<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
Commission File No. 0-27448
GOLDEN ISLES FINANCIAL HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
Georgia 58-1756713
(State of Incorporation) (I.R.S. Employer Identification No.)
3811 Frederica Road, St. Simons Island, Georgia 31522
(Address of Principal Executive Offices)
(912) 638-0667
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer (1) filed all reports required to be filed by section
13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common equity as of the latest practicable
date.
Common Stock, no par value per share: 2,478,153 shares issued and outstanding
as of May 7, 1999.
Transitional Small Business Disclosure Format:
Yes No X
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TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION
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ITEM PAGE
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1. FINANCIAL STATEMENTS
Consolidated balance sheets................................... 3
Consolidated statements of income and comprehensive income.... 4
Consolidated statements of cash flow.......................... 5
Notes to consolidated financial statements.................... 6
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................... 6
</TABLE>
PART II - OTHER INFORMATION
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Golden Isles Financial Holdings, Inc.
St. Simons Island, Georgia
Consolidated Balance Sheets
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<CAPTION>
March 31, 1999 December 31, 1998
ASSETS (Unaudited) (Audited)
<S> <C> <C>
Cash and due from banks $ 4,450,442 $ 3,131,141
Federal funds sold 4,730,000 2,550,000
Securities available for sale at fair value 21,832,272 22,490,648
Loans 86,550,301 90,774,151
Less allowance for loan losses 1,832,146 1,825,319
-------------- --------------
Loans, net 84,718,155 88,948,832
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Premises and equipment, net 2,942,237 3,015,992
Other assets 2,452,288 2,096,009
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Total Assets $ 121,125,394 $ 122,232,622
============== ==============
LIABILITIES AND
SHAREHOLDERS' EQUITY
Deposits
Non-interest bearing deposits $ 9,238,501 $ 9,743,289
Interest bearing deposits 91,129,618 91,528,632
-------------- --------------
Total deposits $ 100,368,119 $ 101,271,921
-------------- --------------
Federal Home Loan Bank borrowings 6,411,000 6,500,500
Other liabilities 650,243 997,325
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Total Liabilities $ 107,429,362 $ 108,769,746
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Stockholders' Equity:
Common stock, no par value 50 million
shares authorized, 2,478,153 and
2,474,377 shares issued and outstanding $ 1,094,338 $ 1,094,338
Capital surplus 11,516,124 11,482,666
Retained earnings 1,018,652 724,462
Accumulated other comprehensive income 66,918 161,410
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Total stockholders' equity $ 13,696,032 $ 13,462,876
-------------- --------------
Total liabilities and stockholders' equity $ 121,125,394 $ 122,232,622
============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
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Golden Isles Financial Holdings, Inc.
St. Simons Island, Georgia
Consolidated Statements of Income and Comprehensive Income
(Unaudited)
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<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
Interest income $2,463,426 $2,366,496
Interest expense 1,275,874 1,254,355
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Net interest income 1,187,552 1,112,141
Provision for loan losses 70,000 41,357
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Net interest income after provision for loan losses 1,117,552 1,070,784
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Other income 172,826 147,334
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Other expense
Salaries and employee benefits 488,058 450,292
Depreciation and amortization 73,113 58,345
Regulatory fees and assessments 8,057 7,635
Supplies and printing 23,733 26,545
Legal & professional 41,564 47,522
Advertising 18,201 30,279
Other operating expenses 183,249 191,313
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Total other expense 835,975 811,931
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Income from continuing
operations before income tax $ 454,403 $ 406,187
Applicable income tax 160,213 127,065
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Income from continuing operations $ 294,190 $ 279,122
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Discontinued operations
Income from operations, less applicable
Income tax $7,118 13,818
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Net Income 294,190 292,940
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Other comprehensive income, net of tax:
Net unrealized holding gains arising during period (94,492) 46,634
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Comprehensive income $ 199,698 $ 339,574
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Income per share - basic $ 0.12 $ 0.13
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Income per share - diluted $ 0.12 $ 0.13
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Average Shares Outstanding 2,476,139 2,313,645
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</TABLE>
See notes to Consolidated Financial Statements.
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Golden Isles Financial Holdings, Inc.
