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, 1999 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 June 30, 1999.
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 -
19
Part II. Other Information . . . . . . . . . . . . . . . . . . .20 -
21
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
1999 1998
ASSETS
Cash and due from banks $ 6,422,357 $ 6,122,085
Deposits in other banks -
interest bearing $ 1,349,000 $ 1,539,000
Investment securities:
Available for sale $ 17,668,425 $ 16,993,917
Held to maturity $ 747,530 $ 747,716
Georgia Bankers stock $ 547,283 $ 547,283
Federal Home Loan Bank stock $ 426,100 $ 396,200
Federal funds sold $ 7,015,000 $ 17,648,000
Loans $123,026,386 $114,959,844
Less: Unearned discount ( 154,545) ( 154,545)
Reserve for loan losses ( 1,983,211) ( 1,970,620)
$120,888,630 $112,834,679
Bank premises and equipment $ 4,049,021 $ 4,020,735
Goodwill $ 236,067 $ 262,137
Other assets $ 3,905,383 $ 3,778,990
Total Assets $163,254,796 $164,890,742
The accompanying notes are an integral part of these financial
statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED BALANCE SHEETS (con't)
(UNAUDITED)
June 30, December 31,
1999 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits: Demand - non-interest
bearing $ 20,048,036 $ 23,299,454
Demand - interest bearing 21,804,855 24,613,084
Savings 11,371,456 9,057,678
Time 90,260,575 89,019,729
$143,484,922 $145,989,945
Borrowing 3,164,216 3,156,096
Accrued expenses and other
liabilities 1,443,804 1,391,347
Federal funds purchased - -
Note payable - Federal Home Loan Bank 120,000 146,667
Total Liabilities $148,212,942 $150,684,055
Stockholders' Equity
Common stock $1 par value; shares
authorized - 1,000,000, shares
issued and outstanding -
1999 and 1998 - 399,500
and 399,500, respectively $ 399,500 $ 399,500
Surplus 3,070,831 3,070,831
Undivided profits 11,744,974 10,651,788
Accumulated other comprehensive
income ( 173,451) 84,568
Total Stockholders' Equity $ 15,041,854 $ 14,206,687
Total Liabilities and
Stockholders' Equity $163,254,796 $164,890,742
The accompanying notes are an integral part of these financial
statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED STATEMENT OF INCOME
AND COMPREHENSIVE INCOME
(UNAUDITED)
Three Three
Months Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
Interest Income:
Interest & fees
on loans $ 3,106,089 $ 3,020,746 $ 6,157,899 $ 5,960,592
Interest on federal
funds sold 130,984 138,807 286,130 279,685
Interest on deposits
with other banks 22,625 15,939 39,833 31,355
Interest on invest-
ment securities:
U.S. Treasury 40,376 53,468 82,385 105,697
Mortgage backed
securities 9,882 15,243 20,683 32,208
U.S. Government
agencies 172,032 163,457 341,370 333,708
State & municipal
subdivisions 22,195 22,877 45,072 45,945
Other 9,016 6,745 58,843 41,382
Total Interest
Income $ 3,513,199 $ 3,437,282 $ 7,032,215 $ 6,830,572
Interest Expense:
Interest on
deposits $ 1,455,295 $ 1,505,695 $ 2,930,533 $ 2,959,177
Interest on other
borrowings 61,189 68,307 118,881 133,114
Total Interest
Expense $ 1,516,484 $ 1,574,002 $ 3,049,414 $ 3,092,291
Net Interest
Income $ 1,996,715 $ 1,863,280 $ 3,982,801 $ 3,738,281
Provision for loan
losses 75,000 74,000 150,000 128,000
Net interest income
Net interest income
after provision
for loan losses $ 1,921,715 $ 1,789,280 $ 3,832,801 $ 3,610,281
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 Three
Months Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
Other Operating Income:
Service charge on
deposit accounts $ 334,803 $ 281,658 $ 670,919 $ 561,932
Commission on
insurance 13,805 28,008 29,080 49,897
Other income 93,308 109,118 205,425 170,990
Gain (loss) on sale
of securities 45 17 50 23
Computer income 100,864 40,332 187,449 82,531
Total Other
Operating Income $ 542,825 $ 459,133 $ 1,092,923 $ 865,373
Other Operating Expenses:
Salaries $ 727,662 $ 629,486 $ 1,470,087 $ 1,225,325
Profit sharing &
personnel expense 137,221 111,219 270,307 222,957
Occupancy expense 111,244 131,084 208,595 238,717
