Back to GetFilings.com
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, 2002 Commission file number 271249
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, 2002.
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 -13
Management's Discussion and Analysis of Financial Condition
and Results of Operations 14- 20
Part II. Other Information 21- 22
SOUTH BANKING COMPANY
ALMA, GEORGIA CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
June 30, December31,
2002 2001
ASSETS
Cash and due from banks $ 10,855,628 $11,140,462
Deposits in other banks -
interest bearing $ 1,172,000 $ 1,273,000
Investment securities:
Available for sale $ 16,652,061 $17,173,350
Held to maturity $ 47,641 $ 147,536
Georgia Bankers stock $ 547,283 $ 547,283
Federal Home Loan Bank stock $ 426,100 $ 426,100
Federal funds sold $ 22,201,000 $10,252,000
Loans $ 169,001,431 $172,378,811
Less: Unearned discount ( 286,678) ( 288,968)
Reserve for loan losses ( 2,902,239) ( 2,756,780)
$ 165,812,514 $169,333,063
Bank premises and equipment $ 6,693,055 $ 6,715,813
Goodwill $ 1,562,679 $ 1,680,572
Other assets $ 5,336,550 $ 6,101,344
Total Assets $ 231,306,511 $224,790,523
The accompanying notes are an integral part of these financial
statements.
4
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED BALANCE SHEETS (con't)
(UNAUDITED)
June 30, December 31,
2002 2001
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits: Demand - non-interest
bearing $ 33,676,302 $ 29,999,788
Demand- interest
bearing 35,064,587 32,764,586
Savings 12,092,092 10,537,057
Time 121,713,386 122,699,172
$202,546,367 $196,000,603
Borrowing 5,463,404 5,581,251
Accrued expenses and other
liabilities 1,634,587 1,850,430
Federal funds purchased - -
Note payable - Federal Home Loan
Bank 1,000,000 1,500,000
Total Liabilities $210,644,358 $204,932,284
Stockholders' Equity
Common stock $1 par value; shares
authorized - 1,000,000, shares
issued and outstanding - June 30,
2001 and 2000 - 399,500
and 399,500, respectively $ 399,500 $ 399,500
Surplus 3,070,831 3,070,831
Undivided profits 17,070,526 16,291,126
Accumulated other comprehensive
Income 121,296 96,782
Total Stockholders' Equity $ 20,662,153 $19,858,239
Total Liabilities and
Stockholders' Equity $ 231,306,511 $224,790,523
The accompanying notes are an integral part of these financial
statements.
5
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED STATEMENT OF INCOME
AND COMPREHENSIVE INCOME
(UNAUDITED)
Three Three
Months Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2002 2001 2002 2001
Interest Income:
Interest & fees
on loans$ 3,339,128 $4,281,783 $ 6,876,953 $8,743,090
Interest on federal
funds sold 86,331 232,997 153,065 519,667
Interest on deposits
with other
banks 10,227 11,729 19,187 22,768
Interest on invest-
ment securities:
U.S. Treasury 7,317 7,757 15,012 15,452
Mortgage backed
securities 1,290 4,460 3,014 9,994
U.S. Government
Agencies 170,780 224,136 342,645 489,276
State & municipal
subdivisions 13,418 18,070 28,023 36,889
Other 9,989 14,538 20,060 34,766
Total Interest
Income $ 3,638,480 $4,795,470 $ 7,457,959 $9,871,902
Interest Expense:
Interest on
deposits$ 1,274,706 $2,404,585 $ 2,739,259 $4,934,045
Interest on other
borrowings 63,680 129,421 126,771 268,194
Total Interest
Expense$ 1,338,386 $2,534,006 $ 2,866,030 $5,202,239
Net Interest
Income $ 2,300,094 $2,261,464 $ 4,591,929 $4,669,663
Provision for loan
losses 217,000 169,000 442,000 310,500
Net interest income
after provision
for loan losses$ 2,083,094 $2,092,464 $ 4,149,929 $4,359,163
The accompanying notes are an integral part of these financial
statements.
