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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 1999
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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
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FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
GEORGIA 58-1458268
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
40 NORTH MAIN STREET, STATESBORO, GEORGIA 30459
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE 912-764-6611
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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
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(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:
$78,112,815 (as of February 29, 2000).
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Common Stock, $1.00 Par Value, 5,592,274 shares outstanding at February 29, 2000
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The information required for Part III will be provided by amendment prior to
April 29, 2000.
Exhibit Index on Page 4 Page 1 of 61 Pages
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FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
PART I
ITEM 1. BUSINESS
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"),
First National Bank of Effingham ("Effingham Bank") and Wayne National Bank
("Wayne 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. On April 2, 1999, Wayne Bancorp, Inc. ("WBI") combined with the
Company, and WBI's subsidiary, Wayne Bank, became a wholly-owned subsidiary of
the Company.
As of December 31, 1999, the Company had consolidated assets of
approximately $426 million, consolidated deposits of approximately $340 million
and consolidated shareholders' equity of approximately $55 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, 1999, 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. Effingham Bank had a headquarters building, two branch offices and three
ATM installations. Wayne Bank has one banking office and one ATM installation.
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, 1999, 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 has an estimated population of 32,800. The Bank
competes for all types of loans, deposits and other financial services with
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two community banks and two branches of a regional bank. As of December 31, 1999
Effingham Bank was the largest of the three community banks in its market area,
based upon total deposits and total assets.
Wayne Bank's primary market area consists of Wayne County, Georgia,
located in southeast Georgia about 100 miles north of Jacksonville, Florida.
Wayne County has a population of approximately 25,000. The Bank competes for all
types of loans, deposits and other financial services with two credit unions,
two branches of community banks based in nearby communities and branches of two
regional banks.
The Company also competes with other financial institutions that are
located in Bulloch, Candler, Effingham and Wayne counties as well as with
commercial banks, savings and loan associations, other financial institutions
and brokerage houses located in Chatham, Evans, Bryan, Screven, Tattnall,
Jenkins, Ware and Glynn 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, 1999,
Bulloch Bank had eighty-nine (89) full-time employees and fourteen (14)
part-time employees; Metter Bank had thirty-seven (37) full-time employees and
three (3) part-time employees; Effingham Bank had twenty-three (23) full-time
employees and eight (8) part-time employees; and Wayne Bank had nineteen(19)
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 Company and the Banks are subject to extensive state and federal
banking regulations that impose restrictions on and provide for general
regulatory oversight of its operations. These laws are generally intended to
protect depositors and not shareholders. The following discussion describes the
material elements of the regulatory framework that applies to the Company.
THE COMPANY
Because the Company owns all of the capital stock of the Banks, it is a
bank holding company under the federal Bank Holding Company Act of 1956. As a
result, the Company is primarily subject to the supervision, examination, and
reporting requirements of the Bank Holding Company Act and the regulations of
the Federal Reserve.
ACQUISITIONS OF BANKS. The Bank Holding Company Act requires every bank
holding company to obtain the Federal Reserve's prior approval before:
- - Acquiring direct or indirect ownership or control of any voting shares
of any bank if, after the acquisition, the bank holding company will
directly or indirectly own or control more than 5% of the bank's voting
shares;
- - Acquiring all or substantially all of the assets of any bank; or
- - Merging or consolidating with any other bank holding company.
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Under the Bank Holding Company Act, an adequately capitalized and
adequately managed bank holding company located in Georgia may purchase a bank
located outside of Georgia. Conversely, an adequately capitalized and adequately
managed bank holding company located outside of Georgia may purchase a bank
located inside Georgia. In each case, however, restrictions may be placed on the
acquisition of a bank which has only been in existence for a limited amount of
time or an acquisition which may result in specified concentrations of deposits.
CHANGE IN BANK CONTROL. Subject to various exceptions, the Bank Holding
Company Act and the Change in Bank Control Act, together with related
regulations, require Federal Reserve approval prior to any person or company
acquiring "control" of a bank holding company. Control is conclusively presumed
to exist if an individual or company acquires 25% or more of any class of voting
securities of the bank holding company. Control is rebuttably presumed to exist
if a person or a company acquires 10% or more, but less than 25%, of any class
of voting securities and either the bank holding company has registered
securities under Section 12 of the Securities Act of 1934, or no other person
owns a greater percentage of that class of voting securities immediately after
the transaction.
PERMITTED ACTIVITIES. Under the Bank Holding Company Act, a bank holding
company which has not qualified or elected to become a financial holding company
is generally prohibited from engaging in or acquiring direct or indirect control
of more than 5% of the voting shares of any company engaged in nonbanking
activities unless prior to the enactment of the Gramm-Leach-Bliley Act the
Federal Reserve found those activities to be so closely related to banking as to
be a proper incident to the business of banking. Activities that the Federal
Reserve has found to be so closely related to banking to be a proper incident to
the business of banking include:
- - factoring accounts receivable,
- - acquiring or servicing loans,
- - leasing personal property,
- - conducting discount securities brokerage activities,
- - performing selected data processing services,
- - acting as agent or broker in selling credit life insurance and other
types of insurance in connection with credit transactions, and
- - performing selected insurance underwriting activities.
Despite prior approval, the Federal Reserve may order a bank holding company or
its subsidiaries to terminate any of these activities or to terminate its
ownership or control of any subsidiary when it has reasonable cause to believe
that the bank holding company's continued ownership, activity or control
constitutes a serious risk to the financial safety, soundness, or stability of
any of its bank subsidiaries.
On November 12, 1999 President Clinton signed the Gramm-Leach-Bliley
Act, which amends the Bank Holding Company Act and greatly expand the activities
in which bank holding companies and affiliates of banks are permitted to engage.
The Gramm-Leach-Bliley Act eliminates many federal and state law barriers to
affiliations among banks and securities firms, insurance companies, and other
financial service providers. The provisions of the Gramm-Leach-Bliley Act
relating to permitted activities of bank holding companies and affiliates of
banks became effective on March 11, 2000.
Generally, if the Company qualifies and elects to become a financial
holding company, it may engage in activities that are financial in nature or
incidental or complementary to a financial activity. Activities that the
Gramm-Leach-Bliley Act expressly lists as financial in nature include insurance
activities, providing financial, investment and advisory services, underwriting
securities and limited merchant banking activities.
To qualify to become a financial holding company, the Banks and any
other depository institution subsidiaries of the Company must be well
capitalized and well managed and must have a Community Reinvestment Act rating
of at least satisfactory. Additionally, the Company must file an election with
the Federal Reserve to become a financial holding company and must provide the
Federal Reserve with 30 days written notice prior to engaging in a permitted
financial activity. Although the Company is eligible to elect to become a
financial holding company, there are currently no plans to make such an
election.
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SUPPORT OF SUBSIDIARY INSTITUTIONS. Under Federal Reserve policy, bank
holding companies are expected to act as a source of financial strength for, and
to commit resources to support, their depository institution subsidiaries. This
support may be required at times when, without this Federal Reserve policy, the
bank holding company might not be inclined to provide it. In addition, any
capital loans by a bank holding company to a bank will be repaid only after its
deposits and other indebtedness are repaid in full. 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.
THE BANKS
The Banks are either commercial banks chartered under the laws of the
State of Georgia or national banks organized under the laws of the United
States. The FDIC and the Georgia Department of Banking and Finance has
supervisory jurisdiction over the state-chartered banks, while the Office of the
Comptroller of the Currency ("OCC") has supervisory jurisdiction over national
banks. Accordingly, these agencies regularly examine the operations of each Bank
and have the authority to approve or disapprove mergers, the establishment of
branches, and similar corporate actions. These regulatory agencies also have the
power to prevent the continuance or development of unsafe or unsound banking
practices or other violations of law. Additionally, each Bank's deposits are
insured by the FDIC to the maximum extent provided by law. The Banks are also
subject to numerous state and federal statutes and regulations that affect their
business, activities and operations, and they are supervised and examined by one
or more state or federal bank regulatory agencies.
PROMPT CORRECTIVE ACTION. The Federal Deposit Insurance Corporation
Improvement Act of 1991 establishes a system of prompt corrective action to
resolve the problems of undercapitalized financial institutions. Under this
system, federal banking regulators have established five capital categories
(well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized) in which all institutions are
placed. The federal banking agencies have also specified by regulation the
relevant capital levels for each of the other categories. At December 31, 1999,
each subsidiary bank qualified for the well-capitalized category.
Federal banking regulators are required to take some mandatory
supervisory actions and are authorized to take other discretionary actions with
respect to institutions in the three undercapitalized categories. The severity
of the action depends upon the capital category in which the institution is
placed. Generally, subject to a narrow exception, the banking regulator must
appoint a receiver or conservator for an institution that is critically
undercapitalized. An institution in any of the undercapitalized categories is
required to submit an acceptable capital restoration plan to its appropriate
federal banking agency. A bank holding company must guarantee that a subsidiary
depository institution meets its capital restoration plan up 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 under an accepted capital restoration plan or with FDIC approval. The
Federal Reserve regulations also establish procedures for downgrading an
institution to a lower capital category based on supervisory factors other than
capital.
FDIC INSURANCE ASSESSMENTS. The FDIC has adopted a risk-based
assessment system for determining an insured depository institutions' insurance
assessment rate. The system takes into account the risks attributable to
different categories and concentrations of assets and liabilities. An
institution is placed into one of three capital categories: (1) well
capitalized; (2) adequately capitalized; and (3) 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. The FDIC also assigns an institution to one of three
supervisory subgroups based on a supervisory evaluation that the institution's
primary federal regulator provides to the FDIC and information that the FDIC
determines to be relevant to the institution's financial condition and the risk
posed to the deposit insurance funds.
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Assessments range from 0 to 27 cents per $100 of deposits, depending on the
institution's capital group and supervisory subgroup. In addition, the FDIC
imposes assessments to help pay off the $780 million in annual interest payments
on the $8 billion Financing Corporation bonds issued in the late 1980s as part
of the government rescue of the thrift industry. This assessment rate is
adjusted quarterly and ranged from 1.16 cents to 1.22 cents per $100 of deposits
in 1999.
The FDIC may terminate its insurance of deposits if it finds 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.
COMMUNITY REINVESTMENT ACT. The Community Reinvestment Act requires the
appropriate federal regulator, in connection with their examinations of
financial institutions within their jurisdiction, to evaluate the record of each
financial institution in meeting the credit needs of its local community,
including low and moderate-income neighborhoods. The appropriate federal
regulator considers these factors in evaluating mergers, acquisitions, and
applications to open a branch or facility. Failure to adequately meet these
criteria could impose additional requirements and limitations on the Banks.
Under the Gramm-Leach-Bliley Act, banks with aggregate assets of not more than
$250 million are subject to a Community Reinvestment Act examination only once
every 60 months if the bank receives an outstanding rating, once every 48 months
if it receives a satisfactory rating and as needed if the rating is less than
satisfactory. Additionally, under the Gramm-Leach-Bliley Act, banks are required
to publicly disclose the terms of various Community Reinvestment Act-related
agreements.
OTHER REGULATIONS. Interest and other charges collected or contracted
for by the Banks are subject to state usury laws and federal laws concerning
interest rates. Each Bank's loan operations are also subject to federal laws
applicable to credit transactions, such as:
- - The federal Truth-In-Lending Act, governing disclosures of credit terms
to consumer borrowers;
- - The Home Mortgage Disclosure Act of 1975, requiring financial
institutions to provide information to enable the public and public
officials to determine whether a financial institution is fulfilling
its obligation to help meet the housing needs of the community it
serves;
- - The Equal Credit Opportunity Act, prohibiting discrimination on the
basis of race, creed or other prohibited factors in extending credit;
- - The Fair Credit Reporting Act of 1978, governing the use and provision
of information to credit reporting agencies;
- - The Fair Debt Collection Act, governing the manner in which consumer
debts may be collected by collection agencies; and
- - The rules and regulations of the various federal agencies charged with
the responsibility of implementing these federal laws.
The deposit operations of each Bank are subject to:
- - The Right to Financial Privacy Act, which imposes a duty to maintain
confidentiality of consumer financial records and prescribes procedures
for complying with administrative subpoenas of financial records; and
- - The Electronic Funds Transfer Act and Regulation E issued by the
Federal Reserve to implement that act, which governs automatic deposits
to and withdrawals from deposit accounts and customers' rights and
liabilities arising from the use of automated teller machines and other
electronic banking services.
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CAPITAL ADEQUACY
The Company and the Banks are required to comply with the capital
adequacy standards established by the Federal Reserve, in the case of the
Company, and the FDIC and Georgia Department of Banking and Finance or the OCC,
in the case of the Banks. The Federal Reserve has established a risk-based and a
leverage measure of capital adequacy for bank holding companies that is
substantially similar to that adopted by the FDIC for banks under its
jurisdiction.
