SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) or the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
Commission file number 2-71249
SOUTH BANKING COMPANY
(Exact name of registrant as specified in its charter)
Georgia 58-1418696
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
104 North Dixon Street, Alma, Georgia 31510
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (912) 632-8631
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has 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 registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation 5-K is not contained herein and will not be
contained to the best of registrant's knowledge in definitive proxy on
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. (X)
State the aggregate market value of the voting stock held by
nonaffiliates of the registrant: There is no established market for the
outstanding common stock of the registrant.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the most recent practicable date.
Class Outstanding at February 28, 1997
Common stock $1.00 par value per 403,500
share
DOCUMENTS INCORPORATED BY REFERENCE
List hereunder the following documents if incorporated by reference
and the part of the Form 10-K into which the documents are incorporated:
(1) any annual reports to security holders; (2) any prospectus filed
pursuant to Rule 424(b) or (c) under the Securities Act of 1933. None
PART 1.
Item 1. Business
South Banking Company (the "Registrant") is a business corporation
organized at the direction of Alma Exchange Bank & Trust ("Alma Bank")
and Citizens State Bank ("Citizens Bank") (collectively, the "Banks") in
1980 under the Georgia Business Corporation Code. It was formed to
obtain all the issued and outstanding shares of Common Stock of the
Banks. Pursuant to the terms and provisions of a Plan of Reorganization
and Agreement of Merger, dated as of January 13, 1981 and approved by
the shareholders of the Banks on June 24, 1981, the Banks were
reorganized into a holding company structure by merging the Banks with
wholly-owned subsidiaries of the Registrant, which transaction was
consummated on July 28, 1981. In connection with those mergers, the
outstanding shares of Common Stock of the Banks were converted into
shares of the Registrant at specified ratios and the Banks became
wholly-owned subsidiaries of the Registrant. Pursuant to the terms and
provision of an agreement of merger dated June 12, 1989 between South
Banking and Georgia Peoples Bankshares, Inc. and approved by
shareholders of Georgia Peoples on February 26, 1990, Georgia Peoples
Bankshares and its subsidiary, Peoples State Bank, were merged into
South Banking Company. In connection with the merger, the outstanding
shares of Georgia Peoples Bankshares were converted into shares of the
Registrant at specified ratios. During 1993, South Banking Company
formed Banker's Data Services, Inc. ("Banker's Data") for the purpose of
handling all the computer functions of the banks. Operations began in
April, 1994. South Banking entered into an agreement in October of 1995
to acquire all the stock of Pineland State Bank ("Pineland Bank") in
Metter, Georgia. On January 11, 1996, the transaction was completed.
The Banks
The Banks operate full service banking business in Bacon, Appling,
Candler and Camden Counties, Georgia, providing such customary banking
services as checking and savings accounts, various other types of time
deposits, safe deposit facilities and money transfers. The Banks also
finance commercial and agricultural transactions, make secured and
unsecured loans, and provide other financial services to its customers.
The Banks do not conduct trust activities. On December 31, 1995, Alma
Bank and Peoples Bank ranked, on the basis of total deposits, as the
smaller of the two banks in Bacon and Appling Counties and the 252nd and
322nd largest Banks among 383 banks in Georgia, Citizens Bank, one of
five banking operations in Camden County, ranked the 376th largest bank
among 383 banks in Georgia and Pineland Bank, one of three banking
operations in Metter, Georgia ranked the 342nd largest bank among 383
banks in Georgia, Sheshunoff's Banks of Georgia (1996 edition).
The Banks make and service both secured and unsecured loans to
individuals, firms and corporations. Commercial lending operations
include various types of credit for the Banks' customers. The Banks'
installment loan departments make direct loans to individuals and, to a
limited extent, purchase installment obligations from retailers both
with and without recourse. The Banks make a variety of residential,
industrial, commercial and agricultural loans secured by real estate,
including interim construction financing. Each bank has established
desired mixes of real estate, commercial, agricultural and consumer
lending depending upon activities within the local area. The ratios are
established in accordance with risk diversification goals. All banks
are located in small rural areas with low to moderate income levels.
The banks primarily look to real estate lending as a major portion of
portfolio, real estate values have remained fairly stable over the past
few years to give stability to lending activities. Loan to value ratios
are maintained in the 60% to 80% level for various real estate lending.
Loan to value ratio of non real estate loans vary from 50% for the
inventory or receivables to 90% for vehicles and other consumer lending.
The economy of the area remains fairly constant without great
fluctuation. The national economy will effect the area primarily in the
timber and other agricultural products; however, the movement is not as
wide locally as national movement indicates. Citizens Bank and Peoples
Bank act as agents for another bank in offering "Master Card" and "VISA"
credit cards to its customers and does not assume the credit risk on
these transactions. Alma Bank offers "Master Card" credit cards to its
customers.
At December 31, 1996, the Banks had correspondent relationships
with 16 other commercial banks. These correspondent banks provide
certain services to the banks such as processing checks and other items,
buying and selling federal funds, handling money transfers and
exchanges, shipping coins and currency, providing security and
safekeeping of funds or other valuable items and furnishing limited
management information and advice. As compensation for the services,
the Banks maintain certain balances with its correspondents in
noninterest bearing accounts.
The Banks are members through its correspondent bank of the AVAIL
network. AVAIL is an organization that has established a network of
automated teller machines inside the state of Georgia.
Employees
On December 31, 1996, the Registrant and its subsidiaries had 82
full-time and 13 part-time employees. The Registrant is not a party to
any collective bargaining agreement and employee relations are deemed to
be good.
Competition
The Banking business is highly competitive. The Banks compete
primarily with other commercial banks operating in Bacon, Camden,
Appling and Candler Counties. In addition, the Banks compete with other
financial institutions, including savings and loan associations, credit
unions and finance companies and, to a lesser extent, insurance
companies and certain governmental agencies. The banking industry is
also experiencing increased competition for deposits from less
traditional sources such as money-market mutual funds.
Monetary Policies
The results of operations of the Banks, and therefore of the
Registrant, are affected by credit policies of monetary authorities,
particularly the Board of Governors of the Federal Reserve System (the
"Board of Governors"), even though the Banks are not members of the
Federal Reserve.
The instruments of monetary policy employed by the Federal Reserve
include open market operations in U. S. Government securities and
changes in the discount rate on member bank borrowing changes in reserve
requirements against member bank deposits. In view of changing
conditions in the national economy and in the money markets, as well as
the effect of action by monetary and fiscal authorities, including the
Federal Reserve System, no prediction can be made as to possible future
changes in interest rates, deposit levels, loan demand or the business
and earnings of the Banks.
Supervision and Regulations
The Registrant is a bank holding company within the meaning of the
Bank Holding Company Act of 1956, as amended (the "Act"), and is
required to register as such with the Board of Governors. The
Registrant is required to file with the Board of Governors an annual
report and such other information as may be required to keep the Board
of Governors informed with respect to the Registrant's compliance with
the provisions of the Act. The Board of Governors may also make
examinations of the Registrant and its subsidiaries from time to time.
The Act requires every bank holding company to obtain the prior
approval of the Board of Governors before it may acquire substantially
all the assets of any bank or ownership or control of any voting shares
of any bank, if, after such acquisition, it would own or control,
directly or indirectly, more than five percent of the voting shares of
such bank. In no case, however, may the Board of Governors approve the
acquisition by the Registrant of the voting shares of any bank located
outside Georgia, unless such acquisition is specifically authorized by
the laws of the state in which the bank to be acquired is located.
In addition, a bank holding company is generally prohibited from
engaging in or acquiring direct or indirect control of voting shares of
any company engaged in nonbanking activities. One of the principal
exceptions to this prohibition is for activities found by the Board of
Governors, by order or regulation, to be so closely related to banking,
managing or controlling banks as to be a proper incident thereto. Some
of the activities that the Board of Governors has determined by
regulation to be closely related to banking are: making or servicing
loans and certain types of leases; performing certain data processing
services; acting as fiduciary, investment or financial advisor; making
investments in corporations or projects designed primarily to promote
community welfare.
In January, 1989, the Board of Governors issued final regulations
which implement risk-based rules for assessing bank and bank holding
company capital adequacy. The regulations revise the definition of
capital and establish minimum capital standards in relation to assets
and off-balance sheet exposures, as adjusted for credit risk.
Risk based capital regulations were adopted by banking regulations
in 1989. These new capital adequacy standards were phased in and became
fully effective on December 31, 1992. Risk based capital standards
generally measure the amount of a bank's required capital in relation to
the degree of risk perceived in its assets and its off-balance sheet
exposure. The concepts of primary and secondary capital were replaced
by Tier 1 and Tier 2 capital and a new leverage ratio requirement was
added. The amount of risk-based capital required is calculated by
multiplying the recorded amount of each asset category and each off-
balance sheet exposure item by the appropriate risk-weighting
percentage. Risk adjusted total assets is the total of these risk-
weighted categories. Total required capital is the product of the risk-
adjusted total assets multiplied by the specific capital percentage
(i.e. 8% at December 31, 1996).
Capital for purposes of the risk-based capital calculation is
divided into two categories:
(1) Tier 1 capital includes common shareholder equity,
noncumulative perpetual preferred stock and minority interest;
goodwill is subtracted.
(2) Tier 2 capital includes the allowance for loan and lease
losses, qualifying perpetual preferred stock, hybrid capital
instruments, term-subordinated debt and intermediate term preferred
stock. The allowance and loan losses may only be included up to an
amount equal to 1.25% of risk adjusted total assets. Term
subordinated debt and intermediate term preferred stock may be
included to a maximum of 50% of Tier 1 capital. Finally, Tier 2
capital may not exceed Tier 1 capital.
Total qualifying capital, for purposes of risk-based capital
calculation, is the total of Tier 1 capital and Tier 2 capital, less
reciprocal holdings of bank capital instruments and less investments in
unconsolidated subsidiaries.
In June 1992, the Federal Reserve Board released a proposal to add
a measure of interest rate risk to the determination of supervisory
capital adequacy. Under the proposal, items reported on a banks balance
sheet and off-balance sheet would be reported according to maturity. A
bank's reported position would be multiplied by duration based risk
factions and weighted according to rate sensitivity. The objective of
this computer proposal is to determine the sensitivity of a bank to a 1%
change in interest rates.
In addition to risk-based capital, a leverage ratio test must be
met. The leverage ratio is the ratio of Tier 1 capital to assets (not
risk adjusted). The minimum leverage ratio is 3%.
As of December 31, 1996, the banks were in compliance with these
regulations.
The written policies of the Georgia Department of Banking and
Finance (the "DBF") require that state banks in Georgia generally
maintain a minimum ratio of primary capital to total assets of 6.0%. At
December 31, 1996, the Banks were in compliance with these requirements.
In addition, the DBF is likely to compute capital obligations in
accordance with the risk-based capital rules while continuing to require
a minimum absolute level of capital.
It is not anticipated that such minimum capital requirements will
affect the business operations of the Banks. However, the Board, in
connection with granting approval for bank holding companies to acquire
other banks and bank holding companies or to engage in non-banking
activities, requires bank holding companies to maintain tangible capital
ratios at approximate peer group levels. This requirement can result in
a bank holding company maintaining more capital than it would otherwise
maintain. At the present time, South Banking Company's tangible primary
capital ratios are equal or above their peer group level.
The laws of Georgia require annual registration with the DBF by all
Georgia bank holding companies. Such registration includes information
with respect to the financial condition, operations and management of
intercompany relationships of the bank holding company and its
subsidiaries and related matters. The DBF may also require such other
information as is necessary to keep informed as to whether the
provisions of Georgia law and the regulations and orders issued
thereunder by the DBF have been in compliance with and the DBF may make
examinations of the bank holding company and each bank subsidiary
thereof.
The banks are also subject to examination by the DBF and the FDIC.
The DBF regulates and monitors all areas of the operations of the banks,
including reserves, loans, mortgages, issuances of securities, payment
of dividends, interest rates and establishment of branches. Interest
and certain other charges collected or contracted for by the Banks are
also subject to state usury laws and certain federal laws concerning
interest rates. The Banks' deposits are insured by the FDIC up to the
maximum permitted by law.
Current legislation has passed that would allow banks to branch
statewide subject to certain restriction. This law became effective
July 1, 1996.
Georgia banking laws permit bank holding companies to own more than
one bank, subject to the prior approval of the Georgia Department of
Banking and Finance; thereby, in effect, permitting statewide banking
organizations. Such banks may be acquired as subsidiaries of the
Registrant or merged into its existing bank subsidiaries.
Recent Legislation
Bills are presently pending before the United States Congress and
certain state legislatures and additional bills may be introduced in the
future in the Congress and the state legislatures to alter the
structure, regulation and competitive relationships of the nation's
financial institutions. It cannot be predicted whether or in what form
any of these proposals will be adopted or the extent to which the
business of the Banks may be affected thereby.
More recently, the attention of the United States Congress has been
focused primarily on the need for resolution of the insolvency of the
Federal Savings and Loan Insurance Corporation ("FSLIC"), which insured
deposits maintained in most savings and loan associations and savings
banks and the need to provide appropriate structural reform to the
thrift industry. On August 9, 1989, President Bush signed the
Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA"), which is designed to resolve these problems and which, among
other matters, fundamentally restructures the supervision and regulation
of the thrift industry and creates a special corporation to liquidate
insolvent institutions and issue $30 billion in bonds to assist in
financing the cost of resolving failed thrift institutions. Under the
legislation, the FSLIC was merged administratively with the FDIC, and
the FDIC now regulates the two deposit insurance funds for commercial
banks and thrifts. Although the two insurance funds will not be co-
mingled, the fees that commercial banks and thrifts would pay to their
respective insurance funds will be increased. Within certain limits,
assessments may be raised as high as .325% to prevent the insurance
funds from declining. The FDIC will have the authority to revise the
premium for institutions in either fund in certain circumstances. In
addition to the insurance premium increase provisions, FIRREA also
provides for these additional changes with a direct effect on commercial
banks and bank holding companies: limits on the use of brokered deposits
by capital deficient banks; the acquisition of savings and loan
associations by bank holding companies; disclosures of the bank
supervisors' assessment of community Reinvestment Act ratings for banks;
and an increase in penalties for various bank related crimes both in the
forms of fines and sentences. It is difficult to predict the effect of
FIRREA on the operations and prospects of banks; however, the increase
in deposit insurance premiums paid by the Banks will increase the Banks
cost of funds and there can be no assurance that such cost can be passed
on to the Banks' customers.
In the 1989 session, the Georgia legislature enacted a bill to
authorize the DBF to promulgate regulations providing for increased
securities and real estate powers for banks. The legislation does not
detail these new powers, leaving the specifics to the DBF's discretion.
It is not expected that the DBF will immediately grant significant new
powers or that such powers will have a great impact on the Banks.
Effective on July 1, 1985, the Georgia General Assembly adopted
legislation that allows bank holding companies located in Georgia to own
or control banks in certain other southeastern states and allows bank
holding companies in other southeastern states to own or control banks
located in Georgia on a reciprocal basis. Effective March 13, 1987, the
Georgia State Legislature expanded this reciprocal regional interstate
banking area to include the State of Maryland and the District of
Columbia. The legislatures of Alabama, the District of Columbia,
Florida, Louisiana, Kentucky, Maryland, North Carolina, South Carolina,
Tennessee and Virginia have passed regional interstate banking laws
which are in effect. The state of Mississippi approved regional
interstate banking effective January 1, 1990 with respect to holding
company entry on a reciprocal basis by holding companies located in
Georgia. During 1994, the state of Georgia approved a measure to allow
nation wide interstate banking. Management of the Banks do not
anticipate this new law will have any impact on their operations.
Georgia passed state wide branching law in February, 1996 with an
effective date of July 1, 1996. This allows banks to cross county lines
and establish branches. It is anticipated that increased competition
will occur as a result.
Federal Deposit Insurance Corporation Improvement Act of 1991
On December 19, 1991, the Federal Deposit Insurance Corporation
Improvement Act of 1991 (the "FDICIA") became law. While the FDICIA
primarily addressed additional sources of funding for the Bank Insurance
Fund, which insures the deposits of commercial banks and savings banks,
it also imposed a number of new mandatory supervisory measures on
savings associations and banks.