6
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,
2002 2001 2002 2001
Other Operating Income:
Service charge on
deposit
accounts $ 430,291 $ 431,045 $ 847,672 $ 841,365
Commission on
insurance 23,453 21,848 44,649 45,062
Other income 176,134 197,529 318,140 559,518
Gain (loss) on sale
of securities 1,487 - 2,074 -
Computer income 141,048 132,191 297,142 266,897
Financial service
income 32,786 - 57,396 -
Total Other
Operating Income $ 805,199 $ 782,613 $ 1,567,073 $1,712,842
Other Operating Expenses:
Salaries $ 923,228 $ 968,246 $ 1,836,036 $1,913,122
Profit sharing &
personnel
expense 165,931 183,621 331,675 362,738
Occupancy expense 132,546 131,963 261,418 260,979
Furniture &
fixtures
expense 272,674 268,310 554,692 529,063
Payroll taxes 61,340 62,677 122,842 124,683
Data processing 68,045 80,904 140,142 153,700
Other operating
expenses 713,804 673,246 1,278,171 1,205,289
Total Other Operating
Expenses $2,337,568 $2,368,967 $ 4,524,976 $4,549,574
Income before
income taxes $ 550,725 $ 506,110 $ 1,192,026 $1,522,431
Applicable income
taxes 194,259 171,641 412,626 513,315
Net Income $ 356,496 $ 334,469 $ 779,400 $1,009,116
The accompanying notes are an integral part of these financial
statements.
7
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,
2002 2001 2002 2001
Other Comprehensive
Income, Net of Tax:
Unrealized gains
(losses) on
securities $ 107,650 $ 23,825 $ 24,514 $ 173,804
Other Comprehensive
Income (Loss) $ 107,650 $ 23,825 $ 24,514 $ 173,804
Comprehensive
Income $ 464,146 $ 358,294 $ 803,914 $1,182,920
Per share data based
on weighted average
outstanding shares
Weighted average
outstanding
shares 399,500 399,500 399,500 399,500
Net Income $ .89 $ .84 $ 1.95 $ 2.53
The accompanying notes are an integral part of these financial
statements.
8
SOUTH BANKING COMPANY
ALMA, GEORGIA STATEMENT OF CASH FLOWS
(UNAUDITED)
Six Months Six Months
Ended Ended
June 30, June 30,
2002 2001
Cash Flows From Operating Activities:
Net income $ 779,400 $ 1,009,116
Add expenses not requiring cash:
Provision for depreciation and
amortization 558,548 549,473
Provision for loan losses 442,000 310,500
Bond portfolio losses
(gains) ( 1,487) -
Gain on sale of other real estate
owned - -
Increase (decrease) in
taxes payable 214,452 143,913
Increase (decrease) in interest
payable ( 544,328) 83,893
Increase (decrease) in other
liabilities 114,033 ( 77,136)
(Increase) decrease in interest
receivable 247,406 102,448
(Increase) decrease in prepaid
expenses 50,902 ( 66,330)
(Increase) decrease in
other assets ( 203,584) 142,420
Recognition of unearned
loan income ( 2,290) ( 1,619)
Net Cash Used in
Operating Activities $ 1,655,052 $ 2,196,678
Cash Flows From Investing Activities:
Proceeds from sale of investment
securities - available
for sale $ - $ -
Proceeds from maturities of
investment securities - available
for sale 5,391,538 15,664,682
Purchase of investment securities -
available for sale ( 4,820,042) ( 13,150,000)
Net loans to customers 3,080,839 ( 6,559,378)
Purchase of premise
and equipment 427,862 ( 503,175)
Proceeds from maturities of investment
securities held to
maturity ( 100,000) -
Purchase of equity
securities - -
The accompanying notes are an integral part of these financial
statements.
