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 September 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 September 30, 1997.
Common stock, $1.00 par value - 399,500 shares outstanding
SOUTH BANKING COMPANY
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SOUTH BANKING COMPANY
ALMA, GEORGIA
Part I. Financial Information
Consolidated Financial Statements . . . . . . . . . . . 4 -10
Notes to Consolidated Financial Statements . . . . . . . . 11
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . .12 -15
Part II. Other Information . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1997 1996
ASSETS
Cash and due from banks $ 5,633,251 $ 6,863,559
Deposits in other banks -
interest bearing $ 1,280,000 $ 1,886,000
Investment securities
Available for sale $ 15,418,831 $ 13,449,288
Held to maturity $ 1,610,239 $ 2,363,744
Georgia Bankers' stock $ 547,283 $ 547,283
Federal Home Loan Bank stock $ 263,000 $ 247,600
Federal funds sold $ 9,080,000 $ 11,983,000
Loans $102,066,490 $ 89,046,526
Less: Unearned discount ( 131,798) ( 150,457)
Reserve for loan losses ( 1,746,654) ( 1,781,013)
$100,188,038 $ 87,115,056
Bank premises and equipment $ 4,328,934 $ 3,995,385
Goodwill $ 329,785 $ 364,983
Other assets $ 3,663,547 $ 3,474,685
Total Assets $142,342,908 $132,290,583
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED BALANCE SHEETS (con't)
September 30, December 31,
1997 1996
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits: Demand - non-interest
bearing $ 18,355,973 $ 21,451,527
Demand - interest bearing 22,476,657 20,440,276
Savings 8,242,421 7,917,814
Time 74,676,707 66,883,966
$123,751,758 $116,693,583
Borrowing 3,719,200 3,507,279
Accrued expenses and other
liabilities 1,407,512 905,472
Federal funds purchased 820,000 -
Total Liabilities $129,698,470 $121,106,334
Stockholder's Equity
Common stock $1 par value; shares
authorized - 1,000,000, shares
issued and outstanding -
1997 and 1996 - 399,500
and 403,500, respectively $ 399,500 $ 403,500
Surplus 3,070,831 3,116,581
Undivided profits 9,172,542 7,675,216
Unrealized gain (loss) on
securities 1,565 ( 11,048)
Total Stockholders' Equity $ 12,644,438 $ 11,184,249
Total Liabilities and
Stockholders' Equity $142,342,908 $132,290,583
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED STATEMENTS OF INCOME
Three Three
Months Months Nine Months Nine Months
Ended Ended Ended Ended
September September September September
30, 1997 30, 1996 30, 1997 30, 1996
Interest Income:
Interest & fees
on loans $ 2,820,912 $ 2,539,668 $ 8,021,062 $ 7,107,610
Interest on federal
funds sold 86,191 53,007 262,851 390,803
Interest on deposits
with other banks 19,926 36,731 70,818 96,471
Interest on
investment
securities:
U.S. Treasury 55,096 46,282 150,533 140,046
U.S. Government
agencies 168,751 145,933 491,633 405,132
Mortgage backed
bonds 18,617 28,738 66,123 125,392
State & municipal
subdivisions 21,002 24,193 67,398 72,152
Other 5,016 1,832 36,279 25,772
Total Interest
Income $ 3,195,511 $ 2,876,384 $ 9,166,697 $ 8,363,378
Interest Expense:
Interest on
deposits $ 1,285,488 $ 1,106,414 $ 3,669,635 $ 3,385,267
Interest on other
borrowings 103,375 81,159 248,305 223,420
Total Interest
Expense $ 1,388,863 $ 1,187,573 $ 3,917,940 $ 3,608,687
Net Interest
Income $ 1,806,648 $ 1,688,811 $ 5,248,757 $ 4,754,691
Provision for loan
losses 42,000 36,000 90,000 84,000
Net interest income
after provision
for loan losses $ 1,764,648 $ 1,652,811 $ 5,158,757 $ 4,670,691
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED STATEMENTS OF INCOME (con't)
Three Three
Months Months Nine Months Nine Months
Ended Ended Ended Ended
September September September September
30, 1997 30, 1996 30, 1997 30, 1996
Other Operating Income:
Service charge on
deposit accounts $ 306,675 $ 303,303 $ 890,437 $ 872,876
Commission on
insurance 18,949 34,841 77,531 60,317
Other income 38,488 36,873 210,973 234,398
Computer processing
fees 40,470 34,062 111,004 113,569
Gain (loss) on sale
of securities 198 ( 2,463) 211 ( 23,775)
Total Other
Operating Income $ 404,780 $ 406,616 $ 1,290,156 $ 1,257,385
Other Operating Expenses:
Salaries $ 575,559 $ 545,893 $ 1,742,738 $ 1,661,828
Profit sharing &
personnel expense 130,493 86,996 347,457 269,929
Occupancy expense 113,057 129,144 376,358 376,452
Furniture &
fixtures expense 116,162 78,449 389,469 356,992
Payroll taxes 38,612 40,819 119,596 122,101
Data processing 50,815 114,510 124,791 259,723
Other operating
Expenses 429,646 325,256 1,142,924 1,010,699
Total Other Operating
Expenses $ 1,454,344 $ 1,321,067 $ 4,243,333 $ 4,057,724
Income before