Standards for Safety and Soundness FDICIA requires the federal
bank regulatory agencies to prescribe, by regulation, standards for all
insured depository institutions and depository institution holding
companies relating to: (i) internal controls, information systems and
audit systems; (ii) loan documentation; (iii) credit underwriting; (iv)
interest rate risk exposure; (v) asset growth; and (vi) compensation,
fees and benefits. The compensation standards would prohibit employment
contracts, compensation or benefit arrangements, stock option plans, fee
arrangements or other compensatory arrangements that would provide
excessive compensation, fees or benefits or could lead to material
financial loss. In addition, the federal banking regulatory agencies
would be required to prescribe by regulation standards specifying: (i)
maximum classified assets-to-capital ratios; (ii) minimum earnings
sufficient to absorb losses without impairing capital; and (iii) to the
extent feasible, a minimum ratio of market value to book value for
publicly traded shares of depository institutions and depository
institution holding companies. Final regulations implementing these
standards were promulgated by July 1, 1993 and effective by January 1,
1994. The federal banking agencies recently adopted an advance notice
of proposed rulemaking regarding implementation of these standards. A
recently enacted law amends certain FDICIA provisions regarding
compensation standards and several pending legislative bills would amend
certain other requirements of this section of FDICIA. Thus, it is
uncertain whether such provisions will ever be implemented or, if
implemented by the banking agencies, it is uncertain as to how the
standards will be applied.
Financial Management Requirements FDICIA also imposes new
financial reporting requirements on all depository institutions with
assets of more than $150 million, their management and their independent
auditors and establishes new rules for the composition, duties and
authority of such institutions' audit committees and boards of
directors, effective in fiscal years beginning after December 31, 1992.
Among other things, all such depository institutions were required to
prepare and make available to the public annual reports on their
financial condition and management, including statements of managements'
responsibility for the financial statements, internal controls and
compliance with certain federal banking laws and regulations relating to
safety and soundness and an assessment of the institutions' compliance
with such internal controls, laws and regulations. The institution's
independent public accountants are required to attest to these
management assessments. Each institution also is required to have an
audit committee composed of independent directors. Audit committees of
large institutions (to be defined by the FDIC) would have the ability to
engage their own, independent legal counsel.
Prompt Corrective Regulatory Action FDICIA establishes a system
of prompt corrective action to resolve the problems of undercapitalized
institutions. Under this system, which became effective December 19,
1992, the banking regulators are required to take certain supervisory
actions against undercapitalized institutions, the severity of which
depends upon the institution's degree of capitalization. Generally,
subject to a narrow exception, the FDICIA requires the banking regulator
to appoint a receiver or conservator for an institution that is
critically undercapitalized. The FDICIA authorizes the banking
regulators to specify the ratio of tangible capital to assets at which
an institution becomes critically undercapitalized and requires that
ratio be no less than 2% of assets.
Other Deposit Insurance Reforms FDICIA amended the Federal Deposit
Insurance Act ("FDI Act") to prohibit insured depository institutions
that are not well-capitalized from accepting brokered deposits unless a
waiver has been obtained from the FDIC. Deposit brokers will be
required to register with the FDIC.
FDICIA also directed the FDIC to establish a risk-based assessment
system for deposit insurance to become effective no later than January
1, 1994. FDICIA provides that, under the risk-based system established
by the FDIC, deposit insurance assessments paid by a financial
institution are to be based on the probability that the deposit
insurance funds (i.e. BIF or SAIF) will incur a loss with respect to the
insured depository institution. The FDIC recently established a
transitional risk-based insurance assessment system which was effective
for the semi-annual assessment period beginning January 1, 1993 and has
proposed a risk-based system to replace the transitional system.
Furthermore, FDICIA authorizes the FDIC to privately reinsure up to 10%
of its risk of loss with respect to an institution and base its
assessment on the cost of such reinsurance.
The Tax Reform Act of 1986
The Tax Reform Act of 1986 (the "TRA") contains several provisions
affecting banks and financial institutions, including new provisions
governing tax rates, depreciation, investment tax credits, bad debt
reserves, interest expense allocable to tax-exempt obligations, net
operating losses and a new alternative minimum tax ("AMT"). The TRA
reduced the maximum corporate income tax rate from 46% to 34% in 1988
when the provision was fully effective. A surcharge of 5% will also
apply to income in excess of $100,000, up to a maximum surcharge of
$11,750.
For tax years beginning after 1986, the TRA imposes an AMT on
corporations. The tax is computed by applying a 20% tax rate to the sum
of (1) taxable income, (2) certain preference items and (3) 50% of the
excess of book income before taxes over the sum of (1) and (2). For a
financial institution, the principal preference items result from bad
debt deductions, accelerated depreciation and interest on certain
private purpose tax exempt bonds. The taxpayer is then required to pay
the greater of its regular tax or the AMT. South does not expect to
incur an alternative minimum tax liability based on its current
profitability and investment portfolio. If the AMT is incurred as a
result of deferral preferences, a credit is generated which may be used
against regular tax in subsequent years.
The TRA provides for disallowances of 100% of any otherwise
allowable interest expense deduction that is deemed allocable to tax-
exempt obligations acquired after August 7, 1986, except for certain
small municipal issuers. As a result, the Banks expect to primarily
invest in taxable investment securities.
Financial institutions with assets in excess of $500 million are no
longer permitted to use the reserve method for accounting for loan
losses for tax purposes. South does not exceed this asset size and,
accordingly, can continue to use the reserve method.
The TRA also eliminated investment tax credits after December 31,
1985. As investment in premises and equipment is not significant to the
assets of South, the elimination of investment tax credits is not
perceived to materially affect the tax provision expense of South.
The foregoing is only a summary of certain Federal income tax
changes caused by the TRA and is qualified in its entirety by reference
to the TRA. It does not include all aspects of the TRA as it relates to
financial institutions or state, local or other tax laws.
Omnibus Budget Reconciliation Act of 1993
The Omnibus Budget Reconciliation Act of 1993 (the "Tax Act")
continues the recent legislation affecting banks and financial
institution. The Tax Act was designed as a deficit reduction with
similarities to the 1990 Act which was also designed to slice $500
billion from the deficit.
Generally the Tax Act affects all corporations as to a new 35% tax
rate for income in excess of 10 million and the maximum corporate
capital gains rate was increased to 35%. The Registrant currently will
not be affected by the change due to the income level of the Registrant.
Various other provisions would restrict certain deductions and/or change
the treatment of certain transactions.
Provisions that especially affect financial institutions included
market to market Accounting for Securities. The Tax Act requires that
securities that are inventory in the hands of a dealer be inventoried at
fair market value (market to market). For the purposes of these rules,
"securities" and a "dealer" are defined more broadly than under prior
law. A "dealer" is any person who either regularly purchases securities
from or sells securities to, customers in the ordinary course of
business or regularly offers to enter into, assume, offset, assign or
otherwise terminate positions in securities with customers in the
ordinary course of a trade or business. Banks have been determined to
qualify as a dealer under the new definitions. Unless securities are
properly identified as held for investment, all inventory will be
required to be market to market.
A second item affecting financial institutions is the treatment of
tax-free FSLIC Assistance that was credited on or after March 4, 1991 in
connection with the disposition of "covered" assets. Financial
institutions are required to treat that assistance as compensation for
any losses claimed on dispositions or charge-offs of these assets,
effectively denying them any tax loss for those assets. This provision
should not have any effect on the Registrant.
The third item affecting financial institutions is the amortization
of intangible assets effective for purchase after the enactment (August
10, 1993). Taxpayers are required to amortize most intangibles
(including goodwill, core deposits, going concern value and covenant not
to compete) used in a trade or business over a 15 year period.
Exception to this rule includes mortgage service rights. The provision
will have significant impact on any future purchases the holding company
may decide to undertake.
Some of the other provisions such as eliminating deductions for
lobbying expense and club dues will impact the taxes payable by the
Registrant.
Reigle Community Development and Regulatory Improvement Act of 1994
The Reigle Community Development and Regulatory Improvement Act of
1994 (CDRIA) was enacted in September, 1994. CDRIA is divided into five
titles:
Title I. Community Development and Consumer Protection
Title II. Small Business Capital Formation
Title III. Paperwork Reduction and Regulatory Improvements
Title IV. Money Laundering
Title V. National Flood Insurance Refund
Some of the more prominent provisions of this legislation included,
consideration of regulatory burden in the rule making process,
streamlining of regulatory requirements, call report simplification and
repeal of publication requirements, regulatory appeals reform, truth in
savings act exemption for business accounts, guidelines for examiners,
expedited procedures for forming a bank holding company and holding
company audit requirements. Management has determined that this act
will have minimal effect on South Banking Company.
Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994
The Reigle-Neal Interstate Bank and Branching Efficiency Act of
1994 expands the rights of bank and bank holding companies to own out-
of-state banks and branches. After September 29, 1995, bank holding
companies will be allowed to acquire banks in any state without regard
to state law. States will be allowed to prevent holding companies from
acquiring newly opened banks. (e.g., those in existence for less than 5
years).
Banks will also be able to merge with out-of-state banks and
establish out-of-state branches effective June 1, 1997. States,
however, have the authority to prohibit out-of-state banks from opening
branches.
Recent and Proposed Changes in Accounting Rules
The Financial Accounting Standards Board ("FASB") recently adopted
or issued proposals and guidelines which may have a significant impact
on the accounting practices of commercial enterprises in general and
financial institutions in particular.
Effective for years beginning after December 15, 1993 the
Registrant was required to implement FASB 115 "Accounting for Certain
Investments in Debt and Equity Securities". This FASB requires
securities to be classified in one of three categories:
(1) Held to maturity
(2) Trading securities
(3) Securities available for sale
The Banks were required to classify all securities into one of the
three categories. The Banks currently do not have trading accounts and
do not anticipate classifying any securities into this category. Once
the securities are classified, FASB 115 restricts the transfer between
classification except under rare circumstances. The affect on the banks
will primarily be in securities classified available for sale. FASB 115
requires these securities to be market to market with unrealized gains
and losses reported as a separate amount in stockholders equity section
and excluded from earnings until realized. Deferred taxes will be
provided in accordance with FASB 109 on the unrealized gains and losses.
FASB 114 became effective for years beginning after December 15,
1994. FASB 114 "Accounting by Creditors for Impairment of a Loan"
specifies how allowance for credit losses related to certain loans
should be determined. When the FASB became effective, the Banks were
required to modify the treatment of impaired loans to discount expected
cash flows and record a valuation allowance. The Banks did not have any
material change as a result of this FASB.
In February 1992, the FASB issued Statement of Financial Accounting
Standards SFAS No. 109 relating to the method of accounting for deferred
income taxes. Implementation of SFAS 109 is required for fiscal years
beginning after December 15, 1992. SFAS No. 109 requires companies to
take into account changes in tax rates when valuing the deferred income
tax amounts recorded on the balance sheet. The statement also requires
that deferred taxes be provided for all temporary differences between
financial statement and tax income in addition to the timing differences
in the recognition of income for financial statement and tax purposes
which were covered by prior accounting rules.
In December 1990, FASB issued SFAS No. 106, "Employer's Accounting
for Post-Retirement Benefits Other Than Pensions". SFAS No. 106 focuses
principally on post-retirement health care benefits and will
significantly change the prevalent current practice of accounting for
post-retirement benefits on a cash basis to requiring accrual, during
the years that the employee renders the necessary service, of the
expected cost of providing those benefits to an employee and the
employee's beneficiaries and covered dependents. SFAS No. 106 is
effective for fiscal years beginning after December 15, 1992, and
adoption is required on a prospective basis. Management believes that
the provisions of SFAS No. 106 will not have a significant effect on
future results of operations.
In December 1991, the FASB issued SFAS No. 107, "Disclosures About
Fair Value of Financial Investments". SFAS No. 107 requires all
entities to disclose, in financial statements or the notes thereto, the
fair value of financial instruments, both assets and liabilities,
recognized and not recognized, in the statement of financial condition,
for which it is practicable to estimate fair value. SFAS No. 107 is
effective for financial statements issued for years ending after
December 15, 1992, except for entities with less than $150 million in
total assets, for which it is effective in 1996. Substantially all of
the Bank's assets and liabilities are financial instruments and, as a
result, SFAS No. 107 requires the fair value of such assets and
liabilities to be disclosed. Because such assets and liabilities are
monetary in nature, their fair values may fluctuate significantly over
time. The provisions of SFAS No. 107 will require certain disclosures
on the part of management, but will not have a significant effect on
future results of operations.
In April 1992, the Accounting Standards Division of the American
Institute of Certified Public Accountants issued Statement of Position
92-3 ("SOP 92-3") "Accounting for Foreclosed Assets". SOP 92-3 requires
all entities to value foreclosed assets held for sale at the lower of
(i) fair value minus estimated costs to sell or (ii) cost. The bank is
in compliance with this statement of position.
Selected Statistical Information
The tables and schedules on the following pages set forth certain
significant statistical data with respect to: (I) the distribution of
assets, liabilities and shareholders' equity and the interest rates and
interest differentials experienced by, the Registrant and its
subsidiaries; (II) the investment portfolio of the Registrant and its
subsidiaries; (III) the loan portfolio of the Registrant and its
subsidiaries, including types of loans, maturities and sensitivity to
changes in interest rates and information on nonperforming loans; (IV)
summary of the loan loss experience and reserves for loan losses of the
Registrant and its subsidiaries; (V) types of deposits of the Registrant
and its subsidiaries; and (VI) the return on assets and equity for the
Registrant and its subsidiaries.
I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIALS
A. The condensed average balance sheets for the periods indicated are
presented below.
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
(In Thousands)
ASSETS
Cash and due from banks $ 5,421 $ 4,348 $ 3,749
Cash in bank - interest
bearing 2,138 827 1,538
Taxable investment securities 14,598 8,518 8,222
Nontaxable investment
securities 1,947 1,055 1,619
Others 556 273 -
Federal funds sold and
securities purchased under
agreements to resell 9,593 8,023 7,883
Loans - net 84,023 60,641 54,042
Other assets 7,523 5,968 5,700
Total Assets $ 125,799 $ 89,653 $ 82,753
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits: Demand - non-interest
bearing $ 17,379 $ 13,446 $ 12,965
Demand - interest
bearing 20,380 15,211 17,378
Savings 7,903 6,675 7,132
Time 64,401 42,838 34,647
Total Deposits $ 110,063 $ 78,170 $ 72,122
Federal funds purchased 343 7 167
Other borrowed funds 3,741 1,545 1,186
Other liabilities 888 408 468
Total Liabilities $ 115,035 $ 80,130 $ 73,943
Shareholders' equity $ 10,764 $ 9,523 $ 8,810
Total Liabilities and
Shareholders' Equity $ 125,799 $ 89,653 $ 82,753
B. Interest Rates. The tables below show for the periods indicated the
average amount outstanding for major categories of interest earning
assets and interest bearing liabilities; the average interest rates
earned or paid; the interest income and expense earned or paid thereon;
net interest earnings and the net yield on interest-earning assets.
