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, 1998 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
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, 1998.
Common stock, $1.00 par value - 399,500 shares outstanding
SOUTH BANKING COMPANY
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
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED BALANCE SHEETS
September 30 ,D
ecember 31 ,
1998 1
997
ASSETS
Cash and due from banks $ 3,523,687 $ 8,128,444
Deposits in other banks -
interest bearing $ 1,637,000 $ 1,280,000
Investment securities:
Available for sale $ 16,031,014 $ 15,341,990
Held to maturity $ 1,047,782 $ 1,605,567
Georgia Bankers stock $ 547,283 $ 547,283
Federal Home Loan Bank stock $ 395,500 $ 344,500
Stock - C B Financial Corp $ 300,000 $ -
Federal funds sold $ 10,235,000 $ 10,040,000
Loans $118,084,713 $106,525,222
Less: Unearned discount ( 131,055 )
( 149,418 )
Reserve for loan losses ( 1,930,401 )
( 1,821,680 )
$116,023,257 $104,554,124
Bank premises and equipment $ 4,048,045 $ 4,078,502
Goodwill $ 276,409 $ 315,514
Other assets $ 4,369,961 $ 3,658,636
Total Assets $158,434,938 $149,894,560
The accompanying notes are an integral part of these financial
statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED BALANCE SHEETS (con't)
September 30 ,D
ecember 31 ,
1998 1
997
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits: Demand - non-interest
bearing $ 18,797,974 $ 22,230,080
Demand - interest bearing 22,623,559 21,996,765
Savings 8,742,125 8,668,639
Time 88,801,174 79,706,608
$138,964,832 $132,602,092
Borrowing 3,549,822 3,347,322
Accrued expenses and other
liabilities 1,563,185 1,299,188
Federal funds purchased - 150,000
Note payable - FHLB 160,000 -
Total Liabilities $144,237,839 $137,398,602
Stockholders' Equity
Common stock $1 par value; shares
Authorized - 1,000,000, shares issued
and outstanding - September 30, 1998
and December 31, 1997, 399,500
and 399,500, respectively $ 399,500 $ 399,500
Surplus 3,070,831 3,070,831
Undivided profits 10,567,174 8,981,846
Unrealized gain (loss) on
securities 159,594 43,781
Total Stockholders' Equity $ 14,197,099 $ 12,495,958
Total Liabilities and
Stockholders' Equity $158,434,938 $149,894,560
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, 1998 30, 1997 30, 1998 30, 1997
Interest Income:
Interest & fees
on loans $ 3,218,249 $ 2,820,912 $ 9,178,841 $ 8,021,062
Interest on federal
funds sold 143,669 86,191 423,354 262,851
Interest on deposits
with other banks 24,596 19,926 55,951 70,818
Interest on
investment
securities:
U.S. Treasury 54,630 55,096 160,327 150,533
U.S. Government
agencies 161,934 168,751 495,642 491,633
Mortgage backed
bonds 14,009 18,617 46,217 66,123
State & municipal
subdivisions 22,877 21,002 68,822 67,398
Other 7,974 5,016 49,356 36,279
Total Interest
Income $ 3,647,938 $ 3,195,511 $10,478,510 $ 9,166,697
Interest Expense:
Interest on
deposits $ 1,588,301 $ 1,285,488 $ 4,547,478 $ 3,669,635
Interest on other
borrowings 69,391 103,375 202,505 248,305
Total Interest
Expense $ 1,657,692 $ 1,388,863 $ 4,749,983 $ 3,917,940
Net interest income$ 1,990,246 $ 1,806,648 $ 5,728,527 $ 5,248,757
Provision for loan
losses 54,000 42,000 182,000 90,000
Net interest income
after provision
for loan losses $ 1,936,246 $ 1,764,648 $ 5,546,527 $ 5,158,757
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, 1998 30, 1997 30, 1998 30, 1997
Other Operating Income:
Service charge on
deposit accounts $ 280,038 $ 306,675 $ 841,970 $ 890,437
Commission on
insurance 17,813 18,949 67,710 77,531
Other income 124,358 38,488 295,348 210,973
Computer processing
fees 32,006 40,470 114,537 111,004
Gain (loss) on sale
of securities 115 198 138 211
Total Other
Operating Income $ 454,330 $ 404,780 $ 1,319,703 $ 1,290,156
Other Operating
Expenses:
Salaries $ 672,802 $ 575,559 $ 1,898,127 $ 1,742,738
Profit sharing &
personnel expense 122,513 130,493 345,470 347,457
Occupancy expense 94,662 113,057 333,379 376,358
Furniture &
fixtures expense 233,622 116,162 539,159 389,469
Payroll taxes 14,165 38,612 123,851 119,596
Data processing 52,930 50,815 96,322 124,791
Other operating
Expenses 402,975 429,646 1,244,344 1,142,924
Total Other
Operating Expenses $ 1,593,669 $ 1,454,344 $ 4,580,652 $ 4,243,333
Income before income
taxes $ 796,907 $ 715,084 $ 2,285,578 $ 2,205,580
Applicable income
taxes 255,356 227,801 700,250 708,254
Net Income $ 541,551 $ 487,283 $ 1,585,328 $ 1,497,326
The accompanying notes are an integral part of these financial
statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (con't)
Three Three
Months Months Nine Months Nine Months
Ended Ended Ended Ended
September September September September
30, 1998 30, 1997 30, 1998 30, 1997
Other comprehensive