The risk-based capital standards are designed to make regulatory
capital requirements more sensitive to differences in risk profiles 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, such as letters of credit and unfunded loan commitments, are assigned to
broad risk categories, each with appropriate risk 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 of total capital to risk-weighted
assets is 8%. Total capital consists of two components, Tier 1 Capital and Tier
2 Capital. Tier 1 Capital generally consists of common shareholders' equity,
minority interests in the equity accounts of consolidated subsidiaries,
qualifying noncumulative perpetual preferred stock, and a limited amount of
qualifying cumulative perpetual preferred stock, less goodwill and other
specified intangible assets. Tier 1 Capital must equal at least 4% of
risk-weighted assets. Tier 2 Capital generally consists of subordinated debt,
other preferred stock and hybrid capital and a limited amount of loan loss
reserves. The total amount of Tier 2 Capital is limited to 100% of Tier 1
Capital. At December 31, 1999, the Company's consolidated ratio of total capital
to risk-weighted assets was 19.7%, and the consolidated ratio of Tier 1 Capital
to risk-weighted assets was 18.6%.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio of Tier 1 Capital to average assets, less goodwill and other specified
intangible assets, of 3% for bank holding companies that meet certain specified
criteria, including having the highest regulatory rating and implementing the
Federal Reserve's risk-based capital measure for market risk. All other bank
holding companies generally are required to maintain a leverage ratio of at
least 4%. At December 31, 1999, the Company's consolidated leverage ratio was
13.2%. 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
significant reliance on intangible assets. The Federal Reserve considers the
leverage ratio and other indicators of capital strength in evaluating proposals
for expansion or new activities.
The Banks and the Company are also subject to other capital guidelines
issued by their respective supervisory agencies which provide for minimum ratios
of total capital to total assets.
Failure to meet capital guidelines could subject a bank or bank holding
company to a variety of enforcement remedies, including issuance of a capital
directive, the termination of deposit insurance by the FDIC, a prohibition on
accepting brokered deposits, and certain other restrictions on its business. As
described above, substantial additional restrictions can be imposed on
FDIC-insured depository institutions that fail to meet applicable capital
requirements. See "--Prompt Corrective Action."
PAYMENT OF DIVIDENDS
The Company is a legal entity separate and distinct from the Banks. The
Banks pay dividends to the Company, and those dividends constitute the principal
source of the Company's cash flow, including cash flow to pay dividends to its
shareholders. Statutory and regulatory limitations apply to each Bank's payment
of dividends to the Company as well as to the Company's payment of dividends to
its shareholders.
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If, in the opinion of the federal banking regulator, any of the Banks
were engaged in or about to engage in an unsafe or unsound practice, the federal
banking regulator could require, after notice and a hearing, that it cease and
desist from its 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, a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. 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. See "--Prompt Corrective Action" above.
The Georgia Department of Banking and Finance also regulates each
state-chartered bank's dividend payments and must approve dividend payments that
would exceed 50% of such bank's net income for the prior year. The payment of
dividends may also be affected or limited by other factors, such as the
requirement to maintain adequate capital above regulatory guidelines.
At December 31, 1999, the Banks were collectively able to pay
approximately $3,469,000 in dividends to the Company without prior regulatory
approval.
RESTRICTIONS ON TRANSACTIONS WITH AFFILIATES
The Company and the Banks are subject to the provisions of Section 23A
of the Federal Reserve Act. Section 23A places limits on the amount of:
- - loans or extensions of credit to affiliates;
- - investment in affiliates;
- - the purchase of assets from affiliates, except for real and personal
property exempted by the Federal Reserve;
- - loans or extensions of credit to third parties collateralized by the
securities or obligations of affiliates; and
- - any guarantee, acceptance or letter of credit issued on behalf of an
affiliate.
The aggregate of all of the above transactions is limited in amount, as
to any one affiliate, to 10% of a bank's capital and surplus and, as to all
affiliates combined, to 20% of a bank's capital and surplus. In addition to the
limitation on the amount of these transactions, each of the above transactions
must also meet specified collateral requirements. The Company must also comply
with certain provisions designed to avoid the taking of low-quality assets.
The Company and the Banks are also subject to the provisions of Section
23B of the Federal Reserve Act which, among other things, prohibits an
institution from engaging in the above transactions with affiliates unless the
transactions are on terms substantially the same, or at least as favorable to
the institution or its subsidiaries, as those prevailing at the time for
comparable transactions with nonaffiliated companies.
The Banks are also subject to restrictions on extensions of credit to
its executive officers, directors, certain principal shareholders and their
related interests. These extensions of credit (1) must be made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with third parties, and (2) must not
involve more than the normal risk of repayment or present other unfavorable
features.
PRIVACY
The Gramm-Leach-Bliley Act also contains provisions regarding consumer
privacy. These provisions require financial institutions to disclose their
policy for collecting and protecting confidential information. Customers
generally may prevent financial institutions from sharing
<PAGE> 9
personal financial information with nonaffiliated third parties except for third
parties that market the institutions' own products and services. Additionally,
financial institutions generally may not disclose consumer account numbers to
any nonaffiliated third party for use in telemarketing, direct mail marketing or
other marketing through electronic mail to the consumer.
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. The Company cannot predict
whether or in what form any proposed regulation or statute will be adopted or
the extent to which its business may be affected by any new regulation or
statute.
EFFECT OF GOVERNMENTAL MONETARY POLICES
Our earnings are affected by domestic economic conditions and the
monetary and fiscal policies of the United States government and its agencies.
The Federal Reserve Bank's monetary policies have had, and are likely to
continue to have, an important impact on the operating results of commercial
banks through its power to implement national monetary policy in order, among
other things, to curb inflation or combat a recession. The monetary policies of
the Federal Reserve Board have major effects upon the levels of bank loans,
investments and deposits through its open market operating in United States
government securities and through its regulation of the discount rate on
borrowings of member banks and the reserve requirements against member bank
deposits. It is not possible to predict the nature or impact of future changes
in monetary and fiscal policies.
ITEM 2. 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
yearly automatic renewal basis. The Lanier Drive ATM location is leased for a
term of five years until September 2002. The Ogeechee Technical Institute
location is leased for a one year term until November 2000.
Metter Bank's main office is located at 2 S.E. Broad Street, Metter,
Georgia. Metter Bank operates a drive-in facility 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
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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.
Wayne Bank's main office is located at 818 South First Street, Jesup,
Georgia. The Bank commenced business in September 1990 in temporary facilities
and completed constructed of its current office in 1992. One ATM machine is
located on the main office premises. Wayne Bank owns its facility and does not
rent or lease any property.
All properties of the Banks are in good condition and are adequate for
the current operations of the Banks.
ITEM 3. 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company is traded on the Nasdaq Stock Market
("Nasdaq") under the symbol FBCG. At December 31, 1999 First Banking Company had
1,673 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 1999 and 1998, adjusted
for the 25% stock dividend paid in May 1998.
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
<S> <C> <C> <C>
1999
First Quarter $ 23.50 $ 20.00 $0.15
Second Quarter 24.00 19.50 0.15
Third Quarter 30.00 19.00 0.17
Fourth Quarter 26.00 17.63 0.17
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
</TABLE>
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Interest Income $ 35,139 $ 36,131 $ 35,084 $ 33,622 $ 29,905
Interest Expense 14,104 16,067 15,936 15,473 13,446
---------- ---------- ---------- ---------- ----------
Net Interest
Income 21,035 20,064 19,148 18,149 16,459
---------- ---------- ---------- ---------- ----------
Provision for
Loan Losses 646 1,018 1,086 785 859
Net Interest Income
After Provision 20,389 19,046 18,062 17,364 15,600
Noninterest Income 4,165 3,737 3,565 3,108 2,838
Noninterest
Expense 14,277 13,385 12,466 11,703 11,056
---------- ---------- ---------- ---------- ----------
Income Before
Income Taxes 10,277 9,398 9,161 8,769 7,382
---------- ---------- ---------- ---------- ----------
Provision for
Income Taxes 3,339 2,734 2,672 2,767 2,178
---------- ---------- ---------- ---------- ----------
Net Income $ 6,938 $ 6,664 $ 6,489 $ 6,002 $ 5,204
========== ========== ========== ========== ==========
Net Income per common and
potential shares outstanding:
Basic $ 1.24 $ 1.22 $ 1.22 $ 1.14 $ 0.99
========== ========== ========== ========== ==========
Diluted $ 1.24 $ 1.22 $ 1.21 $ 1.12 $ 0.98
========== ========== ========== ========== ==========
Cash Dividends:
Declared/Paid $ 3,579 $ 2,589 $ 2,323 $ 1,699 $ 1,274
Per Share $ 0.64 $ 0.52 $ 0.47 $ 0.38 $ 0.31
Book Value at Year
End-Per Share $ 9.91 $ 9.50 $ 8.77 $ 7.94 $ 7.19
Weighted average common and
potential shares outstanding:
Basic 5,591,858 5,440,917 5,314,934 5,283,984 5,279,267
Diluted 5,597,099 5,471,407 5,380,807 5,343,392 5,329,319
Total Assets $ 426,142 $ 446,245 $ 462,281 $ 427,271 $ 388,017
Other Borrowed
Money $ 23,948 $ 11,763 $ 9,418 $ 10,918 $ 7,324
</TABLE>
The book value per share, cash dividends, and average shares
outstanding 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
acquisitions of Effingham Bank and Wayne Bank.
<PAGE> 12
ITEM 7. 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, First National Bank of Effingham and Wayne National Bank ("the Banks").
Effective April 2, 1999, the Company consummated its merger of the Wayne Bank
into the Company. The Company exchanged 876,855 shares of its common stock and
cash of approximately $8,000 for all the outstanding common stock of Wayne
Bancorp, Inc. ("WBC"), parent company of Wayne 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, 1999 the Company and the
Banks meet all capital adequacy requirements to which they are subject.
As of December 31, 1999, 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.
The Company's and the Banks' actual capital amounts and ratios as of
December 31, 1999 are as follows (dollars in thousands):
<PAGE> 13
<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, 1999:
Total Capital (to Risk-weighted Assets):
Company $59,224 19.7% $23,998 8.0% Not Applicable
Bulloch Bank 31,406 22.4% 11,208 8.0% $14,010 10.0%
Metter Bank 10,357 13.5% 6,140 8.0% 7,676 10.0%
Effingham Bank 5,689 12.6% 3,611 8.0% 4,513 10.0%
Wayne Bank 7,463 19.6% 3,041 8.0% 3,801 10.0%
Tier I Capital (to Risk-weighted Assets):
Company $55,461 18.6% $11,999 4.0% Not Applicable
Bulloch Bank 29,647 21.2% 5,604 4.0% $ 8,406 6.0%
Metter Bank 9,393 12.2% 3,070 4.0% 4,605 6.0%
Effingham Bank 5,124 11.4% 1,805 4.0% 2,708 6.0%
Wayne Bank 6,988 18.4% 1,521 4.0% 2,281 6.0%
Tier I Capital (to Average Assets):
Company $55,461 13.2% $16,867 4.0% Not Applicable
Bulloch Bank 29,647 14.9% 5,989 3.0% $ 9,981 5.0%
Metter Bank 9,393 8.8% 3,205 3.0% 5,342 5.0%
Effingham Bank 5,124 8.3% 2,472 4.0% 3,090 5.0%
Wayne Bank 6,988 13.1% 1,595 3.0% 2,658 5.0%
</TABLE>
LIQUIDITY
The percentage of loans net of unearned income to deposits was 91.4% at
December 31, 1999 and 76.6% at December 31, 1998. At December 31, 1999, the
Banks held $31,895,000 in cash and due from banks, interest bearing deposits and
federal funds sold as compared to $62,358,000 at December 31, 1998.
Operating activities provided cash to the Company of $8,277,000 and $8,798,000
in 1999 and 1998, respectively. Investing activities, which primarily consist of
granting loans to customers and purchasing investment securities, provided cash
of $20,603,000 and $8,067,000 in 1999 and 1998, respectively. The Banks invested
$1,534,000 and $1,737,000 in premises and equipment in 1999 and 1998,
respectively. Financing activities used cash of $26,195,000 and $22,668,000 in
1999 and 1998, respectively. 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 $3,579,000 in 1999 and $2,589,000 in 1998.
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 reflect these splits.
