SECURITY AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarter ended June 30, 1997 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 Number)
incorporation or organization)
104 North Dixon Street, Alma, Georgia 31510
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (912) 632-8631
Former name, former address and former fiscal year, if changed since
last report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 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 report(s), and (2)
has been subject to such filing requirement for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of June 30, 1997.
Common stock, $1.00 par value - 400,000 shares outstanding
SOUTH BANKING COMPANY
SOUTH BANKING COMPANY
ALMA, GEORGIA
Part I. Financial Information
Consolidated Financial Statements . . . . . . . . . . . .4 - 9
Notes to Consolidated Financial Statements . . . . . . . . 10
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . .11 -14
Part II. Other Information . . . . . . . . . . . . . . . . . . .15 -16
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1997 1996
ASSETS
Cash and due from banks $ 7,570,920 $ 6,863,559
Deposits in other banks -
interest bearing $ 1,280,000 $ 1,886,000
Investment securities
Available for sale $ 15,589,491 $ 13,449,288
Held to maturity $ 1,861,100 $ 2,363,744
Georgia Bankers stock $ 547,283 $ 547,283
Federal Home Loan Bank stock $ 263,000 $ 247,600
Federal funds sold $ 3,004,000 $ 11,983,000
Loans $101,070,727 $ 89,046,526
Less: Unearned discount ( 139,451) ( 150,457)
Reserve for loan losses ( 1,787,752) ( 1,781,013)
$ 99,143,524 $ 87,115,056
Bank premises and equipment $ 4,046,481 $ 3,995,385
Goodwill $ 338,913 $ 364,983
Other assets $ 3,688,776 $ 3,474,685
Total Assets $137,333,488 $132,290,583
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED BALANCE SHEETS (con't)
June 30, December 31,
1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits: Demand - non-interest
bearing $ 18,254,048 $ 21,451,527
Demand - interest bearing 20,607,032 20,440,276
Savings 8,306,543 7,917,814
Time 70,042,231 66,883,966
$117,209,854 $116,693,583
Borrowing 3,524,404 3,507,279
Accrued expenses and other
liabilities 1,253,048 905,472
Federal funds purchased and securities
sold under agreements to repurchase 3,210,000 -
Total Liabilities $125,197,306 $121,106,334
Stockholder's Equity
Common stock $1 par value; shares
authorized - 1,000,000, shares
issued and outstanding - January 30
1997 and December 31, 1996 - 400,000
and 403,500, respectively $ 400,000 $ 403,500
Surplus 3,076,331 3,116,581
Undivided profits 8,685,259 7,675,216
Unrealized gain (loss) on
securities ( 25,408) ( 11,048)
Total Stockholders' Equity $ 12,136,182 $ 11,184,249
Total Liabilities and
Stockholders' Equity $137,333,488 $132,290,583
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED STATEMENT OF INCOME
Three Three
Months Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
Interest Income:
Interest & fees
on loans $ 2,652,957 $ 2,395,297 $ 5,200,150 $ 4,567,942
Interest on federal
funds sold 70,905 129,956 176,660 337,796
Interest on deposits
with other banks 21,116 30,099 50,892 59,740
Interest on
investment
securities:
U.S. Treasury 48,839 48,360 95,437 93,764
Mortgage backed
securities 22,779 64,893 47,506 96,654
U.S. Government
agencies 174,212 116,446 322,882 259,199
State & municipal
subdivisions 23,198 24,561 46,396 47,959
Other 4,653 1,805 31,263 23,940
Total Interest
Income $ 3,018,659 $ 2,811,417 $ 5,971,186 $ 5,486,994
Interest Expense:
Interest on
deposits $ 1,217,532 $ 1,136,961 $ 2,384,147 $ 2,278,853
Interest on other
borrowings 74,783 73,288 144,930 142,261
Total Interest
Expense $ 1,292,315 $ 1,210,249 $ 2,529,077 $ 2,421,114
Net Interest
Income $ 1,726,344 $ 1,601,168 $ 3,442,109 $ 3,065,880
Provision for loan
losses 31,500 24,000 48,000 48,000
Net interest income
after provision
for loan losses $ 1,694,844 $ 1,577,168 $ 3,394,109 $ 3,017,880
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED STATEMENT OF INCOME (con't)
Three Three
Months Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
Other Operating Income:
Service charge on
deposit accounts $ 303,705 $ 301,097 $ 583,762 $ 569,573
Commission on
insurance 31,556 9,096 58,582 25,476