St. Simons Island, Georgia
Consolidated Statements of Cash Flows
(Unaudited)
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Three Months Ended
March 31,
1999 1998
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OPERATING ACTIVITIES
Net Income $ 294,190 $ 292,940
Deduct income from discontinued operations (13,818)
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Income from continuing operations 294,190 279,122
Adjustments to reconcile income from continuing
operations to net cash provided by continuing
operations:
Depreciation and amortization 73,113 58,345
Provision for loan losses 70,000 41,357
Net change in other prepaids and accruals (702,719) 203,420
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Net cash provided by (used in) continuing operations (265,416) 582,244
Net cash provided by discontinued operations 93,465
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Net cash provided by (used in) operating activities (265,416) 675,709
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INVESTING ACTIVITIES
Increase in Federal funds sold (2,180,000) (2,090,000)
Available for sale securities:
Proceeds from maturities and paydowns 6,583,266 3,725,634
Purchases (6,019,375) (4,471,771)
Decrease in loans held for sale 307,457
(Increase) decrease in loans net 4,160,670 (3,189,817)
Purchase of premises and equipment (144,208)
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Net cash provided by (used in) investing activities $ 2,544,561 ( 5,862,705)
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FINANCING ACTIVITIES
Net increase (decrease) in deposits $ (903,802) 3,866,676
Net increase (decrease) in notes
payable and other borrowings ( 89,500) 583,042
Vesting of restricted stock, net 33,458 8,115
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Net cash provided by (used in) financing activities $ (959,844) $ 4,457,833
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Net increase (decrease) in cash and due from banks $ 1,319,301 (729,163)
Cash and due from banks at beginning of period 3,131,141 3,224,761
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Cash and due from banks at end of period $ 4,450,442 $ 2,495,598
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</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
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Golden Isles Financial Holdings, Inc.
St. Simons Island, Georgia
Notes to Financial Statements (Unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Golden Isles Financial
Holdings, Inc. (the "Company") conform to generally accepted
accounting principles and to general practices in the banking
industry. The interim consolidated financial statements included
herein are unaudited, but reflect all adjustments which, in the
opinion of management, are necessary for a fair presentation of the
consolidated financial position and results of operations for the
interim periods presented. All adjustments reflected in the interim
financial statements are of a normal, recurring nature. Such financial
statements should be read in conjunction with the financial statements
and notes thereto and the report of the independent auditors included
in the Company's Form 10-KSB Annual Report for the year ended December
31, 1998. The results of operations for the three months ended March
31, 1999 are not necessarily indicative of the results to be expected
for the full year.
NOTE 2. DISCONTINUED OPERATIONS
During 1998, the Company discontinued the operations of its consumer
finance subsidiary and disposed of its assets. The gain on disposal of
the assets and the operations of the discontinued business segment
have been accounted for as discontinued operations. The prior period's
consolidated financial statements have been restated to reflect the
discontinuation of the consumer finance segment.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity is the Company's ability to meet all deposit withdrawals
immediately, while also providing for the credit needs of customers. The March
31, 1999, financial statements evidence a fair liquidity position as total cash
and cash equivalents amounted to $9.2 million, representing 7.6% of total
assets. Investment securities amounted to $21.8 million, representing 18.0% of
total assets; these securities provide a secondary source of liquidity since
they can be converted into cash in a timely manner. The Company's ability to
maintain and expand its deposit base and borrowing capabilities would provide an
additional source of liquidity. For the three-month period ended March 31, 1999,
total deposits decreased slightly from $101.3 million to $100.4 million.
Management closely monitors and maintains appropriate levels of interest-earning
assets and interest bearing liabilities, so that maturities of assets are such
that adequate funds are provided to meet customer withdrawals and loan demand.
There are no trends, demands, commitments, events or
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uncertainties that will result in or are reasonably likely to affect the
Company's liquidity position in any material way.
The Company is subject to various regulatory capital requirements
administered by the federal and state 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 financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Company's capital amounts and classification 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 to maintain minimum amounts and ratios of total and Tier 1
capital to risk-weighted assets and of Tier 1 capital to average assets.
Management believes, as of March 31, 1999, the Company meets all capital
adequacy requirements to which it is subject.
RESULTS FROM CONTINUING OPERATIONS
The Company's results of operations are determined by its ability to
effectively manage interest income and expense, to minimize loan and investment
losses, to generate noninterest income and to control noninterest expense.
Since interest rates are determined by market forces and economic conditions
beyond the control of the Company, the ability to generate net interest income
is dependent upon the subsidiary bank's ability to obtain an adequate spread
between the rate earned on interest-earning assets and the rate paid on
interest-bearing liabilities. Thus, the key performance measure for net
interest income is the interest margin, or net yield, which is net interest
income divided by average earning assets.
