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SECURITY AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 2002 Commission file number 2-71249
SOUTH BANKING COMPANY
(Exact name of registrant as specified in its charter)
Georgia 58-1418696
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
104 North Dixon Street, Alma, Georgia 31510
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (912) 632-8631
Former name, former address and former fiscal year, if changed since
last report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Sections 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
report(s), and (2) has been subject to such filing requirement for the
past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of September 30, 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 3-9
Notes to Consolidated Financial Statements 10-11
Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-19
Part II. Other Information 20-24
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, December 31,
2002 2001
ASSETS
Cash and due from banks $ 7,819,376 $ 11,140,462
Deposits in other banks -
interest bearing $ 1,972,000 $ 1,273,000
Investment securities:
Available for sale $ 16,683,964 $ 17,173,350
Held to maturity $ 47,693 $ 147,536
Georgia Bankers stock $ 547,283 $ 547,283
Federal Home Loan Bank stock $ 438,100 $ 426,100
Federal funds sold $ 18,210,000 $ 10,252,000
Loans $172,784,818 $172,378,811
Less: Unearned discount ( 285,380) ( 288,968)
Reserve for loan losses ( 2,961,580) ( 2,756,780)
$169,537,858 $169,333,063
Bank premises and equipment $ 6,628,712 $ 6,715,813
Intangible assets $ 1,503,733 $ 1,680,572
Other assets $ 4,897,248 $ 6,101,344
Total Assets $228,285,967 $224,790,523
The accompanying notes are an integral part of these financial
statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED BALANCE SHEETS (con't)
(UNAUDITED)
September 30, December 31,
2002 2001
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits: Demand - noninterest
bearing $ 29,344,664 $ 29,999,788
Demand - interest bearing 33,464,574 32,764,586
Savings 12,896,654 10,537,057
Time 121,490,339 122,699,172
$197,196,231 $196,000,603
Borrowing 5,402,971 5,581,251
Accrued expenses and other
liabilities 1,524,706 1,850,430
Federal funds purchased - -
Note payable - FHLB 3,000,000 1,500,000
Total Liabilities $207,123,908 $204,932,284
Stockholders' Equity
Common stock $1 par value; shares
authorized - 1,000,000, shares issued
and outstanding - September 30, 2002
and December 31, 2001 - 399,500 and
399,500, respectively $ 399,500 $ 399,500
Surplus 3,070,831 3,070,831
Undivided profits 17,516,549 16,291,126
Accumulated other comprehensive
income 175,179 96,782
Total Stockholders' Equity $ 21,162,059 $ 19,858,239
Total Liabilities and
Stockholders' Equity $228,285,967 $224,790,523
The accompanying notes are an integral part of these financial
statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September September September September
30, 2002 30, 2001 30, 2002 30, 2001
Interest Income:
Interest & fees
on loans $ 3,426,126 $ 4,153,805 $10,303,079 $12,896,895
Interest on
Federal funds sold 84,136 146,261 237,201 665,928
Interest on deposits
with other banks 15,085 13,288 34,272 36,056
Interest on
investment
securities:
U.S. Treasury 3,965 7,773 18,977 23,225
U.S. Government
agencies 177,776 207,835 520,421 697,111
Mortgage backed
bonds 1,047 3,750 4,061 13,744
State & municipal
Subdivisions 11,855 14,605 39,878 51,494
Other 9,181 12,914 29,241 47,680
Total Interest
Income $ 3,729,171 $ 4,560,231 $11,187,130 $14,432,133
Interest Expense:
Interest on
deposits $ 1,204,142 $ 2,154,026 $ 3,943,401 $ 7,088,071
Interest on other
borrowings 62,552 93,047 189,323 361,241
Total Interest
Expense $ 1,266,694 $ 2,247,073 $ 4,132,724 $ 7,449,312
Net interest
income $ 2,462,477 $ 2,313,158 $ 7,054,406 $ 6,982,821
Provision for loan
losses 320,000 242,500 762,000 553,000
Net interest income
after provision
for loan losses $ 2,142,477 $ 2,070,658 $ 6,292,406 $ 6,429,821
The accompanying notes are an integral part of these financial
statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED STATEMENTS OF INCOME (con't)
(UNAUDITED)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September September September September
30, 2002 30, 2001 30, 2002 30, 2001
Other Operating Income:
Service charge on
deposit accounts $ 456,014 $ 472,432 $1,303,686 $1,313,797
Commission on