FINANCIAL CONDITION
Total assets decreased $20,103,000 (4.5%) at December 31, 1999 from December
31, 1998 and decreased $16,036,000 (3.5%) at December 31, 1998 from December 31,
1997. The 1999 decline was primarily in interest bearing deposits in other
banks, Federal Funds sold, and investment securities, all of which funded the
deposit runoff of $35,343,000. The 1998 decline was primarily in cash and due
from banks and investment securities, which provided funds for a deposit runoff
of $23,676,000. 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, 1999 and 1998, $49,304,000 and $62,427,000, respectively, of
investment securities were classified as available for sale. A net of tax
unrealized loss of $394,000 and a net of tax unrealized gain of $528,000 at
December 31, 1999 and 1998, respectively, were included in accumulated
comprehensive income related to available for sale securities. There were no
realized losses in 1999 and 1998 from the sale or
<PAGE> 14
call of investment securities. Gross unrealized losses for all investment
securities at December 31, 1999 were $768,000. 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 (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
U.S. Treasury Securities............. $ 3,526 $ 5,624 $ 13,332
U.S. Government Agencies............. 38,261 48,797 62,399
States and Political Subdivisions.... 6,957 7,319 6,197
Other................................ 560 687 777
-------- -------- --------
$ 49,304 $ 62,427 $ 82,705
======== ======== ========
</TABLE>
The following table sets forth the maturities of debt securities
available for sale at December 31, 1999, 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) (dollars in thousands):
<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................ $ 1,752 6.01% $ 1,774 5.45%
U.S. Government Agencies................ 14,870 5.98 16,678 6.07 $2,210 6.25% $4,503 5.96%
States and Political Subdivisions(1).... 416 6.61 2,196 6.67 3,293 5.59 1,052 7.15
------- ---- ------- ---- ------ ---- ------ ----
$17,038 6.00% $20,648 6.08% $5,503 5.86% $5,555 6.18%
======= ==== ======= ==== ====== ==== ====== ====
</TABLE>
The following table sets forth the carrying amounts of investment
securities held to maturity at the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
U.S. Treasury Securities ............ $ 3,701
U.S. Government Agencies ............ $ 70 $ 176 1,264
States and Political Subdivisions ... 20,032 21,353 21,396
-------- -------- --------
$ 20,102 $ 21,529 $ 26,361
======== ======== ========
</TABLE>
The following table sets forth the maturities of investment securities
held to maturity at December 31, 1999, 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) (dollars in thousands):
<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 .............. $ 67 7.81%
States and Political Subdivisions(1)... $2,761 8.02% 4,854 6.20 $ 3,926 6.63% $ 8,274 7.78%
------ ---- ------- ---- ------- ---- ------- ----
$2,761 8.02% $ 4,921 6.22% $ 3,926 6.63% $ 8,274 7.78%
====== ==== ======= ==== ======= ==== ======= ====
</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 1999, 1998, and 1997.
<PAGE> 15
LOANS. Loans net of unearned interest increased $23,567,000 or 8.2% in 1999 as
compared to 1998 and increased $9,901,000 or 3.4% in 1998 as compared to 1997.
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, Financial 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 which are secured by real estate that are made for consumer,
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, Financial, and Agricultural"
and "Installment and Other Consumer".
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.
Agricultural-related loans. Agricultural-related loans comprise
approximately 9.2% of the total loan portfolio at December 31, 1999.
Agricultural-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.
Agricultural-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> 16
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, Wayne 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. The Jesup and Wayne County area is driven primarily by
industry and agriculture, supplemented by retail services. Among the larger
employers is a large paper mill, which has been a long term, stable employer in
the county. Altamaha Technical Institute provides instruction to improve the
skills of the local labor force.
In the manufacturing sector the Company's market area is home to
seventy-plus manufacturers, ranging from meat packing, lumber mills, two paper
mills, 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.
<TABLE>
<CAPTION>
LOAN PORTFOLIO
(DOLLARS IN THOUSANDS)
DECEMBER 31,
--------------------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Commercial and Agricultural ...... $ 64,843 $ 61,312 $ 58,217 $ 53,199 $ 56,938
Real Estate - Construction ....... 15,427 15,538 15,597 19,432 13,704
Real Estate - Other .............. 201,443 180,089 174,155 150,400 134,532
Installment and Other Consumer ... 29,457 30,993 31,041 31,437 27,324
-------- -------- -------- -------- --------
Total ........................ $311,170 $287,932 $279,010 $254,468 $232,498
======== ======== ======== ======== ========
</TABLE>
<PAGE> 17
The maturities of the indicated loans at December 31, 1999 are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
MATURING
--------------------------------------------------
AFTER ONE
WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
--------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and Agricultural.......... $ 37,315 $ 18,700 $ 8,828 $ 64,843
Real Estate - Construction........... 10,264 1,860 3,303 15,427
Real Estate - Other.................. 69,502 86,774 45,167 201,443
Installment and Other Consumer....... 10,005 17,847 1,605 29,457
-------- --------- -------- ---------
Total............................ $127,086 $ 125,181 $ 58,903 $ 311,170
======== ========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
INTEREST SENSITIVITY
(dollars in thousands)
DECEMBER 31, 1999
-------------------------------------
FIXED VARIABLE
RATE RATE TOTAL
-------------------------------------
<S> <C> <C> <C>
Due Within One Year.............................. $ 91,935 $ 35,151 $ 127,086
Due After One But Within
Five Years..................................... 95,665 29,516 125,181
Due After Five Years............................. 32,514 26,389 58,903
-------- -------- ---------
Total........................................ $220,114 $ 91,056 $ 311,170
======== ======== =========
</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 the Company's nonperforming
assets at year-end for the past five years.
<TABLE>
<CAPTION>
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
(dollars in thousands)
DECEMBER 31,
----------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Nonaccrual Loans .............. $ 442 $ 325 $ 475 $ 353 $ 549
Accruing Loans Past Due
at least 90 days ............ 382 350 147 207 368
Restructured Loans ............ 587 530 649 856 751
------ ------ ------ ------ ------
Total Nonperforming Loans ..... 1,411 1,205 1,271 1,416 1,668
Other Real Estate ............. 428 413 369 447 337
------ ------ ------ ------ ------
Total Nonperforming Assets ... $1,839 $1,618 $1,640 $1,863 $2,005
====== ====== ====== ====== ======
</TABLE>
Interest income that would have been recorded on these nonperforming
loans in accordance with their original terms amounted to $93,000, $101,000,
$164,000, $172,000 and $110,000 in 1999, 1998, 1997, 1996 and 1995,
respectively, compared with amounts received of $32,000, $29,000, $96,000,
$52,000 and $54,000 for such years, respectively. At December 31, 1999, all
restructured loans were performing in accordance with their restructured terms,
except two loans with principal balances totaling $84,000, both of which were
over 90 days past due and still accruing.
Nonaccrual loans by loan category in 1999 included, $133,000 in real
estate-other, $166,000 in installment and other consumer loans, $64,000 in
commercial loans, and $79,000 in agricultural loans.
<PAGE> 18
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 decreased $19,214,000 in 1999 and increased
$9,272,000 in 1998. The 1999 decrease in average deposits is the result of
decreases of $4,396,000 in NOW accounts, $1,745,000 in money market accounts,
and $16,100,000 in total time deposits, offset by a $1,291,000 increase in
savings deposits and a $1,736,000 increase in demand deposits. The overall cost
of funds decreased 0.40% from 1998 to 1999. The decrease in total time deposits
is attributable to a $7,269,000 decrease in time deposits over $100,000 and a
$8,831,000 decrease in other time deposits. Factors impacting the decrease in
time deposits over $100,000 are discussed in the paragraph below. The decrease
in other time deposits is the result of the movement of some known volatile
personal and commercial accounts. During 1998 one of the Banks promoted a
special time certificate product to attract and retain deposits as a result of
the local competitive environment. This promotion attracted new personal time
deposits from outside its market area that did not renew at maturity in 1999.
The 1998 growth is primarily the result of a net increase of $2,694,000 in total
money market and savings deposits, $5,105,000 in demand deposits and $6,061,000
in NOW accounts offset by a $4,588,000 decrease in total time deposits. The 1998
decrease in total time deposits is attributable to a public fund entity which
redeemed $5,000,000 at maturity in early 1998 for reinvestment outside the local
market area. The increase in average demand deposits in 1998 is attributable to
another 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 in 1998.
At December 31, 1999 and 1998, time deposits $100,000 and above
comprised 19.8% and 24.5% of total deposits and 15.9% and 20.6% of total assets,
respectively. Peer average of time deposits $100,000 and above to total assets
was 10.6% at December 31, 1998. At December 31, 1999 and 1998, 13.8% and 25.6%,
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. However,
because these deposits are typically more expensive, 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 in the bidding process. Therefore, the
Company experienced a decrease of approximately $14,288,000 in public fund time
deposits over $100,000 from 1998 to 1999.
The following table presents the average amount outstanding and the
average rate paid on deposits by the Company for the years 1999, 1998 and 1997
(dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1999 1998 1997
-------------------- ---------------------- ----------------------
AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
-------- ---- -------- ---- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Deposits:
Demand ...................... $ 53,399 0.00% $ 51,663 0.00% $ 46,558 0.00%
NOW ......................... 64,288 2.84 68,684 3.21 62,623 3.14
Money Market ................ 28,138 2.94 29,883 3.37 28,589 3.23
Savings ..................... 19,404 2.39 18,113 2.98 16,713 3.00
Time ($100,000 and above) ... 78,192 5.62 85,461 6.04 88,744 6.01
Other Time .................. 105,106 5.19 113,937 5.61 115,242 5.62
-------- ---- -------- ---- -------- ----
Total ..................... $348,527 3.72% $367,741 4.16% $358,469 4.24%
======== ==== ======== ==== ======== ====
</TABLE>
As of December 31, 1999, time deposits of $100,000 or more totaled
$67,540,000. The maturities of all time deposits over $100,000 are as follows
(dollars in thousands):
<PAGE> 19
<TABLE>
<S> <C>
Three months or less......................... $ 23,991
Over three months through six months......... 15,475
Over six months through twelve months........ 20,572
Over twelve months........................... 7,502
--------
Total...................................... $ 67,540
========
</TABLE>
OTHER BORROWED MONEY. Other borrowed money increased $12,185,000 from December
31, 1998 to December 31, 1999 and increased $2,344,000 from December 31, 1997 to
December 31, 1998. Funds may be borrowed from the Federal Home Loan Bank of
Atlanta on a short-term basis for liquidity purposes, and they may be
strategically borrowed long-term as a means of providing funding for long-term
credit products to the Company's loan customers. In these instances, maturities
and principal repayments are structured to generally match those of the loans
funded by these borrowings. At December 31, 1999 and 1998, the Company also had
short-term borrowings outstanding of $1,650,000 and $1,400,000, respectively, 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, 1999, 1998 and 1997.
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. Currently, the prime rate is the
Company's primary interest rate risk. 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 engages in a comprehensive asset and liability management
program that attempts to reduce the risk of significant decreases in net
interest income caused by interest rate changes without unduly penalizing
current earnings. As part of this strategy, the Company actively manages the
amounts and maturities of its assets and liabilities.
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 all 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 does not
provide a complete 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."
<PAGE> 20
INTEREST RATE SENSITIVITY ANALYSIS
December 31, 1999 (dollars in thousands)
<TABLE>
<CAPTION>
TERM TO MATURITY
---------------------------------------------------------------- WEIGHTED
YEARS 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 $ 5,759 $ 5,759 $ 5,759 4.70%
Federal Funds Sold 1,547 1,547 1,547 4.50
Investment Securities 19,799 $ 6,819 $ 7,590 $ 6,818 $ 4,342 $ 23,818 69,186 69,406 5.70
Stock of FHLB of Atlanta 1,563 1,563 1,563
Loans 127,086 48,496 45,205 15,965 15,515 58,903 311,170 303,518 9.40
--------- -------- -------- -------- -------- --------- --------- ---------
Total Interest
Earning Assets $ 154,191 $ 55,315 $ 52,795 $ 22,783 $ 19,857 $ 84,284 $ 389,225 $ 381,793
Noninterest Earning
Assets 36,917 36,917 36,957
--------- -------- -------- -------- -------- --------- --------- ---------
Total Assets $ 154,191 $ 55,315 $ 52,795 $ 22,783 $ 19,857 $ 121,201 $ 426,142 $ 418,750
========= ======== ======== ======== ======== ========= ========= =========
Interest Bearing Liabilities:
Interest Bearing Deposits $ 260,029 $ 17,961 $ 3,965 $ 1,179 $ 1,195 $ 284,329 $ 285,908 4.21
Other Borrowed Money and
Repurchase Agreements 10,589 30 1,483 629 532 $ 12,335 25,598 25,482 6.06
--------- -------- -------- -------- -------- --------- --------- ---------
Total Interest Bearing
Liabilities 270,618 17,991 5,448 1,808 1,727 12,335 309,927 311,390
Interest Free Deposits 56,012 56,012 56,012
Other Interest Free
Liabilities and Equity 60,203 60,203 60,203
--------- -------- -------- -------- -------- --------- --------- ---------
Total Liabilities & Equity $ 270,618 $ 17,991 $ 5,448 $ 1,808 $ 1,727 $ 128,550 $ 426,142 $ 427,605
========= ======== ======== ======== ======== ========= ========= =========
Net Interest Rate
Sensitivity Gap $(116,427) $ 37,324 $ 47,347 20,975 $ 18,130 $ (7,309)
Cumulative Gap $(116,427) $(79,103) $(31,756) (10,781) $ 7,349
Net Interest Rate
Sensitivity Gap as a
Percent of Interest
Earning Assets (75.5) 67.5 89.7 92.1 91.3 (8.7)
Cumulative Gap as a Percent
of Cumulative Interest
Earning Assets (75.5) (37.8) (12.1) (3.8) 2.4
</TABLE>
The cumulative gap as a percent of cumulative interest earning assets was
(42.4%), (16.6%), (1.6%), 3.8% and 7.9% for year one, two, three, four and
five, respectively, as of December 31, 1998. The cumulative gap as of December
31, 1998 indicated that rate sensitive liabilities would also mature faster
than rate sensitive assets.
