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, 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 (I.R.S. Employer
of incorporation or organization) Identification Number)
104 North Dixon Street, Alma, Georgia 31510
(Address of principal executive (Zip Code)
offices)
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, 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 - 17
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED BALANCE SHEETS
June 30, December 31 ,
1998 1997
ASSETS
Cash and due from banks $ 7,334,793 $ 8,128,444
Deposits in other banks
- - interest bearing $ 1,667,000 $ 1,280,000
Investment securities:
Available for sale $ 15,921,643 $ 15,341,990
Held to maturity $ 1,047,782 $ 1,605,567
Georgia Bankers stock $ 547,283 $ 547,283
Federal Home Loan Bank stock $ 396,200 $ 344,500
Federal funds sold $ 8,866,000 $ 10,040,000
Loans $ 114,509,899 $ 106,525,222
Less: Unearned discount 129,418 149,418
Reserve for loan losses 1,921,695 1,821,680
$ 112,458,786 $ 104,554,124
Bank premises and equipment $ 4,016,950 $ 4,078,502
Goodwill $ 289,444 $ 315,514
Other assets $ 3,595,276 $ 3,658,636
Total Assets $ 156,141,157 $ 149,894,560
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 ,
1998 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits: Demand - non-interest
bearing $ 20,314,325 $ 22,230,080
Demand - interest bearing 22,472,403 21,996,765
Savings 8,456,715 8,668,639
Time 86,546,672 79,706,608
$137,790,115 $132,602,092
Borrowing 3,282,322 3,347,322
Accrued expenses and other
liabilities 1,484,688 1,299,188
Federal funds purchased - 150,000
Total Liabilities $142,557,125 $137,398,602
Stockholder's Equity
Common stock $1 par value;
shares authorized - 1,000,000,
shares issued and outstanding
June 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 10,025,623 8,981,846
Unrealized gain (loss) on
securities 88,078 43,781
Total Stockholders' Equity $ 13,584,032 $ 12,495,958
Total Liabilities and
Stockholders' Equity $ 156,141,157 $ 149,894,560
The accompanying notes are an integral part of these financial
statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED STATEMENT OF INCOME
AND COMPREHENSIVE INCOME
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
Interes Income:
Interest & fees
on loans $3,020,746 $2,652,957 $5,960,592 $5,200,150
Interest on
federal funds
sold 138,807 70,905 279,685 176,660
Interest on
deposits with
other banks 15,939 21,116 31,355 50,892
Interest on
investment
securities:
U.S. Treasury 53,468 48,839 105,697 95,437
Mortgage backed
securities 15,243 22,779 32,208 47,506
U.S. Government
agencies 163,457 174,212 333,708 322,882
State &
municipal
subdivisions 22,877 23,198 45,945 46,396
Other 6,745 4,653 41,382 31,263
Total Interest
Income $3,437,282 $3,018,659 $6,830,572 $5,971,186
Interest Expense:
Interest on
deposits $1,505,695 $1,217,532 $2,959,177 $2,384,147
Interest on
other
borrowings 68,307 74,783 133,114 144,930
Total Interest
Expense $1,574,002 $1,292,315 $3,092,291 $2,529,077
The accompanying notes are an integral part of these financial
statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED STATEMENT OF INCOME
AND COMPREHENSIVE INCOME
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
Net Interest
Income $1,863,280 $1,726,344 $3,738,281 $3,442,109
Provision for loan
Losses 74,000 31,500 128,000 48,000
Net interest
income after
provision for
loan losses $1,789,280 $1,694,844 $3,610,281 $3,394,109
Other Operating
Income:
Service charge
on deposit
accounts $ 281,658 $ 303,705 $ 561,932 $ 583,762
Commission on
Insurance 28,008 31,556 49,897 58,582
Other income 109,118 97,528 170,990 172,485
Gain (loss) on
sale of
securities 17 9 23 13
Computer income 40,332 35,881 82,531 70,534
Total Other
Operating Income $ 459,133 $ 468,679 $ 865,373 $ 885,376
Other Operating
Expenses:
Salaries $ 629,486 $ 589,487 $1,225,325 $1,167,179
Profit sharing
& personnel
expense 111,219 109,873 222,957 216,964
Occupancy expense 131,084 145,343 238,717 263,301
Furniture &
fixtures
expense 138,031 168,689 305,537 273,307
The accompanying notes are an integral part of these financial
statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED STATEMENT OF INCOME
AND COMPREHENSIVE INCOME
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
Other Operating
Expenses: (con't)
Payroll taxes $ 70,817 $ 41,068 $ 109,686 $ 80,984