income taxes $ 715,084 $ 738,360 $ 2,205,580 $ 1,870,352
Applicable income
taxes 227,801 230,685 708,254 588,561
Net Income $ 487,283 $ 507,675 $ 1,497,326 $ 1,281,791
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED STATEMENTS OF INCOME (con't)
Three Three
Months Months Nine Months Nine Months
Ended Ended Ended Ended
September September September September
30, 1997 30, 1996 30, 1997 30, 1996
Per share data based
on weighted average
outstanding shares
Weighted average
outstanding
shares 399,707 403,496 400,839 404,010
Net Income $ 1.22 $ 1.26 $ 3.73 $ 3.17
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
STATEMENT OF CASH FLOWS
Nine Months Nine Months
Ended Ended
September September
30, 1997 30, 1996
Cash Flows From Operating Activities:
Net income $ 1,497,326 $ 1,281,791
Add expenses not requiring cash:
Provision for depreciation and
amortization 522,418 411,536
Provision for loan losses 90,000 84,000
Bond portfolio gains (losses) 211 ( 23,755)
Gain on sale of other real estate owned - -
Increase (decrease) in taxes
payable 112,681 99,218
Increase (decrease) in interest
payable 265,891 190,460
Increase (decrease) in other
liabilities 123,468 191,417
(Increase) decrease in interest
receivable ( 332,796) ( 539,493)
(Increase) decrease in prepaid
expenses 11,035 41,513
(Increase) decrease in other
assets 116,952 ( 361,994)
Recognition of unearned loan
income 18,659 11,927
Net Cash Used in Operating Activities $ 2,425,845 $ 1,386,620
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 1,664,314 3,996,714
Purchase of investment securities -
available for sale ( 4,194,381) ( 7,833,850)
Net loans to customers (13,181,641) (17,149,055)
Purchase of premise and equipment ( 734,689) ( 263,615)
Proceeds from sale of premises and
equipment - -
Proceeds from maturity of investment
securities - held to maturity 1,654,696 -
Purchase of investment securities -
held to maturity ( 398,398) -
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
STATEMENT OF CASH FLOWS (Con't)
Nine Months Nine Months
Ended Ended
September September
30, 1997 30, 1996
Cash Flows From Investing Activities: (con't)
Purchase stock - Pineland Bank $ - $( 1,839,937)
Cash received from acquired bank - 8,773,744
Purchase of FHLB stock ( 15,400) ( 1,700)
Net Cash Used in Investing Activities $(15,205,499) $(11,316,777)
Cash Flows From Financing Activities:
Net increase (decrease) in demand
deposits, NOW and money market $( 1,059,173) $(2,296,466)
Net increase (decrease) in savings
and time deposits 8,117,348 3,159,425
Net increase (decrease) in borrowings 211,921 2,402,646
Dividends paid - -
Redemptions of company stock ( 49,750) ( 21,444)
Increase (decrease) in federal
funds sold 820,000 -
Net Cash Provided (Used) From
Financing Activities $ 8,040,346 $ 3,244,161
Net Increase (Decrease) in Cash
and Cash Equivalents $(4,739,308) $(6,685,996)
Cash and Cash Equivalents at
Beginning of Period 20,732,559 18,119,564
Cash and Cash Equivalents at
End of Period $15,993,251 $11,433,568
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.
On January 11, 1996, the acquisition of Pineland State Bank in
Metter, Georgia was completed. The purchase method of accounting
was used to record the transaction. All transactions since January
11, 1996 of Pineland State Bank have 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.
<PAGE>
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 September 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 September 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 September 30, 1997, total capital
increased $ 508,256 to $ 12,644,438. This increase in capital resulted
from net earnings of $ 487,283 and an increase of $ 20,973 in unrealized
losses on securities available for sale, net of taxes.
At September 30, 1997, South Banking Company did not have any
binding commitments for capital expenditures. The Company anticipates
that approximately $ 100,000 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 September 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 5.59% and 5.98% during the three months
ended September 30, 1997 and 1996, respectively, a decrease of 39 basis
points. This variance is primarily attributable to fluctuations in the
average rates charged and fees earned on loans.
Net interest income was $1,806,648 for the three months ended
September 30, 1997 as compared to $1,688,811 during the three months
ended September 30, 1996, representing an increase of 6.98%.
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 $42,000 and $36,000 during
the three months ended September 30, 1997 and 1996, respectively.
