
------------- ---------
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
(Exact name of registrant as specified in its charter)
------------------------
Georgia 58-1458268
- --------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
40 NORTH MAIN STREET
P.O. BOX 878
STATESBORO, GEORGIA 30459
--------------------------------
(Address of Principal Executive
Offices, including Zip Code)
912-764-6611
--------------------------------
(Issuer's telephone number, including area code)
NOT APPLICABLE
--------------------------------
(Former name, former address
and former fiscal year, if
changed since last report)
Check whether the issuer: (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports) and (2)
has been subject to such filing requirement for the past 90 days.
Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Common Stock, $1.00 Par Value, 5,592,271 shares as of June 30, 1999
-------------------------------------------------------------------
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------------------------
(thousands of dollars)
<S> <C> <C>
ASSETS
Cash and Due From Banks $ 15,501 $ 21,908
Interest Bearing Deposits in Other Banks 19,000 25,115
Federal Funds Sold 4,130 15,335
Investment Securities:
Available for Sale 47,141 62,427
Held to Maturity (Estimated Fair Value of
$20,277 in 1999 and $21,529 in 1998) 19,814 20,376
Stock in the Federal Home Loan Bank of Atlanta 1,484 1,528
Loans 300,034 287,932
Less: Unearned Interest (59) (48)
Allowance for Loan Losses (4,708) (4,419)
--------- ---------
Loans, Net 295,267 283,465
--------- ---------
Interest Receivable 4,962 5,062
Premises and Equipment, Net 8,887 8,455
Other Real Estate 611 413
Other Assets 2,555 2,201
--------- ---------
TOTAL ASSETS $ 419,352 $ 446,285
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand $ 51,325 $ 65,122
Interest Bearing:
NOW Accounts 64,341 62,963
Money Market Deposit Accounts 28,380 29,612
Savings 19,462 18,098
Time ($100,000 and above) 78,170 92,102
Other Time 101,652 107,788
--------- ---------
Total Deposits 343,330 375,685
Federal Funds Purchased and Repurchase Agreements 1,450 1,400
Other Borrowed Money 16,826 11,763
Interest Payable 3,106 3,648
Other Liabilities 810 1,112
--------- ---------
Total Liabilities 365,522 393,608
--------- ---------
Shareholders' Equity (Note 3):
Common Stock, 5,592,271 shares issued
and outstanding in 1999 and 5,545,523 shares
issued and outstanding in 1998 5,592 5,546
Additional Paid-In Capital 11,392 11,146
Retained Earnings 36,898 35,457
Accumulated Other Comprehensive Income (Loss) (52) 528
--------- ---------
Shareholders' Equity 53,830 52,677
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 419,352 $ 446,285
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 3
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the Three Months Ended
June 30,
1999 1998
-----------------------------
(thousands of dollars)
<S> <C> <C>
INTEREST INCOME
Loans (Including fees) $ 7,305 $ 7,316
Interest Bearing Deposits 182 196
Investments:
U.S. Treasury 77 120
U.S. Government Agencies 575 980
States and Political Subdivisions 348 369
Dividend Income 33 26
Federal Funds Sold 119 93
--------- ---------
Total Interest Income 8,639 9,100
--------- ---------
INTEREST EXPENSE
NOW Accounts 434 673
Money Market Deposits Accounts 196 256
Savings 113 135
Time Deposits ($100,000 and above) 1,144 1,230
Other Time Deposits 1,365 1,598
Other 284 185
--------- ---------
Total Interest Expense 3,536 4,077
--------- ---------
NET INTEREST INCOME 5,103 5,023
Provision for Loan Losses 165 265
--------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 4,938 4,758
--------- ---------
NON-INTEREST INCOME
Service Charges on Deposits 708 655
Fees for Trust Services 32 31
Other 314 319
--------- ---------
Total Non-interest Income 1,054 1,005
--------- ---------
NON-INTEREST EXPENSE
Salaries 1,313 1,225
Other Personnel Expense 446 414
Occupancy Expense, Net 238 248
Equipment Expense 393 390
Other 1,063 1,043
--------- ---------
Total Non-interest Expense 3,453 3,320
--------- ---------
Income Before Income Taxes 2,539 2,443
Provision for Income Taxes 803 704
--------- ---------
NET INCOME 1,736 1,739
--------- ---------
Other Comprehensive Income:
Unrealized holding gains (losses) on
securities Available for Sale arising during
the period, net of tax credits of $200,000 in 1999
and of $10,000 in 1998 (387) (19)
--------- ---------
COMPREHENSIVE INCOME $ 1,349 $ 1,720
========= =========
NET INCOME PER COMMON AND POTENTIAL
COMMON SHARE:
Basic $ 0.31 $ 0.32
========= =========
Diluted $ 0.31 $ 0.32
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the Six Months Ended
June 30,
1999 1998
--------------------------
(thousands of dollars)
