SECURITIES AND EXCHANGE COMMISSION
                        Washington, D. C. 20549

                               FORM 10-K

          Annual Report Pursuant to Section 13 or 15(d) of the
                    Securities Exchange Act of 1934

              For the fiscal year ended December 31, 2001
                    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

Securities registered pursuant to Section 12(b) of the Act:  None

Securities registered pursuant to Section 12(g) of the Act:  None

      Indicate  by check mark whether the registrant (1) has  filed  all
reports  required to be filed by Section 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 reports),  and  (2)
has been subject to such filing requirements for the past 90 days.

   Yes     X          No

      Indicate by check mark if disclosure of delinquent filers pursuant
to  Item 405 of Regulation 5-K is not contained herein and will  not  be
contained to the best of registrant's knowledge in definitive  proxy  on
information  statements incorporated by reference in Part  III  of  this
Form 10-K or any amendment to this Form 10-K. (X)

      State  the  aggregate  market value of the voting  stock  held  by
nonaffiliates of the registrant:  There is no established market for the
outstanding common stock of the registrant.

       Indicate  the  number  of  shares  outstanding  of  each  of  the
registrant's classes of common stock, as of the most recent  practicable
date.

              Class                        Outstanding at  February  28,
2002
Common stock $1.00 par value per                    399,500
 share
                   DOCUMENTS INCORPORATED BY REFERENCE

     List hereunder the following documents if incorporated by reference
and the part of the Form 10-K into which the documents are incorporated:
(1)  any  annual  reports to security holders; (2) any prospectus  filed
pursuant to Rule 424(b) or (c) under the Securities Act of 1933.  None

                                 PART 1.

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD LOOKING INFORMATION

      Statements and financial discussion and analysis contained in this
Annual  Report on Form 10-K that are not historical facts  are  forward-
looking  statements made pursuant to the safe harbor provisions  of  the
Private  Securities  Litigation Reform  Act  of  1995.   Forward-looking
statements   describe  the  Company's  future  plans,   strategies   and
expectations, are based on assumptions and involve a number of risks and
uncertainties,  many  of  which are beyond the Company's  control.   The
important  factors that could cause actual results to differ  materially
from the forward-looking statements include, without limitation:

     o    changes in interest rates and market prices, which could reduce the
       Company's  net  interest  margins, asset valuations  and  expense
       expectations;

     o    changes in the levels of loan prepayments and the resulting effects
       on the value of the Company's loan portfolio;

     o    changes in local economic and business conditions which adversely
       affect the Company's customers and their ability to transact
	 profitable business with the Company, including the ability of its
       borrowers to repay their loans according to their terms or a change
       in the value of the related collateral;

     o increased competition for deposits and loans adversely affecting
       rates and terms;

     o     the  timing, impact and other uncertainties of the  Company's
       potential future acquisitions, including the Company's ability to
       identify suitable future acquisition candidates, the success or
       failure in the integration of their operations, and the Company's
       ability to enter new markets successfully and capitalize on growth
       opportunities;

     o     increased  credit risk in the Company's assets and  increased
       operating risk caused by a material change in commercial, consumer
       and/or real estate loans as a percentage of the total loan portfolio;

     o    the failure of assumptions underlying the establishment of and
       provisions made to the allowance for loan losses;

     o    changes in the availability of funds resulting in increased costs
       or reduced liquidity;

     o    changes in the Company's ability to pay dividends on its Common
       Stock;

     o    increased asset levels and changes in the composition of assets and
       the resulting impact on the Company's capital levels and regulatory
       capital ratios;

                                    1

     o     the  Company's ability to acquire, operate and maintain  cost
       effective and efficient systems without incurring unexpectedly
       difficult or expensive but necessary technological changes;

     o     the loss of senior management or operating personnel and  the
       potential  inability  to hire qualified personnel  at  reasonable
       compensation levels;

     o     changes  in  statutes  and government  regulations  or  their
       interpretations applicable to bank holding companies and the
       Company's present and future banking and other subsidiaries,
       including changes in tax requirements and tax rates;

     o    all written or oral forward-looking statements attributable to
       the Company are expressly qualified in their entirety by these
       cautionary statements.