<PAGE> 21
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, 1999, 1998 and 1997.
AVERAGE BALANCE SHEETS, INCOME/EXPENSE AND AVERAGE
YIELDS EARNED AND RATES PAID
(DOLLARS IN THOUSANDS)
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
1999 1998 1997
--------------------------------------------------------------------------------------------------
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 $ 18,989 $ 954 5.02% $ 18,567 $ 1,001 5.39% $ 12,048 $ 680 5.64%
Investment Securities:
Taxable 47,481 2,833 5.97 69,327 4,086 5.89 78,452 4,696 5.99
Tax Exempt(1) 26,455 1,369 7.30 27,057 1,430 7.48 24,700 1,335 7.66
Federal Funds Sold 6,799 332 4.88 8,213 435 5.30 6,833 401 5.87
Loans (Less Unearned):
Taxable (2) 293,711 29,348 9.99 278,780 28,833 10.34 263,920 27,650 10.48
Tax Exempt(1) 4,700 303 9.24 4,942 346 10.08 4,829 322 9.56
-------- ------- ---- -------- ------- ----- ------- ------- -----
Interest Earning
Assets(1) 398,135 35,139 9.00 406,886 36,131 9.06 390,782 35,084 9.16
Non-Interest Earning
Assets:
Cash and Non-interest bearing
Deposits 15,779 15,932 15,413
Interest Receivable 4,854 5,141 5,218
Premises and Equipment,
Net 8,801 8,168 8,212
Other Real Estate 489 436 630
Other Assets 2,489 2,230 2,320
Less: Allowance for
Loan Losses (4,706) (4,423) (4,290)
--------- --------- ---------
Total $ 425,841 $ 434,370 $ 418,285
========= ========= =========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Interest Bearing Liabilities:
Deposits:
NOW $ 64,288 $ 1,828 2.84% $ 68,684 $ 2,202 3.21% $ 62,623 $ 1,965 3.14%
Money Market Deposit
Accounts 28,138 828 2.94 29,883 1,008 3.37 28,589 924 3.23
Savings 19,404 464 2.39 18,113 539 2.98 16,713 501 3.00
Time:
Certificates of Deposits
over $100,000 78,192 4,398 5.62 85,461 5,158 6.04 88,744 5,335 6.01
Other Time 105,106 5,458 5.19 113,937 6,389 5.61 115,242 6,473 5.62
Other Borrowed Money and
Repurchase Agreements 18,169 1,128 6.21 11,743 771 6.57 10,654 738 6.93
-------- ------- ---- -------- ------- ----- ------- ------- -----
Total Interest Bearing
Liabilities 313,297 14,104 4.50 327,821 16,067 4.90 322,565 15,936 4.94
------- ------- -------
Non-Interest Bearing
Liabilities:
Demand Deposits 53,399 51,663 46,558
Interest Payables 3,339 3,615 3,420
Other Liabilities 1,363 1,499 1,262
Shareholders' Equity 54,443 49,772 44,480
--------- --------- ---------
Total $ 425,841 $ 434,370 $ 418,285
========= ========= =========
Net Interest Earnings $ 21,035 $20,064 $19,148
========= ======= =======
Net Yield on Interest
Earning Assets (1) 5.46% 5.11% 5.08%
==== ==== ====
</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 $1,178,000 in 1999,
$1,039,000 in 1998 and $995,000 in 1997. No separate treatment has been
made for non-accrual loans.
<PAGE> 22
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. (Dollars in thousands)
<TABLE>
<CAPTION>
1999 COMPARED TO 1998 1998 COMPARED TO 1997
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 $ 23 $ (70) $ (47) $ 350 $ (29) $ 321
Loans:
Taxable 1,399 (884) 515 1,551 (368) 1,183
Tax-Exempt (16) (27) (43) 8 16 24
Investments:
Taxable (1,309) 56 (1,253) (534) (77) (611)
Tax-Exempt (31) (30) (61) 124 (28) 96
Federal Funds Sold (71) (32) (103) 65 (31) 34
------- ------- ------- ------- ----- --------
Total Interest Income (5) (987) (992) 1,564 (517) 1,047
------- ------- ------- ------- ----- --------
Interest Expense:
NOW (134) (240) (374) 193 44 237
Savings 42 (117) (75) 41 (3) 38
Money Market Deposit Accounts (57) (123) (180) 43 41 84
Certificate of Deposits
Over $100,000 (418) (342) (760) (204) 27 (177)
Other Time (474) (457) (931) (73) (11) (84)
Other Borrowed Money 397 (40) 357 67 (34) 33
------- ------- ------- ------- ----- --------
Total Interest Expense (644) (1,319) (1,963) 67 64 131
------- ------- ------- ------- ----- --------
Net Interest Earnings $ 639 $ 332 $ 971 $ 1,497 $(581) $ 916
======= ======= ======= ======= ===== ========
</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 decreased $992,000 (2.8%) in 1999 from 1998 and
increased $1,047,000 (3.0%) in 1998 from 1997. Interest on loans increased
$472,000 in 1999 from 1998 and increased $1,207,000 in 1998 from 1997. The
increase in 1999 is the result of an increase in average loans outstanding of
$14,689,000 offset by a decrease in the tax equivalent yield on the loan
portfolio from 10.3% in 1998 to 10.0% in 1999. The increase in 1998 is
primarily the result of an increase in average loans outstanding of $14,973,000
offset by a decrease in the tax equivalent yield on the loan portfolio from
10.46% in 1997 to 10.34% in 1998. The loan growth in 1999 and 1998 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 $1,314,000 (23.8%) in 1999 from 1998 and
decreased $515,000 (8.5%) in 1998 from 1997. The decrease in 1999 is the result
of a decrease in the average investment portfolio of $22,448,000 offset by an
increase in the tax equivalent yield from 6.3% in 1998 to 6.4% in 1999. The
decrease in 1998 is the result of a decrease in the average investment
portfolio of $6,768,000 offset by a nominal increase in tax equivalent yield of
0.05% from 1997 to 1998.
During 1999, interest on federal funds sold decreased $103,000 (23.7%) from
1998 and increased $34,000 (8.5%) in 1998 from 1997, while interest on interest
bearing deposits decreased $47,000 (4.7%) in 1999 from 1998 and increased
$321,000 (47.2%) in 1998 from 1997. The decrease of $150,000 in total interest
on interest bearing deposits and federal funds sold in 1999 is the result of a
decrease in the combined average balance of $992,000 from 1998 to 1999 as well
as a decrease in the weighted average yield on those investments from 5.4% in
1998 to 5.0% in 1999. The increases in income from federal funds sold and from
interest bearing deposits in other banks during 1998 is primarily the result of
an overall increase in total average funds of $7,899,000 available for
short-term investment offset by lower rates paid on these short-term
investments from 5.72% in 1997 to 5.36% in 1998.
<PAGE> 23
INTEREST EXPENSE
During 1999 interest on deposits decreased $2,320,000 (15.2%) from 1998 and
increased $98,000 (0.6%) in 1998 from 1997. The 1999 decrease is the result of
an decrease in average interest bearing deposits of $20,950,000 as well as a
decrease in the average rate paid on deposits from 4.84% in 1998 to 4.40% in
1999. The 1998 increase is the result of an increase of $4,167,000 in average
interest bearing deposits offset by a decrease in the average rate paid on
deposits from 4.87% in 1997 to 4.84% in 1998. The increase in all other
interest paid is the result of increases in the average balance outstanding of
Federal Home Loan Bank advances obtained by the banks.
NET INTEREST MARGIN
The interest margin of the Company, the spread between interest income and
interest expense, was 5.46% in 1999 and 5.11% in 1998. 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 $372,000 in 1999 from 1998 and decreased
$68,000 in 1998 from 1997. 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, 1999 and 1998, the allowance for loan losses was 1.56% and 1.53%,
respectively, of outstanding loans net of unearned interest. Total
nonperforming loans were $1,411,000 at December 31, 1999 and $1,205,000 at
December 31, 1998. The allowance for loan losses was 3.4 and 3.7 times total
nonperforming loans at December 31, 1999 and 1998, respectively. Net
charge-offs amounted to $211,000 in 1999 as compared to $793,000 in 1998. The
amount of the allowance for loan losses is determined by management after
considering factors such as classified and past-due loans, loan portfolio
growth, the risk characteristics of the various categories of loans, current
economic conditions and other pertinent factors. Management believes such
allowance is adequate to absorb future losses on loans outstanding at December
31, 1999.
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 (dollars in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Average Amount of Loans $ 298,411 $ 283,722 $ 268,749 $ 242,490 $ 217,464
========= ========= ========= ========= =========
Analysis of the Allowance for Loan Losses:
Balance at Beginning of Period $ 4,419 $ 4,194 $ 4,239 $ 4,054 $ 3,615
--------- --------- --------- --------- ---------
Loans Charged-off:
Commercial and Agricultural 65 556 869 255 222
Real Estate - Construction 22 20
Real Estate - Other 3 6 175 7 10
Installment and Other Consumer 403 408 320 485 272
--------- --------- --------- --------- ---------
Total Loans Charged-off 493 990 1,364 747 504
--------- --------- --------- --------- ---------
Recoveries on Loans Previously Charged-off:
Commercial and Agriculture 84 38 64 55 13
Real Estate - Other 8 28 9 3 16
Installment and Other Consumer 190 131 160 89 55
--------- --------- --------- --------- ---------
Total Recoveries 282 197 233 147 84
--------- --------- --------- --------- ---------
Net Loans Charged-off 211 793 1,131 600
420
Additions to Allowance Charged to Expense 646 1,018 1,086 785 859
--------- --------- --------- --------- ---------
Balance at End of Period $ 4,854 $ 4,419 $ 4,194 $ 4,239 $ 4,054
========= ========= ========= ========= =========
Ratio of Net Charge-offs during the period
to Average Loans Outstanding 0.07% 0.28% 0.42% 0.25% 0.19%
========= ========= ========= ========= =========
</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
<PAGE> 24
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 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 management's periodic
review of the collectibility of loans in light of reviews of individual loans,
recent historical loss experience, the loan portfolio growth, the estimated
value of any underlying collateral, current economic conditions, the risk
characteristics of the various categories of loans and other pertinent factors.
Loans deemed uncollectible are charged to the allowance. Provisions for loan
losses and recoveries on loans previously charged-off are added to the
allowance.
From December 31, 1998 to December 31, 1999, the allocation of the allowance
increased by approximately $2,300,000 or 94.3%. Of this total increase,
historical losses accounted for an increase of approximately $142,000 while
adversely graded loans accounted for a $198,000 increase and the subjective
component accounted for a $1,981,000 increase. The subjective component was
increased to reflect economic concerns relating to farming and agribusiness and
to unsecured consumer debt. While no specific loan problems have been
identified, the 1999 drought severely hampered farm production, and that sector
of the local economy suffered. Also, while overall local economic conditions
remain good, losses from unsecured consumer debt continue to be the main source
of the Company's charge-offs. While the Company did experience an increase in
the allocation, the amount of the provision in 1999 decreased from that in
1998. From December 31, 1997 to December 31, 1998, the allocation of the
allowance increased by approximately $1,017,000. Of this total increase,
$821,000 was related to the new allocation for potential Year 2000 losses while
adversely graded loans accounted for an increase of $115,000 and historical
losses accounted for an increase of approximately $12,000. While the Company
did experience an increase in the allocation, the amount of the provision in
1998 decreased from that of 1997.
The approximate anticipated amount of charge-offs by category during 2000 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>
NONINTEREST INCOME AND EXPENSE
Non-interest income increased $428,000 in 1999 from 1998 and increased
$172,000 in 1998 from 1997. The increase in 1999 non-interest income is the
result of increases in service charges on deposit accounts of $264,000, in
trust services of $59,000 and in other non-interest income of $105,000. The
increase in service charges on deposits is the result of a $233,000 increase in
NSF fees and a $31,000 increase in account services charges. The increase in
NSF fees is the result of a change in the method of charging NSF fees
implemented at the Bulloch Bank during 1999, while the increase in account
service charges reflects the full year effect of increases in account service
fees implemented in the late second quarter and early third quarter of 1998.