Year Ended December 31, 1996
Average Yield/
Balance Interest Rate
(In Thousands)
ASSETS
Cash in banks - interest
bearing $ 2,138 $ 119 5.57%
Loans 84,023 9,479 11.28
Taxable investments 14,598 879 6.02
Non-taxable investments 1,947 95 4.88
Other 556 28 5.03
Federal funds sold and
securities purchased
under agreements to resell 9,593 506 5.27
Total Interest-bearing assets $ 112,855 $ 11,106 9.84%
LIABILITIES
Demand - interest bearing $ 20,380 $ 579 2.84%
Savings deposits 7,903 231 2.92
Other time deposits 64,401 3,703 5.75
Other short term borrowing 3,741 292 7.80
Federal funds purchased 343 18 5.25
Total Interest-Bearing
Liabilities $ 96,768 $ 4,823 4.98%
Net interest earnings $ 6,283
Net yield on interest earning assets 4.86%
Year Ended December 31, 1995
Average Yield/
Balance Interest Rate
(In Thousands)
ASSETS
Cash in banks - interest
bearing $ 827 $ 41 4.96%
Loans 60,641 6,996 11.54
Taxable investments 8,518 513 6.02
Non-taxable investments 1,055 59 5.59
Other 273 10 3.66
Federal funds sold and
securities purchased
under agreements to resell 8,023 472 5.88
Total Interest-bearing
assets $ 79,337 $ 8,091 10.20%
Year Ended December 31, 1995
Average Yield/
Balance Interest Rate
(In Thousands)
LIABILITIES
Demand - interest bearing $ 15,211 $ 407 2.68%
Savings deposits 6,675 182 2.73
Other time deposits 42,838 2,580 6.02
Other short term borrowing 1,545 144 9.32
Federal funds purchased 7 1 N/A
Total Interest-Bearing
Liabilities $ 66,276 $ 3,314 5.00%
Net interest earnings $ 4,777
Net yield on interest earning assets 5.20%
Year Ended December 31, 1994
Average Yield/
Balance Interest Rate
(In Thousands)
ASSETS
Cash in banks - interest
bearing $ 1,538 $ 65 4.22%
Loans 54,042 5,666 10.48
Taxable investments 8,222 437 5.32
Non-taxable investments 1,619 94 5.81
Federal funds sold and
securities purchased
under agreements to resell 7,883 306 3.88
Total Interest-bearing
assets $ 73,304 $ 6,568 8.96%
LIABILITIES
Demand - interest bearing $ 17,378 $ 492 2.83%
Savings deposits 7,132 197 2.76
Other time deposits 34,647 1,475 4.26
Other short term borrowing 1,186 101 8.52
Federal funds purchased 167 4 2.40
Total Interest-Bearing
Liabilities $ 60,510 $ 2,269 3.75%
Net interest earnings $ 4,299
Net yield on interest earning assets 5.21%
(1) Note: Loan fees are included for rate calculation purposes. Loan fees
included in interest amounted to approximately $723,885 in 1996, $464,456
in 1995 and $521,000 in 1994. Non accrual loans have been included in the
average balances.
(2) Non-taxable investments have not been calculated on a tax equivalent
basis, rather interest rates are calculated based on actual rates paid.
C. Interest Differentials. The following tables set forth for the
periods indicated a summary of the changes in interest earned and interest
paid resulting from changes in volume and changes in rates.
1996 compared to 1995
Increase (Decrease) Due to (1)
Volume Rate Change
(In Thousands)
Interest earned on:
Cash in banks - interest
bearing $ 65 $ 13 $ 78
Loans 2,698 ( 215) 2,483
Taxable investments 366 - 366
Nontaxable investments 50 ( 14)) 36
Other 10 8 18
Federal funds sold and
securities purchased under
agreement to resell 92 ( 58) 34
Total Interest-Earning Assets $ 3,281 $( 266) $ 3,015
Interest paid on:
NOW deposits $ 139 $ 33 $ 172
Savings deposits 34 15 49
Other time deposits 1,298 ( 175) 1,123
Other borrowing 205 ( 57) 148
Federal funds purchased 17 - 17
Total Interest-bearing
Liabilities $ 1,693 $( 184) $ 1,509
Net Interest Earnings $ 1,588 $( 82) $ 1,506
(1) The change in interest due to volume has been determined by applying
the rate from the earlier year to the change in average balances
outstanding from one year to the next. The change in interest due to rate
has been determined by applying the change in rate from one year to the
next to average balances outstanding in the later year.
1995 compared to 1994
Increase (Decrease) Due to (1)
Volume Rate Change
(In Thousands)
Interest earned on:
Cash in banks - interest
bearing $( 30) $ 6 $( 24)
Loans 690 640 1,330
Taxable investments 16 60 76
Nontaxable investments ( 33) ( 2) ( 35)
Other 10 - 10
Federal funds sold and
securities purchased under
agreement to resell 6 160 166
Total Interest-Earning Assets $ 659 $ 864 $ 1,523
1995 compared to 1994 (con't)
Increase (Decrease) Due to (1)
Volume Rate Change
(In Thousands)
Interest paid on:
NOW deposits $( 61) $( 24) $( 85)
Savings deposits ( 13) ( 2) ( 15)
Other time deposits 349 756 1,105
Other borrowing 30 13 43
Federal funds purchased ( 3) - ( 3)
Total Interest-bearing
Liabilities $ 302 $ 743 $ 1,045
Net Interest Earnings $ 357 $ 121 $ 478
(1) The change in interest due to volume has been determined by applying
the rate from the earlier year to the change in average balances
outstanding from one year to the next. The change in interest due to rate
has been determined by applying the change in rate from one year to the
next to average balances outstanding in the later year.
1994 compared to 1993
Increase (Decrease) Due to (1)
Volume Rate Change
(In Thousands)
Interest earned on:
Cash in banks - interest
bearing $( 33) $ 2 $( 31)
Loans 523 170 693
Taxable investments ( 138) ( 40) ( 178)
Nontaxable investments ( 23) ( 16) ( 39)
Federal funds sold and
securities purchased under
agreement to resell 65 76 141
Total Interest-Earning Assets $ 394 $ 192 $ 586
Interest paid on:
NOW deposits $( 15) $ 22 $ 7
Savings deposits 19 - 19
Other time deposits 26 26 52
Other borrowing 27 25 52
Federal funds purchased 4 - 4
Total Interest-bearing
Liabilities $ 61 $ 73 $ 134
Net Interest Earnings $ 333 $ 119 $ 452
(1) The change in interest due to volume has been determined by applying
the rate from the earlier year to the change in average balances
outstanding from one year to the next. The change in interest due to rate
has been determined by applying the change in rate from one year to the
next to average balances outstanding in the later year.
II. INVESTMENT PORTFOLIO
A. Types of Investments The carrying amounts of investment securities
at the dates indicated are summarized as follows:
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
(In Thousands)
U. S. Treasury and other
U. S. government agencies
and corporations $ 12,381 $ 7,634 $ 5,942
State and political
subdivisions (domestic) 1,888 1,921 1,126
Mortgage backed securities 1,544 1,897 2,065
Totals $ 15,813 $ 11,452 $ 9,133
B. Maturities The amounts of investment securities in each category as
of December 31, 1996 are shown in the following table according to
maturity classifications (1) one year or less, (2) after one year through
five years, (3) after five years through ten years, (4) after ten years.
U. S. Treasury
and Other U. S.
Government State
Agencies and and Political Mortgage Backed
Corporations Subdivisions Securities
Average Average
Yield Yield Average
Amount (1) Amount (1)(2) Amount Yields
Maturity:
One year or less $ 1,180 5.33% $ 190 8.66% $ 342 6.37
After one year
through five years 10,027 6.07 831 6.77 885 6.26
After five years
through ten years 1,199 6.10 350 8.50 - -
After ten years - - 500 9.05 319 6.80
Totals $12,406 6.00% $ 1,871 7.96% $ 1,546 6.39%
(1) Yields were computed using coupon interest, adding discount
accretion or subtracting premium amortization, as appropriate, on a
ratable basis over the life of each security. The weighted average
yield for each maturity range was computed using the acquisition price
of each security in that range.
(2) Yields on securities of state and political subdivisions are stated
on a tax equivalent basis, using a tax rate of 34%.
III. Loan Portfolio
A. Types of Loans The amount of loans outstanding at the indicated
dates are shown in the following table according to type of loan.
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
(In Thousands)
Commercial, financial and
agricultural $ 19,565 $ 14,592 $ 13,229
Real estate - mortgage 53,813 36,426 32,792
Real estate - construction 3,798 1,767 2,347
Installments 11,870 8,932 8,834
$ 89,046 $ 61,717 $ 57,202
Less - unearned income 150 82 59
Reserve for possible
losses 1,781 994 975
Total Loans $ 87,115 $ 60,641 $ 56,168
B. Maturities and Sensitivity to Changes in Interest Rates The amount
of total loans outstanding as of December 31, 1996 which, based on
remaining repayments of principal, are due in (1) one year or less, (2)
more than one year but less than five and (3) more than five years are
shown in the following table. The amounts due after one year are
classified according to the sensitivity to changes in interest rates.
Maturity Classification
Over One
One Year Through 5 Over
or Less Years 5 years Total
(In Thousands)
Types of Loans
Loans (1) $ 63,199 $ 20,721 $ 5,126 $ 89,046
Total loans due
after one year
with:
Predetermined
interest rate 25,847
Floating interest
rate Not available (2)
(1) Maturities by categories are not maintained by banks; therefore,
maturity is reported in total.
(2) Floating interest rate loans are not scheduled as to maturity since
the computer system only gives maturity of fixed loans. Floating interest
rate loans are classified based on rate sensitivity.
C. Nonperforming Loans The following table presents, at the dates
indicated, the aggregate amounts of nonperforming loans for the
categories indicated.
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
(In Thousands)
Loans accounted for on a
non-accrual basis $ 553 $ 46 $ 56
Loans contractually past
due ninety days or more
as to interest or principal
payments 226 276 33
Loans, the terms of which
have been renegotiated to
provide a reduction or
deferral of interest or
principal because of a
deterioration in the financial
position of the borrower 35 - -
Loans now current about which
there are serious doubts as
to the ability of the borrower
to comply with present loan
repayment terms - - -
Loans are placed on non-accrual basis when loans are past due
ninety days or more. Management can elect not to place loans on non-
accrual status if net realizable value of collateral is sufficient to
cover the balance and accrued interest.
At December 31, 1996, the company is not aware of any loans for
which payments presently are current but the borrowers are currently
experiencing financial difficulties. Management maintains loans at each
bank under a "watch list" for various purposes but do not believe any
losses will occur. These loans total $476,619.
D. Commitments and Lines of Credit The banks provide commitments and
lines of credits to their most credit worthy customers only.
Commitments are for short terms, usually not exceeding 30 days, and are
provided for a fee of 1% of the amount committed. Lines of credit are
for periods extending up to one year. No fee is usually charged with
respect to the unused portion of a line of credit. Interest rates on
loans made pursuant to commitments or under lines of credit are deter-
mined at the time that the commitment is made or line is established.
E. Rate Sensitivity Analysis
SOUTH BANKING COMPANY
DECEMBER 31, 1996
+-----------Interest Sensitive-----------+
0 - 0 - 0 -
90 Days 180 Days 365 Days
(Thousands of Dollars)
Earning Assets:
Loans $ 46,691 $ 54,224 $ 63,199
Investment securities 1,367 1,973 2,681
Interest bearing deposits 894 1,292 1,589
Federal funds sold and
securities purchased under
agreement to resell 11,983 11,983 11,983
Total Earning Assets $ 60,935 $ 69,472 $ 79,452
Supporting Sources of Fund
Savings $ 7,918 $ 7,918 $ 7,918
Money market and NOW 20,440 20,440 20,440
Other time deposits 16,271 27,826 46,413
CD's - $100,000 or more 3,013 6,191 11,689
Total Interest Bearing
Deposits $ 47,642 $ 62,375 $ 86,460
Demand deposits and other funds
supporting earning assets -
non interest earning $ - $ - $ -
Total Supporting Sources
of funds $ 47,642 $ 62,375 $ 86,460
Interest Sensitive - interest
earning assets less interest
bearing liabilities $ 13,293 $ 7,097 $( 7,008
Percent of cumulative interest
earning assets to interest bearing
liabilities 127.90 111.37 91.89
Interest sensitivity gap as a
percentage of total assets 10.05 5.36 ( 5.30
0 - 0 -
2 Years 5 Years Total
$ 71,583 $ 83,920 $ 89,046
3,762 13,758 15,813
1,886 1,886 1,886
11,983 11,983 11,983
$ 89,214 $ 111,547 $ 118,728
$ 7,918 $ 7,918 $ 7,918
20,440 20,440 20,440
50,652 53,235 53,235
13,319 13,649 13,649
$ 92,329 $ 95,242 $ 95,242
$ - $ - $ 21,451
$ 92,329 $ 95,242 $ 116,693
$( 3,115) $ 16,305 $ 2,035
96.62 117.11 101.74
( 2.35) 12.33 1.54
The rate sensitivity analysis table is designed to demonstrate
South's sensitivity to changes in interest rates by setting forth in
comparative form the repricing maturities of South's assets and
liabilities for the period shown. A ratio of greater than 1.0 times
interest earnings assets to interest bearing liabilities indicates that
an increase in interest rates will generally result in an increase in
net income for South and a decrease in interest rates will result in a
decrease in net income. A ratio of less than 1.0 times earnings assets
to interest-bearing liabilities indicates that a decrease in interest
rates will generally result in a increase in net income for South and an
increase in interest rates will result in an decrease in net income.
All maturities are assumed to be repaid on contract terms. The schedule
has not assumed any prepayments or deposit run off as the history of the
bank indicates most contracts pay as scheduled. The banks do not hold
long term mortgages; therefore, are not subject to the refinancing that
occurs as the long term interest rate fluctuates.
The Company is asset sensitive in the short term (six months and
less) which could have a negative short term impact if interest rates
decline. This is for a short period and the impact would not materially
effect the bank's earning as the bank changes to liability sensitive in
the 12 month horizon.
IV. Summary of Loan Loss Experience
The following table summarizes loan balances at the end of each
period and average balances during the year for each category; changes
in the reverse for possible loan losses arising from loans charged off
and recoveries on loans previously charged off; additions to the reserve
which have been charged to operating expense; and the ratio of net
charge-offs during the period to average loans.
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
(In Thousands)
A. Average amount of loans
outstanding $ 84,023 $ 60,641 $ 54,042
B. Balance of reserve for
possible loan losses at
beginning of period $ 994 $ 975 $ 912
C. Loans charged off:
Commercial, financial
and agricultural $ 57 $ 45 $ 53
Real estate - mortgage 30 - 16
Installments 172 144 24
$ 259 $ 189 $ 93
D. Recoveries of loans
previously charged off:
Commercial, financial
and agricultural $ 161 $ 7 $ 39
Real estate 68 46 6
Installment 45 93 57
$ 274 $ 146 $ 102
E. Net loans charged off
during period $( 15) $ 43 $( 9)
Additions to reserve
charged to operating
expense during period (1) $ 201 $ 62 $ 54
Addition from bank
acquisition 571 - -
$ 772 $ 62 $ 54
F. Balance of reserve for
possible loan losses at
end of period $ 1,781 $ 994 $ 975
G. Ratio of net loans
charged off during the
period to average loans
outstanding ( .002) .070 ( .002)
(1) Although the provisions exceeded the minimum provision required by
regulatory authorities, the Board of Directors believe that the
provision has not been in excess of the amount required to maintain the
reserve at a sufficient level to cover potential losses. The amount
charged to operations and the related balance in the reserve for loan
losses is based upon periodic evaluations by management of the loan
portfolio. Factors such as the bank's history, credit evaluations,
economic conditions in the local area especially as related to
agriculture, payment records and overall economic conditions are weighed
before decisions are made regarding additions to reserve. The bank's
experience and the local economy has been good in recent years and the
banks have not been required to make substantial additions. The current
year is up slightly as one bank required substantial additions as a
result of losses on one relatively large credit line.
(2) Management's review of the loan portfolio did not allocate reserves
by category due to the portfolio's small size. The reserves were
allocated on the basis of a review of the entire portfolio. The
anticipated loan losses for the coming year are expected to be less than
prior years. The portfolio does not contain excessive concentrations in
any industry or loan category that might expose South to significant
risk.
V. Deposits
A. Average deposits, classified as demand deposits, savings deposits
and time certificates of deposit for the periods indicated are presented
below:
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
(In Thousands)
Demand deposits $ 17,379 $ 13,446 $ 12,965
NOW deposits 20,380 15,211 17,378
Savings deposits 7,903 6,675 7,132
Time certificates of deposits 64,401 42,838 34,647
Total Deposits $ 110,063 $ 78,170 $ 72,122
B. The amounts of time certificates of deposit issued in amounts of
$100,000 or more as of December 31, 1996 are shown below by category,
which is based on time remaining until maturity of (1) three months or
less, (2) over three through six months, (3) over six through twelve
months and (4) over twelve months.