The primary component of consolidated earnings is net interest income, or
the difference between interest income on interest-earning assets and interest
paid on interest-bearing liabilities. The net interest margin is net interest
income expressed as a percentage of average interest-earning assets. Interest-
earning assets consist of loans, investment securities and Federal funds sold.
Interest-bearing liabilities consist of deposits and other borrowings.
The net interest margin was 4.15% and 4.45% during the three months ended
March 31, 1999 and 1998, respectively, a decrease of 30 basis points. The
decrease is due to a decrease in loans during the three months ended March 31,
1999 of $4.2 million. Most of the excess cash was reinvested in lower yielding
Federal Funds. The yield on average earning assets was 9.38% during the three
months ended March 31, 1998 and 8.61% for the same period in 1999.
Net interest income was $1,188,000 as compared to $1,122,000 during the
three months ended March 31, 1999 and 1998, respectively, representing an
increase of 5.9%. The increase is primarily due to a decrease in the cost of
funds from 5.78% to 5.22%.
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The provisions for loan losses was $70,000 for the first three months of
1999 as compared to $41,000 for the same period of 1998. This increase resulted
from the replenishment of $63,000 for net charge-offs during the period. The
allowance for loan losses as a percentage of total loans outstanding amounts to
2.1% at March 31, 1999 as compared to 1.5% at March 31, 1998. The determination
of the amounts allocated for loan losses is based upon management's judgment
concerning factors affecting loan quality and assumptions about the local and
national economy. Management considers the allowance for loan losses at March
31, 1999 adequate to cover potential losses in the loan portfolio.
Noninterest income for the three months ended March 31, 1999 and 1998
amounts to $173,000 and $147,000, respectively. As a percentage of total
average assets, noninterest income increased from 0.5% in 1998 to 0.6% in 1999.
The increase in noninterest income is due primarily to $44,000 in mortgage fees
earned by the subsidiary bank in 1999. The bank has not established its
mortgage operations by March 31, 1998.
Noninterest expense for the three months ended March 31, 1999 and 1998
amounted to $836,000 and $812,000, respectively. As a percent of total average
assets, noninterest expense amounted to 2.7% in 1999 and 1998, respectively.
For the three months ended March 31, 1999, the Company realized net income
from continuing operations of $294,000, as compared to $279,000 for the three
months ended March 31, 1998. After recording net income from discontinued
operations of $14,000, the Company realized net income of $293,000 for the three
months ended March 31, 1998.
RESULTS FROM DISCONTINUED OPERATIONS
Following is a condensed summary of the results from discontinued
operations for the three months ended March 31, 1998. There were no results
from discontinued operations during the three months ended March 31, 1999.
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Interest income $521,000
Interest expense 199,000
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Net interest income 322,000
Provision for loan losses 55,000
Other income 94,000
Other expense 340,000
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Income from discontinued operations before tax 21,000
Applicable income tax 7,000
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Net income from discontinued operations $ 14,000
</TABLE>
YEAR 2000 READINESS
The Company has developed and is implementing a strategic plan to address Year
2000 issues. The Year 2000 issue involves the risk that various problems may
result from the improper processing of dates and date-sensitive calculations by
computers and other equipment as the year 2000 approaches.
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First Bank of Brunswick has developed a Year 2000 plan in accordance with
Federal Financial Institutions Examination Council (FFIEC) guidelines to address
the problem. The bank conducts ongoing employee education on the issue and has
identified all information technology (computers, software, etc.) and non-
information technology (alarms, vaults, etc.) that may be affected by the year
2000 date change. Since the bank does not develop its own software, it has
contacted the various third party software vendors it uses to obtain written
documentation from them confirming Year 2000 compliance. All mission critical
software has been inventoried and tested and most remediation has been completed
at the Bank. The Bank has tested its equipment for compliance and items found
not in compliance have been remediated to be compliant. Hardware, software and
systems will be retested if any changes are made to those systems after initial
testing is complete.
The bank's core data processing is done on an in-house IBM AS 400 with Jack
Henry Associates software. The hardware and a new version of the software have
been installed, tested and appear Year 2000 compliant.
The Bank has developed a communication and assessment plan for its customers.
The bank has communicated the Year 2000 issue to both borrower and depositor
clients by various methods. The Bank has contacted its key loan clients to
determine their status and plans with respect to the Year 2000 issue and to
determine the Bank's exposure to any such customer's failure to remediate its
own Year 2000 problems. This initial customer review is complete and follow-up
reviews of key clients will be conducted regularly.