The $59,000 increase in trust services are directly the result of a large
estate administered during 1999. The increase in Other Non-interest Income is
primarily the result of a $147,000 increase in ATM fees, a $29,000 increase in
credit life and A & H insurance commissions, a $16,000 increase in debit card
commissions and a $6,000 increase in safe deposit box rent all offset by a
$103,000 decrease 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). The increase in non-interest income in 1998 is the result of
increases in service charges on deposit accounts of $69,000 and in Other
Non-interest Income of $206,000 offset by a $103,000 decrease in Trust Service
Fees. The 1998 increase in service charges on deposit accounts is primarily the
result of a $57,000 increase in account service charges. Deposit account
service fees were increased during late second quarter and early third of 1998.
The increase in Other Service Charges is primarily the result of an increase of
$245,000 in income from mortgage loans, of a $58,000 increase in commissions on
mutual funds, annuities and life insurance, of a $33,000
<PAGE> 25
increase in ATM fees and a $15,000 increase in debit card commissions, all
offset by the gain of $111,000 recognized in 1997 from the sale of a pool of
SBA guaranteed loans and by a $36,000 difference in the gains and losses
recorded on the sale of Available for Sale securities. The $103,000 decrease in
trust fees is the result of outsourcing trust administration activities and
sharing fees with that party.
Non-interest expense increased $892,000 in 1999 from 1998 and $919,000 in
1998 from 1997. The increases in non-interest expense resulted from an increase
in total salary and personnel expense of $527,000 in 1999 and $321,000 in 1998,
an increase in total occupancy and equipment expense of $151,000 in 1999 and
$159,000 in 1998, and an increase in Other Expense of $214,000 in 1999 and
$439,000 in 1998. The increase in salary and employee expense in 1999 is
primarily the result of an increase of $126,000 in salaries and executive
bonuses as well as increases of $51,000 in medical insurance premiums and of
$173,000 in retirement benefit plan expense. Most of the increase in retirement
benefit plan expense relates to the adoption of the benefit plans for employees
of the Wayne Bank. The 1998 increase in salary and personnel expense is
primarily the result of increases of $313,000 in salaries and executive bonuses
as well as a $33,000 increase in health insurance premiums offset by a $10,000
decrease in retirement benefit plan expense. The increase in occupancy and
equipment expense in 1999 is primarily the result of an increase of $155,000 in
depreciation expense relating to capital projects completed in late 1998 and
early 1999. The 1998 increase in occupancy and equipment expense is primarily
the result of a $50,000 increase in depreciation expense, a $71,000 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
increase in Other Expense for 1999 is the result of an increases of $348,000 in
outside services (which includes legal, accounting and other professional
services), a $112,000 increase in computer services, a $24,000 increase in
director fees all offset by a $18,000 decrease in offices supplies, a $38,000
decrease in postage, a $39,000 decrease in service charges from correspondent
banks and a $178,000 decrease in all other expense. The increase in outside
services is primarily attributable to $330,000 total merger and acquisition
expense incurred in the Wayne Bank acquisition. The increase in computer
expense is related primarily to increases in charge card processing fees and in
data transmission charges, while the increase in director fees is the result of
adding new directors to the Bulloch Bank and aligning the fees of the directors
of the Wayne Bank with those paid to directors of the other subsidiary banks.
The decrease in office supplies and postage is attributable to efficiencies
recognized by the check imaging and processing system installed in late 1998.
The decrease in Other Expense is related to several factors, the largest being
a $46,000 decrease in charge card fees. The increase in Other Expense in 1998
is the result of an increases of approximately $85,000 in outside services, of
$77,000 in computer expense, of $47,000 in director fees, of $46,000 in office
supplies and of $187,000 in all other expense, all offset by a $28,000 decrease
in FDIC, FICO and OCC assessments.
INCOME TAXES
Increases in the provision for income taxes of $605,000 in 1998 and $62,000
in 1998 resulted from changes in taxable income. The effective tax rate for
1999, 1998 and 1997 was approximately 32%, 29%, and 29%, respectively. The
effective tax rate is lower than the statutory rate of 34% because of the
Banks' investments in tax-exempt securities and loans.
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,
-----------------------------------------
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Percentage of Net Income to:
Average Total Assets............. 1.63% 1.53% 1.55%
Average Shareholders' Equity..... 12.74% 13.39% 14.59%
Percentage of Dividends Declared
per Common Share to Net Income
per Common Share................. 51.61% 42.62% 38.52%
Percentage of Average Shareholders'
Equity to Average Total Assets... 12.78% 11.46% 10.63%
</TABLE>
<PAGE> 26
NEW ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. The statement requires the Company to recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. In July 1999, the FASB issued SFAS No. 137, "Accounting for
Derivative Financial Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133" which changed the effective date of
SFAS No. 133 to fiscal years beginning after June 15, 2000. The Company has not
finished evaluating the impact of the adoption of SFAS No. 133 and is therefore
unable to disclose the effect, if any, that adoption of SFAS No. 133 will have
on its financial statements.
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 300 basis points and no changes in the
composition of the Company's balance sheet.
NET INTEREST INCOME SENSITIVITY
(In thousands)
<TABLE>
<CAPTION>
Percent Increase (Decrease) in
Interest Income/Expense Given
Principal/Notional Immediate and Sustained Parallel
Amounts of Earning Interest Rate Shifts
Assets/Interest --------------------------------
Liabilities at Down 300 Up 300
December 31, 1999 Basis Points Basis Points
----------------- ------------ ------------
<S> <C> <C> <C>
Assets repricing or
maturing:
In one year or less $206,204
Over one year 183,021
Total $389,225 -5.66% 5.67%
Liabilities repricing or
maturing:
In one year or less $269,211
Over one year 40,716
Total $309,927 -10.93% 11.17%
Net Interest Sensitivity -2.43% 2.29%
</TABLE>
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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, 1999 and 1998 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, 1999. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. The
consolidated financial statements give retroactive effect to the merger of the
Company and Wayne Bancorp, Inc. ("Wayne"), which has been accounted for as a
pooling-of-interests as described in Note 3 to the consolidated financial
statements. We did not audit the balance sheet of Wayne as of December 31,1998,
or the related statements of income, stockholders' equity and cash flows of
Wayne for the years ended December 31, 1998 and 1997, which statements reflect
total assets of $55,292,022 as of December 31, 1998 and total revenues of
$4,665,725 and $4,251,000 for the years ended December 31, 1998 and 1997,
respectively. Those statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to the amounts
included for Wayne for 1998 and 1997, is based solely on the report of such
other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 financial statement presentation. We believe that our
audits and the report of the other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 31,
1999 and 1998 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
January 21, 2000
<PAGE> 28
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
ASSETS
Cash and Due from Banks (Note 16) $ 24,589 $ 21,904
Interest Bearing Deposits in Other Banks 5,759 25,119
Federal Funds Sold 1,547 15,335
Investment Securities:
Available for Sale, at Fair Value (Amortized
Cost of $49,898 in 1999 and $61,627 in 1998)
(Note 4) 49,304 62,427
Held to Maturity, at Cost (Fair Value of
$20,102 in 1999 and $21,529 in 1998)
(Note 5) 19,882 20,376
Stock of Federal Home Loan Bank, at Cost 1,563 1,528
Loans (Notes 6 and 13) 311,170 287,932
Less: Unearned Interest Income (40) (48)
Allowance for Loan Losses (Note 6) (4,854) (4,419)
--------- ---------
Loans - Net 306,276 283,465
--------- ---------
Interest Receivable 5,069 5,062
Premises and Equipment, Net (Note 7) 8,641 8,455
Other Real Estate 428 413
Other Assets 3,084 2,161
--------- ---------
TOTAL ASSETS $ 426,142 $ 446,245
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits (Note 14):
Demand $ 56,012 $ 65,122
Interest Bearing:
NOW Accounts 67,742 62,963
Money Market Deposit Accounts 27,315 29,612
Savings 18,569 18,070
Time Certificates ($100 and above) 67,540 92,102
Other Time 103,163 107,815
--------- ---------
Total Deposits 340,341 375,684
Repurchase Agreements (Note 14) 1,650 1,400
Other Borrowed Money (Note 14) 23,948 11,763
Interest Payable 3,194 3,648
Other Liabilities 1,603 1,073
--------- ---------
Total Liabilities 370,736 393,568
--------- ---------
Commitments and Contingencies (Note 6)
Shareholders' Equity (Notes 10 and 11):
Common Stock, $1.00 Par Value, 10,000,000
Shares Authorized, 5,592,274 Shares Issued and
Outstanding at December 31, 1999 and
5,545,523 Shares Issued and Outstanding at
December 31, 1998 5,592 5,546
Additional Paid-in Capital 11,392 11,146
Retained Earnings 38,816 35,457
Accumulated Other Comprehensive Income (Loss),
Net of Tax Benefit of $200 in 1999 and
Taxes of $272 in 1998 (394) 528
--------- ---------
Total Shareholders' Equity 55,406 52,677
--------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 426,142 $ 446,245
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 29
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
INTEREST INCOME
Loans (Including Fees) $ 29,651 $ 29,179 $ 27,972
Interest Bearing Deposits 954 1,001 680
Investment Securities:
U.S. Treasury 275 572 1,344
U.S. Government Agencies 2,342 3,356 3,116
States and Political Subdivisions 1,397 1,429 1,367
Dividend Income 188 159 204
Federal Funds Sold 332 435 401
---------- --------- ---------
Total Interest Income 35,139 36,131 35,084
---------- --------- ---------
INTEREST EXPENSE
NOW Accounts 1,828 2,202 1,965
Money Market Deposit Accounts 828 1,008 924
Savings 464 539 501
Time Certificates($100 and above) 4,398 5,158 5,335
Other Time 5,458 6,389 6,473
Other 1,128 771 738
---------- --------- ---------
Total Interest Expense 14,104 16,067 15,936
---------- --------- ---------
NET INTEREST INCOME 21,035 20,064 19,148
PROVISION FOR LOAN LOSSES (NOTE 6) 646 1,018 1,086
---------- --------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 20,389 19,046 18,062
---------- --------- ---------
NONINTEREST INCOME
Service Charges on Deposit Accounts 2,894 2,630 2,561
Fees for Trust Services 165 106 209
Other 1,106 1,001 795
---------- --------- ---------
Total Noninterest Income 4,165 3,737 3,565
---------- --------- ---------
NONINTEREST EXPENSE
Salaries 5,339 5,054 4,757
Other Personnel Expense 1,866 1,624 1,600
Occupancy Expense, Net 995 1,012 972
Equipment Expense 1,721 1,553 1,434
Other (Note 15) 4,356 4,142 3,703
---------- --------- ---------
Total Noninterest Expense 14,277 13,385 12,466
---------- --------- ---------
INCOME BEFORE INCOME TAXES 10,277 9,398 9,161
PROVISION FOR INCOME TAXES (NOTE 8) 3,339 2,734 2,672
---------- --------- ---------
NET INCOME 6,938 6,664 6,489
---------- --------- ---------
</TABLE>
<PAGE> 30
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
-------- --------- ----------
<S> <C> <C> <C>
OTHER COMPREHENSIVE INCOME:
Unrealized Holding Gains(Losses),
Net of Tax, on Securities Available
for Sale Arising During the Period (922) 295 284
Less: Reclassification Adjustment
for Gains Included in Net Income (18) (9)
-------- --------- ----------
Other Comprehensive Income (Loss),
Net of Tax Benefit of $472 in 1999
and Taxes of $143 and $142 in 1998
and 1997, respectively (922) 277 275
-------- --------- ----------
COMPREHENSIVE INCOME $ 6,016 $ 6,941 $ 6,764
======== ========= ==========
NET INCOME PER COMMON AND POTENTIAL
COMMON SHARE:
Basic $ 1.24 $ 1.22 $ 1.22
========= ========== ==========
Diluted $ 1.24 $ 1.22 $ 1.21
========= ========== ==========
WEIGHTED AVERAGE COMMON AND POTENTIAL
COMMON SHARES OUTSTANDING:
Basic 5,591,858 5,440,917 5,314,934
========== ========== ==========
Diluted 5,597,099 5,471,407 5,380,807
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 31
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<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, 1996 $ 5,284 $ 9,473 $ 27,216 $ (24) $ 41,949
Net Income 6,489 6,489
Cash Dividends, $.47 per share (2,323) (2,323)
Other Comprehensive Income 275 275
Purchase and Retirement of
Fractional Shares (1) (6) (7)
Exercise of Stock Options 87 603 690
--------- --------- ---------- --------- ---------
Balance at December 31, 1997 5,370 10,070 31,382 251 47,073
Net Income 6,664 6,664
Cash Dividends, $.52 per share (2,589) (2,589)
Other Comprehensive Income 277 277
Purchase and Retirement of
Fractional Shares (12) (12)
Exercise of Stock Options 176 1,088 1,264
--------- --------- ---------- --------- ---------
Balance at December 31, 1998 5,546 11,146 35,457 528 52,677
Net Income 6,938 6,938