Other income 97,528 100,302 172,485 197,525
Gain (loss) on sale
of securities 9 ( 880) 13 ( 21,312)
Computer income 35,881 - 70,534 -
Total Other
Operating Income $ 468,679 $ 409,615 $ 885,376 $ 771,262
Other Operating Expenses:
Salaries $ 589,487 $ 586,114 $ 1,167,179 $ 1,115,935
Profit sharing &
personnel expense 109,873 95,341 216,964 182,933
Occupancy expense 145,343 137,039 263,301 247,308
Furniture &
fixtures expense 168,689 158,539 273,307 278,543
Payroll taxes 41,068 45,619 80,984 81,282
Data processing 11,084 16,993 73,976 65,706
Other operating
Expenses 350,620 367,618 713,278 685,443
Total Other Operating
Expenses $ 1,416,164 $ 1,407,263 $ 2,788,989 $ 2,657,150
Income before
income taxes $ 747,359 $ 579,520 $ 1,490,496 $ 1,131,992
Applicable income
taxes 246,048 180,328 480,453 357,876
Net Income $ 501,311 $ 399,192 $ 1,010,043 $ 774,116
Per share data based
on weighted average
outstanding shares
Weighted average
outstanding
shares 400,000 403,496 401,419 404,271
Net Income $ 1.25 $ .99 $ 2.52 $ 1.91
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
STATEMENT OF CASH FLOWS
Six Months Six Months
Ended Ended
June 30, June 30,
1997 1996
Cash Flows From Operating Activities:
Net income $ 1,010,043 $ 774,116
Add expenses not requiring cash:
Provision for depreciation and
amortization 372,305 297,798
Provision for loan losses 48,000 48,000
Bond portfolio losses (gains) ( 13) -
Gain on sale of other real estate
owned - -
Increase (decrease) in taxes
payable 122,641 111,371
Increase (decrease) in interest
payable 124,688 76,738
Increase (decrease) in other
liabilities 100,247 118,981
(Increase) decrease in interest
receivable ( 218,786) ( 412,625)
(Increase) decrease in prepaid
expenses ( 43,929) ( 2,689)
(Increase) decrease in other
assets 48,624 159,466
Recognition of unearned loan
income ( 11,006) ( 10,538)
Net Cash Used in Operating Activities $ 1,552,814 $ 1,160,618
Cash Flows From Investing Activities:
Proceeds from sale of investment
securities - available for sale $ - $ 3,000,922
Proceeds from maturities of
investment securities - available
for sale 160,468 2,590,397
Purchase of investment securities -
available for sale ( 2,896,170) ( 7,661,262)
Net loans to customers (12,065,462) (13,337,858)
Purchase of premise and equipment ( 318,522) ( 178,460)
Proceeds from sale of premises
and equipment - -
Proceeds from other real estate owned - -
Proceeds from maturities of investment
securities held to maturity 1,403,385 -
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
STATEMENT OF CASH FLOWS (Con't)
Six Months Six Months
Ended Ended
June 30, June 30,
1997 1996
Cash Flows From Investing Activities (con't):
Purchase of investment securities
held to maturity $( 398,398) $ -
Purchase stock - Pineland Bank - ( 1,839,937)
Options to purchase Pineland Bank stock - -
Cash received from acquired bank - 8,773,744
Purchase of FHLB stock ( 15,400) ( 1,700)
Net Cash Used in Investing Activities $(14,130,099) $( 8,654,154)
Cash Flows From Financing Activities:
Net increase (decrease) in demand
deposits, NOW and money market $( 3,030,723) $( 3,357,669)
Net increase (decrease) in savings
and time deposit 3,546,994 3,022,289
Net increase (decrease) in borrowings 17,125 1,535,146
Dividends paid -
Redemptions of company stock ( 43,750) ( 21,444)
Increase in securities sold under
repurchase agreement 3,210,000 -
Net Cash Provided (Used) From
Financing Activities $ 3,699,646 $ 1,178,322
Net Increase (Decrease) in Cash
and Cash Equivalents $( 8,877,639) $( 6,315,214))
Cash and Cash Equivalents at
Beginning of Year 20,732,559 18,119,564
Cash and Cash Equivalents at
End of Period $ 11,854,920 $ 11,804,350
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The accompanying consolidated financial statements in this report
have not been audited. The statements have been prepared in accordance
with generally accepted accounting principles and general practice
within the banking industry.
On February 28, 1990, the merger of Georgia Peoples Bankshares,
Inc. into South Banking Company was completed. The purchase method of
accounting was used to record this transaction. The activity of Georgia
Peoples Bankshares, Inc. since February 28, 1990 has been consolidated
in these statements.