<S> <C> <C>
INTEREST INCOME
Loans (Including fees) $ 14,426 $ 14,424
Interest Bearing Deposits 514 420
Investments:
U.S. Treasury 161 338
U.S. Government Agencies 1,251 2,006
States and Political Subdivisions 699 743
Dividend Income 114 96
Federal Funds Sold 248 237
--------- ---------
Total Interest Income 17,413 18,264
--------- ---------
INTEREST EXPENSE
NOW Accounts 912 1,329
Money Market Deposits Accounts 418 504
Savings 235 262
Time Deposits ($100,000 and above) 2,391 2,592
Other Time Deposits 2,828 3,231
Other 534 360
--------- ---------
Total Interest Expense 7,318 8,278
--------- ---------
NET INTEREST INCOME 10,095 9,986
Provision for Loan Losses 376 530
--------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 9,719 9,456
--------- ---------
NON-INTEREST INCOME
Service Charges on Deposits 1,336 1,256
Fees for Trust Services 51 49
Other 598 558
--------- ---------
Total Non-interest Income 1,985 1,863
--------- ---------
NON-INTEREST EXPENSE
Salaries 2,631 2,472
Other Personnel Expense 860 824
Occupancy Expense, Net 471 488
Equipment Expense 758 773
Other 2,361 1,961
--------- ---------
Total Non-interest Expense 7,081 6,518
--------- ---------
Income Before Income Taxes 4,623 4,801
Provision for Income Taxes 1,505 1,375
--------- ---------
NET INCOME 3,118 3,426
--------- ---------
Other Comprehensive Income:
Unrealized holding gains (losses) on
securities Available for Sale arising during
the period, net of a tax credit of $300,000 in 1999
and taxes of $54,000 in 1998 (578) 102
--------- ---------
COMPREHENSIVE INCOME $ 2,540 $ 3,528
========= =========
NET INCOME PER COMMON AND POTENTIAL
COMMON SHARE:
Basic $ 0.56 $ 0.63
========= =========
Diluted $ 0.56 $ 0.62
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 5
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
June 30,
1999 1998
-------------------------
(thousands of dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 3,118 $ 3,426
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Provision for Depreciation 612 612
Provision for Loan Losses 376 530
Loss on Sale of Other Real Estate 12
Gain on Call of Securities (1) (27)
Loss on Sale of Premises and Equipment 1 1
Net Accretion of Premiums and Discounts on Securities (224) (231)
Changes in Assets and Liabilities:
Decrease in Interest Receivable 100 7
(Increase) Decrease in Other Assets (79) 15
Decrease in Interest Payable (542) (591)
Decrease in Other Liabilities (302) (143)
--------- ---------
Net Cash Provided by Operating Activities 3,059 3,611
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Decrease in Interest Bearing Deposits in Other Banks 6,115 4,615
Net Decrease in Federal Funds Sold 11,205 12,355
Available-for-Sale Securities:
Proceeds from Maturity 53,173 46,229
Purchases (38,629) (50,223)
Held-to-Maturity Securities:
Proceeds from Maturity 754 5,747
Purchases (105) (1,427)
Net Redemptions of Federal Home Loan Bank Stock 45 929
Net Increase in Loans (12,416) (9,469)
Purchases of Premises and Equipment (1,049) (674)
Improvements to Other Real Estate (25) (25)
Proceeds from Sale of Other Assets 23 3
Proceeds from Sale of Equipment 5
Proceeds from Sale of Other Real Estate 65 151
--------- ---------
Net Cash Provided by Investing Activities 19,161 8,211
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Deposits (32,355) (22,451)
Increase in Other Borrowed Money 8,270 5,600
Repayment of Note Payable (3,207) (4,315)
Increase in Fed Funds Purchased 50
Purchase and Retirement of Fractional Shares (8) (12)
Proceeds from Exercise of Stock Options 300 340
Dividends Paid (1,677) (1,213)
--------- ---------
Net Cash Used in Financing Activities (28,627) (22,051)
--------- ---------
DECREASE IN CASH AND DUE FROM BANKS (6,407) (10,229)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR 21,908 27,707
--------- ---------
CASH AND DUE FROM BANKS AT END OF PERIOD $ 15,501 $ 17,478
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid (received) during the year for:
Interest $ 7,873 $ 8,869
Income Taxes 1,352 1,557
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Other Real Estate Acquired through Loan Foreclosure 388 256
Loans granted to facilitate the Sale of Other Real Estate 150 42
Change in Net Unrealized Gain (Loss) on
Investment Securities Available for Sale (580) 93
See notes to consolidated financial statements
</TABLE>
<PAGE> 6
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements of First Banking Company of Southeast
Georgia (the "Company") include the financial statements of First Bulloch Bank &
Trust Company, Metter Banking Company, First National Bank of Effingham and
Wayne National Bank, wholly-owned subsidiaries. Intercompany balances and
transactions have been eliminated in consolidation.