Data processing 2,607 11,084 43,392 73,976
Other operating
expenses 438,379 350,620 841,369 713,278
Total Other
Operating
Expenses $1,521,623 $1,416,164 $2,986,983 $2,788,989
Income before
income taxes $ 726,790 $ 747,359 $1,488,671 $1,490,496
Applicable income
taxes 217,046 246,048 444,894 480,453
Net Income $ 509,744 $ 501,311 $1,043,777 $1,010,043
Other comprehensive
income, net of tax:
Unrealized gains
(losses)
on securities $ 38,934 $ 52,493 $ 44,297 $( 14,360)
Other Comprehensive
Income (Loss) $ 38,934 $ 52,493 $ 44,297 $( 14,360)
Comprehensive
income $ 548,678 $ 553,804 $1,088,074 $ 995,683
Per share data based
on weighted average
outstanding shares
Weighted average
outstanding shares 399,500 400,000 399,500 401,419
Net Income $ 1.28 $ 1.25 $ 2.61 $ 2.52
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,
1998 1997
Cash Flows From Operating
Activities:
Net income $1,043,777 $1,010,043
Add expenses not requiring
cash:
Provision for depreciation
and amortization 316,054 372,305
Provision for loan losses 128,000 48,000
Bond portfolio losses (gains) 23 ( 13 )
Gain on sale of other real
estate owned - -
Increase (decrease) in taxes
payable 236,947 122,641
Increase (decrease) in interest
payable 152,245 124,688
Increase (decrease) in other
liabilities ( 229,140) 100,247
(Increase) decrease in interest
receivable ( 190,962) ( 218,786 )
(Increase) decrease in prepaid
expenses 29,784 ( 43,929 )
(Increase) decrease in other
assets 274,473 48,624
Recognition of unearned loan
income ( 20,000) ( 11,006 )
Net Cash Used in Operating
Activities $ 1,741,201 $ 1,552,814
Cash Flows From Investing
Activities:
Proceeds from sale of
investment securities -
available for sale $ - $ -
Proceeds from maturities of
investment securities -
available for sale 2,998,690 160,468
Purchase of investment
securities - available for sale ( 3,552,086) ( 2,896,170 )
Net loans to customers ( 8,012,662) (12,065,462 )
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,
1998 1997
Cash Flows From Investing
Activities: (con't)
Purchase of premise and equipment $( 235,077) $( 318,522 )
Proceeds from sale of premises
and equipment - -
Proceeds from other real estate
owned - -
Proceeds from maturities of
investment securities held to
maturity 1,060,097 1,403,385
Purchase of investment
securities held to maturity ( 502,137) ( 398,398 )
Purchase of FHLB stock ( 51,700) ( 15,400 )
Net Cash Used in Investing
Activities $( 8,294,875) $(14,130,099 )
Cash Flows From Financing
Activities:
Federal funds purchased repaid $( 150,000) $ -
Net increase (decrease) in demand
deposits, NOW and money market ( 1,440,117) ( 3,030,723 )
Net increase (decrease) in savings
and time deposit 6,628,140 3,546,994
Net increase (decrease) in
borrowings ( 65,000) 17,125
Dividends paid - -
Redemptions of company stock - ( 43,750 )
Increase in securities sold under
repurchase agreement - 3,210,000
Net Cash Provided (Used) From
Financing Activities $ 4,973,023 $ 3,699,646
Net Increase (Decrease) in Cash
and Cash Equivalents $( 1,580,651) $( 8,877,639 )
Cash and Cash Equivalents at
Beginning of Year 19,448,444 20,732,559
Cash and Cash Equivalents at
End of Period $ 17,867,793 $ 11,854,920
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,
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 June 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 June 30, 1998, total capital
increased $548,678 to $13,584,032. This increase in capital
resulted from net earnings of $ 509,744 and an increase of
$38,934 in unrealized losses on securities available for sale,
net of taxes.
At June 30, 1998, South Banking Company had binding
commitments for capital expenditures of approximately $500,000.
The Company anticipates that approximately $100,000 will be
required for capital expenditures during the remainder of 1998.
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, 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 5.43% and 5.94% during the three
months ended June 30, 1998 and 1997, respectively, a decrease of
51 basis points. This variance is primarily attributable to
fluctuations in the average rates charged and fees earned on
loans.
Net interest income was $1,863,280 as compared to $1,726,340
during the three months ended June 30, 1998 and 1997,
respectively, representing an increase of 7.3%.