Item 1.  Business

      South Banking Company (the "Registrant") is a business corporation
organized  at the direction of Alma Exchange Bank & Trust ("Alma  Bank")
and Citizens State Bank ("Citizens Bank") (collectively, the "Banks") in
1980  under  the Georgia Business Corporation Code.  It  was  formed  to
obtain  all  the issued and outstanding shares of Common  Stock  of  the
Banks.  Pursuant to the terms and provisions of a Plan of Reorganization
and  Agreement of Merger, dated as of January 13, 1981 and  approved  by
the  shareholders  of  the  Banks  on June  24,  1981,  the  Banks  were
reorganized into a holding company structure by merging the  Banks  with
wholly-owned  subsidiaries  of  the Registrant,  which  transaction  was
consummated  on  July 28, 1981.  In connection with those  mergers,  the
outstanding  shares  of Common Stock of the Banks  were  converted  into
shares of the Registrant at specified ratios and the Banks became wholly-
owned  subsidiaries  of  the  Registrant.  Pursuant  to  the  terms  and
provision  of  an agreement of merger dated June 12, 1989 between  South
Banking   and   Georgia  Peoples  Bankshares,  Inc.  and   approved   by
shareholders  of  Georgia Peoples on February 26, 1990, Georgia  Peoples
Bankshares  and  its subsidiary, Peoples State Bank,  were  merged  into
South  Banking Company.  In connection with the merger, the  outstanding
shares  of Georgia Peoples Bankshares were converted into shares of  the
Registrant  at  specified ratios.  During 1993,  South  Banking  Company
formed Banker's Data Services, Inc. ("Banker's Data") for the purpose of
handling  all the computer functions of the Banks.  Operations began  in
April, 1994.  South Banking entered into an agreement in October of 1995
to  acquire  all the stock of Pineland State Bank ("Pineland  Bank")  in
Metter, Georgia.  On January 11, 1996, the transaction was completed. On
August  1,  2000,  Pineland Bank acquired branches  from  Flag  Inc.  in
Metter, Georgia, Cobbtown, Georgia, and Statesboro, Georgia.

      During 1998, Alma Bank formed South Financial Products, Inc. (SFP)
as  a vehicle to enter the financial services market and provide service
to  its  customers.   South Financial Products, Inc. offers  a  complete
array  of  investment  options including stocks,  bonds,  mutual  funds,
financial and retirement planning, tax advantaged investments and  asset
allocations.   SFP  offers securities through Unvest, a  North  Carolina
based  independent clearing firm.  SFP is licensed and regulated through
the  National  Association  of Securities Dealers,  the  Securities  and
Exchange Commission and various state and federal banking authorities.

                                    2
The  maturing  of the baby boomer generation is creating  a  market  for
asset management services. The Company expects growth in this department
and  anticipates  that resulting fees will provide a  stable  stream  of
income.

The Banks

      The Banks operate full service banking business in Bacon, Appling,
Candler, Tattnall, Bulloch, and Camden Counties, Georgia, providing such
customary  banking  services as checking and savings  accounts,  various
other  types  of  time  deposits,  safe  deposit  facilities  and  money
transfers.    The   Banks  also  finance  commercial  and   agricultural
transactions,  make  secured and unsecured  loans,  and  provide   other
financial  services  to its customers. The Banks do  not  conduct  trust
activities. On December 31, 2000, Alma Bank and Peoples Bank ranked,  on
the  basis of total deposits, as the 202nd and 272nd largest banks among
338 banks in Georgia.  Citizens Bank, one of five banking operations  in
Camden County, ranked the 303rd largest bank among 338 banks in Georgia;
and  Pineland  Bank, one of two banking operations in  Metter,  Georgia,
ranked  the  220th largest bank among 338 banks in Georgia, Sheshunoff's
Banks of Georgia (2001 edition).

      The  Banks  make and service both secured and unsecured  loans  to
individuals,  firms,  and corporations.  Commercial  lending  operations
include  various types of credit for the Banks' customers.   The  Banks'
installment loan departments make direct loans to individuals and, to  a
limited  extent,  purchase installment obligations from  retailers  both
with  and  without recourse.  The Banks make a variety  of  residential,
industrial,  commercial, and agricultural loans secured by real  estate,
including  interim  construction financing.  Each bank  has  established
desired  mixes  of real estate, commercial, agricultural,  and  consumer
lending depending upon activities within the local area.  The ratios are
established  in accordance with risk diversification goals.   All  banks
are  located  in  small rural areas with low to moderate income  levels.
The  banks  primarily look to real estate lending as a major portion  of
portfolio.  Real estate values have remained fairly stable over the past
few years to give stability to lending activities.  Loan to value ratios
are  maintained in the 60% to 80% level for various real estate lending.
Loan  to  value  ratio of non real estate loans vary from  50%  for  the
inventory or receivables to 90% for vehicles and other consumer lending.
The   economy  of  the  area  remains  fairly  constant  without   great
fluctuation.  The national economy will effect the area primarily in the
timber and other agricultural products; however, the movement is not  as
wide  locally  as national movement indicates.  Citizens Bank,  Pineland
Bank and Peoples Bank act as agents for another bank in offering "Master
Card"  and "VISA" credit cards to its customers and does not assume  the
credit  risk  on  these  transactions.  Alma Bank offers  "Master  Card"
credit cards to its customers.