Effective January 1, 1993, the Company adopted FASB 109 regarding
recording of deferred income taxes. Prior year statements have been
restated to reflect an adjustment required of $58,508 reduction in
deferred taxes and an increase in equity.
In the opinion of management, all adjustments for the fair
presentation of the financial position and results of operations for the
interim periods have been made.
SOUTH BANKING COMPANY
ALMA, GEORGIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Liquidity management involves the matching of the cash flow
requirements of customers, who may be either depositors desiring to
withdraw funds or borrowers needing assurance that sufficient funds will
be available to meet their credit needs and the ability of South Banking
Company and its subsidiaries (the "Company") to meet those needs. The
Company strives to maintain an adequate liquidity position by managing
the balances and maturities of interest-earning assets and interest-
bearing liabilities so that the balance it has in short-term investments
(Federal funds sold) at any given time will adequately cover any
reasonably anticipated immediate need for funds. Additionally, the
subsidiary banks (the "Banks") maintain relationships with correspondent
banks which could provide funds to them on short notice, if needed.
The liquidity and capital resources of the Company is monitored on
a periodic basis by state and Federal regulatory authorities. As
determined under guidelines established by these regulatory authorities,
the Banks' liquidity ratios at June 30, 1997 were considered
satisfactory but on the lower level. At that date, the Banks' Federal
funds sold were adequate to cover any reasonably anticipated immediate
need for funds. The Company is aware of no events or trends likely to
result in a material change in liquidity. At June 30, 1997, the
Company's and the Banks' capital asset ratios were considered
satisfactory based on guidelines established by regulatory authorities.
During the three months ended June 30, 1997, total capital increased
$ 588,243 to $ 11,547,939. This increase in capital resulted from net
earnings of $ 501,311 million and an increase of $ 86,932 million in
unrealized losses on securities available for sale, net of taxes.
At June 30, 1997, South Banking Company had binding commitments for
capital expenditures of approximately $ 250,000. The Company
anticipates that approximately $ 500,000 will be required for capital
expenditures during the remainder of 1997. Additional expenditures may
be required for mergers and acquisitions. No additional mergers or
acquisitions requiring cash are being negotiated at present.
Mergers and Acquisitions
The results of operations for the three months ended June 30, 1997
and 1996 include the operations of the three wholly-owned subsidiary
banks held prior to 1996 and the operations of Pineland State Bank,
which was acquired January of 1996 in a transaction that was accounted
for as a purchase.
Results of Operations
The Company's results of operations are determined by its ability
to effectively manage interest income and expense, to minimize loan and
investment losses, to generate noninterest income and to control
noninterest expense. Since interest rates are determined by market
forces and economic conditions beyond the control of the Company, the
ability to generate net interest income is dependent upon the Banks'
ability to obtain an adequate spread between the rate earned on interest
- -earning assets and the rate paid on interest-bearing liabilities.
Thus, the key performance measure for net interest income is the
interest margin or net yield, which is taxable-equivalent net interest
income divided by average earning assets.
The primary component of consolidated earnings is net interest
income, or the difference between interest income on interest-earning
assets and interest paid on interest-bearing liabilities. The net
interest margin is net interest income expressed as a percentage of
average interest-earning assets. Interest-earning assets consist of
loans, investment securities and Federal funds sold. Interest-bearing
liabilities consist of deposits and borowings such as Federal funds
purchased, securities sold under repurchase agreements and Federal Home
Loan Bank advances.
Comparison of Statements of Income
The net interest margin was 5.94% and 5.68% during the three months
ended June 30, 1997 and 1996, respectively, an increase of 26 basis
points. This variance is primarily attributable to fluctuations in the
average rates charged and fees earned on loans.
Net interest income was $1,726,340 as compared to $1,601,168
million during the three months ended June 30, 1997 and 1996,
respectively, representing an increase of 7.8%.
The provision for loan losses is a charge to earnings in the
current period to replenish the allowance for loan losses and maintain
it at the level management determines is adequate. The provision for
loan losses charged to earnings amounted to $31,500 and $24,000 during
the three months ended June 30, 1997 and 1996, respectively.
Following is a comparison of noninterest income for the three
months ended June 30, 1997 and 1996.
Three Three
Months Months
Ended Ended
June 30, 1997 June 30,1996
Service charges on deposits $ 303,705 $ 301,097
Other service charges, commissions
& fees 129,084 109,398
Other income 35,890 ( 880)
Total Noninterest Income $ 468,679 $ 409,615
Total noninterest income for the three months ended June 30, 1997
was $59,064 higher than during the same period in 1996.