Furniture &
fixtures expense 175,940 138,031 354,202 305,537
Payroll taxes 48,417 70,817 99,625 109,686
Data processing 33,941 2,607 117,091 43,392
Other operating
expenses 457,324 438,379 836,960 841,369
Total Other Operating
Expenses $ 1,691,749 $ 1,521,623 $ 3,356,867 $ 2,986,983
Income before
income taxes $ 772,791 $ 726,790 $ 1,568,857 $ 1,488,671
Applicable income
taxes 236,883 217,046 475,670 444,894
Net Income $ 535,908 $ 509,744 $ 1,093,187 $ 1,043,777
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 Three
Months Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30, 1999
1998 1999 1998
Other Comprehensive
Income, Net of Tax:
Unrealized gains
(losses) on
securities $( 194,305) $ 38,934 $( 258,019) $ 44,297
Other Comprehensive
Income (Loss) $( 194,305) $ 38,934 $( 258,019) $ 44,297
Comprehensive
Income $ 341,603 $ 548,678 $ 835,168 $ 1,088,074
Per share data based
on weighted average
outstanding shares
Weighted average
outstanding
shares 399,500 399,500 399,500 399,500
Net Income $ 1.34 $ 1.28 $ 2.74 $
2.61
The accompanying notes are an integral part of these financial
statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Six Months
Ended Ended
June 30, June 30,
1999 1998
Cash Flows From Operating Activities:
Net income $ 1,093,187 $ 1,043,777
Add expenses not requiring cash:
Provision for depreciation and
amortization 267,688 316,054
Provision for loan losses 150,000 128,000
Bond portfolio losses (gains) 50 23
Gain on sale of other real estate
owned - -
Increase (decrease) in taxes payable 179,670 236,947
Increase (decrease) in interest
payable ( 80,809 )1
52,245
Increase (decrease) in other
liabilities ( 46,404 )(
229,140 )
(Increase) decrease in interest
receivable ( 138,957 )(
190,962 )
(Increase) decrease in prepaid
expenses 35,942 29,784
(Increase) decrease in other assets ( 23,378 )2
74,473
Recognition of unearned loan income - ( 20,000)
Net Cash Used in Operating Activities $ 1,436,989 $ 1,741,201
Cash Flows From Investing Activities:
Proceeds from sale of investment
securities - available for sale $ - $ -
Proceeds from maturities of
investment securities - available
for sale 4,925,051 2,998,690
Purchase of investment securities -
available for sale ( 5,550,000 )(
3,552,086 )
Net loans to customers ( 8,203,951 )(
8,012,662 )
Purchase of premise and equipment ( 327,346 )(
235,077 )
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
Purchase of equity securities ( 250,000 )-
The accompanying notes are an integral part of these financial
statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
STATEMENT OF CASH FLOWS (Con't)
(UNAUDITED)
Six Months Six Months
Ended Ended
June 30, June 30,
1999 1998
Cash Flows From Investing Activities (con't):
Purchase of investment securities
held to maturity $ - $( 502,137)
Purchase of FHLB stock ( 29,900 ) (
51,700 )
Net Cash Used in Investing Activities $( 9,436,146 )$(
8,294,875 )
Cash Flows From Financing Activities:
Federal funds purchased repaid $ - $( 150,000)
Net increase (decrease) in demand
deposits, NOW and money market ( 6,059,648 )(
1,440,117 )
Net increase (decrease) in savings
and time deposit 3,554,624 6,628,140
Net increase (decrease) in
borrowings 8,120 ( 65,000)
Net decrease - FHLB loan ( 26,667) -
Redemptions of company stock - -
Increase in securities sold under
repurchase agreement - -
Net Cash Provided (Used) From
Financing Activities $( 2,523,571 )$
4,973,023
Net Increase (Decrease) in Cash
and Cash Equivalents $(10,522,728 )$(
1,580,651 )
Cash and Cash Equivalents at
Beginning of Year 25,309,085 19,448,444
Cash and Cash Equivalents at
End of Period $ 14,786,357 $ 17,867,793
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, 1999 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, 1999, 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, 1999,
total capital increased $ 341,603 to $ 15,041,854. This increase in
capital resulted from net earnings of $ 535,908 and a decrease of
$ 194,305 in unrealized gains on securities available for sale, net of
taxes.