      At  December  31, 2001, the Banks had correspondent  relationships
with  6  other  commercial  banks.  These  correspondent  banks  provide
certain services to the banks such as processing checks and other items,
buying   and  selling  federal  funds,  handling  money  transfers   and
exchanges,   shipping  coins  and  currency,  providing   security   and
safekeeping  of  funds  or other valuable items and  furnishing  limited
management  information and advice.  As compensation for  the  services,
the  Banks  maintain  certain balances with its correspondents  in  non-
interest bearing accounts.

                                    3
Employees

      On December 31, 2001, the  Registrant and its  subsidiaries had 94
full-time and 20 part-time employees.  The Registrant is not a party  to
any collective bargaining agreement and employee relations are deemed to
be good.

Competition

      The  Banking  business is highly competitive.  The  Banks  compete
primarily  with  other  commercial banks  operating  in  Bacon,  Camden,
Appling,  Tattnall,  Bulloch, and Candler Counties.   In  addition,  the
Banks  compete with other financial institutions, including savings  and
loan  associations, credit unions and finance companies and, to a lesser
extent,  insurance  companies and certain  governmental  agencies.   The
banking industry is also experiencing increased competition for deposits
from less traditional sources such as money-market mutual funds.

Customers

      The majority of the Banks' customers are individuals and small  to
medium-sized  businesses headquartered within  its  service  area.   The
Banks are not dependent upon a single or a very few customers, the  loss
of which would have a material adverse effect on the Banks.  No customer
accounts  for  more than 5% of the Banks' total deposits  at  any  time.
Management does not believe that the Banks' loan portfolio is  dependent
on  a single customer or group of customers concentrated in a particular
industry  whose loss or insolvency would have a material adverse  effect
on the Banks.

Monetary Policies

      The  results  of  operations of the Banks, and  therefore  of  the
Registrant,  are  affected by credit policies of  monetary  authorities,
particularly the Board of Governors of the Federal Reserve  System  (the
"Board  of  Governors"), even though the Banks are not  members  of  the
Federal Reserve.

      The instruments of monetary policy employed by the Federal Reserve
include  open  market  operations in U.  S.  Government  securities  and
changes in the discount rate on member bank borrowing changes in reserve
requirements  against  member  bank  deposits.   In  view  of   changing
conditions in the national economy and in the money markets, as well  as
the  effect of action by monetary and fiscal authorities, including  the
Federal Reserve System, no prediction can be made as to possible  future
changes  in interest rates, deposit levels, loan demand or the  business
and earnings of the Banks.

Supervision and Regulations

      The Registrant is a bank holding company within the meaning of the
Bank  Holding  Company  Act  of 1956, as amended  (the  "Act"),  and  is
required  to  register  as  such  with  the  Board  of  Governors.   The
Registrant  is  required to file with the Board of Governors  an  annual
report and such other  information  as  may  be required  to  keep   the
Board of Governors

                                    4

informed with respect to the Registrant's compliance with the provisions
of  the  Act.  The Board of Governors may also make examinations of  the
Registrant and its subsidiaries from time to time.

      The  Act  requires every bank holding company to obtain the  prior
approval  of  the Board of Governors before it may acquire substantially
all  the assets of any bank or ownership or control of any voting shares
of  any  bank,  if,  after such acquisition, it would  own  or  control,
directly  or indirectly, more than five percent of the voting shares  of
such bank.  In no case, however, may the Board of Governors approve  the
acquisition  by the Registrant of the voting shares of any bank  located
outside  Georgia, unless such acquisition is specifically authorized  by
the laws of the state in which the bank to be acquired is located.