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 $74,000
and $31,500 during the three months ended June 30, 1998 and 1997,
respectively.
Following is a comparison of noninterest income for the
three months ended June 30, 1998 and 1997.
Three Three
Months Ended Months Ended
June 30, 1998 June 30, 1997
Service charges on deposits $ 281,658 $ 303,705
Other service charges,
commissions & fees 137,126 129,084
Other income 40,349 35,890
Total Noninterest Income $ 459,133 $ 468,679
Total noninterest income for the three months ended June 30,
1998 was $9,546 lower than during the same period in 1997.
Following is an analysis of noninterest expense for the
three months ended June 30, 1998 and 1997.
Three Three
Months Ended Months Ended
June 30, 1998 June 30, 1997
Salaries and employee benefits $ 811,526 $ 740,428
Occupancy and equipment expense 269,115 314,032
Data processing fees 2,607 11,084
Other expense 438,375 350,620
Total noninterest expense $ 1,521,623 $ 1,416,164
Total noninterest expense for the three months ended June
30, 1998 was $105,459 higher than during the same period in 1997.
Salaries and employee benefits for the three months ended
June 30, 1998, was $71,098 higher than during the same period in
1997. 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,
1998 were $ 8,477 lower than during the same period in 1997.
Other operating expense for the three months ended June 30, 1998
increased $87,755 as compared to the same period in 1997.
Following is a condensed summary of net income during the
three months ended June 30, 1998 and 1997.
Three Three
Months Ended Months Ended
June 30, 1998 June 30, 1997
Net interest income $ 1,863,280 $ 1,726,344
Provision for loan losses 74,000 31,500
Other income 459,133 468,679
Other expense 1,521,623 1,416,164
Income before income taxes $ 726,790 $ 747,359
Applicable income taxes 217,046 246,048
Net Income $ 509,744 $ 501,311
Net income increased $8,433 or 1.68% to $509,744 for the
three months ended June 30, 1998 as compared to $501,311 for the
three months ended June 30, 1997. 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 $5,151,676 or 3.41% to
$156,141,157 at June 30, 1998 from $150,989,481 at March 31,
1998.
Total earning assets increased by $3,767,511, or 2.78% to
$139,237,694 at June 30, 1998 from $135,470,183 at March 31,
1998.
Total loans, net of the allowance for loan losses, increased
by $5,803,049 or 5.44% to $112,458,786 at June 30, 1998 from
$106,655,737 at March 31, 1998.
Total deposits increased by $4,651,108 or 3.49% to
$137,790,115 at June 30, 1998 from $133,139,007 at March 31,
1998. Approximately 14.7% and 14.9% of deposits were noninterest-
bearing as of June 30, 1998 and March 31, 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.
The allowance for loan losses was 1.68% of total loans
outstanding at June 30, 1998 and 1.77% of total loans outstanding
at March 31, 1998. Management considers the allowance for loan
losses as of June 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 six month period ended June 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: August 11, 1998 By: Paul T. Bennett
Paul T. Bennett
President
Date: August 11, 1998 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-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,334,793
<INT-BEARING-DEPOSITS> 1,667,000
<FED-FUNDS-SOLD> 8,866,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,921,643
<INVESTMENTS-CARRYING> 1,047,782
<INVESTMENTS-MARKET> 1,048,369
<LOANS> 114,509,899
<ALLOWANCE> 1,921,695
<TOTAL-ASSETS> 156,141,157
<DEPOSITS> 137,790,115
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,484,688
<LONG-TERM> 3,282,322
0
0
<COMMON> 399,500
<OTHER-SE> 13,184,532
<TOTAL-LIABILITIES-AND-EQUITY> 156,141,157
<INTEREST-LOAN> 5,960,592
<INTEREST-INVEST> 869,980
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<INTEREST-TOTAL> 6,830,572
<INTEREST-DEPOSIT> 2,959,177
<INTEREST-EXPENSE> 3,092,291
<INTEREST-INCOME-NET> 3,738,281
<LOAN-LOSSES> 128,000
<SECURITIES-GAINS> 23
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<INCOME-PRETAX> 1,488,671
<INCOME-PRE-EXTRAORDINARY> 1,043,777
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<CHANGES> 0
<NET-INCOME> 1,043,777
<EPS-PRIMARY> 261
<EPS-DILUTED> 261
<YIELD-ACTUAL> 0
<LOANS-NON> 1,216,000
<LOANS-PAST> 79,000
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<CHARGE-OFFS> 81,565
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