At June 30, 1999, South Banking Company had no binding
commitments for capital expenditures. No additional mergers or
acquisitions requiring cash are being negotiated at present.
Results of Operations
The following discussion and analysis presents the significant
changes in financial condition and the results of operations of South
Banking Company and Subsidiary for the periods indicated. This
discussion and analysis should be read in conjunction with the
Company's 1998 Annual Report to Shareholders and Form 10-K.
SOUTH BANKING COMPANY
ALMA, GEORGIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - (Con't)
Since the primary business activities of South Banking Company are
conducted through its Banks, this discussion focuses primarily on the
financial condition and operations of the Banks. Included in this
discussion are forward looking statements based on management's
current expectations, actual results, however, may differ. Amounts
and percentages used in this discussion have been rounded.
Earnings Summary
Net income for the second quarter of 1999 was $535,908, up
$26,164 from $509,744 in the second quarter of 1998. On a per share
basis, earnings registered a similar increase from $1.28 to $1.34.
These levels of income represent annualized returns on average assets
of 1.31% and 1.33%, respectively. Return on average equity also
decreased from 15.63% to 14.65%. Details concerning the Company's
results of operations are discussed in the following sections of this
report.
Net interest income for the second quarter of 1999 totaled
$1,996,715, up $133,435 from $1,863,280 in the second quarter of 1998.
Interest income is being impacted by the mix of assets, the level
of earning assets and the interest rate environment. Average earning
assets for the quarter of $148.6 million are $11.4 million in excess
of the second quarter 1998 average. These funds are primarily being
invested in the loan portfolio. The lower rate environment, however,
has caused loan income to increase only $85,343 from $3,020,746 in the
second quarter of 1998 to $3,106,089 in the second quarter of 1999.
This increase reflects the downward repricing of the Bank's
substantial portfolio of one-year adjustable rate loans, however, the
recent increase in the prime rate has begun to positively impact
interest income.
Interest expense, the other component of net interest income,
decreased $50,400 when compared to the second quarter of last year
despite the fact that the average balance of interest bearing
liabilities was up $7.3 million. This is the result of lower interest
rates. The overall cost of interest bearing liabilities for the
quarter of 4.80% is 48 basis points lower than in the second quarter
of 1998, reflecting several rate reductions implemented in late 1998
and early 1999.
SOUTH BANKING COMPANY
ALMA, GEORGIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Earnings Summary (Con't)
This combination of higher average balances and lower rates
produced a net interest margin of 4.65% for the quarter, down from
4.73% in the second quarter of last year but still at the peer
average.
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 $75,000 and $74,000 during
the three months ended June 30, 1999 and 1998, respectively.
Noninterest Income
Following is a comparison of noninterest income for the three
months ended June 30, 1999 and 1998.
Three Three
Months Months
Ended Ended
June 30, June 30,
1999 1998
Service charges on deposits $ 334,803 $ 281,658
Other service charges, commissions
& fees 13,805 28,008
Other income 194,217 149,467
Total Noninterest Income $ 542,825 $ 459,133
Total noninterest income for the three months ended June 30, 1999
was $83,692 higher than during the same period in 1998. The primary
increase is related to additional computer processing income from
nonaffiliated banks and brokerage services.
During the third quarter of 1998, the Bank began offering
brokerage services, including stocks, bonds, mutual funds and
annuities, to its customers. The effect on the deposit base has been
limited as less than one quarter of the total sales have come from
Bank deposits. In the long-term, management believes this service
will actually increase deposits.
SOUTH BANKING COMPANY
ALMA, GEORGIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Noninterest Expense
Noninterest expense includes all items of expense other than
interest expense, the provision for loan losses, and income taxes.
Total noninterest expense for the second quarter of 1999 of $1,691,749
was $170,126 or 11.1%, greater than during the second quarter of 1998.