      In  addition, a bank holding company is generally prohibited  from
engaging in or acquiring direct or indirect control of voting shares  of
any  company  engaged in nonbanking activities.  One  of  the  principal
exceptions to this prohibition is for activities found by the  Board  of
Governors, by order or regulation, to be so closely related to  banking,
managing or controlling banks as to be a proper incident thereto.   Some
of  the  activities  that  the  Board of  Governors  has  determined  by
regulation  to be closely related to banking are:  making  or  servicing
loans  and  certain types of leases; performing certain data  processing
services;  acting as fiduciary, investment or financial advisor;  making
investments  in corporations or projects designed primarily  to  promote
community welfare.

      In  January, 1989, the Board of Governors issued final regulations
which  implement  risk-based rules for assessing bank and  bank  holding
company  capital  adequacy.  The regulations revise  the  definition  of
capital  and establish minimum capital standards in relation  to  assets
and off-balance sheet exposures, as adjusted for credit risk.

Payment of Dividends and Other Restrictions

       South   is  a  legal  entity  separate  and  distinct  from   its
subsidiaries.  There are various legal and regulatory limitations  under
federal  and  state law on the extent to which South's subsidiaries  can
pay dividends or otherwise supply funds to South.

     The principal source of South's cash revenues is dividends from its
subsidiaries.   The prior approval of the FRB or the Georgia  Department
of  Bankers,  as  the  case may be, is required  if  the  total  of  all
dividends  declared  by  any state member bank of  the  Federal  Reserve
System  in any calendar year exceeds the Bank's net profits (as defined)
for  that  year combined with its retained net profits for the preceding
two calendar years, less any required transfers to surplus or a fund for
the  retirement of any preferred stock.  The relevant federal and  state
regulatory agencies also have authority to prohibit a state member  bank
or  bank  holding company, which would include South and  the Subsidiary
Banks  from  engaging in what, in the opinion of such  regulatory  body,
constitutes  an unsafe or unsound practice in conducting  its  business.
The  payment of dividends could, depending upon the financial  condition
of  the  subsidiary, be deemed to constitute such an unsafe  or  unsound
practice.

                                   5

     Under Georgia law, the prior approval of the DBF is required before
any  cash dividends may be paid by a state bank if: (i) total classified
assets  at  the most recent examination of such bank exceed 80%  of  the
equity  capital (as defined, which includes the reserve for loan losses)
of  such  bank;  (ii)  the  aggregate amount of  dividends  declared  or
anticipated to be declared in the calendar year exceeds 50% of  the  net
profits (as defined) for the previous calendar year; or (iii) the  ratio
of equity capital to adjusted total assets is less than 6%.

     In addition, the Banks are subject to limitations under Section 23A
of  the  Federal Reserve Act with respect to extensions  of  credit  to,
investments in, and certain other transactions with South.  Furthermore,
loans  and  extensions of credit are also subject to various  collateral
requirements.

Capital Adequacy

      The FRB has adopted risk-based capital guidelines for bank holding
companies.  The minimum ratio of total capital ("Total Capital") to risk-
weighted  assets  (including certain off-balance sheet  items,  such  as
standby letters of credit) is 8%.  At least half of the Total Capital is
to  be  composed  of  common stock, minority  interests  in  the  equity
accounts of consolidated subsidiaries, noncumulative perpetual preferred
stock  and a limited amount of perpetual preferred stock, less  goodwill
("Tier  I  Capital").  The remainder may consist of  subordinated  debt,
other preferred stock and a limited amount of loan loss reserves.

      In  addition,  the  FRB  has established  minimum  leverage  ratio
guidelines for bank holding companies.  These guidelines provide  for  a
minimum  ratio  of  Tier I Capital to total assets, less  goodwill  (the
"Leverage  Ratio")  of 3% for bank holding companies that  meet  certain
specified  criteria,  including  those  having  the  highest  regulatory
rating.  All  other  bank holding companies generally  are  required  to
maintain  a Leverage Ratio of at least 3% plus an additional cushion  of
100  to 200 basis points.  The guidelines also provide that bank holding
companies  experiencing internal growth or making acquisitions  will  be
expected  to maintain strong capital positions substantially  above  the
minimum  supervisory levels without significant reliance  on  intangible
assets.  Furthermore,  the FRB has indicated that  it  will  consider  a
"tangible Tier I capital leverage ratio" (deducting all intangibles) and
other  indications  of  capital strength  in  evaluating  proposals  for
expansion or new activities.