Cash Dividends, $.64 per share (3,579) (3,579)
Other Comprehensive Loss (922) (922)
Purchase and Retirement of
Fractional Shares (1) (7) (8)
Exercise of Stock Options 47 253 300
--------- --------- --------- --------- ---------
Balance at December 31, 1999 $ 5,592 $ 11,392 $ 38,816 $ (394) $ 55,406
========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 32
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 6,938 $ 6,664 $ 6,489
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation Expense 1,339 1,236 1,186
Provision for Loan Losses 646 1,018 1,086
Loss on Disposition of Other Assets 4 5
Loss (Gain) on Sales of Other Real Estate (25) 19 43
Loss (Gain) on Sale of Securities (1) 7 (20)
Loss on Disposition of Premises
and Equipment 5 34 4
Net Accretion of Premiums and
Discounts on Securities (212) (321) (153)
Amortization of Goodwill 38 38 38
Changes in Assets and Liabilities:
Decrease (Increase) in Interest Receivable (7) 507 169
Increase in Other Assets (524) (65) (321)
(Decrease) Increase in Interest Payable (454) (161) 349
Increase (Decrease) in Other Liabilities 530 (183) 149
--------- --------- ---------
Net Cash Provided by Operating Activities 8,277 8,798 9,019
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Decrease (Increase) in Interest Bearing
Deposits in Other Banks 19,360 (8,627) (6,331)
Net Decrease (Increase) in Federal Funds Sold 13,788 410 (1,245)
Available For Sale Securities:
Proceeds from Sales, Calls and Maturities 61,446 94,342 54,510
Purchases (49,596) (74,305) (48,052)
Held To Maturity Securities:
Proceeds from Calls and Maturities 789 8,862 6,820
Purchases (203) (1,902) (11,376)
Net Redemptions (Purchases)of
Federal Home Loan Bank Stock (35) 779 60
Net Increase in Loans (23,567) (9,901) (26,078)
Purchases of Premises and Equipment (1,534) (1,737) (998)
Improvements to Other Real Estate (111) (25)
Proceeds from Sales of Premises and Equipment 4 11
Proceeds from Sales of Other Assets 31 9
Proceeds from Sales of Other Real Estate 231 151 425
--------- --------- ---------
Net Cash Provided by (Used in)
Investing Activities 20,603 8,067 (32,265)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase (Decrease)in Deposits (35,343) (23,675) 31,696
Borrowings from the Federal Home Loan Bank 18,455 7,600 2,530
Repayment of Other Borrowed Money (6,270) (5,256) (4,030)
Decrease in Federal Funds Purchased (800)
Increase in Repurchase Agreements 250 200
Purchase and Retirement of Fractional Shares (8) (12) (7)
Proceeds from Exercise of Stock Options 300 1,264 690
Dividends Paid (3,579) (2,589) (2,323)
--------- --------- ---------
Net Cash (Used in)Provided by
Financing Activities (26,195) (22,668) 27,956
--------- --------- ---------
INCREASE (DECREASE)IN CASH AND DUE FROM BANKS 2,685 (5,803) 4,710
CASH AND DUE FROM BANKS, BEGINNING OF YEAR 21,904 27,707 22,997
--------- --------- ---------
CASH AND DUE FROM BANKS, END OF YEAR $ 24,589 $ 21,904 $ 27,707
========= ========= =========
</TABLE>
<PAGE> 33
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 14,558 $ 16,228 $ 15,587
Income Taxes 2,928 3,028 2,709
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Other Real Estate Acquired Through Loan
Foreclosure 573 451 1,098
Loans Granted to Facilitate the Sale of
Other Real Estate 463 262 708
</TABLE>
See notes to consolidated financial statements.
<PAGE> 34
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"), First National Bank of Effingham
("Effingham Bank") and Wayne National Bank ("Wayne Bank") (collectively, "the
Banks"). The Company's primary market area is comprised of Bulloch, Candler,
Effingham, Wayne 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, Effingham Bank and Wayne Bank,
wholly-owned subsidiaries. Intracompany balances and transactions have been
eliminated in consolidation.
NATURE OF OPERATIONS
The Company's banks have twelve banking locations in Bulloch, Candler,
Effingham and Wayne 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 (loss). 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> 35
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 losses inherent in the loan portfolio. Management's
estimate of the adequacy of the allowance is based upon management's
periodic review of the collectibility of loans in light of reviews of
individual loans, recent historical loss experience, the loan portfolio
growth, the estimated value of any underlying collateral, current economic
conditions, the risk characteristics of the various categories of loans and
other pertinent factors. Loans deemed uncollectible are charged to the
allowance. Provisions for loan losses and recoveries on loans previously
charged-off are added to the allowance.
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 on a loan-by-loan
basis for real estate, commercial and agricultural loans by either the
present value of expected future cash flows discounted at the loan's
effective interest rate or the fair value of the collateral if the loan is
collateral dependent. Installment and other consumer loans are considered
smaller balance, homogeneous loans, which are reviewed in the aggregate.
Amounts of impaired loans that are not probable of collection are
charged-off immediately.
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,
1999.
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. When interest
accrual is discontinued, all unpaid interest is reversed. Interest income
is subsequently recognized only to the extent cash payments are received.
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 detected. 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, 1999.
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.
<PAGE> 36
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. Potential
dilutive common shares that may be issued by the Company relate to stock
options and are determined using the treasury stock method.
COMPREHENSIVE INCOME (LOSS)
Accounting principles generally require that recognized revenue, expense,
gains and losses be included in net income. Although certain changes in
assets and liabilities, such as unrealized gains and losses on available
for sale securities, are reported as a separate component of the equity
section of the balance sheet, such items, along with net income, are
components of comprehensive income (loss).
ADVERTISING COSTS
Costs incurred for advertising are expensed when incurred. Refer to Note
15.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1998 and 1997 financial
statements to conform to the 1999 presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and
for hedging activities. The statement requires the Company to recognize all
derivatives as either assets or liabilities in the balance sheet and
measure those instruments at fair value. In July 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Financial Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133"
which changed the effective date of SFAS No. 133 to fiscal years beginning
after June 15, 2000. The Company has not finished evaluating the impact of
the adoption of SFAS No. 133 and is therefore unable to disclose the
effect, if any, that adoption of SFAS No. 133 will have on its financial
statements.
<PAGE> 37
3. ACQUISITION
Effective April 2, 1999, the Company consummated its merger of the Wayne Bank
into the Company. The Company exchanged 876,855 shares of its common stock and
cash of approximately $8,000 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 conforming of the accounting practices of
the Company and WBI resulted in no adjustments to net income or shareholders'
equity.
The results for the year ended December 31, 1999 include the consolidated
Wayne results of operations prior to the consummation date as follows (dollars
in thousands):
<TABLE>
<CAPTION>
TOTAL REVENUE NET INCOME
------------- ----------
<S> <C> <C>
Company $ 8,511 $ 1,116
WBI 1,195 267
Combined $ 9,706 $ 1,383
</TABLE>
A reconciliation of consolidated revenues, net income, and net income per
common share as previously reported with restated amounts for the years ended
December 31, 1998 and 1997 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
NET INCOME PER
TOTAL REVENUE NET INCOME COMMON SHARE
---------------------- ---------------------- -------------------
1998 1997 1998 1997 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Company, as previously
reported $ 35,203 $ 34,398 $ 5,708 $ 5,464 $ 1.21 $ 1.16
WBI 4,665 4,251 956 1,025
-------- -------- -------- --------
Company, as restated $ 39,868 $ 38,649 $ 6,664 $ 6,489 $ 1.22 $ 1.22
======== ======== ======== ========
</TABLE>
4. INVESTMENT SECURITIES AVAILABLE FOR SALE
The amortized cost, fair value and gross unrealized gains and losses of
investment securities available for sale are as follows (dollars in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
U.S. Treasury $ 3,561 $ 3 $ 38 $ 3,526
U.S. Government Agencies 38,798 17 554 38,261
States and Political
Subdivisions 6,969 51 63 6,957
Equity securities 570 10 560
--------- --------- --------- ---------
Total $ 49,898 $ 71 $ 665 $ 49,304
========= ========= ========= =========
DECEMBER 31, 1998
U.S. Treasury $ 5,556 $ 68 $ 5,624
U.S. Government Agencies 48,448 359 $ 10 48,797
States and Political
Subdivisions 6,975 344 7,319
Equity securities 648 42 3 687
--------- --------- --------- ---------
Total $ 61,627 $ 813 $ 13 $ 62,427
========= ========= ========= =========
</TABLE>
The amortized cost and fair value of debt securities at December 31, 1999, 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
<PAGE> 38
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 FAIR
COST VALUE
(dollars in thousands)
<S> <C> <C>
Due in one year or less $ 17,048 $ 17,038
Due after one year through five years 20,985 20,648
Due after five years through ten years 5,571 5,503
Due after ten years 5,724 5,555
--------- ---------
Total $ 49,328 $ 48,744
========= =========
</TABLE>
During 1999 and 1997, there were net realized gains of $1,000 and $18,000
from sales and calls of securities of $78,500 and $5,409,000, respectively.
During 1998 there was a net realized loss of $9,000 from sales and calls of
$4,447,000.
Securities with a fair value of $34,448,000 at December 31, 1999 were pledged
as collateral for public deposits and trust assets.
5. INVESTMENT SECURITIES HELD TO MATURITY
The amortized cost, fair value and gross unrealized gains and losses of
investment securities held to maturity are as follows (dollars in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1999
U.S. Government Agencies $ 67 $ 3 $ 70
States and Political
Subdivisions 19,815 320 $ 103 20,032
--------- --------- --------- ---------
Total $ 19,882 $ 323 $ 103 $ 20,102
========= ========= ========= =========
DECEMBER 31, 1998
U.S. Government Agencies $ 167 $ 9 $ 176
States and Political
Subdivisions 20,209 1,152 $ 8 21,353
--------- --------- --------- ---------
Total $ 20,376 $ 1,161 $ 8 $ 21,529
========= ========= ========= =========
</TABLE>
The amortized cost and fair value of these securities at December 31, 1999,
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 FAIR
COST VALUE
(dollars in thousands)
<S> <C> <C>
Due in one year or less $ 2,761 $ 2,772
Due after one year through five years 4,921 4,933
Due after five years through ten years 3,926 4,015
Due after ten years 8,274 8,382
--------- ---------
Total $ 19,882 $ 20,102
========= =========
</TABLE>
<PAGE> 39
During 1998 and 1997, there were realized gains of $2,000 from total
proceeds from calls of securities of $820,000 and $65,000 in each year,
respectively. There were no gains or losses realized in 1999.
Securities with a carrying amount of $11,439,000 at December 31, 1999 were
pledged as collateral for public deposits and trust assets.
6. LOANS
Loans are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
<S> <C> <C>
Real Estate:
Commercial $ 107,192 $ 90,912
Residential 1-4 family 80,870 76,719
Construction 15,427 15,538
Second Mortgages 8,732 8,550
Equity Lines of Credit 4,649 3,908
Commercial and Agricultural 64,843 61,312
Installment and Other Consumer 29,457 30,993
--------- ---------
Total $ 311,170 $ 287,932
========= =========
</TABLE>
The Banks' loans are concentrated with customers in the Banks' market area of
southeast Georgia, primarily in Bulloch, Candler, Effingham, Wayne and
contiguous counties.
An analysis of the allowance for loan losses follows (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Balance, Beginning of Year $ 4,419 $ 4,194 $ 4,239
Provision for Loan Losses 646 1,018 1,086
Loans Charged-Off (493) (990) (1,364)
Recoveries 282 197 233
-------- -------- --------
Balance, End of Year $ 4,854 $ 4,419 $ 4,194
======== ======== ========
</TABLE>
Nonperforming loans were $1,411,000 at December 31, 1999 and $1,205,000 at
December 31, 1998. Interest income that would have been recorded on these
nonperforming loans in accordance with their original terms was $93,000 in 1999
and $101,000 in 1998, compared with amounts received of $32,000 and $29,000,
respectively. A summary of nonperforming loans follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
<S> <C> <C>
Nonaccrual loans $ 442 $ 325
Accruing loans contractually past
due at least 90 days 382 350
Restructured loans 587 530
--------- ---------
Total $ 1,411 $ 1,205
========= =========
</TABLE>
The Company had nonaccrual loans of $442,000 and $325,000 as of December 31,
1999 and December 31, 1998, respectively. The average amount of nonaccrual
loans during 1999, 1998 and 1997 was $137,000,$569,000 and $1,362,000,
respectively. No specific allowance was necessary for such loans. The interest
income recognized and received on a cash basis on such loans was $6,000, $1,000
and $57,000 in 1999, 1998 and 1997, respectively.