The majority of this increase was due to higher salary and
benefit costs, up $124,178 to $864,883. Salaries have increased as a
result of the retention of a full-time broker and a new branch
location, in addition to regular compensation adjustments. Increases
were also experienced in group insurance and pension expense.
Other increases were experienced in equipment costs and data
processing, while other noninterest expense increased by $18,945 to
$379,635 for the quarter. Management expects this trend to remain
constant during the remainder of the year.
One category of noninterest expense, occupancy expense, decreased
during the quarter. Net occupancy expense fell by $19,840, or 15.13%
for the quarter.
Income Taxes
The Company's provision for income taxes, which totaled $236,883
in the second quarter of 1999 and $217,046 in the second quarter of
1998, includes both federal and state income taxes. The effective tax
rates during the two periods were 30.6% in 1999 and 29.9% in 1998.
Financial Condition
Average total assets during the second quarter of 1999 were
$162,016,870, up from $153,017,859 from the second quarter of 1998. A
detailed discussion of the Bank's financial condition, and its various
balance sheet components follows.
Loan Portfolio
The loan portfolio, which represents South's largest asset, has
increased during the second quarter by $4,308,816 to $123,026,386.
Competitive pressures from auto manufacturers and a variety of
mortgage providers continue to make loan growth at acceptable yields
and risk levels difficult for those types of loans. Management also
believes that with the recent decline in the local farming economy,
there exists
SOUTH BANKING COMPANY
ALMA, GEORGIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Loan Portfolio (Con't)
little opportunity to expand and develop the agricultural loan
portfolio. In the year since June 30, 1998, the loan portfolio has
increased substantially. Commercial and real estate lending remains
the largest part of the portfolio.
The Bank is also a part to financial instruments with off-balance
sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include
commitments to extend credit and letters of credit. Those instruments
involve, to varying degrees, elements of credit and interest rate risk
in excess of the amount recognized in the consolidated balance sheets.
At June 30, 1999, commitments to extend credit, including unused lines
of credit, totaled $12,714,000 while letters of credit totaled
$633,000.
Company policy requires those loans which are past due 90 days or
more be placed on nonaccrual status unless they are both well secured
and in the process of collection. The following table provides a
summary of past due loans and nonperforming assets.
Summary of Past Due Loans and Nonperforming Assets
(in thousands)
---------June 30,--------
-
1999 1998
(Unaudited)
Loans past due 90 or more days
still accruing interest $ 114 $ 79
Nonperforming assets:
Nonaccruing loans $ 913 $ 1,222
Other real estate owned 182 117
$ 1,095 $ 1,339
Management makes this determination by its analysis of overall
loan quality, changes in the mix and size of the loan portfolio,
previous loss experience, general economic conditions, information
about specific borrowers and other factors. At June 30, 1999, the
allowance for loan losses was $1,983,211 or 1.61% of gross loans.
Given the inherent risk contained in the portfolio, including the non-
SOUTH BANKING COMPANY
ALMA, GEORGIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Loan Portfolio Con't)
accrual loan described above as well as commitments to extend credit,
this level is considered adequate. Management is not aware of any
trends, uncertainties or other information relating to the loan
portfolio which it expects will materially impact future operating
results, liquidity, or capital resources.
The provision for loan losses is a charge to earnings which is
made to maintain the allowance for loan losses at a significant level.
The provision totaled $75,000 during the second quarter of 1999 and
$74,000 during the second quarter of 1998.
Securities Portfolio and Federal Funds Sold
The Bank's securities portfolio consists of available for sale
and held to maturity securities while no securities are maintained in
a trading account. At June 30, 1999, the held to maturity portfolio
totaled $747,530.
Management attempts to emphasize the available for sale portfolio
due to the flexibility it allows in managing the balance sheet
structure and addressing asset/liability issues. At June 30, 1999,
this portfolio had an estimated fair value of $17,668,425, $173,451
less than the amortized cost. Such deficit represents an unrealized
loss.
This portfolio, which represents 91.1% of the total securities
portfolio, is invested primarily in U.S. Treasury and agency
obligations and tax exempt municipals. The treasury and agency
portion of the portfolio, including agency backed mortgage securities,
total $16,034,919 at quarter-end or 82.7% of the available for sale
portfolio. Tax exempt municipals totaling $1,831,036 comprised 9.4%.