Insurance 22,518 17,421 67,167 62,483
Other income 68,536 143,129 386,676 702,647
Computer processing
Fees 136,344 132,758 433,486 399,655
Gain (loss) on sale
of securities 2,736 ( 4,906) 4,810 ( 4,906)
Financial service
income 32,063 - 89,459 -
Total Other
Operating Income $ 718,211 $ 760,834 $2,285,284 $2,473,676
Other Operating
Expenses:
Salaries $ 954,193 $1,000,467 $2,790,229 $2,913,589
Profit sharing &
personnel expense 171,061 178,485 502,736 541,223
Occupancy expense 133,623 125,606 395,041 386,585
Furniture &
fixtures expense 262,557 277,118 817,249 806,181
Payroll taxes 60,066 61,490 182,908 186,173
Data processing 35,532 81,130 175,674 234,830
Other operating
Expenses 570,466 568,383 1,848,637 1,773,672
Total Other
Operating Expenses $2,187,498 $2,292,679 $6,712,474 $6,842,253
Income before
income taxes $ 673,190 $ 538,813 $1,865,216 $2,061,244
Applicable income
taxes 227,167 155,592 639,793 668,913
Net Income $ 446,023 $ 383,221 $1,225,423 $1,392,331
The accompanying notes are an integral part of these financial
statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME (con't)
(UNAUDITED)
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September September September September
30, 2002 30, 2001 30, 2002 30, 2001
Other comprehensive
income, net of tax:
Unrealized gains
(losses) on
Securities $ 53,883 $ 91,555 $ 78,397 $ 265,359
Other Comprehensive
Income (Loss) $ 53,883 $ 91,555 $ 78,397 $ 265,359
Comprehensive
Income $ 499,906 $ 474,776 $ 1,303,820 $ 1,657,690
Per share data based
on weighted average
outstanding shares
Weighted average
outstanding
shares 399,500 399,500 399,500 399,500
Net Income $ 1.25 $ .96 $ 3.26 $ 3.49
The accompanying notes are an integral part of these financial
statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Nine Months
Ended Ended
September September
30, 2002 30, 2001
Cash Flows from Operating Activities:
Net income $ 1,225,423 $ 1,392,331
Add expenses not requiring cash:
Provision for depreciation and
Amortization 822,109 810,920
Provision for loan losses 762,000 553,000
Bond portfolio gains (losses) ( 4,805) ( 4,906)
Gain on sale of other real estate owned - -
Increase (decrease) in taxes payable 241,111 97,309
Increase (decrease) in interest
payable ( 565,989) 105,642
Increase (decrease) in other liabilities( 846) 9,191
(Increase) decrease in interest
receivable 191,043 17,563
(Increase) decrease in prepaid expenses ( 106,723) ( 187,837)
(Increase) decrease in other assets 1,076,489 ( 102,956)
Recognition of unearned loan income ( 2,035) ( 2,289)
Net Cash Used in Operating Activities $ 3,637,777 $ 2,687,968
Cash Flows from Investing Activities:
Proceeds from sale of investment
securities - available for sale $ - $ 295,094
Proceeds from maturities of
investment securities - available
for sale 12,277,562 21,894,982
Purchase of investment securities -
available for sale (11,651,098) (17,842,279)
Net loans to customers ( 964,760) (10,992,191)
Purchase of premise and equipment ( 568,915) ( 1,580,162)
Proceeds from sale of premises and
equipment - 645,197
Proceeds from maturity of investment
securities - held to maturity 100,000 -
Purchase of investment securities -
held to maturity - -
Purchase of equity securities - -
The accompanying notes are an integral part of these financial
statements.
SOUTH BANKING COMPANY
ALMA, GEORGIA
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Nine Months
Ended Ended
September September
30, 2002 30, 2001
Cash Flows from Investing Activities:(con't)
Purchase of FHLB stock $( 12,000) $ -
Net Cash Used in Investing Activities $( 819,211) $( 7,579,359)
Cash Flows from Financing Activities:
Net increase(decrease)in demand
deposits, NOW and money market $ 44,864 $ 4,311,230
Net increase(decrease)in savings
and time deposits 1,150,764 ( 500,694)
Net increase(decrease)in borrowings ( 178,280) ( 328,310)
Dividends paid - -
Redemptions of company stock - -
Increase(decrease)in federal
funds sold - -
Increase(decrease)note payable - FHLB 1,500,000 ( 1,040,000)
Net Cash Provided (Used) From
Financing Activities $ 2,517,348 $ 2,442,226
Net Increase(Decrease)in Cash
and Cash Equivalents $ 5,335,914 $( 2,449,165)
Cash and Cash Equivalents at
Beginning of Period 22,665,462 24,430,193
Cash and Cash Equivalents at
End of Period $28,001,376 $ 21,981,028
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 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.