9
SOUTH BANKING COMPANY
ALMA, GEORGIA STATEMENT OF CASH FLOWS (con't)
(UNAUDITED)
Six Months Six Months
Ended Ended
June 30, June 30,
2001 2000
Cash Flows From Investing Activities (con't):
Purchase of investment securities
held to maturity $ - $ -
Purchase of FHLB stock - -
Net Cash Used in Investing
Activities $( 3,980,197) $( 4,547,871)
Cash Flows From Financing Activities:
Net increase (decrease) in demand
deposits, NOW and money market$ 5,976,515 $ 1,575,714
Net increase (decrease) in savings
and time deposit 569,249 1,243,611
Net increase (decrease) in
Borrowings ( 117,847) ( 126,835)
Net increase (decrease)
- FHLB loan - ( 1,026,667)
Redemptions of
company stock - -
Increase (decrease) in federal
funds purchased ( 500,000) 169,000
Net Cash Provided (Used) From
Financing Activities $ 5,927,917 $ 1,834,823
Net Increase (Decrease) in Cash
and Cash Equivalents $ 11,563,166 $( 516,370)
Cash and Cash Equivalents at
Beginning of Year 22,665,462 24,430,193
Cash and Cash Equivalents at
End of Period $ 34,228,628 $ 23,913,823
The accompanying notes are an integral part of these financial
statements.
10
SOUTH BANKING COMPANY
ALMA, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Basis of Presentation
The accounting and financial reporting policies of South
Banking Company and its subsidiaries conform to generally accepted
accounting principles and to general practice within the
banking industry. The consolidated statements include the
accounts of South Banking Company and its wholly owned
subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation. The
accompanying interim financial statements are unaudited. In
management's opinion, the consolidated financial statements
reflect a fair presentation of the consolidated financial
position of South Banking Company and subsidiaries, and the
results of its operations and its cash flows for the interim
periods presented, in conformity with generally accepted
accounting principles. These interim financial statements should
be read in conjunction with the audited financial statements and
footnote disclosures in the Bank's 10K for the fiscal year ended
December 31, 2001.
Basic earnings per share have been computed by dividing
net income (the numerator) by the weighted average number of common
shares (the denominator) for the period. In June 1997, the FASB
issued SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information." SFAS No. 131 requires that public companies
report certain information about operating segments in complete sets
of financial statements of the company and in condensed financial
statements of interim periods issued to shareholders. It also requires
that public companies report certain information about their products
and services, the geographic areas in which they operate, and their
major customers. SFAS No. 131 applies to fiscal years beginning
after December 15, 1997. South Banking Company is a four bank
holding company operating primarily in Southeast Georgia. The
primary purpose of the company is the delivery of financial
services within its market. Each of the company's entities are
part of the same reporting segment, whose operating results are
regularly reviewed by management. Therefore, consolidated
financial statements, as presented, fairly reflect the operating
results of the financial services segment of our business.
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 established standards for reporting
and display of comprehensive income and its components in the
financial statements. SFAS 130 applies to fiscal years beginning
after December 15, 1997. Reclassification of financial statements for
earlier periods has been provided for comparative purposes.
11
SOUTH BANKING COMPANY
ALMA, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), which
establishes accounting and reporting standards for derivative
instruments and for hedging activities. The statement requires that
all derivatives be recognized as either assets or liabilities in the
statement of financial position and be measured at fair value. SFAS
133 is effective for fiscal quarters of all fiscal years beginning
after June 15, 1999; earlier application is permitted. The company
does not hold or issue derivative instruments as defined by SFAS 133;
and accordingly, it is the opinion of management that there will be no
future impact from this recent accounting standard.
The Financial Accounting Standards Board (FASB) issued
Statement of Financial Standards (SFAS) No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets,
On July 20, 2001.
SFAS No. 141 provides that all business combinations shall
be accounted for using the purchase method of accounting; the use of
the pooling-of-interests method is now prohibited. The provisions of
SFAS No. 141 apply to all business combinations initiated after June
30, 2001 or to all business combinations accounted for by the purchase
method that are completed after June 30, 2001. The Company has not
been involved in any recent business combination discussions.