The consolidated statements contained in this report are unaudited but
reflect all adjustments, consisting only of normal recurring accruals, which
are, in the opinion of management, necessary to a fair statement of the results
for the interim period reflected. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
applicable rules and regulations of the Securities and Exchange Commission. The
results of operations for the interim period reported herein are not necessarily
indicative of results to be expected for the full year.
The consolidated financial statements included herein should be read in
conjunction with the financial statements and notes thereto, and the Independent
Auditors' Report included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998.
2. ACCOUNTING POLICIES
Reference is made to the accounting policies of the Company described in
the notes to consolidated financial statements contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998. The Company has
followed those policies in preparing this report.
3. COMMON STOCK
The par value of the Company's common stock is $1, and 10,000,000 shares
are authorized. The Banks may pay dividends to the Company in any year up to 50%
of the previous year's net income or $3,332,000 in 1999 without the approval of
the Georgia Department of Banking and Finance.
Effective May 29, 1998, the Company declared a 5-for-4 split of its common
stock effected in the form of a 25% stock dividend. In connection with the
split, $940,617 has been transferred from surplus to common stock. All
references to number of shares and to per share amounts have been retroactively
adjusted to reflect the split.
4. EARNINGS PER SHARE
In February 1997, Statement of Financial Accounting Standards ("SFAS") 128,
"Earnings Per Share" was issued. SFAS 128 establishes standards for computing
and presenting basic and diluted earnings per share information for entities
with publicly held common stock. All per share amounts conform to SFAS 128.
The number of shares used in computing basic and diluted per share amounts
is as follows:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1999 1998
-------------------------
<S> <C> <C>
Weighted average shares outstanding -
Basic Earnings Per Share 5,592,275 5,423,476
Effect of dilutive outstanding stock options 4,336 66,513
-------------------------
Weighted average shares outstanding -
Diluted Earnings Per Share 5,596,611 5,489,989
=========================
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
-------------------------
<S> <C> <C>
Weighted average shares outstanding -
Basic Earnings Per Share 5,592,452 5,421,307
Effect of dilutive outstanding stock options 4,615 66,557
-------------------------
Weighted average shares outstanding -
Diluted Earnings Per Share 5,597,067 5,487,864
=========================
</TABLE>
5. MERGER
Effective April 2, 1999, the Company consummated its merger of Wayne
National Bank ("Wayne Bank") into the Company. The Company exchanged 876,852
shares and approximately $8,200 for all the outstanding common stock of Wayne
Bancorp, Inc. ("WBI"), parent company of Wayne Bank. The merger was accounted
for as a pooling-of-interests. The financial statements of the Company for all
periods presented have been restated to include the accounts and operations of
Wayne Bank and WBI.
The results of operations for the three months and six months ended June
30, 1999 and 1998 include the consolidated WBI results of operations prior to
the consummation date as follows:
Three months ended June 30, 1999 and 1998(in thousands):
<TABLE>
<CAPTION>
Total Revenue Net Income
-------------------- -------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Company $9,679 $ 8,941 $1,733 $1,467
WBI 14 1,164 3 272
------ ------- ------ ------
Combined $9,693 $10,105 $1,736 $1,739
====== ======= ====== ======
</TABLE>
Six months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Total Revenue Net Income
-------------------- -------------------
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Company $18,190 $17,836 $2,849 $2,894
WBI 1,208 2,291 269 532
------- ------- ------ ------
Combined $19,398 $20,127 $3,118 $3,426
======= ======= ====== ======
</TABLE>
A reconciliation of consolidated total revenues, net income, and net
income per share as previously reported with restated amounts for the three
months and six months ended June 30, 1998 is as follows:
Three months ended June 30, 1998:
<TABLE>
<CAPTION>
Net Income
Total Net Per Common
Revenues Income Share
-------- ------ -----------
<S> <C> <C> <C>
Company, as previously
reported $ 8,941 $1,467 $ 0.31
WBI 1,164 272
------- ------
Company, as restated $10,105 $1,739 $ 0.32
======= ======
</TABLE>
Six months ended June 30, 1998:
<TABLE>
<CAPTION>
Net Income
Total Net Per Common
Revenues Income Share
-------- ------ -----------
<S> <C> <C> <C>
Company, as previously
reported $17,836 $2,894 $ 0.62
WBI 2,291 532
------- ------
Company, as restated $20,127 $3,426 $ 0.63
======= ======
</TABLE>
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE
SIX MONTHS ENDED JUNE 30, 1999
This discussion relates to the consolidated financial condition and
results of operations of First Banking Company of Southeast Georgia (the
"Company") and its wholly-owned subsidiaries, First Bulloch Bank & Trust Company
("Bulloch Bank"), Metter Banking Company ("Metter Bank"), First National Bank of
Effingham ("Effingham Bank"), and Wayne National Bank ("Wayne Bank"), (the
"Banks"). Since the Company has no subsidiaries other than the Banks and no
activities other than those of the Banks, the following narrative refers to the
operations of the Banks.