Three months or less $ 3,013
Over three through six months 3,178
Over six through twelve months 5,498
Over twelve months 1,960
Total $ 13,649
VI. Return on Assets and Shareholders' Equity
The following rate of return information for the periods indicated
is presented below:
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
Return on assets (1) 1.14% 1.28% 1.19%
Return on equity (2) 13.29 12.08 11.22
Dividend payout ratio (3) 15.54 19.37 22.54
Equity to assets ratio (4) 8.56 10.62 10.65
(1) Net income divided by average total assets.
(2) Net income divided by average equity.
(3) Dividends declared per share divided by net income per share.
(4) Average equity divided by average total assets.
Item 2. Properties
Alma Bank's main banking office and the Registrant's principal
executive offices are located at 104 North Dixon Street, Alma, Georgia
31510. The building, containing approximately 13,040 square feet of
usable office and banking space, and the land, approximately 1.2 acres,
are owned by Alma Bank. Alma Bank also has a separate drive-in banking
facility located at 505 South Pierce Street, Alma, Georgia. The
building, containing 510 square feet, in which the branch is located and
the land, approximately .4 acres, on which it is located are owned by
Alma Bank.
Citizens Bank's main banking office is located at 205 East King
Street, Kingsland, Georgia 31548. The building, containing
approximately 6,600 square feet of usable office and banking space, and
the land, approximately 2 acres, are owned by Citizens Bank.
Peoples Bank's main banking office is located at Comas and E.
Parker Streets, Baxley, Georgia 31513. The building, containing
approximately 7,800 square feet of usable office and banking space, and
the land, approximately 2.5 acres, are owned by the Bank. The Bank does
not have branches.
Item 3. Legal Proceedings
Neither the Registrant or its subsidiaries are parties 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 the management of the
Registrant are any such proceedings contemplated or threatened against
it or its subsidiaries.
Item 4. Submission of Matters to a vote of Security Holders
Note applicable.
Part II.
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters
(a) There currently is no public market for the common stock of the
Registrant.
(b) As of March 1, 1997, there were approximately 481 holders of record
of the Registrant's common stock.
(c) The Registrant paid an annual dividend on its common stock of $.55
per share for a total of $219,849 for fiscal 1996.
Item 6. Selected Financial Data
Years Ended December 31,
1996 1995 1994 1993 1992
(In Thousands)
Investment
securities - HTM $ 2,364 $ 3,305 $ 5,069 $ 10,517 $ 13,408
Investment
securities - AFS $ 13,449 $ 8,146 $ 4,063 $ * $ *
Federal funds
sold $ 11,983 $ 13,335 $ 8,655 $ 7,539 $ 8,015
Net loans $ 87,115 $ 60,641 $ 56,168 $ 49,808 $ 45,134
Total assets $ 132,291 $ 97,175 $ 84,477 $ 78,911 $ 79,904
Deposits $ 116,693 $ 84,545 $ 73,783 $ 69,626 $ 70,753
Stockholders'
Equity $ 11,184 $ 10,048 $ 8,998 $ 8,316 $ 7,598
Operations:
Interest income $ 11,107 $ 8,090 $ 6,568 $ 5,982 $ 6,468
Interest expense 4,823 3,314 2,269 2,135 2,915
Net Interest
Income $ 6,284 $ 4,776 $ 4,299 $ 3,847 $ 3,553
Provision for
loan losses 202 62 53 118 224
Net interest
income after
provision for
loan losses $ 6,082 $ 4,714 $ 4,246 $ 3,729 $ 3,329
Other income $ 1,596 $ 1,371 $ 1,264 $ 1,251 $ 1,337
Other expenses $ 5,586 $ 4,345 $ 4,116 $ 3,765 $ 3,566
Income before
income taxes $ 2,092 $ 1,740 $ 1,394 $ 1,215 $ 1,100
Item 6. Selected Financial Data (con't)
Years Ended December 31,
1996 1995 1994 1993 1992
(In Thousands)
Federal Income
taxes $ 662 $ 590 $ 405 $ 287 $ 281
Net income before
extraordinary
items $ 1,430 $ 1,150 $ 989 $ 928 $ 819
Extraordinary
items $ - $ - $ - $ - $ -
Net income $ 1,430 $ 1,150 $ 989 $ 928 $ 819
Per Share Data:
Income after
extraordinary
items $ 3.54 $ 2.84 $ 2.44 $ 2.27 $ 2.01
Net income $ 3.54 $ 2.84 $ 2.44 $ 2.27 $ 2.01
Dividends
Declared $ .55 $ .55 $ .55 $ .55 $ .55
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The purpose of this discussion is to focus on information about
South Banking Company's financial condition and results of operations
which is not otherwise apparent from the consolidated financial
statement included in this report. Reference should be made to those
statements and the selected financial data presented elsewhere in this
report for an understanding of the following discussion and analysis.
Financial Condition and Liquidity
Financial Condition
South functions as a financial institution and as such its
financial condition should be examined in terms of trends in its sources
and uses of funds. A comparison of daily average balances indicate how
South has managed its sources and uses of funds. Included in the
selected statistical information, the comparison of daily average
balance in the business portion of the filing indicated how South has
managed its sources and uses of funds. South used its funds primarily
to support its lending activities.
South's total assets increased to $132,290,583 at year end 1996
from $97,174,748 at year end 1995. The increase of $35,115,835 is
comprised of $28,018,271 in assets acquired in the acquisition of
Pineland State Bank and $7,097,564 in assets due to growth. This growth
represents a 5.67% increase in 1996 compared to 15.03% increase in 1995.
The increase is attributable to normal growth within the banking area
without entering into competitive situations for large deposits. South
was able to maintain rates at a level which minimizes net interest
margin decline. South continues to be aggressive in the markets it
operates for good core deposits. Loan demand continues to be strong
with loans increasing $27,329,089 in 1996. $13,576,025 of the growth
came from bank acquisition of Pineland State Bank $13,753,064 coming
from operations. Loan demand continues to be strong as evidenced by the
18.3% internal growth in loans. The banks continue to look for good
quality loans as loans represent the highest yielding asset on the
bank's books. The rural economy of the bank's market area has been
staple for the past three years allowing the bank to place good quality
loans on the books. Classified loans for regulatory purposes remain at
low levels and do not represent any trends or uncertainties which
management reasonably expects will materially impact future operating
results, liquidity on capital resources or represents material credits
about which management is aware of any information which causes
management to have serious doubts as to the ability of such borrowers to
comply with the loan payment terms.
South's investment portfolio, including certificate of deposits in
other banks, increased to $17,699,032 from $12,246,850. Included in
this increase of $5,452,182 is $5,299,665 of securities acquired in the
Pineland State Bank acquisition. The small increase of $152,517 from
operation is an indication of the loan demand of the banks and the
desire of the banks to utilize the assets of South in the highest
yielding manner available to the banks without creating liquidity
problems. South has maintained adequate federal funds sold and
investments available for sale to sufficiently maintain adequate
liquidity. South's securities are primarily short term of three years
or less in maturity enabling South to better monitor the rate
sensitivity of these assets. Unrealized gain and losses on this
portfolio is not material to the statement as South maintains a slight
unrealized loss of $11,048.
As the primary source of funds, aggregate deposits, increased by
$32,148,126 in 1996 compared to $10,761,700 in 1995. The 1996 increase
includes $25,055,325 acquired in the Pineland State Bank acquisition.
The operational increase of $7,092,801 represents a 6.47% increase for
the year compared to a 14.6% increase in 1995. This illustrates the
efforts of the banks in good core deposit growth rather than the higher
paying time certificates. Some of this growth was shifted from interest
paying deposits as they decreased by $2,044,207. Rates have not
fluctuated much during the year is most of the bank's market which has
helped the bank remain competitive without drastically reducing the net
interest margin. One of the market will experience new competition in
1997 which could have some impact on time certificate rates; however,
management does not anticipate in major shifting of deposits.
Liquidity
The primary function of asset/liability management is to assure
adequate liquidity and maintain an appropriate balance between interest
sensitive earning assets and interest bearing liabilities. Liquidity
management involves the ability to meet the cash flow requirements of
customers who may be either depositors desiring to withdraw funds or
borrowers requiring assurance that sufficient funds will be available to
meet their credit needs. Interest rate sensitivity management seeks to
avoid fluctuating net interest margins and to enhance consistent growth
of net interest income through periods of changing interest rates.
Marketable investment securities, particularly those of shorter
maturities, and federal funds sold are the principal sources of asset
liquidity. Securities maturing in one year or less amounted to
$2,466,182 and federal funds sold with daily maturities amounted to
$13,335,000 at year end 1995, an increase from prior years as the
deposit growth continues. Maturing loans and certificates of deposits
in other banks are other sources of liquidity.
The overall liquidity of South has been enhanced by a significant
aggregate amount of core deposits. These core deposits have remained
constant during this period. South has utilized less stable short-term
funding sources to enhance liquidity such as large denomination time
deposits and money market certificates within its current customer base,
but has not attempted to acquire these type of accounts from non-core
deposit customers. South has utilized its core deposit base to help
insure it maintains adequate liquidity.
Historically, the trend in cash flows as represented in the
statement of cash flows shows a steady increase in cash generated by
operations from the last three years. This is a result of increasing
net income for each year. While income is not predictable, it is
anticipated that liquidity will continue to be enhanced by the
operations of the bank. Operations activity, however, generate only a
small portion of the cash flow activities of the bank. Primary cash
flow comes from investing activities such as sales and/or maturity of
investment securities and in the financing activity through an increase
in deposits. The primary use of cash flow includes the purchase of
securities and making new loans as investing activities. The history of
the bank's cash flow indicates a nonrepeating source such as proceeds
from borrowing utilized as sources of cash for the purpose of
acquisition or expansion. South's overall cash flows indicate the
relative stability and manageable growth of the bank's assets. South
utilized deposit growth as its primary source of funds to handle growth.
South's liquidity is maintained at levels determined by management to be
sufficient to handle the cash needs that might arise at any given date.
Outside sources are maintained, but South looks to these sources only on
a very short term basis. South's long term liquidity plans include
utilizing internally generated deposits as its primary source of cash
flows and utilizing the shifting of the make up of assets to handle
short term demands on cash.
Interest rate sensitivity varies with different types of interest-
earning assets and interest bearing liabilities. Overnight federal
funds on which rates change daily and loans which are tied to prime
differ considerably from long-term investment and fixed rate loans.
Similarly, time deposits over $100,000 and money market accounts are
much more interest sensitive than passbook savings and long-term capital
notes. The shorter-term interest rate sensitivities are key to
measuring the interest sensitivity gap, or excess interest-sensitive
earning assets over interest-bearing liabilities. An interest rate
sensitivity table is included elsewhere in document, and it shows the
interest sensitivity gaps for five different time intervals as of
December 31, 1996. The first 30 days there is an excess of interest-
bearing assets over interest-bearing liabilities. South becomes more
sensitive to interest rate fluctuations on a short time period. While
the cumulative gap declines with each time interval, South remains with
a manageable position.
Capital Resources
South does not presently have commitments for significant capital
expenditures. However, there are regulatory constraints placed on the
South's capital.
In January 1989, the Federal Reserve Board released new standards
for measuring capital adequacy for U. S. banking organizations. These
standards are based on the original risk-based capital requirements
first proposed in early 1986 by U. S. bank regulators and then developed
jointly by authorities from the twelve leading industrial countries. As
a result, the standards are designed to not only provide more risk-
responsive capital guidelines for financial institutions in the U. S.,
but also incorporate a consistent framework for use by financial
institutions operating in the major international financial markets.
In general, the standards require banks and bank holding companies
to maintain capital based on "risk-adjusted" assets so that categories
of assets with potentially higher credit risk will require more capital
backing than assets with lower risk. In addition, banks and bank
holding companies are required to maintain capital to support, on a
risk-adjusted basis, certain off-balance sheet activities such as loan
commitments and interest rate swaps.
The Federal Reserve Board standards classify capital into two
tiers, referred to as Tier 1 and Tier 2. Tier 1 capital consists of
common shareholders' equity, noncumulative and cumulative (BHCs only)
perpetual preferred stock and minority interest less goodwill. Tier 2
capital consists of allowance for loan and lease losses, perpetual
preferred stock (not included in Tier 1), hybrid capital instruments,
term subordinated debt and intermediate-term preferred stock. By
December 31, 1992, all banks were required to meet a minimum ratio of 8%
of qualifying total capital to risk-adjusted total assets with at least
4% Tier 1 capital. Capital that qualifies as Tier 2 capital is limited
to 100% of Tier 1 capital.
Results of Operations
1996 Compared to 1995
Net interest income is an effective measurement of how well
management has balanced the South's interest rate sensitive assets and
liabilities. Net interest income increased by $1,507,250 of which
$1,134,158 was a result of Pineland State Bank acquisition. The
increase, excluding bank acquisition was $373,092 or 7.8% compared to a
11.1% increase in 1995. The primary determinants of the increase were
loans and time deposits. As loan demand increased, funds were channeled
into higher yielding loans. Management did not solicit high interest
deposits and was able to maintain stable cost of funds. The shifting of
assets and liabilities was necessary to maintain level of net interest
income as net interest yield decreased to 4.96% from 4.99%. With the
low interest rate currently in the market and South's current interest
rate gap, South will continue its efforts to channel funds into higher
yielding assets. Due to the rate sensitivity gap, South will attempt to
improve its current position with a controlled attempt to lengthen its
maturity of interest rate sensitive liabilities.
The provision for loan loss was $1,781,013 in 1996 of which
$603,299 came from the Pineland State Bank acquisition compared to
$994,027 in 1995. The provision for loan losses has been sufficient to
increase the allowance for loan losses each year. During the year 1996,
loan loss recoveries exceeded the loan charged off as management
continues to work its loan portfolio to minimize charge-offs and place
maximum efforts to collect previously charged off.
Other income, excluding bank acquired, increased slightly from the
prior year. Service charges increased in 1996 compared to 1995.
Additionally, a small loss on securities occurred in 1996 as early calls
and a small number of sales resulted in a small loss.
Operating cost, excluding bank acquired, grew at a rate of 1.68%.
The increases are primarily personnel related as bank works hard at
controlling cost. Decrease in FDIC fees and increased data processing
efficiency help maintain cost levels.
Income tax expense was $662,078 in 1996 or 31.6% of net income
compared to $589,746 in 1995 or 33.9% of net income. During the year
1993, FASB 109 was adopted by South with no material effect on its
financial statements; however, some adjustments were required.
Results of operations can be measured by various ratio analysis.
Two widely recognized performance indicators are the return on average
equity and the returns on average assets. South's return on equity
increased from 11.19% to 11.66%. The return on assets increased from
1.03% to 1.16%. Although these levels are within peer group ranges of
some other bank holding companies, management believes that improvement
for 1994 is realistic.
Income tax expense was $662,078 in 1996 or 31.6% of net income
compared to $89,746 in 1995 or 33.9% of net income. The increase in tax
free municipal bond interest in 1996 lowered the effective tax rate of
South. During the year 1993, FASB 109 was adopted by South with no
material effect on its financial statements; however, some adjustments
were required.
Results of operations can be measured by various ratio analysis.
Two widely recognized performance indicators are the return on average
equity and the returns on average assets. South's return on equity
increased from 12.08% to 13.29%. The return on assets decreased from
1.28% to 1.14% as the increased assets from the Pineland State Bank
acquisition effects the return on assets.
1995 Compared to 1994
Net interest income is an effective measurement of how well
management has balanced the South's interest rate sensitive assets and
liabilities. Net interest income increased by $477,147 or 11.1% in 1995
and $452,609 or 11.7% in 1994. The primary determinants of the increase
were loans and time deposits. As loan demand increased, funds were
channeled into higher yielding loans. The increase in loan demand
continue to be sufficient to offset the higher paying deposit growth.
The shifting of asset and liabilities was necessary to maintain level of
net interest income as net interest yield remain constant at 5.20%.
With the interest rate currently in the market and South's current
interest rate gap, South will continue its efforts to channel funds into
higher yielding assets. Due to the rate sensitivity gap, South will
continue to attempt to improve its current position with a controlled
attempt to lengthen its maturity of interest rate sensitive liabilities.