Following is an analysis of noninterest expense for the three
months ended June 30, 1997 and 1996.
Three Three
Months Months
Ended Ended
June 30, 1997 June 30,1996
Salaries and employee benefits $ 740,428 $ 727,074
Occupancy and equipment expense 314,032 295,578
Data processing fees 11,084 16,993
Other expense 350,620 367,618
Total noninterest expense $ 1,416,164 $ 1,407,263
Total noninterest expense for the three months ended June 30, 1997
was $8,901 higher than during the same period in 1996.
Salaries and employee benefits for the three months ended June 30,
1997, was $13,354 higher than during the same period in 1996. The
increase in salaries and employee benefits resulted from normal
increases in salaries and bonuses.
Data processing fees for the three months ended June 30, 1997 were
$ 5,909 lower than during the same period in 1996. Other operating
expense for the three months ended June 30, 1997 decreased $16,998 as
compared to the same period in 1996.
Following is a condensed summary of net income during the three
months ended June 30, 1997 and 1996.
Three Three
Months Months
Ended Ended
June 30,1997 June 30,1996
Net interest income $ 1,726,344 $ 1,601,168
Provision for loan losses 31,500 24,000
Other income 468,679 409,615
Other expense 1,416,164 1,407,263
Income before income taxes $ 747,359 $ 579,520
Applicable income taxes 246,048 180,328
Net Income $ 501,311 $ 399,192
Net income increased $102,119 or 25.58% to $501,311 for the three
months ended June 30, 1997 as compared to $399,192 for the three months
ended June 30, 1996. As the policies of South Banking Company have been
put into place in Pineland State Bank, the net income has increased
substantially to account for most of the increase.
Comparison of Balance Sheets
Total assets increased by $3,836,861 or 2.87% to $137,333,488 at
June 30, 1997 from $133,496,627 at March 31, 1997.
Total earning assets increased by $3,066,159, or 2.56% to
$122,665,867 at June 30, 1997 from $119,599,708 at March 31, 1997.
Total loans, net of the allowance for loan losses, increased by
$6,339,181 or 6.83% to $99,143,524 at June 30, 1997 from $92,804,343 at
March 31, 1997.
Total deposits increased by $332,287 or .3% to $117,209,854 at June
30, 1997 from $116,877,567 at March 31, 1997. Approximately 15.6% and
15.3% of deposits were noninterest-bearing as of June 30, 1997 and March
31, 1997, respectively.
The allowance for loan losses represents a reserve for potential
losses in the loan portfolio. The adequacy of the allowance for loan
losses is evaluated quarterly based on a review of all significant
loans, with a particular emphasis on non-accruing, past due and other
loans that management believes require attention. Another factor used
in determining the adequacy of the reserve is management's judgment
about factors affecting loan quality and assumptions about the local and
national economy.
The allowance for loan losses was 1.76% of total loans outstanding
at June 30, 1997 and 1.89% of total loans outstanding at March 31, 1997.
Management considers the allowance for loan losses as of June 30, 1997
adequate to cover potential losses in the loan portfolio.
SOUTH BANKING COMPANY
ALMA, GEORGIA
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - No change.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits - None
(27) Financial Data Schedule
The registrant has not filed any reports on Form 8-K
during the six month period ended June 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SOUTH BANKING COMPANY
(Registrant)
Date: August 15, 1997 By: Paul T. Bennett
Paul T. Bennett
President
Date: August 15, 1997 By: Olivia Bennett
Olivia Bennett
Vice President
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<ARTICLE> 9
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 7,570,920
<INT-BEARING-DEPOSITS> 1,280,000
<FED-FUNDS-SOLD> 3,004,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,589,491
<INVESTMENTS-CARRYING> 1,861,100
<INVESTMENTS-MARKET> 0
<LOANS> 101,070,727
<ALLOWANCE> 1,787,752
<TOTAL-ASSETS> 137,333,488
<DEPOSITS> 117,209,854
<SHORT-TERM> 3,210,000
<LIABILITIES-OTHER> 1,253,048
<LONG-TERM> 3,524,404
0
0
<COMMON> 400,000
<OTHER-SE> 11,736,182
<TOTAL-LIABILITIES-AND-EQUITY> 137,333,488
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<INTEREST-TOTAL> 5,971,186
<INTEREST-DEPOSIT> 2,384,147
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