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
established 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, 142 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.
SOUTH BANKING COMPANY
ALMA, GEORGIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
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 limited-scope 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.
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 are monitored
on a periodic basis by state and Federal regulatory authorities. As
determined under guidelines established by these regulatory
authorities, the Banks' liquidity ratios at September 30, 2002 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 September 30, 2002, the
Company's and the Banks' capital asset ratios were considered well
capitalized based on guidelines established by regulatory authorities.
During the three months ended September 30, 2002, total capital
increased $499,906 to $21,163,059. This increase in capital resulted
from net earnings of $446,023 and an increase of $53,883 in unrealized
gains on securities available for sale, net of taxes.
At September 30, 2002, South Banking Company had no binding
commitments for capital expenditures.
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 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. 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 third quarter of 2002 was $446,023, up $62,802
from $383,221 in the third quarter of 2001. On a per share basis,
earnings registered a similar increase from $.96 to $1.25. These
levels of income represent annualized returns on average assets of
..78% and .69%. respectively. Return on average equity increased from
8.03% to 8.53%. Details concerning the Company's results of
operations are discussed in the following sections of this report.
Net interest income for the third quarter of 2002 totaled
$2,462,477, up $149,319 from $2,313,158 in the third 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 $209.8 million are 6.5 million in excess of
the third quarter 2001 average. These funds are primarily being
invested in the loan portfolio. The prime interest rate has been cut
nine times since January 1, 2001 resulting in a reduction of 4% during
this period. While loan volume increases has created additional
interest income; the drop in interest rates have been of such
magnitude that loan interest income has decreased $831,060 from
$4,560,231 in the third quarter of 2001 to $3,729,171 in the third
quarter of 2002. This decrease reflects the volatile repricing of the
Banks' substantial portfolio of one year adjustable and fixed rate
loans.
Interest expense, the other component of net interest income,
decreased $980,379 when compared to the third quarter of last year
including the fact that the average balance of interest bearing
liabilities was down $2.8 million. The overall cost of interest
bearing liabilities for the quarter of 2.92% is 215 basis points lower
than in the third quarter of 2001, reflecting several rate changes
implemented in 2001 that decreased rates. Many of the higher rates
have matured and overall rates have fallen.
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 savings rates
dropping faster than loan rates produced a net interest margin of
4.18% for the quarter, up from 3.81% in the third 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 $320,000 and $242,500
during the three months ended September 30, 2002 and 2001,
respectively.
Noninterest Income
Following is a comparison of noninterest income for the three
months ended September 30, 2002 and 2001.
Three Months Three Months
Ended Ended
September 30, September 30,
2002 2001
Service charges on deposits $ 456,014 $ 472,432
Other service charges, commissions
& fees 22,518 17,421
Other income 207,616 270,981
Financial service income 32,063 -
Total Noninterest Income $ 718,211 $ 760,834
Total noninterest income for the three months ended September 30,
2002 was $42,623 lower than during the same period in 2001. The
primary decrease is related to gain on sale of loan to SBA in prior
year.
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 third quarter of 2002 was $2,187,498
which is $105,181 or 4.58% less than during the third quarter of 2001.
The majority of this decrease was due to payroll savings from
staff reduction and the closing of a branch of Pineland State Bank.
Decreases were also experienced in data processing expenses and
furniture expenses.
Other non-personnel expense had little change from prior year.
Management expects this trend to remain constant during the remainder
of the year.
Income Taxes
The Company's provision for income taxes, which totaled $227,167
in the third quarter of 2002 and $155,596 in the third quarter of
2001, includes both federal and state income taxes. The effective tax
rates during the two periods were 33.7% in 2002 and 28.9% in 2001.
Financial Condition
Average total assets during the third quarter of 2002 were
$229,796,239, up from $224,190,273 from the third 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
increased during the third quarter by $3,783,387 to $172,784,818.
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 Loans. Management also
believes that with the decline in the local farming economy, there
exists little opportunity to expand and develop the agricultural loan
portfolio. Commercial and real estate lending remains the largest
part of the portfolio.
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
SOUTH BANKING COMPANY
ALMA, GEORGIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
Loan Portfolio (con't)
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
September 30, 2002, commitments to extend credit, including unused
lines of credit, totaled $19,242,000 while letters of credit totaled
$604,000.