The Company acquired Wayne Bank on April 2, 1999 through the merger of
Wayne Bancorp, Inc. with and into the Company. The Company issued 876,852 shares
of common stock and approximately $8,200 in cash in the merger. The financial
statements appearing herein and the discussion and analysis set forth below
reflect the combined operations of the Company and Wayne Bancorp, Inc. See Note
5 to the Consolidated Financial Statements.
FINANCIAL CONDITION
The Company functions as the sole owner of four commercial banks, and
its financial condition should be examined in terms of trends in sources and
uses of funds. The Company's primary use of funds historically comes from loan
demand. Loans outstanding have increased $12,416,000 or 4.3% since year-end.
Investment securities have decreased $15,892,000 (18.8%), while interest bearing
deposits in other banks and federal funds sold have decreased $6,115,000 (24.3%)
and $11,205,000 (73.1%), respectively, since year-end.
Total assets have decreased $26,933,000 (6.0%) since year-end, while
total funds (Deposits plus Federal Funds Purchased, Repurchase Agreements and
Other Borrowed Money) have decreased $27,242,000 (7.0%). Total deposits have
decreased $32,355,000 (8.6%) since year-end, and Other Borrowed Money has
increased $5,063,000 (38.9%). Demand deposits have decreased $13,797,000
(21.2%), and savings deposits (including NOW accounts and the liquid money
market accounts) have increased $1,510,000 (1.4%). Time deposits over $100,000
have decreased approximately $13,932,000 (15.1%), while other time deposits have
decreased approximately $6,136,000 (5.7%).
The decrease in total deposits is primarily the result of a movement of
large public fund demand and time deposits out of the banks. In demand deposit
public fund activity, approximately $12,000,000 has moved out of the Banks since
year end. This movement is attributable to one public fund account at Bulloch
Bank, which closed during the second quarter of 1999 and carried a balance of
approximately $5,300,000 at year end, and one public fund account at Wayne Bank,
which is a cyclical account that maximizes its balances at year-end and moved
out approximately $6,000,000 during January 1999. In public fund time deposit
activity, approximately $12,352,000 has been redeemed
<PAGE> 9
out of time deposits over $100,000 and moved out of Bulloch Bank. These time
deposits are obtained through competitive bids among other local financial
institutions and are a more expensive source of funds. A strategic decision was
made to reduce the level of public funds in the Company if these deposits could
not be retained at average market rates during the bidding process. Because
public funds are required by state banking law to be secured by the pledging of
investment securities to the various public entities, these securities are
generally purchased to match the maturities or known movements of public funds.
Therefore, the investment portfolio has been a primary source of liquidity for
these withdrawals.
The $6,136,000 decrease in other time deposits is primarily the result
of the movement out of Effingham Bank of some known volatile personal and
commercial accounts. During late summer and early fall of 1998, Effingham Bank
promoted a special CD product to attract and retain deposits as a result of the
local competitive environment. This promotion attracted new personal deposits
from outside its market area that did not renew at maturity.
CAPITAL RESOURCES
The Banks are required to maintain minimum amounts of capital to total
"risk-weighted" assets, as defined by the banking regulators. At June 30, 1999,
the Banks were required to have minimum Tier 1 and Total Risk-Based Capital
ratios of 4% and 8%, respectively, and a leverage ratio of at least 3%. At that
date the Banks' actual ratios were as follows:
<TABLE>
<CAPTION>
Tier 1 Total
Risk-based Risk-based Leverage
Capital Ratio Capital Ratio Ratio
------------- ------------- ---------
<S> <C> <C> <C>
Bulloch Bank 20.4% 21.7% 13.7%
Metter Bank 16.5% 17.7% 11.4%
Effingham Bank 11.2% 12.4% 8.3%
Wayne Bank 17.9% 19.2% 13.4%
</TABLE>
These ratios qualify each Bank for the "well-capitalized"
classification as defined by the banking regulators. The Company's ratio of
shareholders' equity to total assets was 12.8% at June 30, 1999 and 11.8% at
December 31, 1998.
LIQUIDITY
The percentage of loans net of unearned interest to total funds was
82.9% at June 30, 1999 and 74.0% at December 31, 1998. At June 30, 1999 the
Banks had $38,631,000 in cash and due from banks, interest bearing deposits in
other banks and federal funds sold as compared with $62,358,000 at December 31,
1998. The Banks' liquidity policies typically require that the ratio of cash and
certain short-term investments to net withdrawable deposit accounts be at least
20.0%. At June 30, 1999, while Bulloch Bank, Metter Bank, and Wayne Bank
exceeded this ratio,
<PAGE> 10
Effingham Bank reflected a liquidity ratio of less than 10%, primarily as a
result of the movement of over $6,000,000 in time deposits out of that Bank, as
previously discussed. However, the liquidity of the Company and the Banks is
considered adequate to repay deposits and other obligations, meet expected loan
demand and pay dividends.