The expected cost to the Company of the Year 2000 project is currently estimated
at $300,000 for hardware and software upgrades, customer communications, testing
and other items required to complete the plan. All remediation costs will be
funded through normal operating cash flow. Year 2000 project costs during the
three months ended March 31, 1999 were not material.
The Company believes that its mission critical systems are compliant and that
its customers are aware of and are addressing their own Year 2000 issues.
However, in the Company's most reasonably likely worst case scenario, some
portion of a mission critical system may not function properly or some borrowers
may be unable to meet their loan commitments due to problems with their systems.
In the event that a mission critical system temporarily fails to perform
properly, the Company will invoke its contingency plan to correct the problem.
The Company will incur extra costs for salaries and for independent expert
assistance. These costs are not expected to be material. Some of the Company's
loan customers may experience financial difficulties if their mission critical
systems are not compliant and do not perform properly. There can be no
guarantee that customers will resolve their Year 2000 issues on a timely basis.
Significant business interruptions or failures by key clients resulting from
Year 2000 problems could have a material adverse effect on the Company.
The Bank has developed contingency plans to mitigate the potential effects of a
disruption in normal operations resulting from Year 2000 problems. The plan
addresses, among other factors, the Bank's potential increased liquidity and
currency requirements at the critical dates, security issues, and business
resumption planning. The Company has in place written procedures to manually
perform or outsource every mission critical task relating to loan and deposit
processing in the event some part
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of a system does not function properly. The Company is developing forecasts of
liquidity needs and will inventory extra currency to meet any higher than normal
demand during the critical periods. Security will be augmented during these
periods. Personnel staffing will be carefully scheduled during the affected
periods. These contingency plans are frequently reviewed and updated as needed.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings. As of March 31, 1999, there are no material pending
legal proceedings to which the Company or any of its subsidiaries is a party or
of which any of their property is the subject.
Item 2. Changes in Securities.
(a) None.
(b) None.
Item 3. Defaults Upon Senior Securities. None.
Item 4. Submission of Matters to a Vote of Security Holders. None.
Item 5. Other Information. None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit No: Description
27 Financial Data Schedule
(b) Reports on Form 8-K - There were no reports on Form 8-K filed during
the quarter ended March 31, 1999.
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SIGNATURES
Pursuant to the requirements 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.
GOLDEN ISLES FINANCIAL HOLDINGS, INC.
(Registrants)
Date: May 11, 1999
By: /s/ J. Thomas Whelchel
J. Thomas Whelchel
Chairman
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INDEX TO EXHIBITS
Exhibit Sequential
Number Description Page Number
27 Financial Data Schedule 11
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<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from Golden Isles
Financial Holdings, Inc. unaudited consolidated financial statements for the
period ended March 31, 1999, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 4,300,808
<INT-BEARING-DEPOSITS> 149,634
<FED-FUNDS-SOLD> 4,730,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 21,832,272
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 86,550,301
<ALLOWANCE> 1,832,146
<TOTAL-ASSETS> 121,125,394
<DEPOSITS> 100,368,119
<SHORT-TERM> 0
<LIABILITIES-OTHER> 650,242
<LONG-TERM> 6,411,000
0
0
<COMMON> 1,094,338
<OTHER-SE> 12,601,695
<TOTAL-LIABILITIES-AND-EQUITY> 121,125,394
<INTEREST-LOAN> 2,082,327
<INTEREST-INVEST> 381,099
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,463,426
<INTEREST-DEPOSIT> 1,217,245
<INTEREST-EXPENSE> 1,275,874
<INTEREST-INCOME-NET> 1,187,552
<LOAN-LOSSES> 70,000
<SECURITIES-GAINS> 2,240
<EXPENSE-OTHER> 835,978
<INCOME-PRETAX> 454,400
<INCOME-PRE-EXTRAORDINARY> 454,400
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 294,190
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
<YIELD-ACTUAL> 5.18
<LOANS-NON> 856,316
<LOANS-PAST> 246,828
<LOANS-TROUBLED> 767,148
<LOANS-PROBLEM> 5,786,806
<ALLOWANCE-OPEN> 1,825,319
<CHARGE-OFFS> 73,842
<RECOVERIES> 10,669
<ALLOWANCE-CLOSE> 1,832,146
<ALLOWANCE-DOMESTIC> 1,574,340
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 257,806
</TABLE>