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)
-------September 30,------
2002 2001
(Unaudited)
Loans past due 90 or more days
still accruing interest $ 673 $ 199
Nonperforming assets:
Nonaccruing loans $ 964 $ 1,579
Other real estate owned 727 1,048
$ 1,891 $ 2,627
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 September 30, 2002,
the allowance for loan losses was $2,961,580 or 1.71% of gross loans.
Given the inherent risk contained in the portfolio, including the
nonaccrual loans 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 $320,000 during the third quarter of 2002 and
$242,500 during the third quarter of 2001.
SOUTH BANKING COMPANY
ALMA, GEORGIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Securities Portfolio and Federal Funds Sold
The Banks' securities portfolio consists of available for sale
and held to maturity securities while no securities are maintained in
a trading account. At September 30, 2002, the held to maturity
portfolio totaled $47,693.
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 September 30,
2002, this portfolio had an estimated fair value of $16,683,964,
$278,062 more than the amortized cost. Such deficit 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 $15,531,445 at quarter-end or 93.1% of the available for sale
portfolio. Tax exempt municipals totaling $899,859 comprised 5.4%. The
remainder of the portfolio, which totals $252,660, consists of
primarily bank company stock.
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.
Deposits and Other Funding Sources
Total deposits at September 30, 2002 of $197,196,231 were up from
their year end total of $196,000,603, and down from the second quarter
deposits. The third quarter has traditionally been a slow growth
period. Third quarter deposits have decreased $5,350,136.
SOUTH BANKING COMPANY
ALMA, GEORGIA
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONNS
Deposits and Other Funding Sources (con't)
Noninterest bearing deposits decreased $4,331,638 to $29,344,664
during the quarter. Interest bearing deposits decreased $1,018,498,
or .6% to $167,851,567 during the quarter. Increases were experienced
primarily in new accounts and time certificates with decrease in
savings accounts.
In addition to deposits, the Bank may generate funding by the use
of borrowing.
Impact of Inflation
The consolidated financial statements and related data included
in this report were prepared in accordance with generally accepted
accounting principals, 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.
Controls and Procedures
An evaluation of the Company's disclosure controls and procedures
(as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act) was carried out under the supervision and with the
participation of the Company's management, including the chief
executive and chief financial officer, within the 90 days preceding
the filing of this Quarterly Report on Form 10-Q. Based on that
evaluation, the chief executive and chief financial officer has
concluded that the Company's disclosure controls and procedures were
effective as of the date of that evaluation.
There were no significant changes in the Company's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
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
99.1 Certification of the Chief Executive and Chief
Financial Officer Pursuant to 18 U.S.C. 1350
(B) Reports on Form 8-K
The registrant has not filed any reports on form 8-K
during the nine-month period ended September 30, 2002.
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: November 14, 2002 By: /s/ Paul T. Bennett
Paul T. Bennett
President
Date: November 14, 2002 By: /s/ Olivia Bennett
Olivia Bennett
Vice President
CERTIFICATION
I, Paul T. Bennett, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
South Banking Company, Inc.;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements
made, in light of the circumstances under which such
statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and
other financial information included in this quarterly
report, fairly present in all material respects the
financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officers and I are
responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures
to ensure that material information relating to the
registrant, including its consolidated subsidiaries,
is made known to us by others within those entities,
particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report(the "Evaluation Date"); and
c) presented in this quarterly report our conclusions
about the effectiveness of the disclosure controls
and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have
disclosed, based on our most recent evaluation, to the
registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing
the equivalent function):
a) all significant deficiencies in the design or
operation of internal controls which could adversely
affect the registrant's ability to record, process,
summarize and report financial data and have
identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls.
6. The registrant's other certifying officers and I have
indicated in this quarterly report whether or not there
were significant changes in internal controls or in other
factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation,
including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated this 14th day of November 2002.
/s/ Paul T. Bennett
Paul T. Bennett
Chief Executive Officer
Chief Financial Officer
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
I, Paul T. Bennett, Chief Executive and Chief Financial
Officer of South Banking Company, Inc. (the "Company"), certify,
pursuant to 18 U.S.C. 1350 as adopted by 906 of the Sarbanes-Oxley
Act of 2002, that:
(1) the Quarterly Report on Form 10-Q of the Company for the
quarterly period ended September 30, 2002 (the "Report") fully
complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
Dated: November 14, 2002
/s/ Paul T. Bennett
Paul T. Bennett
Chief Executive Officer
Chief Financial Officer