MARKET RISK
The Company's principal business is the making of loans, funded by
customer deposits and, occasionally, other borrowed funds. Consequently, a
significant portion of the Company's assets and liabilities are monetary in
nature and fluctuations in interest rates will affect the Company's future net
interest income and cash flows. This interest rate risk is the Company's primary
market risk exposure. The Company does not enter into derivative financial
instruments such as futures, forwards, swaps, and options. Also, the Company has
no market risk-sensitive instruments held for trading purposes. The Company's
exposure to market risk is reviewed on a regular basis by its management.
The Company measures interest rate sensitivity as the difference
between amounts of interest-earning assets and interest-bearing liabilities
which either reprice or mature within a given period of time. The difference, or
the interest rate repricing "gap," provides an indication of the extent to which
an institution's interest rate spread will be affected by changes in interest
rates. A gap is considered positive when the amount of interest-rate sensitive
assets exceeds the amount of interest-rate sensitive liabilities and is
considered negative when the amount of interest-rate sensitive liabilities
exceeds the amount of interest-rate sensitive assets. Generally, during a period
of rising interest rates, a negative gap within shorter maturities would
adversely affect net interest income, while a positive gap within shorter
maturities would result in an increase in net interest income. Conversely,
during a period of falling interest rates, a negative gap within shorter
maturities would result in an increase in net interest income while a positive
gap within shorter maturities would have the opposite effect.
The Company has not identified any material change in its market risk
exposure from December 31, 1998 to June 30, 1999. The interest rate environment
in which it operates has not changed materially since December 31, 1998.
Presented below is an interest rate sensitivity analysis of the Company
at June 30, 1999. The analysis indicates that the Company is liability-sensitive
through one year, meaning that a greater amount of liabilities are maturing or
repricing than assets, which is beneficial in a falling rate environment. Beyond
one year, the Company is asset-sensitive, which is beneficial in a rising rate
environment, and beyond five years it is liability-sensitive.
<PAGE> 11
Interest Rate Sensitivity Analysis - June 30, 1999
<TABLE>
<CAPTION>
Term to Repricing or Maturity
----------------------------------------------------------
Over Three Over One Over Five
Less Than Months Through Year Through Years and
Three Months One Year Five Years Insensitive Total
<S> <C> <C> <C> <C> <C>
Interest Earning Assets:
Interest Bearing
Deposits in Other Banks $ 19,000 $ 19,000
Investment Securities 5,558 $ 10,437 $ 28,469 $ 22,491 66,955
Stock in the FHLB Atlanta 1,484 1,484
Federal Funds Sold 4,130 4,130
Loans 120,563 55,741 87,057 36,673 300,034
--------- --------- -------- --------- --------
Total Interest Earning
Assets 149,251 66,178 115,526 60,648 391,603
Non-interest Earning Assets 27,749 27,749
--------- --------- -------- --------- --------
TOTAL ASSETS $ 149,251 $ 66,178 $115,526 $ 88,397 $419,352
========= ========= ======== ========= ========
Interest Bearing Liabilities:
Interest Bearing Deposits $ 161,631 $ 109,699 $ 20,675 $292,005
Other Borrowed Money 50 3,676 1,627 $ 12,923 18,276
--------- --------- -------- --------- --------
Total Interest Bearing
Liabilities 161,681 113,375 22,302 12,923 310,281
Interest Free Deposits 51,325 51,325
Other Interest Free
Liabilities and Equity 57,746 57,746
--------- --------- -------- --------- --------
TOTAL LIABILITIES AND EQUITY $ 161,681 $ 113,375 $ 22,302 $ 121,994 $419,352
========= ========= ======== ========= ========
Net Interest Rate
Sensitivity Gap $ (12,430) $ (47,197) $ 93,224 $ (33,597)
Cumulative Gap $ (12,430) (59,627) 33,597
Net Interest Rate
Sensitivity Gap as a Percent
of Interest Earning Assets (8.33) (71.32) 80.70 (55.40)
Cumulative Gap as a Percent of
Cumulative Interest Earning
Assets (8.33) (27.68) 10.15
</TABLE>
<PAGE> 12
RESULTS OF OPERATIONS
INTEREST INCOME
Total interest income decreased $851,000 (4.7%) in the first six months
of 1999 as compared to the first six months of 1998 and decreased $461,000
(5.1%) in the second quarter of 1999 as compared to the second quarter of 1998.
Interest on loans increased $2,000 in the first six months of 1999 as compared
to the first six months of 1998 and decreased $11,000 in the second quarter of
1999 as compared to the second quarter of 1998. These fluctuations are the
result of a decrease in yield on the loan portfolio from June 30, 1998 to June
30, 1999 from 10.5% to 10.0% offset by an increase of $13,628,000 in the
year-to-date average balance of loans outstanding for these periods. Interest on
investments decreased $958,000 (30.1%) in the first six months of this year as
compared to the first six months of 1998 and decreased $462,000 (30.9%) in the
second quarter of 1999 from the second quarter of 1998 as a result of a
$30,500,000 decrease in the year to date average balance of the investment
portfolio as well as a decrease in yield on the portfolio from 6.3% to 6.1%.
