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 March 31, 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 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 March 31, 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 - 9
Notes to Consolidated Financial Statements . . . . . . . . 10
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 11 - 12
Part II. Other Information . . . . . . . . . . . . . . . . . . . . 13
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
1998 1997
ASSETS
Cash and due from banks $ 6,563,571 $ 8,128,444
Deposits in other banks -
interest bearing $ 1,181,000 $ 1,280,000
Investment securities:
Available for sale $ 15,995,188 $ 15,341,990
Held to maturity $ 1,269,775 $ 1,605,567
Georgia Bankers stock $ 547,283 $ 547,283
Federal Home Loan Bank stock $ 396,200 $ 344,500
Federal funds sold $ 10,606,000 $ 10,040,000
Loans $108,660,132 $106,525,222
Less: Unearned discount ( 142,719) ( 149,418)
Reserve for loan losses ( 1,861,676) ( 1,821,680))))
$106,655,737 $104,554,124
Bank premises and equipment $ 4,028,147 $ 4,078,502
Goodwill $ 302,479 $ 315,514
Other assets $ 3,444,101 $ 3,658,636
Total Assets $150,989,481 $149,894,560
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED BALANCE SHEETS (con't)
(UNAUDITED)
March 31, December 31,
1998 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits: Demand - non-interest
bearing $ 19,781,887 $ 22,230,080
Demand - interest bearing 22,697,160 21,996,765
Savings 9,318,774 8,668,639
Time 81,341,186 79,706,608
$133,139,007 $132,602,092
Borrowing 3,314,822 3,347,322
Accrued expenses and other
liabilities 1,500,298 1,299,188
Federal funds purchased - 150,000
Total Liabilities $137,954,127 $137,398,602
Stockholders' Equity
Common stock $1 par value; shares
authorized - 1,000,000, shares
issued and outstanding -
1998 and 1997 - 399,500
and 399,500, respectively $ 399,500 $ 399,500
Surplus 3,070,831 3,070,831
Undivided profits 9,515,879 8,981,846
Unrealized gain (loss) on
securities 49,144 43,781
Total Stockholders' Equity $ 13,035,354 $ 12,495,958
Total Liabilities and
Stockholders' Equity $150,989,481 $149,894,560
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED STATEMENT OF INCOME AND
COMPHREHENSIVE INCOME
(UNAUDITED)
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
Interest Income
Interest and fees on loans $ 2,939,846 $ 2,547,193
Interest on federal funds sold 140,878 105,755
Interest on deposits with other
banks 15,416 29,776
Interest on investment securities:
U. S. Treasury 52,229 46,598
U. S. government agencies 170,251 148,670
Mortgage backed securities 16,965 24,727
State and political subdivisions 23,068 23,198
Dividends 34,637 26,610
Total Interest Income $ 3,393,290 $ 2,952,527
Interest Expense
Interest on deposits $ 1,453,482 $ 1,166,615
Interest on other borrowings 64,807 70,147
Total Interest Expense $ 1,518,289 $ 1,236,762
Net Interest Income $ 1,875,001 $ 1,715,765
Provision for loan losses 54,000 16,500
Net interest income after provisions
for loan losses $ 1,821,001 $ 1,699,265
Other Operating Income
Service charge on deposit accounts $ 280,274 $ 280,057
Commission on insurance 21,889 27,026
Other income 61,872 74,957
Gain (loss) sale of securities 6 4
Computer income 42,199 34,653
Total Other Operating Income $ 406,240 $ 416,697
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED STATEMENT OF INCOME AND
COMPREHENSIVE INCOME (Con't)
(UNAUDITED)
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
Other Operating Expenses
Salaries $ 595,839 $ 577,692
Profit sharing and other personnel
expense 111,738 107,091
Occupancy expense 107,633 117,958
Furniture and fixtures expense 167,506 104,618
Payroll taxes 38,869 39,916
Data processing 40,785 62,892
Other operating expenses 402,990 362,658
Total Other Operating Expenses $ 1,465,360 $ 1,372,825
Income before income taxes $ 761,881 $ 743,137
Applicable income taxes 227,848 234,405
Net income $ 534,033 $ 508,732
Other comprehensive income, net of tax
Unrealized gains (losses) on
securities $ 5,363 $( 66,853)
Other comprehensive income (loss) $ 5,363 $( 66,853)
Comprehensive income $ 539,396 $ 441,879