income, net of tax:
Unrealized gains
(losses) on
Securities $ 71,516 $( 39,880 ) $ 115,813$
12,613
Other Comprehensive
Income (Loss) $ 71,516 $( 39,880 ) $ 115,813$
12,613
Comprehensive
Income $ 613,067 $ 447,403 $ 1,701,141$
1,509,939
Per share data based
on weighted average
outstanding shares
Weighted average
outstanding
shares 399,500 399,707 399,500 400,839
Net Income $ 1.36 $ 1.22 $ 3.97 $ 3.73
The accompanying notes are an integral part of these financial
statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
STATEMENTS OF CASH FLOWS
Nine Months Nine Months
Ended Ended
September September
30, 1998 30, 1997
Cash Flows from Operating Activities:
Net income $ 1,585,328 $ 1,497,326
Add expenses not requiring cash:
Provision for depreciation and
amortization 493,804 522,418
Provision for loan losses 182,000 90,000
Bond portfolio gains (losses) 138 211
Gain on sale of other real estate owned - -
Increase (decrease) in taxes payable 12,930 112,681
Increase (decrease) in interest
payable 145,274 265,891
Increase (decrease) in other liabilities 105,793 123,468
(Increase) decrease in interest
receivable ( 392,333 )(
332,796 )
(Increase) decrease in prepaid expenses 59,044 11,035
(Increase) decrease in other assets ( 378,597 )1
16,952
Recognition of unearned loan income ( 18,363 )
18,659
Net Cash Used in Operating Activities $ 1,795,018 $ 2,425,845
Cash Flows from Investing Activities:
Proceeds from sale of investment
securities - available for sale $ - $ -
Proceeds from maturities of
investment securities - available
for sale 4,919,373 1,664,314
Purchase of investment securities -
available for sale ( 5,501,423 )(
4,194,381 )
Net loans to customers (11,632,770 )(
13,181,641 ) Purchase of premise and equipment ( 415,156)
( 734,689 )
Proceeds from sale of premises and
equipment - -
Proceeds from maturity of investment
securities - held to maturity 1,060,098
1,654,696
Purchase of investment securities -
held to maturity ( 502,137 )(
398,398 )
The accompanying notes are an integral part of these financial
statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
STATEMENTS OF CASH FLOWS (con't)
Nine Months Nine Months
Ended Ended
September September
30, 1998 30, 1997
Cash Flows from Investing Activities: (con't)
Purchase of CB Financial Corp stock $( 300,000 )$
- -
Purchase of FHLB stock ( 51,000 )
( 15,400 )
Net Cash Used in Investing Activities $(12,423,015 )$
(15,205,499 )
Cash Flows from Financing Activities:
Net increase (decrease) in demand
deposits, NOW and money market $(2,805,312) $(1,059,173)
Net increase (decrease) in savings
and time deposits 9,168,052 8,117,348
Net increase (decrease) in borrowings 202,500 211,921
Dividends paid - -
Redemptions of company stock - ( 49,750)
Increase (decrease) in federal
funds sold ( 150,000 )8
20,000
Increase note payable - FHLB 160,000 -
Net Cash Provided (Used) From
Financing Activities $ 6,575,240 $ 8,040,346
Net Increase (Decrease) in Cash
and Cash Equivalents $(4,052,757 )$
(4,739,308 )
Cash and Cash Equivalents at
Beginning of Period 19,448,444 20,732,559
Cash and Cash Equivalents at
End of Period $15,395,687 $15,993,251
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 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.
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 September 30, 1998 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, 1998, the
Company's and the Banks' capital asset ratios were considered well
capitalized based on guidelines established by regulatory authorities.
During the three months ended September 30, 1998, total capital
increased $613,067 to $14,197,099. This increase in capital resulted
from net earnings of $541,551 and an increase of $71,576 in unrealized
losses on securities available for sale, net of taxes.
At September 30, 1998, South Banking Company had binding
commitments for capital expenditures of approximately $200,000. 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,
1998 and 1997 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 borrowings 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 5.70% and 5.59% during the three months
ended September 30, 1998 and 1997, respectively, an increase of 11 basis
points. This variance is primarily attributable to fluctuations in the
average rates charged and fees earned on loans.
Net interest income was $1,990,246 for the three months ended
September 30, 1998 as compared to $1,806,648 during the three months
ended September 30, 1997, representing an increase of 10.16%.
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 $54,000 and $42,000 during
the three months ended September 30, 1998 and 1997, respectively.
Following is a comparison of noninterest income for the three
months ended September 30, 1998 and 1997.