During the first six months of 1999, interest on federal funds sold
increased $11,000 (4.6%) from the first six months of 1998 and increased $26,000
(28.0%) during the second quarter of 1999. Interest on Interest-Bearing Deposits
in Other Banks increased $94,000 (22.4%) during the first six months of 1999
from the first six months of 1998 and decreased $14,000 (7.1%) during the second
quarter of 1999. These short-term investments are the two means of investing any
excess cash from day to day. The total net increase in the combined income of
Federal Funds Sold and Interest-Bearing Deposits in Other Banks is the result of
an increase of $8,400,000 in the combined year-to-date average balance offset by
a decrease in the weighted average yield from 5.59% to 4.78%.
INTEREST EXPENSE
During the first six months of 1999, the total interest expense
decreased $960,000 (11.6%) from the first six months of 1998 and decreased
$541,000 (13.3%) during the second quarter of 1999 as compared to the second
quarter of 1998. Interest on deposits decreased $1,134,000 (14.3%) in the first
six months of 1999 from the first six months of 1998 and decreased $640,000
(16.4%) during the second quarter of 1999. This decrease is attributable to a
$26,900,000 decrease in the average balance of interest bearing deposits as well
as a decrease in the cost of funds from 4.9% in the first six months of 1998 to
4.5% in the first six months of 1999. Interest on Other Borrowed Money increased
$174,000 (48.3%) in the first six months of 1999 from the first six months of
1998 and increased $99,000 (53.5%) in the second quarter of 1999 from the second
quarter of 1998, primarily as a result of a $6,100,000 increase in the average
balance outstanding of Other Borrowed Money offset by a decrease in the average
interest rate from 6.6% in 1998 to 6.3% in 1999.
<PAGE> 13
PROVISIONS FOR LOAN LOSSES
Provisions for loan losses for the first six months of 1999 decreased
$154,000 (29.1%) from the first six months of 1998 and decreased $100,000
(37.7%) in the second quarter of 1999 from the second quarter of 1998. After
considering the credit worthiness of the loan portfolios, it is the opinion of
the management of the Banks that the allowance for loan losses is adequate. At
June 30, 1999 the allowance for loan losses was 1.57% of outstanding loans less
unearned interest, compared to 1.53% at December 31, 1998.
Nonperforming loans were $1,482,000 at June 30, 1999 and $1,205,000 at
December 31, 1998. These loans included those on a nonaccrual status of $634,000
and $325,000, respectively, accruing loans contractually past due at least 90
days of $338,000 and $350,000, respectively, and restructured loans of $510,000
and $530,000, respectively. Net loans charged off totaled $87,000 during the
first six months of 1999 as compared to $311,000 during the first six months of
1998.
NONINTEREST INCOME AND EXPENSE
Noninterest income increased $122,000 (6.5%) in the first six months of
1999 from the first six months of 1998 and increased $49,000 (4.9%) during the
second quarter of 1999 as compared to the second quarter of 1998. These
increases are reflected primarily in increases in service charges on deposits of
$80,000 for the first six months of 1999 as compared to the first six months of
1998 and of $53,000 for the second quarter of 1999 as compared to the second
quarter of 1998. Other fee income also reflected an increase of $40,000 for the
first six months of 1999 and a decrease of $5,000 for the second quarter. The
increases in service charges on deposits is the result of a six month increase
of $60,000 in NSF charges and of $23,000 in checking account service charges
offset by a $3,000 decrease in other deposit account service charges while the
second quarter increase is the result of a $43,000 increase in NSF charges and a
$10,000 increase in checking account service charges. The increase in NSF
charges is the result of a procedural change at Bulloch Bank in assessing and
refunding charges and the resulting increase in the volume of items subject to
NSF charges. The increase in checking account service charges is the result of
an increase in account fees implemented in the latter part of 1998 at Metter
Bank. The $40,000 increase in other fee income for the first six months of 1999
is primarily the result of an $83,000 increase in ATM fees offset by a $43,000
decrease in mortgage loan origination income. The increased ATM fees are the
result of implementing a non-customer transaction fee for ATM usage for
Bulloch Bank and Effingham Bank in late 1998. The decrease in mortgage loan
income for the first six months of 1999 is the result of a decrease in the
volume of refinancing mortgages from the first six months of 1998, which in turn
is the result of higher mortgage rates during 1999 than in the first half of
1998.
Noninterest expense increased $563,000 (8.6%) in the first six
months of 1999 compared to the first six months of 1998 and increased $133,000
(4.0%) in the second quarter of 1999 as compared to the second quarter of 1998.