The provision for loan loss was $994,027 in 1995 compared to
$974,866 in 1994. The provision for loan losses has been sufficient to
increase the allowance for loan losses each year. Management continues
to work its loan portfolio to minimize charge-offs and place maximum
efforts to collect previously charged off.
Other income increased slightly from the prior year. Service
charges decreased slightly in 1995 compared to 1994. This is an
indication of the higher balance being maintained by customers as the
economy has started to improve. Additionally, a small gain on
securities occurred in 1994 as a small number of sales resulted in a
small gain. Operations from data center increased as 1995 was the first
full operational year. Sales are for one bank not owned by South.
Operating cost grew at a rate of 5.84%. The increases are
primarily personnel and equipment related. Increased demands by
regulatory agencies have required some additional personnel time and
other cost continue to increase. The start up of the data processing
center in 1995 contributed to the increased operating cost. 1995 was
the first full year of data processing center operation and costs are
becoming more manageable than in the prior year of inception.
Management expects the center to become more efficient as its operation
matures.
Income tax expense was $589,746 in 1995 or 33.89% of net income
compared to $405,023 in 1994 or 29.04% of net income. The reduction in
tax free municipal bond interest in 1995, as bonds matured or were
called, also raised the effective tax rate of South. During the year
1993, FASB 109 was adopted by South with no material effect on its
financial statements; however, some adjustments were required.
Results of operations can be measured by various ratio analysis.
Two widely recognized performance indicators are the return on average
equity and the returns on average assets. South's return on equity
increased from 11.22% to 12.08%. The return on assets increased from
1.19% to 1.28%.
Results of Operations
1994 Compared to 1993
Net interest income is an effective measurement of how well
management has balanced the South's interest rate sensitive assets and
liabilities. Net interest income increased by $452,609 or 11.7% in 1994
and $399,302 or 11.2% in 1993. The primary determinants of the increase
were loans and time deposits. As loan demand increased, funds were
channeled into higher yielding loans. The increase in loan demand was
sufficient to offset the higher paying deposit growth. The shifting of
asset and liabilities was necessary to maintain level of net interest
income as net interest yield increased to 5.21% from 4.99%. With the
interest rate currently in the market and South's current interest rate
gap, South will continue its efforts to channel funds into higher
yielding assets. Due to the rate sensitivity gap, South will attempt to
improve its current position with a controlled attempt to lengthen its
maturity of interest rate sensitive liabilities.
The provision for loan loss was $974,866 in 1994 compared to
$911,931 in 1993. The provision for loan losses has been sufficient to
increase the allowance for loan losses each year. During the year 1994,
loan loss recoveries exceeded the loan charged off as management
continues to work its loan portfolio to minimize charge-offs and place
maximum efforts to collect previously charged off.
Other income increased slightly from the prior year. Service
charges remained level in 1994 compared to 1993. This is an indication
of the higher balance being maintained by customers as the economy has
started to improve. Additionally, a small loss on securities occurred
in 1993 as early calls and a small number of sales resulted in a small
loss.
Operating cost grew at a rate of 9.31%. The increases are
primarily personnel, data processing and regulatory in nature.
Increased demands by regulatory agencies have required some additional
personnel time and FDIC fees and other cost continue to increase. The
start up of the data processing center in 1994 contributed to the
increased operating cost. Management expects the center to become more
efficient as its operation matures.
Income tax expense was $405,023 in 1994 or 29.04% of net income
compared to $286,472 in 1993 or 23.6% of net income. In 1993, South
recovered previous alternative minimum tax paid in 1991 to reduce the
overall tax bite. The reduction in tax free municipal bond interest in
1994, as bonds matured or were called, also raised the effective tax
rate of South. During the year 1993, FASB 109 was adopted by South with
no material effect on its financial statements; however, some
adjustments were required.
Results of operations can be measured by various ratio analysis.
Two widely recognized performance indicators are the return on average
equity and the return on average assets. South's return on equity
decreased from 11.66% to 11.22%. The return on assets increased from
1.16% to 1.19%. Although these levels are within peer group ranges of
some other bank holding companies, management believes that improvement
for 1995 is realistic.
Nonperforming Assets
Nonperforming assets include nonaccrual loans, accruing loans past
due 90 days or more and other real estate, which include foreclosures,
deeds in lieu of foreclosure and in-substance foreclosures.
A loan is generally classified as nonaccrual when full
collectibility of principal or interest is doubtful or a loan becomes 90
days past due as to principal or interest, unless management determines
that the estimated net realizable value of the collateral is sufficient
to cover the principal balance and accrued interest. When interest
accruals are discontinued, unpaid interest credited to income in the
current year is reversed and unpaid interest accrued in prior years is
charged to the allowance for loan losses. Nonperforming loans are
returned to performing status when the loan is brought current and has
performed in accordance with contract terms for a period of time.
Distribution of Nonperforming Assets
1996 1995 1994
(In Thousands)
Non accrual loans $ 553 $ 66 $ 56
Past due 90 days still accruing 226 276 33
Other real estate (ORE) 346 283 661
$ 1,125 $ 625 $ 750
Nonperforming loans to year
end loans .87% .54% .16%
Nonperforming assets to year
end loan and ORE 1.26% 1.00% 1.31
The ratio of nonperforming assets has increased since 1994. A
slight increase occurred as ORE sales declined and a subsequent
foreclosure has increased the ORE in 1994 and 1996. This increase is
attributed to management's early review system to grasp problems before
they become unmanageable. Management continues to work on nonperforming
assets to further reduce this ratio.
Regulatory Matters
During the year 1996, federal and state regulatory agencies
completed asset quality examinations at the South's subsidiary banks.
The South's level and classification of identified potential problem
loans was not revised significantly as a result of this regulatory
examination process.
Examination procedures require individual judgments about a
borrower's ability to repay loans, sufficiency of collateral values and
the effects of changing economic circumstances. These procedures are
similar to those employed by South in determining the adequacy of the
allowance for loan losses and in classifying loans. Judgments made by
regulatory examiners may differ from those made by management.
Management and the boards of directors of South and affiliates
evaluate existing practices and procedures on an ongoing basis. In
addition, regulators often make recommendations during the course of
their examinations that relate to the operations of South and its
affiliates. As a matter of practice, management and the boards of
directors of South and its subsidiaries consider such recommendations
promptly.
Impact of Inflation and Changing Prices
The majority of assets and liability of a financial institution are
monetary in nature; therefore, differ greatly from most commercial and
industrial companies that have significant investments in fixed assets
or inventories. However, inflation does have an important impact on the
growth of total assets in the banking industry and the resulting need to
increase equity capital at higher than normal rates in order to maintain
an appropriate equity-to-assets ratio. An important effect of this has
been the reduction of asset growth to maintain appropriate levels.
Another significant effect of inflation is on other expenses, which tend
to rise during periods of general inflation.
Management believes the most significant impact on financial
results is South's ability to react to changes in interest rates. As
discussed previously, management is attempting to maintain an
essentially balanced position between interest sensitive assets and
liabilities in order to protect against wide interest rate fluctuations.
Impact of Accounting Change for Income Taxes and Tax Reform
In February 1992, the FASB issued Statement of Financial Accounting
Standards SFAS No. 109 relating to the method of accounting for deferred
income taxes. Implementation of SFAS 109 is required for fiscal years
beginning after December 15, 1992. SFAS No. 109 requires companies to
take into account changes in tax rates when valuing the deferred income
tax amounts recorded on the balance sheet. The statement also requires
that deferred taxes be provided for all temporary differences between
financial statement and tax income in addition to the timing differences
in the recognition of income for financial statement and tax purposes
which were covered by prior accounting rules.
Impact of Recently Issued Accounting Standards
In June 1996, the FASB issued Statement of Financial Accounting
Standard No 125 relating to transfers and servicing of financial assets
as well as for extinguishment of liabilities. This standard is based on
the consistent application of the financial components approach which
focuses on control. Under such an approval after a transfer of
financial assets an entity:
Recognized the financial and servicing assets it controls and
the liabilities it has occurred.
Derecognizes financial assets when control is surrendered.
Derecognizes liabilities when extinguished.
This FASB is effective for statement issued on or after December
31, 1996 except for selected provision. This FASB does not affect South
Banking Company materially in any fashion as South, with minimum
exceptions, does not transfer assets to others or retain any service
rights.
In October 1995, the FASB issued Statement of Financial Accounting
Standard No 124 relating to accounting standards for stock based
employer compensation plans. This FASB is effective for the 1996 year;
however, South does not have any stock based compensation plans and does
not have any plans to enact such a plan in the future.
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements of the Registrant
and its subsidiaries are included on pages F-1 through F-36 of this
Annual report on Form 10-K.
Consolidated Balance Sheets - December 31, 1996 and 1995
Consolidated Statements of Income - Years ended December 31, 1996,
1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity - Years
ended December 31, 1996, 1995 and 1994
Consolidated Statement of Cash Flow - Year ended December 31, 1996,
1995 and 1994
Notes to Consolidated Financial Statements
Item 9. Disagreement on Accounting and Financial Disclosures
Not applicable.
Part III.
Item 10. Directors and Executive Officers of the Registrant
The Directors and Executive Officers of the Registrant and their
respective ages, positions with the Registrant, principal occupation and
Common Stock of the Registrant beneficially owned as of March 1, 1995
are as follows:
Director
(Officer) of # of shares
Position with Registrator Owned
Registrant of one of Beneficiary
& Principal the Banks (Percent of
Name (Age) Occupation Since Class)
Paul T. Bennett (41) President, 1978(1)(2) 11,300
Treasurer and (3) ( 2.80%)
Director; Vice (4)
Chairman and Director,
Citizens Bank; Vice
Chairman and Director,
Peoples State Bank &
Trust, Baxley, Georgia;
President Peoples Bank,
Lyons, Georgia; Director,
Banker's Data Services;
Director, Alma Exchange
Bank and Trust
Olivia Bennett (77) Executive Vice 1969(1)(2) 202,896
President, Secretary (3) ( 50.28%)
and Director; Chairman
and Director, Alma
Bank; Director,
Banker's Data Services
Chairman of Board,
President, Citizens Bank;
Director Peoples Bank
Lawrence Bennett (49) President and 1987(1)(2) 3,154
Director, Alma (4) ( .8%)
Bank; Director,
Banker's Data Services;
Director, Peoples
Bank, Baxley; Director
Peoples Bank, Lyons
Charles Stuckey (49) Director; Executive 1990(3) 200
Vice President, ( .1%)
Peoples Bank; Director,
Banker's Data
Services
James W. Whiddon (52) Director; Executive
Vice President and 1989(2) 66
Director, Citizens ( -%)
Bank; Director,
Banker's Data Services
Kenneth F. Wade (54) Director; Executive 1980(1) 4,779
Vice President, Director ( 1.18%)
and Cashier, Alma Bank;
Director, Banker's
Data Services
Item 10. Directors and Executive Officers of the Registrant (con't)
Director
(Officer) of # of shares
Position with Registrator Owned
Registrant of one of Beneficiary
& Principal the Banks (Percent of
Name (Age) Occupation Since Class)
John Roger (49) Director, Executive Vice
President, Pineland 1996(4) -
State Bank; Director;
Banker's Data Service
(1) Director of Alma Bank
(2) Director of Citizens Bank
(3) Director of Peoples Bank
(4) Director of Pineland State Bank
Included in shares owned by Olivia Bennett are 175,501 shares owned
by Estate of Valene Bennett of which she is the Executrix.
None of the directors are a director of a publicly-held corporation
which is required to file reports with the Securities and Exchange
Commission.
Each of the Directors and Executive Officers have been engaged in
his or her present principal occupation for at least five years. Olivia
Bennett is the mother of Paul T. Bennett and Lawrence Bennett. There
are no other family relationships between any other Director or
Executive Officer. Directors serve until the next annual meeting of
shareholders or until their successors are elected and qualified.
Officers serve at the pleasure of the Board of Directors.
Item 11. Management Renumeration and Transactions
The following information is given as to the cash and cash
equivalent forms of renumeration received by South's CEO.
Long-Term Compensation
Annual Compensation Awards Payouts
(A) (B) (C) (D) (E) (F) (G) (H) (I)
Other All
Name and Annual Restricted Other
Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation (2) Award SARS # Payouts sation
Valene
Bennett
CEO 1996 $ - $ - $ - $ - $ - $ - $ -
1995 72,486 - 8,985 - - - -
1994 83,582 - 11,795 - - - -
Item 11. Management Renumeration and Transactions (con't)
Long-Term Compensation
Annual Compensation Awards Payouts
(A) (B) (C) (D) (E) (F) (G) (H) (I)
Other All
Name and Annual Restricted Other
Principal Compen- Stock Options/ LTIP Compen-
Position Year Salary Bonus sation (2) Award SARS # Payouts sation
Paul T.
Bennett
CEO 1996 $109,479 $ - $ 22,940 $ - $ - $ - $ -
1995 87,566 - 15,310 - - - -
1994 79,472 - 15,115 - - - -
Olivia
Bennett
Secretary 1996 $168,748 $ - $ 15,295 $ - $ - $ - $ -
1995 100,857 - 12,200 - - - -
1994 84,223 - 12,200 - - - -
(1) Does not include fees and dues for clubs and fraternal and civic
organizations paid by the Banks to certain officers for business related
purposes. Also, does not include any amounts for use of an automobile.
(2) Other compensation consists of director fees from registrant and
subsidiary banks.
Transactions with Management
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 1, 1995, the beneficial
ownership of Common Stock of Registrant by the Only "person" (as that
term is defined by the Securities and Exchange Commission), who owns of
record or is known by the Registrant to own beneficially 5% or more of
the outstanding shares of Common Stock of the Registrant and by all
Executive Officers and Directors of the Registrant as a group.
Number of Percent of
Shares Owned Outstanding
Name Beneficially Shares
Estate of Valene Bennett
Route 4
Alma, Georgia 31510 175,501 43.49%
Olivia Bennett
Route 4
Alma, Georgia 31510 27,395 6.78%
All Executive Officers and Directors
as a group (7 persons) 222,395 55.1%
Item 13. Certain Relationships and Related Transactions
The Banks have had, and expect to have in the future, banking
transactions in the ordinary course of business with Directors and
Officers of the Banks and their associates, including corporations,
partnerships and other organizations in which such Directors and
Officers have an interest, on substantially the same terms (including
interest rates and collateral) as those prevailing at the time for
comparable transactions with unrelated parties. Such transactions have
not involved more than the normal risk of collectibility or presented
other unfavorable features.
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
Item 14(a) 1. and 3. and Item 14(d)
(a) The following documents are filed as part of this report:
1. Financial Statements
(a) South Banking Company and Subsidiaries:
(i ) Consolidated Balance sheet - December 31, 1996 and 1995
(ii ) Consolidated Statement of Income - Year ended December
31, 1996, 1995 and 1994
(iii) Consolidated Statement of Stockholders' Equity - Years
ended December 31, 1996, 1995 and 1994
(iv ) Consolidated Statement of Cash Flow - Year ended
December 31, 1996, 1995 and 1994
(b) South Banking Company (Parent Corporation Only):
(i ) Balance sheet - December 31, 1996 and 1995
(ii ) Statement of Income - period ended December 31, 1996,
1995 and 1994
(iii) Statement of Stockholders' Equity - Period ended
December 31, 1996, 1995 and 1994
(iv ) Statement of Cash Flow - Year ended December 31, 1996,
1995 and 1994
3. Exhibits required by Item 7 of regulation S-K:
(3) Articles of Incorporation and By-Laws (included as
Exhibits 3(a) and (b), respectively, to Appendix II to
Registrant's Registration Statement on Form S-14, File No. 2-
71249, previously filed with the Commission and incorporated
herein by reference).
(13) 1996 Annual Report to Shareholders of South Banking
Company (note deemed filed except to the extent that sections
thereof are specifically incorporated into this report on Form
10-K by reference).
(22) List of the Registrant's subsidiaries:
(1) Alma Exchange Bank & Trust
(2) Citizens State Bank
(3) Peoples State Bank & Trust
(4) Bankers' Data Services, Inc.