Per share data on weighted average
outstanding shares
Weighted average outstanding shares 399,500 402,838
Net income per share $ 1.337 $ 1.263
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
STATEMENT OF CASH FLOWS
(UNAUDITED)
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
Cash Flows From Operating Activities:
Net income $ 534,033 $ 508,732
Add expenses not requiring cash:
Provision for depreciation and
amortization 149,442 138,708
Provision for loan losses 54,000 16,500
Bond portfolio losses (gains) 6 ( 4)
Gain on sale of other real estate
owned - -
Increase (decrease) in taxes
payable 220,820 196,900
Increase (decrease) in interest
payable 105,955 49,686
Increase (decrease) in other
liabilities ( 125,665) 209,284
(Increase) decrease in interest
receivable 24,550 111,531
(Increase) decrease in prepaid
expenses ( 19,339) ( 36,425)
(Increase) decrease in other assets 206,759 17,810
Recognition of unearned loan income ( 6,699) ( 5,750)
Net Cash Provided (Used) in Operating
Activities $ 1,143,862 $ 1,206,972
Cash Flows From Investing Activities:
Proceeds from maturities of investment
securities - available for sale $ 1,565,386 $ 126,665
Proceeds from maturities of investment
security - held to maturity 838,117 500,223
Purchase of investment securities - AFS ( 2,205,273) ( 2,097,070)
Purchase of investment securities - HTM ( 502,136) -
Net loans to customers ( 2,148,914) ( 5,700,037)
Purchase of premise and equipment ( 91,630) ( 188,717)
Proceeds from sale of equipment - -
Proceeds from other real estate owned - -
Purchase of FHLB stock ( 51,700) ( 15,400)
Net Cash Provided (Used) in Investing
Activities $( 2,596,150) $( 7,374,336)
The accompanying notes are an integral part of these financial statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
STATEMENT OF CASH FLOWS (Con't)
(UNAUDITED)
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
Cash Flows From Financing Activities:
Net increase (decrease) in demand
deposits, NOW and money market $( 1,747,798) $( 1,095,186)
Net increase (decrease) in savings
and time deposit 2,284,713 1,279,170
Net increase (decrease) in short-term
borrowings ( 32,500) 22,500
Dividends paid - -
Redemptions of company stock - ( 43,750)
Federal funds purchased ( 150,000) 180,000
Net Cash Provided (Used) From
Financing Activities $ 354,415 $ 342,734
Net Increase (Decrease) in Cash
and Cash Equivalents $( 1,097,873) $( 5,824,630)
Cash and Cash Equivalents at
Beginning of Year 19,448,444 20,732,559
Cash and Cash Equivalents at
End of Period $ 18,350,571 $ 14,907,929
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 merger of Pineland State Bank into South
Banking Company was completed. The purchase method of accounting was
used to record this transaction. The activity of Pineland State Bank
since January 11, 1996 has been consolidated in these statements.
Effective January 1, 1993, the company adopted FASB 109 regarding
the 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
During the first quarter of 1996, Pineland State Bank of Metter,
Georgia was acquired by South Banking Company. Effective January 11,
1996, the accounts of Pineland State Bank have been consolidated with
South Banking Company.
During the first quarter of 1998, total assets increased $1,094,921
compared to an increase of $1,206,044 in 1997. This increase represents
a .73% increase from January 1, 1998. The banks historically have not
increased in assets during the first quarter compared to the remaining
parts of the year. The last twelve months have increased at a 13.10%
rate. This growth is more than previous years, as South Banking Company
had not been aggressive in the time deposit market. Most growth in the
area has been as a result of rates paid and has tended to move to the
highest bidder. South has been aggressive in maintaining its core
deposit to minimize any detriment to its interest margins as a result of
certificate growth. Loan demand continues to be strong and has been
funded internally through deposit growth as loan to deposit ratio has
reached levels that any new growth must be from deposit.
This policy has put a strain on the liquidity of the bank.