      Effective  December  19, 1992, a new Section  38  to  the  Federal
Deposit   Insurance   Act  implemented  the  prompt  corrective   action
provisions  that  Congress  enacted as a part  of  the  Federal  Deposit
Insurance  Corporation Improvement Act of 1991 (the  "1991  Act").   The
"prompt corrective action" provisions set forth five regulatory zones in
which  all  banks  are placed largely based on their capital  positions.
Regulators are permitted to take increasingly harsh action as  a  Bank's
financial condition  declines. Regulators are also empowered to place in
receivership  or  require  the  sale of a  bank  to  another  depository
institution  when a bank's capital leverage ratio reaches  two  percent.
Better  capitalized institutions are generally subject to  less  onerous
regulation and supervision than banks with less amounts of capital.

                                   6

     The FDIC has adopted regulations implementing the prompt corrective
action provisions of the 1991 Act, which place financial institutions in
the  following five categories based upon capitalization ratios:  (i)  a
"well  capitalized" institution has a total risk-based capital ratio  of
at  least  10%, a Tier I risk-based ratio of at least 6% and a  leverage
ratio of at least 5%; (ii) an "adequately capitalized" institution has a
total risk-based capital ratio of at least 8%, a Tier I risk-based ratio
of  at  least  4%  and  a  leverage ratio  of  at  least  4%,  (iii)  an
"undercapitalized" institution has a total risk-based capital  ratio  of
under  8%, a Tier I risk-based ratio of under 4% or a leverage ratio  of
under  4%;  (iv)  a "significantly undercapitalized" institution  has  a
total risk-based capital ratio of under 6%, a Tier I risk-based ratio of
under  3%  or  a  leverage  ratio of under 3%;  and  (v)  a  "critically
undercapitalized"  institution  has a leverage  ratio  of  2%  or  less.
Institutions  in any of the three undercapitalized categories  would  be
prohibited  from  declaring dividends or making  capital  distributions.
The  FDIC  regulations  also establish procedures for  "downgrading"  an
institution  to  a  lower capital category based on supervisory  factors
other than capital.

      The  downgrading of an institution's category is automatic in  two
situations:  (i) whenever an otherwise well-capitalized  institution  is
subject  to  any written capital order or directive; and (ii)  where  an
undercapitalized  institution fails to submit  or  implement  a  capital
restoration  plan  or  has its plan disapproved.   The  Federal  banking
agencies  may  treat  institutions in the  well-capitalized,  adequately
capitalized and undercapitalized categories as if they were in the  next
lower  level  based on safety and soundness considerations  relating  to
factors other than capital levels.

       All   insured   institutions  regardless  of   their   level   of
capitalization   are  prohibited  by  the  Federal   Deposit   Insurance
Corporation  Improvement Act of 1991 (the "FDIC Act")  from  paying  any
dividend or making any other kind of capital distribution or paying  any
management  fee  to any controlling person if following the  payment  or
distribution  the  institution  would be  undercapitalized.   While  the
prompt  corrective  action  provisions  of  the  FDIC  Act  contain   no
requirements   or   restrictions  aimed   specifically   at   adequately
capitalized  institutions, other provisions of  the  FDIC  Act  and  the
agencies'   regulations  relating  to  deposit  insurance   assessments,
brokered deposits and interbank liabilities treat adequately capitalized
institutions less favorably than those that are well-capitalized.

     Under the FDIC's regulations, all of the Subsidiary Banks are "well
capitalized" institutions.

      The  written  policies of the Georgia Department  of  Banking  and
Finance  (the  "DBF")  require that state  banks  in  Georgia  generally
maintain a minimum ratio of primary capital to total assets of 6.0%.  At
December 31, 2001, the Banks were in compliance with these requirements.
In  addition,  the  DBF  is  likely to compute  capital  obligations  in
accordance with the risk-based capital rules while continuing to require
a minimum absolute level of capital.
                                   7

      It  is not anticipated that such minimum capital requirements will
affect  the  business operations of the Banks.  However, the  Board,  in
connection  with  granting  approval for  bank   holding  companies   to
acquire  other  banks and bank holding companies or to  engage  in  non-
banking activities, requires bank holding companies to maintain tangible
capital  ratios at approximate peer group levels.  This requirement  can
result in a bank holding company maintaining more capital than it  would
otherwise  maintain.   At  the  present time,  South  Banking  Company's
tangible  primary  capital ratios are equal or above  their  peer  group
level.