(5) Pineland State Bank
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
Item 14(a) 1. and 3. and Item 14(d) (con't)
All of the Registrant's subsidiaries were incorporated under the
laws of the State of Georgia and are doing business in Georgia under the
above names.
(b) The registrant has not filed a Form 8-K during the last
quarter of the period.
(c) The response to this Item 14(c) is included in item
14(a).
(d) Financial Statements Schedules - None.
POWER OF ATTORNEY
Know all men by these present, that each person whose signature
appears below constitutes and appoints Paul T. Bennett, his attorney-in-
fact, to sign any amendments to this Report, and to file the same, with
exhibits thereto, and other documents in connection therewith. The
Securities and Exchange Commission hereby ratifying and confirming all
that said attorney-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.
Pursuant to the requirements of Section 13 or 15(d) 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 26, 1997
Paul T. Bennett
Principal Executive, Financial
and Accounting Officer and
Director
Date: March 26, 1997
Olivia Bennett
Executive Vice President and
Director
Date: March 26, 1997
Charles Stuckey
Director
Date: March 26, 1997
James W. Whiddon
Director
Date: March 26, 1997
Kenneth F. Wade
Director
Date: March 26, 1997
Lawrence Bennett
Director
Date: March 26, 1997
John Rogers
Director
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.
SOUTH BANKING COMPANY
Date: March 26, 1997 By:
Paul T. Bennett
President, Treasurer and
Director
SUPPLEMENTAL INFORMATION
The following supplemental information has not been sent to the
Registrant's shareholders, but will be sent subsequent to the filing of
this Annual Report on Form 10-K:
(1) 1996 annual report to shareholders.
(2) Proxy statement for 1996 annual meeting of shareholders.
The foregoing materials will be furnished to the Commission when
they are sent to the shareholders since the Registrant does not have
securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934. The foregoing materials shall not be deemed to be "filed"
with the Commission or otherwise subject to the liabilities of Section
18 or that Act.
SOUTH BANKING COMPANY
ALMA, GEORGIA
FINANCIAL STATEMENTS
DECEMBER 31, 1996
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
South Banking Company
Alma, Georgia 31510
We have audited the accompanying consolidated balance sheets of
South Banking Company as of December 31, 1996 and 1995 and the related
consolidated statements of income, cash flows and shareholders' equity
for each of the three years in the period ended December 31, 1996.
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.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
South Banking Company at December 31, 1996 and 1995 and the consolidated
results of its operations, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
Respectfully submitted,
Waycross, Georgia H. H. BURNET & COMPANY, P. C.
February 12, 1997
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED BALANCE SHEETS
December 31, December 31,
1996 1995
ASSETS
Cash and due from banks $ 6,863,559 $ 3,989,564
Deposits in other banks -
interest bearing $ 1,886,000 $ 795,000
Investment securities
Available for sale $ 13,449,288 $ 8,146,274
Held to maturity - market value
of $2,365,832 in 1996 and
$3,311,955 in 1995 $ 2,363,744 $ 3,305,576
Pineland State Bank stock - at cost $ - $ 975,141
Georgia Bankers stock $ 547,283 $ 272,880
Federal Home Loan Bank stock $ 247,600 $ 99,900
Federal funds sold $ 11,983,000 $ 13,335,000
Loans $ 89,046,526 $ 61,717,437
Less: Unearned discount ( 150,457) ( 82,051)
Reserve for loan losses ( 1,781,013) ( 994,027))))
$ 87,115,056 $ 60,641,359
Bank premises and equipment $ 3,995,385 $ 3,104,655
Goodwill $ 364,983 $ -
Other assets $ 3,474,685 $ 2,509,399
Total Assets $132,290,583 $ 97,174,748
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED BALANCE SHEETS (con't)
December 31, December 31,
1996 1995
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits: Demand - non-interest
bearing $ 21,451,527 $ 14,145,230
Demand - interest bearing 20,440,276 17,098,343
Savings 7,917,814 6,403,438
Time 66,883,966 46,898,446
$116,693,583 $ 84,545,457
Borrowing 3,507,279 1,976,405
Accrued expenses and other
liabilities 905,472 604,033
Total Liabilities $121,106,334 $ 87,125,895
Stockholder's Equity
Common stock $1 par value; shares
authorized - 1,000,000, shares
issued and outstanding -
1996 and 1995 - 403,500
and 405,283, respectively $ 403,500 $ 405,283
Surplus 3,116,581 3,136,238
Undivided profits 7,675,216 6,464,741
Unrealized gain (loss) on
securities ( 11,048) 42,591
Total Stockholders' Equity $ 11,184,249 $ 10,048,853
Total Liabilities and
Stockholders' Equity $132,290,583 $ 97,174,748
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED STATEMENTS OF INCOME
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
Interest Income
Interest and other
fees on loans $ 9,479,255 $ 6,995,954 $ 5,666,373
Interest on deposits -
interest bearing 119,366 40,904 65,241
Interest on federal
funds sold 506,525 472,289 305,906
Interest on investment
securities:
U. S. Treasury 186,697 99,131 113,783
U. S. Government agencies 541,881 273,579 218,222
Mortgage backed securities 150,011 140,159 104,969
State and municipal
subdivisions 95,350 58,584 94,106
Other securities 27,623 9,893 -
Total Interest Income $ 11,106,708 $ 8,090,493 $ 6,568,600
Interest Expense
Interest on deposits $ 4,512,373 $ 3,167,719 $ 2,164,062
Interest - other borrowing 310,713 146,402 105,313
Total Interest Expense $ 4,823,086 $ 3,314,121 $ 2,269,375
Net interest income $ 6,283,622 $ 4,776,372 $ 4,299,225
Provision for loan losses 201,589 62,200 53,500
Net interest income after
provision for loan losses $ 6,082,033 $ 4,714,172 $ 4,245,725
Other Operating Income
Service charge on deposits $ 1,163,935 $ 955,791 $ 987,131
Commission on insurance 84,843 63,154 57,169
Other income 216,645 163,583 213,965
Securities gains (losses) ( 15,708) 21,591 6,000
Data processing fees 146,598 167,267 -
Total Other Operating
Income $ 1,596,313 $ 1,371,386 $ 1,264,265
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED STATEMENTS OF INCOME (Con't)
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
Other Operating Expenses
Salaries $ 2,064,313 $ 1,558,381 $ 1,474,463
Profit sharing and other
personnel expenses 518,962 355,822 228,776
Occupancy expense of bank
premises 368,854 269,909 300,586
Furniture and equipment
expense 559,194 422,129 242,214
Stationery and supplies 165,697 136,568 124,885
Data processing 478,104 428,979 449,325
Director fees 143,040 103,436 101,405
Other real estate expenses 31,751 30,856 -
Other expenses 1,256,029 1,039,355 1,193,946
Total Other Operating
Expenses $ 5,585,944 $ 4,345,435 $ 4,115,600
Income before income taxes $ 2,092,402 $ 1,740,123 $ 1,394,390
Applicable income taxes 662,078 589,746 405,523
Net Income $ 1,430,324 $ 1,150,377 $ 988,867
Per share earnings based
on weighted average
outstanding shares:
Weighted average
outstanding shares 403,811 405,283 405,351
Net income before
extraordinary items $ 3.54 $ 2.84 $ 2.44
Net Income Per Share $ 3.54 $ 2.84 $ 2.44
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
STATEMENT OF STOCKHOLDERS' EQUITY
Unrealized
Gain
(Loss) on
Securities
Total
Common Undivided Available
Stockholders '
Stock Surplus Profits for Sale
Equity
Balance,
December 31, 1993 $ 405,583 $ 3,139,238 $ 4,771,292$
- - - $ 8,316,113
Net income - - 988,867-988,867
Cash dividends - - ( 222,906-)(
222,906)
Redemption of shares ( 300) ( 3,000) --(
3,300)
Unrealized gain
(loss) on securities
available for sale - - - (
80,997) ( 80,997)
Balance,
December 31, 1994 $ 405,283 $ 3,136,238 $ 5,537,253$(
80,997) $ 8,997,777
Net income - - 1,150,377-1,150,377
Cash dividends - - ( 222,889)-(
222,889 )
Unrealized gain
(loss) on securities
available for sale - - -
123,588 123,588
Balance,
December 31, 1995 $ 405,283 $ 3,136,238 $ 6,464,741$
42,591 $10,048,853
Net income - - 1,430,324-1,430,324
Cash dividends - - ( 219,849)-(
219,849 )
Unrealized gain
(loss) on securities
available for sale - - -(
53,639) ( 53,639 )
Redemption of shares ( 1,783) ( 19,657) -
- - - ( 21,440 )
Balance,
December 31, 1996 $ 403,500 $ 3,116,581 $ 7,675,216$(
11,048) $11,184,249
The accompanying note is an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
Cash Flows From Operating
Activities:
Net income $ 1,430,324 $ 1,150,377 $ 988,867
Add expenses not
requiring cash:
Provision for depreciation
and amortization 462,180 420,747 370,378
Provision for loan losses 201,589 62,200 53,500
Provision for loss on ORE 41,044 28,110 20,184
Bond portfolio losses
(gains) 15,734 ( 21,827) ( 4,000)
(Gain ) loss on sale of
premises & equipment 14,957 ( 1,657) -
Gain on sale of other
real estate owned ( 5,342) ( 17,718) ( 8,696)
Increase (decrease) in
taxes payable ( 16,610) ( 123,457) 128,798
Increase (decrease) in
interest payable 57,433 287,865 60,772
Increase (decrease) in
other liabilities 49,749 36,870 ( 17,769)
(Increase) decrease in
interest receivable ( 272,411) ( 73,925) ( 32,245)
Decrease (increase) in
prepaid expenses 48,322 53,186 16,910
(Increase) decrease in
other assets ( 119,537) ( 224,305) ( 143,099)
Recognition of unearned
loan income 29,180 21,887 ( 7,688)
Net Cash Provided From
Operating Activities $ 1,936,612 $ 1,598,353 $ 1,425,912
Cash Flows From Investing
Activities:
Proceeds from sales of
investment securities -
available for sale $ 4,506,015 $ 979,156 $ -
Proceeds from maturities
of securities held to
maturity 1,635,361 2,533,844 1,459,013
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED STATEMENT OF CASH FLOWS (con't)
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
Cash Flows From Investing
Activities: (con't)
Purchase of securities
held to maturity $( 498,738) $( 1,596,546) $( 2,036,708))
Proceeds from maturity of
securities available for
sale 3,302,652 786,703 2,844,514
Net loans to customers (13,911,298) ( 4,694,955) ( 6,841,156)
Purchase of securities
available for sale ( 9,479,898) ( 4,849,104) ( 1,016,502)
Purchase of premises and
equipment ( 423,377) ( 273,546) ( 1,011,428))
Proceed from sale of
premises and equipment 18,850 4,911 -
Proceeds from sale of
other real estate owned 258,140 385,215 248,439
Purchase of Pineland
Bank stock ( 1,839,937) ( 975,141) -
Purchase of FHLB stock ( 147,700) ( 99,900) -
Cash and cash equivalents
received in bank
acquisition 8,773,744 - -
Net Cash Provided from
Investing Activities $( 7,806,186) $( 7,799,363) $( 6,353,828)
Cash Flows From Financing
Activities:
Net increase (decrease) in
demand deposits, NOW and
money markets $ 2,858,872 $ 1,141,372 $ 414,207
Net increase in savings
and time deposits 4,334,112 9,620,328 3,743,262
Proceeds from borrowing 2,000,000 825,000 650,000
Payments on borrowing ( 469,126) ( 140,833) ( 107,762)
Dividends paid ( 219,849) ( 222,889) ( 222,906)
Payments to retire stock ( 21,440) - ( 3,300)
Lap - - -
Net Cash Provided From
Financing Activities $ 8,482,569 $ 11,222,978 $ 4,473,501
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED STATEMENT OF CASH FLOWS (con't)
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
Net increase (decrease) in
cash and cash equivalents $ 2,612,995 $ 5,021,968 $( 454,415)
Cash and Cash Equivalents
at Beginning of Year 18,119,564 13,097,596 13,552,011
Cash and Cash Equivalents
at End of Year $ 20,732,559 $ 18,119,564 $ 13,097,596
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 1. Significant Accounting Policies
The accounting and reporting policies of South Banking
Company, Inc. and its subsidiaries conform with generally
accepted accounting principles and with practices within the
banking industry.
(a) Basis of Presentation
During 1996, Pineland State Bank was acquired by South
Banking Company. The transaction was accounted for using the
purchase method.
(b) Principles of Consolidation
The consolidated financial statements include the accounts
of South Banking Company, Alma, Georgia (The Bank) and its
wholly owned bank subsidiaries, Alma Exchange Bank, Alma,
Georgia; Peoples State Bank, Baxley, Georgia; Citizens State
Bank, Kingsland, Georgia and Pineland State Bank, Metter,
Georgia; and its wholly owned computer center, Bankers' Data
Services, Inc., Alma, Georgia. All significant intercompany
transactions and balances have been eliminated in
consolidation.
(c) Nature of Operations:
The Banks provide a variety of banking services to
individuals and businesses through its offices in Alma,
Georgia; Kingsland, Georgia; Baxley, Georgia; and Metter,
Georgia. Its primary source of revenue is loans to customers
who are primarily low to middle income individuals and small to
mid size businesses.
(d) Use of Estimates:
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.
Material estimates that are particularly susceptible to
significant change relate to the determination of the allowance
for losses on loans and the valuation of foreclosed real
SOUTH BANKING COMPANY
ALMA, GEORGIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 1. Significant Accounting Policies (con't)
(d) Use of Estimates (con't)
estate. In connection with the determination of the estimated
losses on loans and foreclosed real estate, management obtains
independent appraisals for significant properties.
While management uses available information to recognize
losses on loans and foreclosed real estate, further reductions
in the carrying amounts of loans and foreclosed assets may be
necessary based on changes in local economic conditions. In
addition, regulatory agencies, as an integral part of their
examination process, periodically review the estimated losses
on loans and foreclosed real estate. Such agencies may require
the Bank to recognize additional losses based on their
judgments about information available to them at the time of
their examination. Because of these factors, it is reasonably
possible that the estimated losses on loans and foreclosed real
estate may change materially in the near term. However, the
amount of the change that is reasonably possible cannot be
estimated.
(e) Securities:
The Bank adopted FASB 115 effective January 1, 1994. The
Bank's investments in securities are classified in two
categories and accounted for as follows.
Securities to be Held to Maturity. Bonds, notes and
debentures for which the Bank has the positive intent and
ability to hold to maturity are reported at cost, adjusted
for amortization of premiums and accretion of discounts
which are recognized in interest income using the interest
method over the period to maturity.
Securities Available for Sale. Securities available for
sale consist of bonds, notes, debentures and certain equity
securities not classified as trading securities or as
securities to be held to maturity.
Declines in fair value of individual held-to-maturity and
available-for-sale securities below their cost that are other
than temporary have resulted in write-downs of the individual
securities to their fair value. The related write-downs have
been included in earnings as realized losses.
SOUTH BANKING COMPANY
ALMA, GEORGIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 1. Significant Accounting Policies (con't)
Unrealized holding gains and losses, net of tax, on
securities available for sale are reported as a net amount in
a separate component of shareholders' equity until realized.
Gains and losses on the sale of securities available-for-
sale are determined using the specific-identification method.
f. Loans Receivable:
Loans receivable that management has the intent and
ability to hold for the foreseeable future or until maturity or
pay-off are reported at their outstanding principal adjusted
for any charge-offs, the allowance for loan losses, and any
deferred fees or costs on originated loans and unamortized
premiums or discounts on purchased loans.
Loan origination fees and certain direct origination costs
are capitalized and recognized as an adjustment of the yield of
the related loan.
The accrual of interest on impaired loans is discontinued
when, in management's opinion, the borrower may be unable to
meet payments as they become due. When interest accrual is
discontinued, all unpaid accrued interest is reversed.
Interest income is subsequently recognized only to the extent
cash payments are received.
(g) Allowances for Loan Losses:
The allowance for loan losses is increased by charges to
income and decreased by charge-offs (net of recoveries).