The remainder of the portfolio, which totals $1,523,383, consists of
bank holding company stock, Georgia Bankers Stock, and stock which the
Bank is required to hold for membership in the Federal Reserve Bank
and the Federal Home Loan Bank.
The Bank has typically favored investments with maturities of
five years or less which have known cash flow patterns. Such
instruments typically provide greater safety, less market value
fluctuation and more simplified asset/liability issues. However, some
callable securities and mortgage backed securities may be purchased
from time to time for their increased yield.
SOUTH BANKING COMPANY
ALMA, GEORGIA
MANAGEMENT'S DISCUSSION AND ANSLYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Securities Portfolio and Federal Funds Sold (Con't)
The Bank generally tries to minimize its involvement in the
overnight federal funds sold market, instead relying on the
continually maturing securities portfolio to provide the liquidity
needed to fund loans or meet deposit withdraw demands. Nonetheless,
at any given time the execution of specific investing or funding
strategies, or normal fluctuations in deposit and loan balances may
require the bank to sell, or buy, funds on an overnight basis. In
addition, any daily excess funds are maintained in Federal Funds until
demands on accounts are determined.
Deposits and Other Funding Sources
Total deposits at June 30, 1999 of $143,484,922 were up from
their first quarter total of $141,199,473. The second quarter has
traditionally not been a large growth period. While second quarter
deposits have increased only slightly, they are well above the second
quarter 1998 totals of $137,790,115.
Noninterest bearing deposits decreased $2,120,729 to $20,048,035
during the quarter. In contrast to this, interest bearing deposits
increased $4,403,177, or 3.7%, to $123,436,886 during the quarter.
Increases were experienced in all types of interest bearing deposits.
In addition to deposits, the Bank may generate funding by the use
of borrowing.
Year 2000 Compliance
Historically, certain computerized systems have had two digits
rather than four digits to define the applicable year, which could
result in recognizing a date using 00 as the year 1900 rather than the
year 2000. This could result in failures or miscalculations and is
generally referred to as the Year 2000 issue.
Because the Bank, as well as some of its suppliers, customers and
service providers, is heavily dependent on computers to conduct its
business operations it recognizes and seeks to responsibly address the
Year 2000 issue. Failure to address Year 2000 issues could result in
business disruption that could materially affect the Company's
operations, liquidity or capital resources. A Year 2000 Task Team has
been assembled to study, test, and remedy Year 2000 issues. This team
includes members of senior management and reports regularly to the
SOUTH BANKING COMPANY
ALMA, GEORGIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Year 2000 Compliance (Con't)
Board of Directors. The team has inventoried all computer related or
dependent hardware and software, identified those which are critical,
and assessed the year 2000 compliance of each component. Testing of
critical items, which involve a third party software vendor, are being
jointly conducted with that processor. During 1998, such tests of the
processors' major functions were successful. Additional testing is
scheduled for the third quarter of 1999. Backup systems for
noncritical functions have also been identified and are also subject
to testing. The Bank also has contingency plans which will be
implemented in the event of a Year 2000 failure. In addition, the
Bank has contacted those customers and vendors, who, if unable to cope
with the Year 2000 issue may negatively impact the Bank, to attempt to
determine their degree of readiness.
Through June 30, 1999, the Bank expenditures have been
nonmaterial in preparation for the Year 2000. It is not expected that
additional capital expenditures of a significant amount will be
needed.
While the Bank believes the tests and procedures in place should
minimize the Year 2000 risks and enable it to meet the needs of its
customers in the Year 2000, the Bank cannot quantify the potential
impact of any unforeseen Year 2000 failures that might occur either
internally or from external third parties.
Impact of Inflation
The consolidated financial statements and related data included
in this report were prepared in accordance with generally accepted
accounting principles, which require the Company's financial position
and results of operations to be measured in terms of historical
dollars, except for the available for sale securities portfolio.
Consequently, the relative value of money generally is not considered.
Nearly all of the Company's assets and liabilities are monetary in
nature and, as a result, interest rates and competition in the market
area tend to have a more significant impact on the Company's
performance than the effect of inflation.
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 June 30, 1999.
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 12, 1999 By:
Paul T. Bennett
President
Date: August 12, 1999 By:
Olivia Bennett
Vice President
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