     The laws of Georgia require annual registration with the DBF by all
Georgia  bank holding companies.  Such registration includes information
with  respect  to the financial condition, operations and management  of
intercompany  relationships  of  the  bank  holding  company   and   its
subsidiaries and related matters.  The DBF may also require  such  other
information  as  is  necessary  to  keep  informed  as  to  whether  the
provisions  of  Georgia  law  and  the regulations   and  orders  issued
thereunder by the DBF have been in compliance with and the DBF may  make
examinations  of  the  bank  holding company and  each  bank  subsidiary
thereof.

      The banks are also subject to examination by the DBF and the FDIC.
The DBF regulates and monitors all areas of the operations of the banks,
including  reserves, loans, mortgages, issuances of securities,  payment
of  dividends, interest rates, and establishment of branches.   Interest
and  certain other charges collected or contracted for by the Banks  are
also  subject  to  state usury laws and certain federal laws  concerning
interest rates.  The Banks' deposits are insured by the FDIC up  to  the
maximum permitted by law.

      Legislation has passed that would allow banks to branch  statewide
subject  to  certain  restrictions.  This law became effective  July  1,
1996.

     Georgia banking laws permit bank holding companies to own more than
one  bank,  subject to the prior approval of the Georgia  Department  of
Banking  and  Finance; thereby, in effect, permitting statewide  banking
organizations.   Such  banks  may be acquired  as  subsidiaries  of  the
Registrant or merged into its existing bank subsidiaries.

Support of Subsidiary Banks

      Under  the  FRB policy, South is expected to act as  a  source  of
financial strength to, and to commit resources to support, each  of  the
Subsidiary  Banks.  This support may be required at times  when,  absent
such  FRB policy, South may not be inclined to provide it.  In the event
of  a  bank  holding company's bankruptcy, any commitment  by  the  bank
holding  company  to a Federal bank regulatory agency  to  maintain  the
capital  of a subsidiary bank will be assumed by the bankruptcy  trustee
and entitled to a priority of payment.

      As  a  result  of  the enactment of Section 206 of  the  Financial
Institutions Reform, Recovery and Enforcement Act ("FIRREA")  on  August
9, 1989, a depository institution insured by the FDIC can be held liable
for  any loss incurred by, or reasonably expected to be incurred by, the
FDIC  after  August  9, 1989 in connection with (i)  the  default  of  a
commonly  controlled  FDIC-insured depository institution  or  (ii)  any
assistance  provided  by the  FDIC to any  commonly   controlled   FDIC-
insured depository

                                   8

institution "in danger of default" is defined generally as the existence
of  certain conditions indicating that a default is likely to  occur  in
the absence of regulator assistance.

FDIC Insurance Assessments

      The  Subsidiary  Banks  are  subject  to  FDIC  deposit  insurance
assessments for the  Bank Insurance  Fund (the "BIF").  Since  1989, the
annual FDIC deposit insurance assessments increased from $.083 per  $100
of  deposits  to  a minimum level of $.23 per $100, an increase  of  177
percent.  The  FDIC implemented a risk-based assessment  system  whereby
banks  are  assessed on a sliding scale depending on their placement  in
nine separate supervisory categories, from $.23 per $100 of deposits for
the  healthiest  banks (those with the highest capital, best  management
and  best overall condition) to as much as $.31 per $100 of deposits for
the  less-healthy  institutions, for an average of  $.259  per  $100  of
deposits.

      On  August 8, 1995, the FDIC lowered the BIF premium for "healthy"
banks  83%  from $.23 per $100 in deposits to $.04 per $100 in deposits,
while  retaining  the $.31 level for the riskiest  banks.   The  average
assessment  rate was therefore reduced from $.232 to $.044 per  $100  of
deposits.  The new rate took effect on September 29, 1995.  On  November
14,  1995,  the  FDIC again lowered the BIF premium for "healthy"  banks
from   $.04  per  $100  of  deposits  to  zero  for  the  highest  rated
institutions  (92%  of the industry).  All of the Subsidiary  Banks  are
insured under the BIF fund and it is expected that they will be required
to pay only the legally required annual minimum payments during 2002.