Management's periodic evaluation of the adequacy of the
allowance is based on the Bank's past loan loss experience,
known and inherent risks in the portfolio, adverse situations
that may affect the borrower's ability to repay, the estimated
value of any underlying collateral, and current economic
conditions.
(h) Premises and Equipment:
Premises and equipment are stated at cost, less
accumulated depreciation and amortization. The provision for
depreciation and amortization is computed generally by the
straight-line method.
SOUTH BANKING COMPANY
ALMA, GEORGIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 1. Significant Accounting Policies (con't)
(i) Other Real Estate (ORE)
Real estate acquired in satisfaction of a loan and in-
substance foreclosures are reported in other assets. In-
substance foreclosures are properties in which a borrower with
little or no equity in the collateral, effectively abandons
control of the property or has no economic interest to continue
involvement in the property. The borrower's ability to rebuild
equity based on current financial conditions also is considered
doubtful. Properties acquired by foreclosure or deed in lieu
of foreclosure and properties classified as in-substance
foreclosures are transferred to ORE and recorded at the lower
of cost or fair market value based on appraised value at the
date actually or constructively received. Loan losses arising
from the acquisition of such property are charged against the
allowance for loan losses. Losses on ORE due to subsequent
valuation adjustments are recorded on a specific property
basis.
(j) Income Taxes
Deferred tax assets and liabilities are reflected at
currently enacted income tax rates applicable to the period in
which the deferred tax assets or liabilities are expected to be
realized or settled. As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes. The FASB recently
issued pronouncement on accounting for income taxes which
require a change to the liabilities method for accounting for
deferred taxes. The statement includes several other
provisions that may affect the bank's accounting for income
taxes and allows restatement of as many years as deemed
appropriate. The bank adopted the new statement which required
a cumulative effect adjustment of $97,693 in 1993.
The bank files a consolidated federal income tax return
with its subsidiaries. Each subsidiary provides for income
taxes on a separate return basis and remits to the parent
company amounts determined to be currently payable.
(k) Intangibles
The intangibles (Goodwill) recorded by the Company in the
acquisition of Pineland State Bank are being amortized on a
straight line basis over a eight year period.
SOUTH BANKING COMPANY
ALMA, GEORGIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 1. Significant Accounting Policies (con't)
(l) Earnings Per Share
Earnings per share are based on the weighted average
number of shares outstanding.
(m) Cash Flow Information
For purposes of the statements of cash flows, the Company
considers cash, federal funds sold and due from banks as cash
and cash equivalents. Cash paid during the years ended
December 31, 1996, 1995 and 1994 for interest was $4,765,653,
$3,026,256 and $2,187,432, respectively. Total income tax
payments during 1996, 1995 and 1994 were $727,000, $666,401 and
$287,000, respectively.
Note 2. Investment Securities
The amortized cost and estimated market values of
investments in debt securities are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Securities available
for sale -
December 31, 1996:
U.S. Government
and agency
securities $10,411,873 $ 27,035 $ 57,721 $10,381,187
State and municipal
securities 1,575,173 16,883 734 1,591,322
Mortgage backed
securities 1,478,983 3,945 6,149 1,476,779
Totals $13,466,029 $ 47,863 $ 64,604 $13,449,288
December 31, 1995:
U.S. Government
and agency
securities $5,150,304 $ 36,239 $ 6,588 $5,179,955
State and municipal
securities 1,521,554 13,605 - 1,535,159
Mortgage backed
securities 1,409,879 21,281 - 1,431,160
Totals $8,081,737 $ 71,125 $ 6,588 $8,146,274
SOUTH BANKING COMPANY
ALMA, GEORGIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 2. Investment Securities (con't)
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Securities to be
held to maturity -
December 31, 1996:
U.S. Government
and agency
securities $ 2,000,103 $ 2,081 $ 5,726 $ 1,996,458
State and municipal
securities 296,420 5,104 - 301,524
Mortgage backed
securities 67,221 680 51 67,850
Totals $ 2,363,744 $ 7,865 $ 5,777 $ 2,365,832
December 31, 1995:
U.S. Government
and agency
securities $2,453,740 $ 10,798 $ 11,039 $2,453,499
State and municipal
securities 386,148 6,875 - 393,023
Mortgage backed
securities 465,688 1,167 1,422 465,433
Totals $3,305,576 $ 18,840 $ 12,461 $3,311,955
Gross realized gains on sales and losses of available-for-
sale securities were $9,941 and $25,677 in 1996, respectively
and $21,483 and $344, respectively for 1995 and $6,000 and
$-0-, respectively in 1994.
Assets, principally securities carried at approximately
$6,833,268 at December 31, 1996 and $3,972,330 at December 31,
1995, were pledged to secure public deposits and for other
purposes required or permitted by law.
The scheduled maturities of securities to be held to
maturity and securities available for sale at December 31, 1996
were as follows:
SOUTH BANKING COMPANY
ALMA, GEORGIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 2. Investment Securities (con't)
Securities to be Securities
Held to Maturity Available for Sale
Amortized Amortized
Cost Fair Value Cost Fair Value
Due in one year
or less $ 852,281 $ 853,604 $ 860,525 $ 861,976
Due from one year
to five years 1,364,977 1,362,521 10,384,296 10,360,556
Due from five years
to ten years 100,000 101,067 1,449,008 1,447,040
Due after ten years 46,486 48,640 772,200 779,716
$2,363,744 $2,365,832 $13,466,029 $13,449,288
The market value of State and Other Political Subdivision
Obligations is established with the assistance of an outside bond
department and is based on available market data which often
reflects transactions of relatively small size and is not
necessarily indicative of prices at which large amounts of
particular issues could readily be sold or purchased.
Note 3. Loans
The composition of the bank's portfolio was as follows:
1996 1995
Commercial, financial and
agricultural $19,565,455 $14,591,725
Real estate - mortgage 53,813,217 36,426,397
Real estate - construction 3,798,037 1,767,423
Installment and consumer 11,869,817 8,931,892
Total Loans $89,046,526 $61,717,437
Less: Unearned discount ( 150,457) ( 82,051))
Reserve for loan losses (1,781,013) ( 994,027))
Loans, net $87,115,056 $60,641,359
The Company and its subsidiaries have granted loans to the
officers and directors of the Company, its subsidiaries and to
their associates. Related party loans are made on substan-
tially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions
with unrelated persons and do not involve more than normal risk
SOUTH BANKING COMPANY
ALMA, GEORGIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 3. Loans (con't)
of collectibility. The aggregate dollar amount of these loans
was $789,805 and $525,535 at December 31, 1996 and 1995.
During 1996, $339,414 of new loans were made, and repayments
totaled $155,298.
Note 4. Reserve for Loan Losses
Transactions in the reserve for loan losses are summarized
as follows:
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
Balance at beginning
of period $ 994,027 $ 974,866 $ 911,931
Additions: Provision
charged to operating
expenses $ 201,589 $ 62,200 $ 53,500
Balance from bank
acquisition 570,707 - -
$ 772,296 $ 62,200 $ 53,500
Deductions: Loans
charged off $ 259,264 $ 189,371 $ 92,986
Less: recoveries 273,954 146,332 102,421
$( 14,690) $ 43,039 $( 9,435)
Balance at end of
period $ 1,781,013 $ 994,027 $ 974,866
Additions to the reserve for loan losses are based on
management's evaluation of the loan portfolio under current
economic conditions, past loan loss experience and such other
factors which, in management's judgment, deserve recognition in
estimating loan losses. Loans are charged off when, in the
opinion of management, such loans are deemed to be
uncollectible. Recognized losses are charged to the reserve
and subsequent recoveries added.
Loans having carrying values of $185,865 and $17,970 were
transferred to foreclosed real estate in 1996 and 1995,
respectively.
The bank is not committed to lend additional funds to
debtors whose loans have been modified.
SOUTH BANKING COMPANY
ALMA, GEORGIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 5. Deposits
The aggregate amount of short-term jumbo CDs, each with a
minimum denomination of $100,000, was approximately $13,545,616
in 1996 and $9,268,553 in 1995.
At December 31, 1996, the scheduled maturities of CDs are
as follows:
1997 $ 58,241,940
1998 6,668,651
1999 1,629,536
2000 343,839
2001 and thereafter -
$ 66,883,966
Note 6. Premises and Equipment
A summary of the account:
Year Ended Year Ended
December 31, December 31,
1996 1995
Land $ 448,149 $ 393,148
Buildings 2,914,115 2,345,562
Furniture and equipment 3,581,514 3,306,840
$ 6,943,778 $ 6,045,550
Less: Accumulated depreciation 2,948,393 2,940,895
$ 3,995,385 $ 3,104,655
Depreciation expense was $516,629 in 1996, $418,618 in 1995,
and $315,743 in 1994.
Note 7. Borrowings
Data relating to borrowing is as follows:
Year Ended Year ended
December 31, December 31,
1996 1995
Parent company -
Line of credit loan in the amount
of $3,675,000 for the purpose of
refinancing existing loan and the
acquisition of Pineland Bank stock.
Interest only due until 1-31-97 at
SOUTH BANKING COMPANY
ALMA, GEORGIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 7. Borrowings (con't)
Year Ended Year ended
December 31, December 31,
1996 1995
Parent company - (con't)
which time annual payment of 10%
of original loan will be payable
over ten years. Interest accrues
at the prime rate basis and is
paid quarterly. $ - $ 1,500,000
Note payable in 10 annual payments
of $350,000. Interest is payable
quarterly and accrues at prime rate
and is secured by subsidiary bank
stock. 3,150,000 -
Subsidiary - Bankers Data Services, Inc.
Note payable in 60 monthly principal
amount of $10,833.33 plus interest.
Interest accrues at prime rate basis.
Computer equipment is pledged as
collateral for loan. 357,279 476,405
Following are maturities of long term debt for each of the
next five years.
1997 $ 480,000
1998 480,000
1999 447,279
2000 350,000
2001 and thereafter 350,000
Note 8. Income Taxes
Income tax expense (benefit) was $662,078 for 1996, (an
effective rate of 31.6%), $589,746 for 1995 (an effective rate of
33.9%) and $405,523 for 1994 (an effective rate of 29.1%). The
actual expense for 1996, 1995 and 1994 differs from the "expected"
tax expense for those years (computed by applying the federal
corporate rate of 34% as follows:
SOUTH BANKING COMPANY
ALMA, GEORGIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 8. Income Taxes (con't)
1996 1995 1994
Computed "expected"
tax expenses $ 711,417 $ 591,642 $ 474,093
Alternative minimum tax - - -
Decrease resulting from:
Surtax exemption - - -
Tax exempt interest
on securities and loans ( 63,613) ( 39,927) ( 42,804)
Other, net 14,274 38,031 ( 25,766)
$ 662,078 $ 589,746 $ 405,523
The current and deferred amounts of these tax provisions were
as follows:
1996 1995 1994
Current $ 764,797 $ 481,329 $ 425,551
Deferred ( 102,719) 108,417 ( 20,028)
$ 662,078 $ 589,746 $ 405,523
The tax effects of each type of income and expense item
that gave rise to deferred taxes are:
December 31 December 31,,
1996 1995
Net unrealized appreciation on
securities available for sale $ 5,691 $( 21,942)
Depreciation ( 256,484) ( 160,633)
Deferred loan fees 51,203 25,417
Allowance for credit losses 321,666 140,801
Other 15,926 6,768
Purchase accounting treatment ( 59,297) -
Net deferred tax asset (liability) $ 78,705 $( 9,589)
Note 9. Employee Benefit Plans
The Company maintains a 401K deferred compensation plan
for all subsidiaries effective January 1, 1993. The Company
elected to match 50% of employee contributions for 1996, 1995
and 1994. The expense to the Company for 1996, 1995 and 1994
was $37,009, $32,256 and $29,457, respectively.
SOUTH BANKING COMPANY
ALMA, GEORGIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 10. Liabilities
Standby Letters of Credit. These transactions are used by the
Company's customers as a means of improving their credit
standing in their dealings with others. Under these
agreements, the Company agrees to honor certain financial
commitments in the event that its customers are unable to do
so. As of December 31, 1996 the Company had $1,746,000 in
outstanding standby letters of credit.
Loan Commitments. As of December 31, 1996, the Company had
commitments outstanding to extend credit totaling $9,776,570.
These commitments generally require the customers to maintain
certain credit standards. Management does not anticipate any
material losses as a result of these commitments.
Note 11. Financial Instruments
The Bank is a party to financial instruments with off-
balance-sheet risk in the normal course of business to meet the
financing needs of its customers and to reduce its own exposure
to fluctuations in interest rates. These financial instruments
include commitments to extend credit and standby letters of
credit and financial guarantees. Those instruments involve, to
varying degrees, elements of credit and interest-rate risk in
excess of the amount recognized in the consolidated statements
of financial condition. The contract or notional amounts of
those instruments reflect the extent of the Bank's involvement
in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument
for commitments to extend credit, standby letters of credit,
and financial guarantees written is represented by the
contractual notional amount of those instruments. The Bank
uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet
instruments.
Commitments to Extend Credit and Financial Guarantees.
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 11. Financial Instruments (con't)
The Bank evaluates each customer's credit worthiness on a case-
by-case basis. The amount of collateral obtained, if it is
deemed necessary by the Bank upon extension of credit, is based
on management's credit evaluation of the counterparty.
Collateral held varies but may include accounts receivable;
inventory, property, plant and equipment; and income-producing
commercial properties.
Standby letters of credit and financial guarantees written
are conditional commitments issued by the Bank to guarantee the
performance of a customer to a third party. Those guarantees
are primarily issued to support private borrowing arrangements,
including commercial paper and similar transactions. The
credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan
facilities to customers. The Bank holds various assets as
collateral supporting those commitments for which collateral is
deemed necessary.
The Bank has not been required to perform on any financial
guarantees during the past two years. The Bank has not
incurred any losses on its commitments in 1996, 1995 or 1994.
Note 12. Restrictions on Subsidiary Dividends, Loans or Advances
Dividends are paid by the Company from its assets which
are mainly provided by dividends from the Banks. However,
certain restrictions exist regarding the ability of the Banks
to transfer funds to the Company in the form of cash dividends,
loans or advances. The approval of the Georgia Department of
Banking is required to pay dividends in excess of 50% of the
Bank's net profits for the prior year.
Under Federal Reserve regulation, the Bank also is limited
as to the amount it may loan to its affiliates, including the
Company, unless such loans are collateralized by specified
obligations. At December 31, 1996, the maximum amount
available for transfer from the Bank to the Company in the form
of loans approximated 20% of consolidated net equity.
Note 13. Restrictions on Cash and Due from Banks
The bank is required to maintain reserve balances with the
Federal Reserve Bank. The average amount of those reserve
balances for the year ended December 31, 1996 was approximately
$-0-.
SOUTH BANKING COMPANY
ALMA, GEORGIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 14. Related Party Transactions
The Company has entered into a split dollar life insurance
arrangement with a director and substantial shareholder. The
Company and director's trust each contribute toward the payment
of premium for life insurance policy. The Company records its
contribution at the present value of anticipated future return
or total cash surrender value of policy whichever is higher;
however, the carrying amount cannot exceed the amount of
premiums paid by the Company. The Company will receive all
reimbursement from anticipated withdrawal of cash surrender
value or from the proceeds of policy in the event of the death
of the director. All cash surrender value of the policy
accrues to the benefit of the Company until such time as the
cash surrender value exceeds advances made by the Company. As
of December 31, 1996, $1,130,596 is carried in other assets
related to this arrangement.
Note 15. Fair Value of Financial Instruments
The following table shows the estimated fair value and the
related carrying values of South Banking Company's financial
instruments at December 31, 1996 and 1995. Items which are not
financial instruments are not included.