<PAGE> 40
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 $39,886,000 and $34,474,000 and standby letters
of credit of $2,158,000 and $1,224,000 at December 31, 1999 and 1998,
respectively. The loan commitments and standby letters of credit include
$17,152,000 and $1,685,000, respectively, of fixed rate commitments and
$22,734,000 and $473,000, respectively, of variable rate commitments at December
31, 1999. 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.
7. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
<S> <C> <C>
Land $ 1,110 $ 1,110
Buildings 5,888 5,594
Leasehold Improvements 592 592
Furniture and Equipment 9,876 8,845
--------- ---------
Total 17,466 16,141
Less: Accumulated Depreciation (8,825) (7,686)
--------- ---------
Premises and Equipment, Net $ 8,641 $ 8,455
========= =========
</TABLE>
Pursuant to the terms of noncancellable lease agreements in effect at
December 31, 1999 pertaining to banking premises, future minimum rent
commitments under various operating leases are as follows(dollars in
thousands):
<TABLE>
<S> <C>
2000 $112
2001 90
2002 31
2003 and after 3
----
Total $236
====
</TABLE>
The leases contain options to extend for periods from one to ten years. Total
rent expense for the years ended December 31, 1999, 1998 and 1997 amounted to
$135,000, $132,000 and $121,000, respectively.
8. INCOME TAXES
The provisions for income taxes for the years ended December 31, 1999, 1998
and 1997 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Current $ 3,571 $ 2,788 $ 2,636
Deferred (232) (54) 36
------- -------- --------
Total $ 3,339 $ 2,734 $ 2,672
======= ======== ========
</TABLE>
At December 31, 1999 and 1998, the significant components of the Company's
net deferred tax assets are as follows (dollars in thousands):
<PAGE> 41
<TABLE>
<CAPTION>
1999 1998
------- --------
<S> <C> <C>
DEFERRED TAX ASSETS:
Allowance for Loan Losses $ 1,610 $ 1,402
Unrealized Loss on Available for
Sale Securities 200
Other Post-retirement Benefits 98 98
Other Liabilities 234 189
------- --------
Total Deferred Tax Assets 2,142 1,689
------- --------
Deferred Tax Liabilities:
Accumulated Depreciation (178) (98)
Other Assets (276) (335)
Unrealized Gain on Investment Securities
Available for Sale (272)
------- --------
Total Deferred Tax Liabilities (454) (705)
------- --------
Net Deferred Tax Assets $ 1,688 $ 984
======= ========
</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 net deferred tax asset is included in Other Assets on the consolidated
balance sheet.
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
(dollars in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Income Tax Computed at
Statutory Rate $ 3,494 $ 3,195 $ 3,115
Increases (Decreases) Resulting from:
Tax-Exempt Interest (567) (591) (505)
Other 412 130 62
-------- -------- --------
Income Tax Expense $ 3,339 $ 2,734 $ 2,672
======== ======== ========
</TABLE>
9. BENEFIT PLANS
At both December 31, 1999 and 1998, the Company had recorded liabilities of
approximately $245,000 for post-retirement benefits other than pensions or
profit-sharing plans. The Company recognized expenses during each of the years
ended December 31, 1999 and 1998 of approximately $24,000 and $14,000,
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, 1999.
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 1999.
Depending upon the level of each participant's contribution, the Banks
contribute between 50% and 187.5% of the participant's initial contribution,
according to specific terms of the plan. 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, subsequent to January 1, 1997 for
employees of the Effingham Bank, and subsequent to January 1, 1999 for
employees of the Wayne Bank. For each year of service performed, the Banks
contribute percentages of the participant's compensation as set forth in the
plan.
<PAGE> 42
A summary of profit-sharing and target benefit expenses follows (dollars in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Profit-Sharing Plan $ 588 $ 449 $ 466
Target Benefit Plan 191 158 150
------ ------ ------
Total $ 779 $ 607 $ 616
====== ====== ======
</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 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 $3,469,000 in 2000, 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
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, 1999 the Company and the
Banks meet all capital adequacy requirements to which they are subject.
As of December 31, 1999, 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, 1999 and 1998 are as follows (dollars in thousands):
<PAGE> 43
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
UNDER PROMPT
FOR CAPITAL CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
AS OF DECEMBER 31, 1999:
Total Capital (to Risk-weighted Assets):
<S> <C> <C> <C> <C> <C> <C>
Company $ 59,224 19.7% $ 23,998 8.0% Not Applicable
Bulloch Bank 31,406 22.4% 11,208 8.0% $ 14,010 10.0%
Metter Bank 10,357 13.5% 6,140 8.0% 7,676 10.0%
Effingham Bank 5,689 12.6% 3,611 8.0% 4,513 10.0%
Wayne Bank 7,463 19.6% 3,041 8.0% 3,801 10.0%
Tier I Capital (to Risk-weighted Assets):
Company $ 55,461 18.6% $ 11,999 4.0% Not Applicable
Bulloch Bank 29,647 21.2% 5,604 4.0% $ 8,406 6.0%
Metter Bank 9,393 12.2% 3,070 4.0% 4,605 6.0%
Effingham Bank 5,124 11.4% 1,805 4.0% 2,708 6.0%
Wayne Bank 6,988 18.4% 1,521 4.0% 2,281 6.0%
Tier I Capital (to Average Assets):
Company $ 55,461 13.2% $ 16,867 4.0% Not Applicable
Bulloch Bank 29,647 14.9% 5,989 3.0% $ 9,981 5.0%
Metter Bank 9,393 8.8% 3,205 3.0% 5,342 5.0%
Effingham Bank 5,124 8.3% 2,472 4.0% 3,090 5.0%
Wayne Bank 6,988 13.1% 1,595 3.0% 2,658 5.0%
AS OF DECEMBER 31, 1998:
Total Capital (to Risk-weighted Assets):
Company $ 55,377 19.3% $ 23,006 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%
Wayne Bank 6,535 19.1% 2,734 8.0% 3,418 10.0%
Tier I Capital (to Risk-weighted Assets):
Company $ 51,772 18.1% $ 11,503 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%
Wayne Bank 6,138 18.0% 1,367 4.0% 2,051 6.0%
Tier I Capital (to Average Assets):
Company $ 51,772 12.1% $ 17,223 4.0% Not Applicable
Bulloch Bank 27,878 13.2% 6,343 3.0% $ 10,572 5.0%
Metter Bank 11,411 10.7% 3,205 3.0% 5,341 5.0%
Effingham Bank 4,550 7.2% 2,524 4.0% 3,155 5.0%
Wayne Bank 6,138 12.6% 1,461 3.0% 2,435 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
<PAGE> 44
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. At December 31, 1999, 12,812.5 options were
exercisable.
A summary of the status of the Plan and the activity follows:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
1999 Price 1998 Price 1997 Price
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 38,438 $ 20.08 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 38,438 20.08 51,250 19.20
======== ======== ========
</TABLE>
The following table summarizes options outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Number Remaining Options Exercisable
Exercise Outstanding Contractual Weighted Average Number Weighted Average
Price At 12-31-99 Life Exercise Price Exercisable Exercise Price
- -------- ----------- ----------- --------------- ------------ ---------------------
<S> <C> <C> <C> <C> <C>
$18.20 12,812.50 2.0 $ 18.20 12,812.5 $ 18.20
20.02 12,812.50 2.0 20.02 0 N/A
22.02 12,812.50 2.0 22.02 0 N/A
</TABLE>
The Company accounts for its stock-based compensation plan using the
intrinsic value based method. The fair value of the option grant in 1997 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 the fair value based method utilizing the assumptions described
above, the Company's net income and net income per share would have changed to
the pro-forma amounts indicated below:
<TABLE>
<CAPTION>
Net Income: 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
As Reported $ 6,938,000 $ 6,664,000 $ 6,489,000
Pro Forma 6,918,000 6,632,000 6,432,000
Net Income Per Share:
As Reported - Basic $ 1.24 $ 1.22 $ 1.22
- Diluted 1.24 1.22 1.21
Pro Forma - Basic $ 1.24 1.22 1.21
- Diluted 1.24 1.21 1.20
</TABLE>
<PAGE> 45
12. EARNINGS PER SHARE
Basic net income per common share has been calculated based on the weighted
average number of shares outstanding. Diluted net income per common and
potential common share has been calculated based on the weighted average number
of common shares outstanding plus potential common shares arising from stock
options using the treasury stock method. 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.
<TABLE>
<CAPTION>
For the year ended For the year ended
December 31, 1999 December 31, 1998
--------------------------------------------- --------------------------------------------
Net Income Shares Per Share Net Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ---------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $6,938,000 5,591,858 $ 1.24 $6,664,000 5,440,917 $ 1.22
Effect of Dilutive
Securities- Options to
purchase common shares 5,241 30,490
---------- --------- ---------- ---------- --------- ----------
Diluted EPS $6,938,000 5,597,099 $ 1.24 $6,664,000 5,471,407 $ 1.22
</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 1999 and 1998.
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 (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Balance, Beginning of Year $ 11,411 $ 10,113
Amounts Advanced 14,840 11,121
Repayments (13,039) (9,823)
-------- --------
Balance, End of Year $ 13,212 $ 11,411
======== ========
</TABLE>
14. DEPOSITS AND OTHER BORROWED MONEY
At December 31, 1999, the scheduled maturities of time deposits were as
follows (dollars in thousands):
<TABLE>
<S> <C>
2000 $146,403
2001 17,961
2002 3,965
2003 1,179
2004 and after 1,195
--------
Total $170,703
========
</TABLE>
Repurchase Agreements, which are classified as secured borrowings, are
reflected at the amount of cash received in connection with the transaction.
The Company may be required to provide additional collateral based on the fair
value of the underlying securities.
Other borrowed money at December 31, 1999 and 1998 consists of $23,948,000
and $11,763,000, respectively, advanced from the Federal Home Loan Bank of
Atlanta to the Banks. Contractual maturities of advances outstanding at
December 31, 1999 are $8,939,000 in 2000, $30,000 in 2001, $1,483,000 in 2002,
$629,000 in 2003, $532,000 in 2004, and $12,335,000 in 2005 and beyond. Average
interest rates on such advances outstanding were 6.06% at December 31, 1999 and
6.65% at December 31, 1998.
<PAGE> 46
15. OTHER EXPENSE
Items comprising other expense for the years ended December 31, 1999, 1998
and 1997 follow (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Office Supplies $ 527 $ 545 $ 499
Outside Services 993 645 560
Computer Services 310 198 121
Advertising and Public Relations 606 600 590
Directors' Fees 278 254 207
Postage 289 327 308
FDIC, FICO and OCC Assessments 90 93 121
Correspondent Service Charges 181 220 224
Other 1,082 1,260 1,073
---------- ---------- ----------
Total $ 4,356 $ 4,142 $ 3,703
========== ========== ==========
</TABLE>
16. CASH RESTRICTIONS
The Federal Reserve System requires that a certain level of average cash be
maintained. At December 31, 1999 and 1998, such required balances were
$4,088,000 and $4,100,000, respectively.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
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.
<TABLE>
<CAPTION>
1999 1998
--------------------------------- ---------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and Due from Banks $ 24,589 $ 24,589 $ 21,904 $ 21,904
Interest Bearing Deposits
in Other Banks 5,759 5,759 25,119 25,119
Federal Funds Sold 1,547 1,547 15,335 15,335
Investment Securities 70,749 70,969 84,331 85,484
Loans 311,130 303,518 287,884 282,166
Liabilities:
Deposits 340,341 341,920 375,684 377,727
Other Borrowed Money
and Repurchase Agreements 25,598 25,482 13,163 14,562
</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
<PAGE> 47
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 $1,411,000 at December 31,
1999 and $1,205,000 at December 31, 1998 has been estimated to be the recorded
book value based on the fair value of the underlying collateral.
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 carrying
value of the amounts associated to commitments to extend credit and standby
letters of credit is estimated to approximate the fair value.
The fair value estimates presented herein are based on pertinent information
available to management as of December 31, 1999 and 1998. 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. ACQUISITION AGREEMENT
On December 14, 1999, the Company entered into a definitive agreement to
merge with BB&T Corporation ("BB&T"). The terms of the merger provide that each
share of the Company's stock will be converted into a right to receive 0.74 of
a share of common stock of BB&T plus cash in lieu of any fractional share of
BB&T common stock. The Company has granted an option to BB&T to purchase up to
1,112,862 shares of the Company's common stock at a price of $19.00 per share.