Recent Legislative and Regulatory Action

      On  April  19,  1995,  the four Federal bank  regulatory  agencies
adopted  revisions  to  the  regulations  promulgated  pursuant  to  the
Community  Reinvestment  Act (the "CRA"),  which  are  intended  to  set
distinct  assessment standards for financial institutions.  The  revised
regulations  contain three evaluation tests: (i) a  lending  test  which
will  compare  the  institution's market share  of  loans  in  low-  and
moderate-income areas to its market share of loans in its entire service
area  and  the   percentage of a bank's outstanding loans  to  low-  and
moderate-income  areas or individuals; (ii) a services test  which  will
evaluate  the  provisions of services that promote the  availability  of
credit to low- and moderate-income areas; and (iii) an investment  test,
which   will   evaluate  an  institution's  record  of  investments   in
organizations  designed  to  foster community  development,  small-  and
minority-owned  businesses,  and affordable housing  lending,  including
state and local government housing or revenue bonds.  The regulation  is
designed   to   reduce  some  paperwork  requirements  of  the   current
regulations  and provide regulators, institutions, and community  groups
with a more objective and predictable manner with which to evaluate  the
CRA performance of financial institutions.  The rule became effective on
January  1,  1996, at which time evaluation under streamlined procedures
were  scheduled to begin for institutions with assets of less than  $250
million.

      These  regulations have had little or no effect on South  and  the
Subsidiary  Banks.   Congress  and various Federal  agencies  (including
Housing  and  Urban  Development, the Federal Trade Commission  and  the
Department of Justice)(collectively, the "Federal Agencies") responsible
for implementing

                                   9

the  nation's  fair lending laws have been increasingly  concerned  that
prospective   home   buyers   and  other  borrowers   are   experiencing
discrimination in their efforts to obtain loans.  In recent  years,  the
Department  of  Justice  has filed suit against financial  institutions,
which it determined had discriminated, seeking fines and restitution for
borrowers  who allegedly suffered from discriminatory practices.   Most,
if not all, of these suits have been settled (some for substantial sums)
without a full adjudication on the merits.

      On  March  8, 1994, the Federal Agencies, in an effort to  clarify
what  constitutes  lending discrimination and specify  the  factors  the
agencies will consider in determining if lending discrimination  exists,
announced  a  joint  policy statement detailing specific  discriminatory
practices  prohibited  under  the Equal Opportunity  Act  and  the  Fair
Housing  Act.  In the policy statement, three methods of proving lending
discrimination  were identified:  (i) over evidence  of  discrimination,
when  a  lender  blatantly  discriminates on a  prohibited  basis;  (ii)
evidence  of  disparate  treatment,  when  a  lender  treats  applicants
differently based on a prohibited factor even where there is no  showing
that  the  treatment was motivated by prejudice or a conscious intention
to  discriminate  against  a  person; and (iii)  evidence  of  disparate
impact,  when  a lender applies a practice uniformly to all  applicants,
but  the practice has a discriminatory effect, even where such practices
are  neutral on their face and are applied equally, unless the  practice
can be justified on the basis of business necessity.

      On  September  23,  1994,  President  Clinton  signed  the  Reigle
Community  Development  and  Regulatory Improvement  Act  of  1994  (the
"Regulatory Improvement Act").  The Regulatory Improvement Act  contains
funding  for community development projects through banks and  community
development  financial institutions and also numerous regulatory  relief
provisions  designed  to eliminate certain duplicative  regulations  and
paperwork requirements.  On September 29, 1994, President Clinton signed
the  Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Federal Interstate Bill") which amended Federal law to permit bank
holding  companies  to  acquire existing banks in  any  state  effective
September 29, 1995, and to permit any interstate bank holding company to
merge  its  various bank subsidiaries into a single bank with interstate
branches  after  May 31, 1997.  States have the authority  to  authorize
interstate  branching prior to June 1, 1997, or, alternatively,  to  opt
out  of  interstate branching prior to that date.  The Georgia Financial
Institutions  Code was amended in 1994 to permit the  acquisition  of  a
Georgia  bank  or  bank  holding company by  out-of-state  bank  holding
companies beginning July 1, 1995.  On September 29, 1995, the interstate
banking  provisions  of  the Georgia Financial  Institutions  Code  were
superseded by the Federal Interstate Bill.

     On November 12,  1999,  the  Gramm-Leach-Bliley  Act   ("the Act"),
formerly known as the Financial  Modernization Act was enacted.  The new
statute is the most sweeping  financial services legislation  enacted in
decades.   It   repeals   depression-era   laws   and   eliminates   the
barriers preventing affiliations  among  banks, insurance companies, and
securities  firms.  Key  provisions  to  the  Act  are summarized in the
following paragraphs.