Three Months Three Months
Ended Ended
September 30, September 30,
1998 1997
Service charges on deposits $ 280,038 $ 306,675
Other service charges, commissions
& fees 49,819 59,419
Other income 124,473 38,686
Total Noninterest Income $ 454,330 $ 404,780
Total noninterest income for the three months ended September 30,
1998 was $49,550 higher than during the same period in 1997. The
primary increase is related to sale of SBA guarantee portion of a loan.
Following is an analysis of noninterest expense for the three
months ended September 30, 1998 and 1997.
Three Months Three Months
Ended Ended
September 30, September 30,
1998 1997
Salaries and employee benefits $ 795,315 $ 706,052
Occupancy and equipment expense 328,284 229,219
Data processing fees 52,930 50,815
Other expense 417,140 468,258
Total noninterest expense $ 1,593,669 $ 1,454,344
Total noninterest expense for the three months ended September 30,
1998 was $139,325 higher than during the same period in 1997.
Salaries and employee benefits for the three months ended September
30, 1998, was $89,263 higher than during the same period in 1997. The
increase in salaries and employee benefits resulted from normal
increases in salaries and bonuses and preparation to open a new branch.
Data processing fees for the three months ended September 30, 1998
were $2,115 higher than during the same period in 1997. Other operating
expense for the three months ended September 30, 1998 decreased $51,118
as compared to the same period in 1997.
Following is a condensed summary of net income during the three
months ended September 30, 1998 and 1997.
Three Months Three Months
Ended Ended
September 30 ,S
eptember 30 ,
1998 1997
Net interest income $ 1,990,246 $ 1,806,648
Provision for loan losses 54,000 42,000
Other income 454,330 404,780
Other expense 1,593,669 1,454,344
Income before income taxes $ 796,907 $ 715,084
Applicable income taxes 255,356 227,801
Net Income $ 541,551 $ 487,283
Net income increased $54,268 or 11.14%to $541,551 for the three
months ended September 30, 1998 as compared to $487,283 for the three
months ended September 30, 1997. Pineland State Bank continues to add
to net income since its acquisition in 1996. The implemented policies
of South Banking Company continue to have favorable results in the
operation as compared to preacquisition.
Comparison of Balance Sheets
Total assets increased by $2,293,781 or 1.47% to $158,434,938 at
September 30, 1998 from $156,141,157 at June 30, 1998.
Total earning assets increased by $5,022,485, or 3.51% to
$147,978,292 at September 30, 1998 from $142,955,807 at June 30, 1998.
Total loans, net of the allowance for loan losses, increased by
$3,564,471 or 3.17% to $116,023,257 at September 30, 1998 from
$112,458,786 at June 30, 1998.
Total deposits increased by $1,174,717 or .85% to $138,964,832 at
September 30, 1998 from $137,790,115 at June 30, 1998. Approximately
13.5% and 14.7% of deposits were noninterest-bearing as of September 30,
1998 and June 30, 1998, 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.
Loans charged off in 1998 total $159,530 with recoveries of $86,251
for a net of $73,279. This represents a slight increase over prior
year. Loans at two banks have experienced some decline in quality as the
local economies, especially agricultural, have deteriorated slightly.
Two banks have added to their reserve to compensate for the decline.
Past due and nonaccrual loans have increased slightly as the economy has
been affected by weather related agricultural problems.
The allowance for loan losses was 1.63% of total loans outstanding
at September 30, 1998 and 1.68% of total loans outstanding at June 30,
1998. Management considers the allowance for loan losses as of
September 30, 1998 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 nine month period ended September 30, 1998.
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: 11-13-98 By: Paul T. Bennett
Paul T. Bennett
President
Date: 11-13-98 By: Olivia Bennett
Olivia Bennett
Vice President
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,523,687
<INT-BEARING-DEPOSITS> 1,637,000
<FED-FUNDS-SOLD> 10,235,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,031,014
<INVESTMENTS-CARRYING> 1,047,782
<INVESTMENTS-MARKET> 1,068,991
<LOANS> 118,084,713
<ALLOWANCE> 1,930,401
<TOTAL-ASSETS> 158,434,938
<DEPOSITS> 138,964,832
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,563,185
<LONG-TERM> 3,709,822
0
0
<COMMON> 399,500
<OTHER-SE> 13,638,005
<TOTAL-LIABILITIES-AND-EQUITY> 158,443,938
<INTEREST-LOAN> 9,178,841
<INTEREST-INVEST> 1,250,313
<INTEREST-OTHER> 49,356
<INTEREST-TOTAL> 10,478,510
<INTEREST-DEPOSIT> 4,547,478
<INTEREST-EXPENSE> 4,749,983
<INTEREST-INCOME-NET> 5,728,527
<LOAN-LOSSES> 182,000
<SECURITIES-GAINS> 138
<EXPENSE-OTHER> 4,580,652
<INCOME-PRETAX> 2,285,578
<INCOME-PRE-EXTRAORDINARY> 2,285,578
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<CHANGES> 0
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<EPS-PRIMARY> 3.97
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<LOANS-NON> 488,000
<LOANS-PAST> 146,000
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<CHARGE-OFFS> 159,530
<RECOVERIES> 86,251
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