Following is a comparison of noninterest income for the three
months ended September 30, 1997 and 1996.
Three Months Three Months
Ended Ended
September 30, September 30,
1997 1996
Service charges on deposits $ 306,675 $ 303,303
Other service charges, commissions
& fees 59,419 68,903
Other income 38,686 34,410
Total Noninterest Income $ 404,780 $ 406,616
Total noninterest income for the three months ended September 30,
1997 was $1,836 lower than during the same period in 1996.
Following is an analysis of noninterest expense for the three
months ended September 30, 1997 and 1996.
Three Months Three Months
Ended Ended
September 30, September 30,
1997 1996
Salaries and employee benefits $ 706,052 $ 632,889
Occupancy and equipment expense 229,219 207,593
Data processing fees 50,815 114,510
Other expense 468,258 366,075
Total noninterest expense $ 1,454,344 $ 1,321,067
Total noninterest expense for the three months ended September 30,
1997 was $133,277 higher than during the same period in 1996.
Salaries and employee benefits for the three months ended September
30, 1997, was $73,163 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 September 30, 1997
were $63,695 lower than during the same period in 1996. Other operating
expense for the three months ended September 30, 1997 increased $102,183
as compared to the same period in 1996. The difference between other
expenses and data processing are primarily as a result of classification
differences.
Following is a condensed summary of net income during the three
months ended September 30, 1997 and 1996.
Three Months Three Months
Ended Ended
September 30, September 30,
1997 1996
Net interest income $ 1,806,648 $ 1,688,811
Provision for loan losses 42,000 36,000
Other income 404,780 406,616
Other expense 1,454,344 1,321,067
Income before income taxes $ 715,084 $ 738,360
Applicable income taxes 227,801 230,685
Net Income $ 487,283 $ 507,675
Net income decreased $20,392 or 4.02% to $487,283 for the three
months ended September 30, 1997 as compared to $507,675 for the three
months ended September 30, 1996. Expenses for the quarter to assist in
the conversion of computer software for all banks accounted for most of
the increase in expenses and decrease in net income.
Comparison of Balance Sheets
Total assets increased by $5,009,420 or 3.65% to $142,342,908 at
September 30, 1997 from $137,333,488 at June 30, 1997.
Total earning assets increased by $3,066,159, or 2.56% to
$130,265,843 at September 30, 1997 from $122,665,867 at June 30, 1997.
Total loans, net of the allowance for loan losses, increased by
$1,044,514 or 1.05% to $100,188,038 at September 30, 1997 from
$99,143,524 at June 30, 1997.
Total deposits increased by $6,541,904 or 5.58% to $123,751,758 at
September 30, 1997 from $117,209,854 at June 30, 1997. Approximately
14.8% and 15.6% of deposits were noninterest-bearing as of September 30,
1997 and June 30, 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 1.71% of total loans outstanding
at September 30, 1997 and 1.76% of total loans outstanding at June 30,
1997. Management considers the allowance for loan losses as of
September 30, 1997 adequate to cover potential losses in the loan
portfolio.
<PAGE>
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 nine month period ended September 30, 1997.
<PAGE>
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: 11-14-97 By: PAUL T. BENNETT
Paul T. Bennett
President
Date: 11-14-97 By: OLIVIA BENNETT
Olivia Bennett
Vice President
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,633,251
<INT-BEARING-DEPOSITS> 1,280,000
<FED-FUNDS-SOLD> 9,080,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,418,831
<INVESTMENTS-CARRYING> 1,610,239
<INVESTMENTS-MARKET> 0
<LOANS> 102,066,490
<ALLOWANCE> 1,746,654
<TOTAL-ASSETS> 142,342,908
<DEPOSITS> 123,751,758
<SHORT-TERM> 820,000
<LIABILITIES-OTHER> 1,407,512
<LONG-TERM> 3,719,200
0
0
<COMMON> 399,500
<OTHER-SE> 12,244,938
<TOTAL-LIABILITIES-AND-EQUITY> 142,342,908
<INTEREST-LOAN> 8,021,062
<INTEREST-INVEST> 1,145,635
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 9,166,697
<INTEREST-DEPOSIT> 3,669,635
<INTEREST-EXPENSE> 248,305
<INTEREST-INCOME-NET> 5,248,757
<LOAN-LOSSES> 90,000
<SECURITIES-GAINS> 211
<EXPENSE-OTHER> 4,243,333
<INCOME-PRETAX> 2,205,580
<INCOME-PRE-EXTRAORDINARY> 2,205,580
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,497,326
<EPS-PRIMARY> 3.73
<EPS-DILUTED> 3.73
<YIELD-ACTUAL> 0
<LOANS-NON> 305,000
<LOANS-PAST> 107,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,781,013
<CHARGE-OFFS> 228,803
<RECOVERIES> 104,444
<ALLOWANCE-CLOSE> 1,746,654
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,746,654
</TABLE>