1996
Carrying Estimated
Amount Fair Value
Cash and due from financial
institutions $ 6,863,559 $ 6,863,559
Interest earning balances with
financial institutions 1,886,000 1,886,000
Federal funds 11,983,000 11,983,000
Securities available for sale 13,449,288 13,449,288
Securities held to maturity 2,363,744 2,365,832
Federal Home Loan Bank stock 247,600 247,600
Georgia Bankers Bank - stock 547,283 586,000
Loans - net of allowances 87,115,056 86,967,948
Demand and savings deposits 42,683,587 42,683,587
Time deposits 66,883,966 67,045,456
1995
Carrying Estimated
Amount Fair Value
Cash and due from financial
institutions $ 3,989,564 $ 3,989,564
Interest earning balances with
financial institutions 795,000 795,000
SOUTH BANKING COMPANY
ALMA, GEORGIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 15. Fair Value of Financial Instruments (con't)
1995
Carrying Estimated
Amount Fair Value
Federal funds $13,335,000 $13,335,000
Securities available for sale 8,146,274 8,146,274
Securities held to maturity 3,305,576 3,311,955
Federal Home Loan Bank stock 99,900 99,900
Georgia Bankers Bank - stock 272,880 307,500
Loans - net of allowances 60,641,359 59,901,705
Demand and savings deposits 37,647,011 37,647,011
Individual retirement account
deposits 6,573,568 6,669,710
Time deposits 40,324,878 40,720,301
For purposes of the above disclosures of estimated fair
value, the following assumptions were used as of December 31,
1996 and 1995. The estimated fair value for cash and due from
financial institutions and federal funds sold are considered to
approximate cost. The estimated fair value for interest-earning
balances with financial institutions, securities available-for-
sale, securities held-to-maturity and Georgia Bankers Bank stock
are based on quoted market values for the individual securities
or for equivalent securities. The estimated fair value for
commercial loans is based on estimates of the difference in
interest rates the Company would charge the borrowers for
similar such loans with similar maturities made at December 31,
1996, applied for an estimated time period until the loan is
assumed to reprice or be paid. The estimated fair value for
other loans is based on estimates of the rate the Company would
charge for similar such loans at December 31, 1996, applied for
the tie period until estimated repayment. The estimated fair
value for individual retirement account deposits and time
deposits is based on estimates of the rate the Company would pay
on such deposits or borrowings at December 31, 1996, applied for
the time period until maturity. The estimated fair value for
other financial instruments and off-balance-sheet loan
commitments are considered to approximate cost at December 31,
1996.
While these estimates of fair value are based on
management's judgment of the most appropriate factors, there is
no assurance that were the Company to have disposed of such
items at December 31, 1996, the estimated fair values would
necessarily have been achieved at that date, since market values
may differ depending on various circumstances. The estimated
fair values at December 31, 1996 should not necessarily be
considered to apply at subsequent dates.
SOUTH BANKING COMPANY
ALMA, GEORGIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 15. Fair Value of Financial Instruments (con't)
In addition, other assets and liabilities of the Company
that are not defined as financial instruments are not included
in the above disclosures, such as property and equipment. Also,
non-financial instruments typically not recognized in the
financial statements nevertheless may have value but are not
included in the above disclosures. These include among other
items, the estimated earnings power of core deposit accounts,
the earnings potential of loan servicing rights, the trained
work force, customer goodwill and similar items.
Note 16. Regulatory Matters
The Company and its subsidiaries 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 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 Company's 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 I capital (as defined in the
regulations) to risk-weighted assets (as defined) and of Tier I
capital (as defined) to average assets (as defined). Management
believes, as of December 31, 1996, that the Company and its
subsidiaries meet all capital adequacy requirements to which it
is subject.
As of December 31, 1996, the most recent notification from
the FDIC categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum
total risk-based, Tier I risk-based, and Tier I leverage ratios
as set forth in the table. There are no conditions or events
since that notification that management believes have changed
the institution's category.
SOUTH BANKING COMPANY
ALMA, GEORGIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 16. Regulatory Matters (con't)
The Company and its subsidiaries' actual capital amounts and
ratios are also presented in the table.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions:
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1996:
Total Capital
(to Risk Weighted
Assets)
Consolidated $ 11,955 12.4% $ 7,714 8.0% $ N/A N/A%
Subsidiary -
Alma 5,262 15.7 2,685 8.0 3,357 10.0
Subsidiary -
Baxley 4,542 14.1 2,574 8.0 3,217 10.0
Subsidiary -
Kingsland 1,873 16.3 918 8.0 1,147 10.0
Subsidiary -
Metter 2,626 14.2 1,483 8.0 1,854 10.0
Tier I Capital
(to Risk Weighted
Assets)
Consolidated $ 10,763 11.2% $ 3,857 4.0% $ N/A N/A%
Subsidiary -
Alma 4,841 14.4 1,342 4.0 2,014 6.0
Subsidiary -
Baxley 4,138 12.9 1,287 4.0 1,930 6.0
Subsidiary -
Kingsland 1,742 15.2 459 4.0 688 6.0
Subsidiary -
Metter 2,390 12.9 741 4.0 1,113 6.0
Tier I Capital (to
Average Assets)
Consolidated $ 10,763 8.3% $ 4,305 4.0% $ N/A N/A%
Subsidiary -
Alma 4,841 10.0 1,929 4.0 2,411 5.0
Subsidiary -
Baxley 4,138 10.6 1,557 4.0 1,946 5.0
Subsidiary -
Kingsland 1,742 12.2 569 4.0 711 5.0
Subsidiary -
Metter 2,390 8.8 1,082 4.0 1,352 5.0
SOUTH BANKING COMPANY
ALMA, GEORGIA
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
Note 17. Acquisitions
On January 11, 1996, South Banking Company consummated an
agreement to acquire the stock of Pineland State Bank for
cash. The total acquisition cost was $2,745,716. Funding for
the acquisition was through a loan from Georgia Bankers Bank.
SOUTH BANKING COMPANY
(PARENT CORPORATION ONLY)
ALMA, GEORGIA
FINANCIAL STATEMENTS
DECEMBER 31, 1996
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
South Banking Company
Alma, Georgia 31510
Under date of February 12, 1997, we reported on the consolidated
balance sheets of South Banking Company, as of December 31, 1996 and
1995, and the related statements of income, cash flows and
stockholders' equity for the three years in the period ended December
31, 1996.
In connection with our examination of the aforementioned
consolidated financial statements, we also audited the accompanying
balance sheets (Parent Corporation Only) as of December 31, 1996 and
1995 and the related statements of income, cash flows and stockholders'
equity for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on
the financial statements based on our audit.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
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 provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of South
Banking Company (Parent Corporation Only) as of December 31, 1996 and
1995, and the results of its operations, stockholders' equity and their
cash flows for the three years then ended in conformity with generally
accepted accounting principles.
Respectfully submitted,
Waycross, Georgia H. H. BURNET & COMPANY, P. C.
February 12, 1997
SOUTH BANKING COMPANY
(PARENT CORPORATION ONLY)
ALMA, GEORGIA
BALANCE SHEETS
December 31, December 31,
1996 1995
ASSETS
Cash and due from banks
Interest bearing $ 418,716 $ 290,640
Non-interest bearing 12,761 301,582
Investment in bank's subsidiaries 13,536,590 9,724,449
Investment in nonbank subsidiaries 226,431 177,408
Investment - Pineland State Bank - at cost - 975,141
Other assets 98,449 17,314
Costs in excess of book value 1,896 8,620
Due from subsidiaries - income taxes - 10,150
Prepaid income taxes 54,905 45,793
Total Assets $14,349,748 $11,551,097
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 186 $ 2,244
Other liabilities - -
Accrued income taxes - -
Notes payable 3,150,000 1,500,000
Due to subsidiaries 15,313 -
Total Liabilities $ 3,165,499 $ 1,502,244
Stockholders' Equity
Common stock of $1 par value;
authorized 1,000,000 shares;
issued and outstanding, 1996 and 1995
$403,500 and 405,283, respectively $ 403,500 $ 405,283
Surplus 3,116,581 3,136,238
Undivided profits 7,675,216 6,464,741
Unrealized gain (loss) on securities
available for sale (net) ( 11,048) 42,591
Total Stockholders' Equity $11,184,249 $10,048,853
Total Liabilities and Stockholders' Equity $14,349,748 $11,551,097
The accompanying note is an integral part of these financial statements.
SOUTH BANKING COMPANY
(PARENT CORPORATION ONLY)
ALMA, GEORGIA
STATEMENT OF INCOME
Year Ended Year Ended Year Ended
December 31 December 31, December 31,,
1996 1995 1994
Income
Dividends from bank
subsidiaries $ 854,987 $ 773,430 $ 543,805
Miscellaneous income 845 - -
Interest income 32,841 11,692 6,690
Management fees 101,000 79,400 79,200
Total Income $ 989,673 $ 864,522 $ 629,695
Expenses
Salaries $ 65,000 $ 73,163 $ 56,746
Amortization 24,346 6,726 6,726
Interest 256,725 87,051 56,954
Professional fees 15,150 46,079 16,084
Other 67,014 49,527 40,560
Total Expenses $ 428,235 $ 262,546 $ 177,070
Income before income taxes
and equity in undistributed
income (loss) of subsidiaries $ 561,438 $ 601,976 $ 452,625
Provision (credit) for
income taxes ( 99,798) ( 57,665) ( 27,700))
Income before equity in
undistributed income in
subsidiaries $ 661,236 $ 659,641 $ 480,325
Equity in undistributed
income of bank subsidiaries $ 720,064 $ 440,715 $ 597,787
Equity in undistributed
income (loss) of nonbank
subsidiaries 49,024 50,021 ( 89,245)
$ 769,088 $ 490,736 $ 508,542
Net Income $ 1,430,324 $ 1,150,377 $ 988,867
The accompanying note is an integral part of these financial statements.
SOUTH BANKING COMPANY
(PARENT CORPORATION ONLY)
ALMA, GEORGIA
STATEMENT OF STOCKHOLDERS' EQUITY
Common Undivided
Stock Surplus Profits
Balance,
December 31, 1993 $ 405,583 $ 3,139,238 $ 4,771,292
Net income - - 988,867
Cash dividends - - ( 222,906)
Redemption of shares ( 300) ( 3,000) -
Unrealized gain
(loss) on securities
available for sale - - -
Balance,
December 31, 1994 $ 405,283 $ 3,136,238 $ 5,537,253
Net income - - 1,150,377
Cash dividends - - ( 222,889)
Unrealized gain
(loss) on securities
available for sale - - -
Balance,
December 31, 1995 $ 405,283 $ 3,136,238 $ 6,464,741
Net income - - 1,430,324
Cash dividends - - ( 219,849)
Unrealized gain
(loss) on securities
available for sale - - -
Redemption of shares ( 1,783) ( 19,657) -
Balance,
December 31, 1996 $ 403,500 $ 3,116,581 $ 7,675,216
Unrealized
Gain
(Loss) on
Securities Total
Available Stockholders'
for Sale Equity
$ - $ 8,316,113
- - - 988,867
- - - ( 222,906)
- - - ( 3,300)
( 80,997) ( 80,997)
$( 80,997) $ 8,997,777
- - - 1,150,377
- - - ( 222,889)
123,588 123,588
$ 42,591 $10,048,853
- - - 1,430,324
- - - ( 219,849)
( 53,639) ( 53,639)
- ( 21,440)
$( 11,048) $11,184,249
The accompanying note is an integral part of these financial statements.
SOUTH BANKING COMPANY
(PARENT CORPORATION ONLY)
ALMA, GEORGIA
STATEMENT OF CASH FLOWS
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
Cash Flows From Operating
Activities:
Net income $ 1,430,324 $ 1,150,377 $ 988,867
Add expenses not requiring
cash
Depreciation and
amortization 36,088 13,501 12,938
Undistributed earnings of
subsidiaries ( 769,088) ( 490,736) ( 508,542)
Increase (decrease) in
accounts payable ( 2,058) ( 172) 172
Increase (decrease) in
other liabilities - - ( 427)
Increase (decrease) in
accrued income taxes - ( 77,665) ( 9,068)
Increase (decrease) in
other assets 17,802 ( 4,155) ( 473)
Increase (decrease) in
prepaid income taxes 9,112 ( 45,793) -
Increase (decrease) in
due from subsidiary - taxes ( 25,463) 141,781 -
Net Cash Used in Operating
Activities $ 696,717 $ 687,138 $ 483,467
Cash Flows From Investing
Activities:
Basis in investments sold $ - $ - $ -
Contribution to equity in
bank subsidiary ( 400,000) - ( 125,000)
Purchase of equipment ( 26,236) - -
Purchase of Pineland State
Bank (1,839,937) ( 975,141) -
Net Cash Used in Investing
Activities $(2,266,173) $( 975,141) $( 125,000)
The accompanying note is an integral part of these financial statements.
SOUTH BANKING COMPANY
(PARENT CORPORATION ONLY)
ALMA, GEORGIA
STATEMENT OF CASH FLOWS
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995 1994
Cash Flow From Financing
Activities:
Payments on note payable
bank $( 350,000) $ - $( 75,000)
Proceeds from notes payable
to banks 2,000,000 825,000 -
Dividends paid ( 219,849) ( 222,889) ( 222,906)
Increase (decrease) in due
to subsidiaries - - -
Redemption of common stock ( 21,440) - ( 3,300)
Net Cash Provided (Used)
from Financing Activities $ 1,408,711 $ 602,111 $( 301,206)
Net increase (decrease) in
cash and cash equivalents $( 160,745) $ 314,108 $ 57,261
Cash and cash equivalents at
beginning of year 592,222 278,114 220,853
Cash and Cash Equivalents
at End of Year $ 431,477 $ 592,222 $ 278,114
The accompanying note is an integral part of these financial statements.
SOUTH BANKING COMPANY
(PARENT CORPORATION ONLY)
ALMA, GEORGIA
NOTES TO FINANCIAL STATEMENTS
(A) Summary of Significant Accounting Policies
General - The following notes to the financial statements of South
Banking Corporation, formed on July 28, 1981, (parent
corporation only) (the corporation) includes only that
information which is in addition to information presented
in the consolidated financial statements and notes to
consolidated financial statements.
Investment in subsidiaries - The corporation reports its investment
in the common stock of its subsidiaries at its equity in
the net assets of the subsidiaries.
Organization costs - Organization costs have been deferred and are
being amortized on a straight-line basis over a period of
five years.
[ARTICLE] 9
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1996
[PERIOD-END] DEC-31-1996
[CASH] 6,863,559
[INT-BEARING-DEPOSITS] 1,886,000
[FED-FUNDS-SOLD] 11,983,000
[TRADING-ASSETS] -
[INVESTMENTS-HELD-FOR-SALE] 13,449,288
[INVESTMENTS-CARRYING] 2,363,744
[INVESTMENTS-MARKET] 15,815,120
[LOANS] 89,046,526
[ALLOWANCE] 1,781,013
[TOTAL-ASSETS] 132,290,583
[DEPOSITS] 116,693,583
[SHORT-TERM] -
[LIABILITIES-OTHER] 905,472
[LONG-TERM] 3,507,279
[PREFERRED-MANDATORY] -
[PREFERRED] -
[COMMON] 403,500
[OTHER-SE] 10,780,749
[TOTAL-LIABILITIES-AND-EQUITY] 132,290,583
[INTEREST-LOAN] 9,479,255
[INTEREST-INVEST] 1,599,830
[INTEREST-OTHER] 27,623
[INTEREST-TOTAL] 11,106,708
[INTEREST-DEPOSIT] 4,512,373
[INTEREST-EXPENSE] 4,823,086
[INTEREST-INCOME-NET] 6,283,622
[LOAN-LOSSES] 201,589
[SECURITIES-GAINS] (15,708)
[EXPENSE-OTHER] 5,585,944
[INCOME-PRETAX] 2,092,402
[INCOME-PRE-EXTRAORDINARY] 2,092,402
[EXTRAORDINARY] -
[CHANGES] -
[NET-INCOME] 1,430,324
[EPS-PRIMARY] 3.54
[EPS-DILUTED] 3.54
[YIELD-ACTUAL] -
[LOANS-NON] 553,000
[LOANS-PAST] 226,000
[LOANS-TROUBLED] -
[LOANS-PROBLEM] 35,000
[ALLOWANCE-OPEN] 994,027
[CHARGE-OFFS] 259,264
[RECOVERIES] 273,954
[ALLOWANCE-CLOSE] 1,781,013
[ALLOWANCE-DOMESTIC] 1,781,013
[ALLOWANCE-FOREIGN] -
[ALLOWANCE-UNALLOCATED] -
</TABLE>