SFAS No. 142 provides that goodwill shall not be amortized
but should be tested for impairment on an annual basis, using criteria
prescribed in the statement. If the carrying amount of goodwill
exceeds its implied fair value, as recalculated, an impairment loss
equal to the excess shall be recognized. Recognized intangible assets
other than goodwill should be amortized over their useful lives and
reviewed for impairment in accordance with SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of (superseded by SFAS No. 144, see discussion which
follows). SFAS No. 142 will be effective for fiscal years beginning
after December 15, 2001.
12
SOUTH BANKING COMPANY
ALMA, GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company's intangible assets at December 31, 2001 are
classified as intangible assets other than goodwill. Approximately
$1.576 million of the intangibles recorded on the balance sheet at
December 31, 2001 represents the remaining unamortized intangible
related to the Company's 2000 acquisition of three branch offices from
another bank. The balance of $104 thousand is the remaining
Intangibles from the original purchase of the bank in 1996. The
intangible are being amortized over eight to ten years in accordance
with SFAS No. 72, Accounting for Certain Acquisitions of Banking or
Thrift Institutions, which was not superseded by SFAS No. 142. During
December 2001, the FASB announced it will undertake a limitedscope
project to reconsider part of the guidance in SFAS No. 72. Issuance
of a final statement is not expected until the fourth quarter of 2002.
SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, was
issued by the FASB on October 3, 2001 and is effective for fiscal
Years beginning after December 15, 2001. This statement effectively
supersedes SFAS No. 121 and Accounting Principles Board (APB) Opinion
No. 30 and requires that long-lived assets, including discontinued
operations, that are to be disposed of by sale be measured at the
lower of carrying amount or fair value less cost to sell. The
Statement also resolves certain implementation issues regarding SFAS
No. 121. This statement is not expected to have a material impact on
the Company's statements of financial condition or results of
operations.
13
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 shortterm
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, 2001 were
considered satisfactory. 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, 2001, 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, 2002, total capital increased $464,116 to
$20,662,153. This increase in capital resulted from net earnings of
$356,496 and an increase of $107,620 in unrealized gains on securities
available for sale, net of taxes.
At June 30, 2002, South Banking Company had one binding
commitment for capital expenditures. South Banking Company's
subsidiary, Alma Exchange Bank, had entered into an agreement to
remodel its main bank building. Most of the remodeling had been
completed prior to June 30, 2002; however, final construction work and
payments will approximate $100,000.
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 Subsidiaries for the periods indicated. This
discussion and analysis should be read in conjunction with the
Company's 2001 Form 10-K.
14
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. The
Acquisition of the three branches by subsidiary, Pineland State
Bank, in July of 2000 has an impact on these comparisons and all
comments below should be read taking the acquisition in effect.
Earnings Summary
Net income for the second quarter of 2002 was $356,496,
up $22,027 from $334,469 in the second quarter of 2001. On a per
share basis, earnings registered a similar decrease from $.84 to
$.89. These levels of income represent annualized returns on average
assets of .62% and .60%, respectively. Return on average equity
decreased from 7.09% to 6.60%. 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 2002
totaled $2,300,094, up $38,630 from $2,261,464 in the second quarter
of 2001. 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 $231.2 million are $31.7 million in
excess of the second quarter 2001 average. These funds have
historically been invested in the loan portfolio until the first
quarter of 2001 when loan demand weakened. At June 30, funds were
temporarily held in federal funds sold waiting for seasonal loan
demands. The rate environment and loan volume has caused loan income
to decrease $942,655 from $4,281,783 in the second quarter of 2001 to
$3,339,128 in the second quarter of 2002. This increase reflects the
volatile repricing of the Bank's substantial portfolio of one-year
fixed rate loans; however, the reduction in the prime rate has stopped
and the impact of the changes has leveled off. Interest expense, the
other component of net interest income, decreased $1,195,620 when
compared to the second quarter of last year including the fact that
the average balance of interest bearing liabilities was up only
$496,360. The overall cost of interest bearing liabilities for the
quarter of 3.15% is 189 basis points lower than in the second quarter
of 2001, reflecting several rate changes implemented in 2001 that
decreased rates. Most of the higher rates have matured and overall
rates have lowered substantially.