The option terms are subject to adjustment in certain circumstances. The
completion of the merger is subject to shareholder and regulatory approval.
<PAGE> 48
19. 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 (dollars in thousands):
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
<S> <C> <C>
ASSETS
Cash and Due from Banks $ 7 $ 38
Interest Bearing Deposits 1,331 1,776
Investment Securities Available for Sale 100 346
Investment in Subsidiaries 54,128 50,886
Other Assets 181 4
---------- ----------
Total Assets $ 55,747 $ 53,050
========== ==========
LIABILITIES
Other Liabilities $ 341 $ 373
---------- ----------
Total Liabilities 341 373
---------- ----------
SHAREHOLDERS' EQUITY
Common Stock 5,592 5,546
Additional Paid-in Capital 11,392 11,146
Retained Earnings 38,816 35,457
Accumulated Other Comprehensive Income (Loss),
Net of Tax (394) 528
---------- ----------
Total Shareholders' Equity 55,406 52,677
---------- ----------
Total Liabilities and
Shareholders' Equity $ 55,747 $ 53,050
========== ==========
</TABLE>
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Dividends from Subsidiaries $ 3,447 $ 2,438 $ 2,573
Other Income 78 55 77
---------- ---------- ----------
Total Income 3,525 2,493 2,650
General and Administrative Expenses 978 709 489
---------- ---------- ----------
Income Before Income Taxes and Equity in
Undistributed Income of Subsidiaries 2,547 1,784 2,161
Income Tax Benefit 222 172 126
---------- ---------- ----------
Income Before Equity in Undistributed
Income of Subsidiaries 2,769 1,956 2,287
Equity in Undistributed Income of
Subsidiaries 4,169 4,708 4,202
---------- ---------- ----------
Net Income 6,938 6,664 6,489
Other Comprehensive Income (Loss) (922) 277 275
---------- ---------- ----------
Comprehensive Income $ 6,016 $ 6,941 $ 6,764
========== ========== ==========
</TABLE>
<PAGE> 49
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 6,938 $ 6,664 $ 6,489
Adjustments to Reconcile Net Income
to Net Cash Used in Operating
Activities:
Deferred Income Taxes 16
Loss (Gain) on Sale of Securities (1) 22 (54)
Amortization of Goodwill 38 38 38
Earnings of Subsidiaries (7,616) (7,146) (6,775)
Changes in Assets and Liabilities:
(Increase) Decrease in Other Assets (177) 203 63
Increase (Decrease) in Other
Liabilities (32) 66 (6)
---------- ---------- ----------
Net Cash Used by Operating Activities (834) (153) (245)
---------- ---------- ----------
Cash Flows From Investing Activities:
(Increase)Decrease in Interest
Bearing Deposits 445 (1,211) (384)
Purchases of Available for Sale
Securities (390) (528)
Proceeds from Sale of Available for
Sale Securities 198 447 429
Dividends Received from Subsidiaries 3,447 2,437 2,573
---------- ---------- ----------
Net Cash (Provided by)Used in
Investing Activities 4,090 1,283 2,090
---------- ---------- ----------
Cash Flows From Financing Activities:
Exercise of Stock Options 300 1,264 690
Purchase and Retirement of
Fractional Shares (8) (12) (7)
Dividends Paid (3,579) (2,589) (2,323)
---------- ---------- ----------
Net Cash Used by Financing Activities (3,287) (1,337) (1,640)
---------- ---------- ----------
Increase (Decrease) in Cash and
Due From Banks (31) (207) 205
Cash and Due From Banks,
Beginning of Year 38 245 40
---------- ---------- ----------
Cash and Due From Banks, End of Year $ 7 $ 38 $ 245
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash Paid (Received) Paid During
the Year for:
Income Taxes $ (277) $ (221) $ 46
</TABLE>
<PAGE> 50
20. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years ended December 31, 1999 and 1998 is
summarized as follows (thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
1999
Interest Income $ 8,775 $ 8,639 $ 8,822 $ 8,903
Interest Expense 3,782 3,536 3,421 3,365
---------- ---------- ---------- ----------
Net Interest Income 4,993 5,103 5,401 5,538
Provision for Loan Losses 211 165 165 105
---------- ---------- ---------- ----------
Net Interest Income after 4,782 4,938 5,236 5,433
Provision for Loan Losses
Noninterest Income 931 1,054 1,077 1,103
Noninterest Expense 3,628 3,453 3,498 3,698
---------- ---------- ---------- ----------
Income Before Income Taxes 2,085 2,539 2,815 2,838
Provision for Income Taxes 702 803 895 939
---------- ---------- ---------- ----------
Net Income $ 1,383 $ 1,736 $ 1,920 $ 1,899
========== ========== ========== ==========
Net Income per common and potential
common share outstanding:
Basic $ 0.25 $ 0.31 $ 0.34 $ 0.34
========== ========== ========== ==========
Diluted $ 0.25 $ 0.31 $ 0.34 $ 0.34
========== ========== ========== ==========
1998
Interest Income $ 9,164 $ 9,100 $ 8,994 $ 8,873
Interest Expense 4,200 4,077 3,892 3,898
---------- ---------- ---------- ----------
Net Interest Income 4,964 5,023 5,102 4,975
Provision for Loan Losses 266 265 265 222
---------- ---------- ---------- ----------
Net Interest Income after
Provision for Loan Losses 4,698 4,758 4,837 4,753
Noninterest Income 858 1,005 963 1,120
Noninterest Expense 3,197 3,320 3,297 3,780
---------- ---------- ---------- ----------
Income Before Income Taxes 2,359 2,443 2,503 2,093
Provision for Income Taxes 671 704 726 633
---------- ---------- ---------- ----------
Net Income $ 1,688 $ 1,739 $ 1,777 $ 1,460
========== ========== ========== ==========
Net Income per common and potential
common share outstanding:
Basic $ 0.31 $ 0.32 $ 0.33 $ 0.27
========== ========== ========== ==========
Diluted $ 0.31 $ 0.32 $ 0.32 $ 0.26
========== ========== ========== ==========
</TABLE>
<PAGE> 51
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
The information required for Part III will be provided by amendment
prior to April 29, 2000.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS FILED
See consolidated Financial Statements on pages 27 through 50
of this 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.
<PAGE> 52
(3) Exhibits
The following exhibits are filed with this Form 10-K:
<TABLE>
<CAPTION>
Exhibit No. Document Page
----------- -------- ----
<S> <C> <C>
2.1 - Agreement and Plan of Reorganization by and
between the Registrant and BB&T Corporation
(incorporated herein by reference to exhibit
of the same number of the Registrant's Form
8-K filed December 29, 1999.) N/A
3.1 - Amended and Restated Articles of Incorporation
of the Registrant.(1) N/A
3.2 - By-Laws of the Registrant, as amended
February 28, 1990.(1) N/A
10.1* - Profit Sharing Plan, as restated December 29,
1994.(2) 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.(2) N/A
10.3* - Target Benefit Retirement Plan, as restated
December 29, 1994.(2) 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.(2) 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.(2) 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
21 - Subsidiaries of the Registrant 56
23.1 - Consent of Deloitte & Touche LLP. 57
27 - Financial Data Schedule (for SEC use only) 58
</TABLE>
<PAGE> 53
<TABLE>
<S> <C> <C>
99 - Consent of Independent Accountants (McNair, McLemore,
Middlebrooks & Co.) dated January 8, 1999 for the
years ended December 31, 1997 and 1998 61
</TABLE>
(1) Incorporated herein by reference to exhibit of the same number
in the Registrant's Form 10-K for the year ended
December 31, 1999.
(2) 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.
(A) REPORTS ON FORM 8-K
Registrant filed a Form 8-K with the Commission on December 29,
1999 to report that the Registrant had entered into an Agreement
and Plan of Reorganization with BB&T Corporation. No financial
statements were required.
<PAGE> 54
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, 2000 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.
Date: March 29, 2000 By: /s/James Eli Hodges
-------------- -----------------------------
JAMES ELI HODGES
PRESIDENT & DIRECTOR
(PRINCIPAL EXECUTIVE OFFICER)
Date: March 29, 2000 By: /s/Julian C. Lane, Jr.
-------------- -----------------------------
JULIAN C. LANE, JR
VICE PRESIDENT AND DIRECTOR
Date: March 29, 2000 By: /s/Douglas E. Wren
-------------- -----------------------------
DOUGLAS E. WREN
VICE PRESIDENT AND DIRECTOR
Date: March 29, 2000 By: /s/Dwayne E. Rocker
-------------- -----------------------------
DWAYNE E. ROCKER
SECRETARY & TREASURER
(PRINCIPAL FINANCIAL &
ACCOUNTING OFFICER)
Date: March 29, 2000 By: /s/E. Raybon Anderson
-------------- -----------------------------
E. RAYBON ANDERSON, DIRECTOR
Date: By:
-------------- -----------------------------
A. M. BRASWELL, JR., DIRECTOR
Date: By:
-------------- -----------------------------
W. A. CRIDER, JR., DIRECTOR
Date: By:
-------------- -----------------------------
J. ASHLEY DUKES, DIRECTOR
Date: March 29, 2000 By: /s/ C. Arthur Howard
-------------- -----------------------------
C. ARTHUR HOWARD, DIRECTOR
<PAGE> 55
Date: March 29, 2000 By: /s/Joe P. Johnston
-------------- -----------------------------
JOE P. JOHNSTON, DIRECTOR
Date: March 29, 2000 By: /s/Harry S. Mathews
-------------- -----------------------------
HARRY S. MATHEWS, DIRECTOR
Date: March 29, 2000 By: /s/ Dan J. Parrish, Jr.
-------------- -----------------------------
DAN J. PARRISH, JR., DIRECTOR
Date: By:
-------------- -----------------------------
LARRY D. WEDDLE, DIRECTOR
Date: By:
-------------- -----------------------------
ALVIN WILLIAMS, DIRECTOR
<PAGE> 1
EXHIBIT 21
The Company's subsidiaries are:
First Bulloch Bank & Trust Company, Statesboro, Georgia, incorporated under the
laws of the state of Georgia
Metter Banking Company, Metter, Georgia, incorporated under the laws of the
state of Georgia
First National Bank of Effingham, Springfield, Georgia, organized as a federally
chartered bank under the laws of the United States
Wayne National Bank, Jesup, Georgia, organized as a federally chartered bank
under the laws of the United States
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-33853 and 333-33763 of First Banking Company of Southeast Georgia on Forms
S-8 and S-3, respectively, of our report dated January 21, 2000, incorporated
by reference in this Annual Report on Form 10-K of First Banking Company of
Southeast Georgia for the year ended December 31, 1999.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
March 27, 2000
<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, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 24,589
<INT-BEARING-DEPOSITS> 5,759
<FED-FUNDS-SOLD> 1,547
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 49,304
<INVESTMENTS-CARRYING> 19,882
<INVESTMENTS-MARKET> 20,102
<LOANS> 311,130
<ALLOWANCE> 4,854
<TOTAL-ASSETS> 426,142
<DEPOSITS> 340,341
<SHORT-TERM> 8,939
<LIABILITIES-OTHER> 4,797
<LONG-TERM> 16,659
0
0
<COMMON> 5,592
<OTHER-SE> 49,814
<TOTAL-LIABILITIES-AND-EQUITY> 426,142
<INTEREST-LOAN> 29,651
<INTEREST-INVEST> 4,202
<INTEREST-OTHER> 1,286
<INTEREST-TOTAL> 35,139
<INTEREST-DEPOSIT> 12,976
<INTEREST-EXPENSE> 14,104
<INTEREST-INCOME-NET> 21,035
<LOAN-LOSSES> 646
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 14,277
<INCOME-PRETAX> 10,277
<INCOME-PRE-EXTRAORDINARY> 10,277
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,938
<EPS-BASIC> 1.24
<EPS-DILUTED> 1.24
<YIELD-ACTUAL> 5.46
<LOANS-NON> 442
<LOANS-PAST> 382
<LOANS-TROUBLED> 587
<LOANS-PROBLEM> 1,411
<ALLOWANCE-OPEN> 4,419
<CHARGE-OFFS> 493
<RECOVERIES> 282
<ALLOWANCE-CLOSE> 4,854
<ALLOWANCE-DOMESTIC> 4,854
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC AUDITORS
We consent to the incorporation by reference in Registration Statement Nos.
333-33853 and 333-33763, respectively, of First Banking Company of Southeast
Georgia on Forms S-8 and S-3 of our report dated January 8, 1999, that is
incorporated by reference in this Annual Report on Form 10-K of First Banking
Company of Southeast Georgia for the year ended December 31, 1999 and to all
references to our firm and to such opinion as are contained therein.
/s/Mcnair, McLemore, Middlebrooks & Co., LLP
--------------------------------------------
Mcnair, McLemore, Middlebrooks & Co., LLP
Macon, Georgia
March 28, 2000