These increases are the result of an increase in salary and personnel expense of
$195,000 and $120,000 and an increase in Other Expense of $400,000 and $20,000
offset by decreases of $32,000 and $7,000 in occupancy and equipment expense
during
<PAGE> 14
the first six months of 1999 as compared to the first six months of 1998 and
during the second quarter of 1999 as compared to the second quarter of 1998,
respectively. The increase in salary and personnel expense is primarily the
result of the addition in late 1998 of a new senior company executive as well as
overall salary increases. Other factors are an increase of $18,000 for the six
month period in medical insurance premiums and a $20,000 additional expense in
1999 for the adoption of the Company's profit-sharing and retirement benefits
for employees of Wayne Bank. The increase in Other Expense is primarily
attributable to the $333,000 expense incurred during the first quarter relating
to the merger with Wayne Bancorp, Inc. and acquisition of Wayne Bank in Jesup,
Georgia. This acquisition became effective on April 2, 1999. Other larger
increases in this expense include an increase of $41,000 in offices supplies, an
$82,000 increase in expenses relating to data processing and telecommunication
services, and a $19,000 increase in telephone expense offset by a $31,000
decrease in correspondent bank services charges and a $42,000 decrease in charge
card fees. The decrease in occupancy and equipment expense is the result of a
$10,000 decrease in repairs and maintenance and other decreases in depreciation
expense and utilities expense.
YEAR 2000 ISSUES
Year 2000 issues relate to the anticipated failure of computer
systems to accurately process dates falling in the next century as a result of a
common programming convention of representing years with two digits rather than
four digits. Programs that are time sensitive may recognize a date using "00" as
the year 1900 rather than the year 2000. This misrepresentation of the year
could result in an incorrect computation or a computer shutdown.
The Company has completed an evaluation and testing of the
Company's computer information systems and has made replacements and upgrades to
any noncompliant installation. Because the primary hardware and software systems
were already certified by their vendors as Year 2000 compliant, the Company has
not incurred any significant costs to date relating to software modifications or
new installations for the other systems. Most systems are made compliant through
periodic software upgrades provided by the various vendors as part of the
license agreements. The Company expects that the costs of becoming Year 2000
compliant will not be material to its financial position or any year's operating
results and has not incurred any such material costs. The Company estimates that
its total costs of completing any required modifications, upgrades or
replacements of these internal systems will not exceed $50,000 for the year
1999; however, the Company cannot assure that the costs it actually incurs will
not have a material effect on its financial condition or operating results .
The Company has completed a testing phase in which all mission
critical systems, such as heating and air, security and phone systems, as well
as information systems, were tested and documented by March 31, 1999. The
Company's primary systems have been tested by proxy with the software provider,
who has tested in environments with like software and hardware system
configurations as the Company. Banking regulators have approved this type of
testing as a valid means of testing. The Company has received the results of
this testing and the results are available for review. The Company has
<PAGE> 15
also completed compliance testing of all personal computers and terminals in
each bank location to provide assurance that customer service and other business
operations would continue during the Year 2000 transition. These testing
processes did not reveal any problems relating to Year 2000.
The Company has also completed a survey of its vendors, suppliers
and other third parties to determine their Year 2000 readiness and has not
determined any vendors, suppliers or other third parties on which it relies to
be Year 2000 noncompliant and in need of replacement. While the Company expects
that it will be able to resolve any significant Year 2000 problems with its own
systems, the Company cannot guarantee that its vendors, suppliers or others will
resolve any Year 2000 problems with their systems before the occurrence of a
material disruption to their business. If the Company's vendors, suppliers or
others fail to resolve any Year 2000 problems with their systems in a timely
manner, there could be a material adverse effect on the Company's business,
financial condition or operating results.
The Company's loan officers have completed assessments of their
individual credit lines of large loan customers. Most credit lines were deemed
to pose a low risk of loss to the Company as a result of Year 2000
noncompliance. Twenty-two credit lines were identified as medium to high risk
lines. For these riskier credit lines, the loan officers have reviewed and
completed a questionnaire with these loan customers so identified to determine
and monitor efforts toward Year 2000 preparedness. If the Company's large
borrowers do not sufficiently address Year 2000 problems, the Company may
experience an increase in loan defaults. The Company has evaluated the adequacy
of its loan loss reserve and believes that the reserve is presently sufficient
to cover current estimates of losses.
The Company expects to have identified and resolved all Year 2000
problems that could materially adversely effect its business, financial
condition or operating results. However, the Company believes that it is not
possible to determine with complete certainty that all year 2000 problems
affecting it have been identified and corrected. The number of devices that
could be affected and the interactions among these devices are simply too
numerous. In addition, the Company cannot accurately predict how many failures
related to the Year 2000 problem will occur with its suppliers, customers or
other third parties or the severity, duration or financial consequences of such
failures. As a result, the Company expects that it could possibly suffer the
following consequences:
- 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.