15
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 3.97% for the quarter, down from
4.53% in the second quarter of last year.
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 $217,000 and
$169,000 during the three months ended June 30, 2002 and 2001,
respectively.
Noninterest Income
Following is a comparison of noninterest income for the three
months ended June 30, 2002 and 2001.
Three Months Three Months
Ended Ended
June 30, June 30,
2002 2001
Service charges on deposits $ 430,291 $ 431,045
Other service charges,
commissions & fees 23,453 21,848
Other income 351,455 329,720
Total Noninterest Income $ 805,199 $ 782,613
Total noninterest income for the three months ended June 30,
2002 was $22,586 higher than during the same period in 2001. The
primary increase is related to increased data processing fees.
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.
16
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 2002 of $2,375,568
was $31,399 or 1.3% less than during the second quarter of 2001.
Expense had little overall change from 2001 as salary and other
personnel expenses decreased as management has attempted to control
costs as interest margins have been significantly reduced.
Other non-personnel expense had little change except for
increase in other real estate expenses. Management expects this trend
to remain constant during the remainder of the year.
Income Taxes
The Company's provision for income taxes, which totaled $194,259
in the second quarter of 2002 and $171,641 in the second quarter of
2001, includes both federal and state income taxes. The effective tax
rates during the two periods were 35.27% in 2002 and 33.9% in 2001.
Financial Condition
Average total assets during the second quarter of 2002 were
$231,384,607, up from $222,034,244 from the second quarter of 2001. 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
decreased during the second quarter by $908,167 to $169,001,431.
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 little opportunity to expand and develop the
agricultural loan portfolio. In the year since June 30, 2001, the
loan portfolio has changed very little. Commercial and real estate
lending remains the largest part of the portfolio and where any
growth will be derived.
17
SOUTH BANKING COMPANY
ALMA, GEORGIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Loan Portfolio (con't)
The Bank is also a party 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, 2002, commitments to extend credit, including unused lines
of credit, totaled $17,919,000 while letters of credit totaled
$463,000.
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,-------
2002 2001
(Unaudited)
Loans past due 90 or more days
still accruing interest $ 213 $ 657
Nonperforming assets:
Nonaccruing loans $ 1,446 $1,210
Other real estate owned 1,120 949
$ 2,566 $2,159
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, 2002, the
allowance for loan losses was $2,902,239 or 1.71% of gross loans.
Given the inherent risk contained in the portfolio, including the non-
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.
18
SOUTH BANKING COMPANY
ALMA, GEORGIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Loan Portfolio (con't)
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 $217,000 during the second quarter of 2002 and
$169,000 during the second quarter of 2001.
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, 2002, the held to maturity portfolio
totaled $47,641.
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, 2002, this portfolio had an estimated fair value of
$16,652,061, $196,786 more than the amortized cost. Such benefit
represents an unrealized gain.
This 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 $15,406,384 at quarter-end or 92.5% of the available for sale
portfolio. Tax exempt municipals totaling $990,677 comprised 5.95%.
The remainder of the portfolio, which totals $255,000, consists of
bank holding company stock and equities.
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.
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.
19
SOUTH BANKING COMPANY
ALMA, GEORGIA
MANAGEMENT'S DISCUSSION AND ANSLYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Deposits and Other Funding Sources
Total deposits at June 30, 2002 of $202,546,367 were up from
their year end total of $196,000,603. The second quarter has
traditionally been a slow growth period. Second quarter deposits have
increased $533,171.
Noninterest bearing deposits increased $3,104,515 to $33,676,302
during the quarter. In contrast to this, interest bearing deposits
decreased $2,571,344 or 1.5%, to $168,870,065 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
borrowings.
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.
20
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, 2002.
21
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 9, 2002 By:
Paul T. Bennett President
Date: August 9, 2002 By:
Olivia Bennett Vice President
22