Historically, liquidity of the bank has been provided from financing
activities such as deposit growth. While the bank has refrained from
active pursuit of high paying deposits, it is believed that if the banks
loan demand continues to grow the opportunity to raise the funds from
deposits to provide adequate interest margins exist. In addition, the
banks have sufficient lines to purchase federal funds in the event of a
short term need. Operational profits remain high and add additional
cash flow for liquidity purposes.
Net income increased by $25,301 for the first quarter, 1998
compared to an increase of $133,808 for the fist quarter, 1997. While
the increase has been significant, additional increases are anticipated
when all the changes at Pineland State Bank become fully implemented.
The major change has been in the improvement of the net interest
margins. South continues to have excellent margins as compared to its
peer group. This is partly as a result of the policy not to
aggressively pursue high paying "hot" deposits. South remains aware of
its interest rate sensitivity as the Federal Reserve raises its interest
rate and this has a ripple effect down to the bank. The bank is working
to maintain its interest rate gap at a point that the volatility of the
current interest rate market will not materially affect its margins.
Provision for loan losses are maintained at levels that are
adequate based on management's evaluation of the loan portfolio.
Pineland State Bank has a substantial reserve to handle any problems
that might arise. Pineland's reserve has been increased substantially
in prior years due to loan problems. Most of the problems have been
worked out and reserve remains more than adequate.
SOUTH BANKING COMPANY
ALMA, GEORGIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (con't)
Operating expenses have increased slightly during this period
compared to 1997. The increase of $92,535 is at a rate of 6.74%. The
increase remains relatively small with increase scattered throughout all
areas with furniture and fixture expense increasing due to a computer
conversion. This increase is in keeping with inflationary trends in the
area.
Net income has risen to $1.337 per share compared to 1.263 for
1997. This continues a trend that has existed for the last few years.
The banks continue to monitor the economy and its operation to insure
proper actions are taken to counter any changes that might occur.
State-wide branching has been approved; however, South has not been
affected at this time. Currently one location has a new branch by a
competitor from an adjoining county. This will cause some market shake
up. Management does not expect significant change in its current
deposit base.
SOUTH BANKING COMPANY
ALMA, GEORGIA
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
(27) Financial Data Schedule
The registrant has not filed any reports on Form 8-K
during the three month period ended March 31, 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: May 12, 1998 By:PAUL BENNETT
Paul Bennett
President
Date: May 12, 1998 By:OLIVIA BENNETT
Olivia Bennett
Vice President
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 6,563,571
<INT-BEARING-DEPOSITS> 1,181,000
<FED-FUNDS-SOLD> 10,606,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,995,188
<INVESTMENTS-CARRYING> 1,269,775
<INVESTMENTS-MARKET> 0
<LOANS> 108,660,132
<ALLOWANCE> 1,861,676
<TOTAL-ASSETS> 150,989,481
<DEPOSITS> 133,139,007
<SHORT-TERM> 0
<LIABILITIES-OTHER> 1,500,298
<LONG-TERM> 3,314,822
0
0
<COMMON> 399,500
<OTHER-SE> 12,635,854
<TOTAL-LIABILITIES-AND-EQUITY> 150,989,481
<INTEREST-LOAN> 2,939,846
<INTEREST-INVEST> 418,807
<INTEREST-OTHER> 34,637
<INTEREST-TOTAL> 3,393,290
<INTEREST-DEPOSIT> 1,453,482
<INTEREST-EXPENSE> 1,518,289
<INTEREST-INCOME-NET> 1,875,001
<LOAN-LOSSES> 54,000
<SECURITIES-GAINS> 6
<EXPENSE-OTHER> 1,465,360
<INCOME-PRETAX> 761,881
<INCOME-PRE-EXTRAORDINARY> 761,881
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 534,033
<EPS-PRIMARY> 1.337
<EPS-DILUTED> 1.337
<YIELD-ACTUAL> 0
<LOANS-NON> 254,736
<LOANS-PAST> 66,009
<LOANS-TROUBLED> 42,741
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,821,680
<CHARGE-OFFS> 49,811
<RECOVERIES> 35,807
<ALLOWANCE-CLOSE> 1,861,676
<ALLOWANCE-DOMESTIC> 1,861,676
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