<PAGE> 16
The Company has adopted a Year 2000 Business Continuity and
Contingency Plan (the "Year 2000 Contingency Plan"). Should the primary
processing system fail as a result of any natural or other disaster or as a
result of Year 2000 problems, the Company has contracted with its software
provider to process for the Company on systems that are Year 2000 compliant in
another location. Back-up documentation of account and department information
will be stored at two off-site locations. The Year 2000 Contingency Plan also
addresses a plan of action in the event of failure of systems such as
telephones, water and heating and air. The Company has identified local vendors
that can provide services and equipment in case of Year 2000 failure and has
included contact information for these vendors in the Year 2000 Contingency
Plan. The Company has also adopted a Year 2000 Asset/Liability Management and
Liquidity Plan. The purpose of this plan is to document the Company's strategy
for managing large dollar volume withdrawals that have been predicted for the
banking system at the end of 1999. This plan sets forth a strategy for
structuring the balance sheets of the Banks and specifies the outside back-up
sources of funding available in order to meet large dollar volume withdrawals
without disrupting normal business operations of the Company.
The Company has also been subject to regulatory review of its
overall Year 2000 plan and will continue to be monitored closely by its
regulators for its progress.
With testing completed, the Company plans to place heavier emphasis
on customer awareness and education for the remainder of the year. The Company
will continue with brochure displays, bank statement flyers, media
advertisements and civic club presentations relating to Year 2000 preparedness.
Employees will continue to receive training in dealing with customer concerns
and questions, and because of the potential for fraud, those customers
requesting out of the ordinary large dollar volume withdrawals will be counseled
by a senior manager of the respective bank.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Neither the Company nor any of its subsidiaries is a party to, nor is any of
their property the subject of, any material pending legal proceedings, other
than ordinary routine proceedings incidental to the business of banks, nor to
the knowledge of management are any such proceedings contemplated or threatened
against the Registrant or its subsidiaries.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
At the Company's Annual Meeting of Shareholders on April 22, 1999, the
shareholders of the Company elected the following persons as Class II directors
of the Company by the votes indicated.
<TABLE>
<CAPTION>
Broker
Nominee For Against Non-votes Abstentions
<S> <C> <C> <C> <C>
James Eli Hodges 3,312,996 0 0 28,481
C. Arthur Howard 3,312,996 0 0 28,481
Joe P. Johnston 3,312,996 0 0 28,481
Harry S. Mathews 3,313,044 0 0 28,433
Douglas E. Wren 3,313,044 0 0 28,433
</TABLE>
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K:
On April 14, 1999 the Company filed with the Securities and Exchange
Commission a current report on Form 8-K (Commission File No. 0-10853)
reporting that on April 2, 1999 the Company consummated its merger with
Wayne Bancorp, Inc., pursuant to the Agreement and Plan of Merger dated
November 30, 1998. Wayne Bancorp, Inc. was merged with and into the
Company, which was the surviving corporation in the merger, and the
wholly-owned subsidiary of Wayne Bancorp, Inc. became a wholly-owned
subsidiary of the Company. An Amendment to this Form 8-K was filed on
June 15, 1999 providing the financial statements of Wayne Bancorp and
pro-forma financial information.
<PAGE> 18
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly
authorized.
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
DATE: August 11, 1999 BY: /s/ James Eli Hodges
------------------------ --------------------------------------
JAMES ELI HODGES
PRESIDENT
DATE: August 11, 1999 BY: /s/ Dwayne E. Rocker
------------------------ --------------------------------------
DWAYNE E. ROCKER
SECRETARY-TREASURER
(PRINCIPAL FINANCIAL OFFICER)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF FIRST BANKING COMPANY OF SOUTHEAST GEORGIA FOR THE SIX
MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 15,501
<INT-BEARING-DEPOSITS> 19,000
<FED-FUNDS-SOLD> 4,130
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 47,141
<INVESTMENTS-CARRYING> 19,814
<INVESTMENTS-MARKET> 20,277
<LOANS> 299,975
<ALLOWANCE> 4,708
<TOTAL-ASSETS> 419,352
<DEPOSITS> 343,330
<SHORT-TERM> 3,726
<LIABILITIES-OTHER> 3,916
<LONG-TERM> 14,550
0
0
<COMMON> 5,592
<OTHER-SE> 48,290
<TOTAL-LIABILITIES-AND-EQUITY> 419,352
<INTEREST-LOAN> 14,426
<INTEREST-INVEST> 2,225
<INTEREST-OTHER> 762
<INTEREST-TOTAL> 17,413
<INTEREST-DEPOSIT> 6,784
<INTEREST-EXPENSE> 7,318
<INTEREST-INCOME-NET> 10,095
<LOAN-LOSSES> 376
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 7,081
<INCOME-PRETAX> 4,623
<INCOME-PRE-EXTRAORDINARY> 4,623
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,118
<EPS-BASIC> 0.56
<EPS-DILUTED> 0.56
<YIELD-ACTUAL> 5.22
<LOANS-NON> 634
<LOANS-PAST> 338
<LOANS-TROUBLED> 510
<LOANS-PROBLEM> 1,482
<ALLOWANCE-OPEN> 4,419
<CHARGE-OFFS> 201
<RECOVERIES> 114
<ALLOWANCE-CLOSE> 4,708
<ALLOWANCE-DOMESTIC> 4,708
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