      Repeal  of  the Glass-Stegall Act - At its core, the Act  repeals,
effective  120 days after enactment, the anti-affiliation provisions  in
sections  20   and 32 of  the  Banking  Act of 1933 (also known  as  the
Glass-

                                   10

Stegall  Act) and amends provisions in the Bank Holding Company  Act  of
1956  to  permit financial companies to offer a broad array of  banking,
insurance,  securities,  and other financial  products,  either  through
financial  holding companies ("FHCs") or through operating  subsidiaries
qualifying under the Act.

     In general, Congress decided to preserve the Federal Reserve's role
as  the umbrella supervisor for holding companies.  The Board will work,
however,  within  a  system of functional regulation  designed  to  take
advantage  of  the  traditional  strengths  of  the  federal  and  state
financial  supervisors.   In  addition, the  legislation  establishes  a
mechanism  for  coordination between the Federal  Reserve  and  Treasury
regarding  the  approval of new financial activities  for  both  holding
companies and national bank financial subsidiaries.

       Banking   organizations  are  prohibited  under  the   Act   from
participating  in  new  financial affiliations unless  their  depository
institution   subsidiaries  are  well  capitalized  and  well   managed.
Regulators  are required to address any failure to maintain  safety  and
soundness  standards in a prompt manner.  In addition,  regulators  must
prohibit   holding  companies  from  participating  in   new   financial
affiliations  if,  at the time of certification, any insured  depository
affiliate  had received a less- than-satisfactory Community Reinvestment
Act ("CRA") rating at its most recent examination.

      Affiliation  Authority - The Act amends  section  4  of  the  Bank
Holding Company Act ("BHCA") to provide a new framework for engaging  in
new  financial  activities.  Those bank holding companies ("BHCs")  that
qualify  to  engage  in the new financial activities are  designated  as
financial holding companies ("FHCs").  New provisions of the BHCA permit
BHCs that qualify as FHCs to engage in activities, and acquire companies
engaged in activities that are financial in nature or incidental to such
financial  activities.   FHCs  are   also   permitted   to   engage   in
activities that are complementary to financial activities if  the  Board
of  Governors of the Federal Reserve Bank ("FRB Board") determines  that
the activity does not pose a substantial risk to the safety or soundness
of the institution or the financial system in general.

      The FRB Board may act by either regulation or order in determining
what  activities  are financial in nature, incidental  to  financial  in
nature, or complementary.  In doing so, the FRB must notify the Treasury
of  requests to engage in new financial activities and may not determine
that  an activity is financial or incidental to a financial activity  if
Treasury objects.

      Furthermore, Treasury may propose that the Board find a particular
activity financial in nature or incidental to a financial activity.  The
Act  establishes  a  similar procedure with  regard  to  the  Treasury's
(acting  through  the Office of the Comptroller of the Currency  ("OCC")
determination of financial activities and activities that are incidental
to  financial  activities for subsidiaries of national banks.   Congress
intends for the Federal Reserve and Treasury to establish a consultative
process  that will negate the need for either agency to veto a  proposal
of the other agency.

                                   11

      Federal  Home Loan Bank Reform - The Act reforms the Federal  Home
Loan  Bank  System,  including greatly expanding the collateral  that  a
community  bank  can  pledge against FHLB System advances,  thus  giving
smaller  banks  access  to  a substantial new  liquidity  source.   FHLB
members  under $500 million in assets can now pledge small business  and
agricultural loans (or securities representing a whole interest in  such
loans) as collateral for advances.

      Privacy  -  The  Act imposes a number of new restrictions  on  the
ability  of  financial  institutions  -  read  as  any  entity  offering
financial  products,  including banks, insurance  companies,  securities
houses, and credit unions - to share nonpublic personal information with
nonaffiliated third parties. Specifically, the bill:

o     requires financial institutions to establish privacy policies  and
  disclose them annually to all their customers, setting forth  how  the
  institutions  share  nonpublic  personal  financial  information  with
  affiliates and third parties

o     directs  regulators to establish regulatory standards that  ensure
  the security and confidentiality of customer information

o      permits  customers  to  prohibit  (opt-out-of  permitting)   such
  institutions   from  disclosing  personal  financial  information   to
  nonaffiliated third parties

o    prohibits transfer of credit card or other account numbers to third-
  party marketers

o      prohibits  pretext  calling  (that  is,  makes  it  illegal   for
  information brokers to call banks to obtain customer information  with
  the intent to defraud the bank or customer)

o     protects  stronger  state  privacy laws,  as  well  as  those  not
  "inconsistent" with these Federal rules

o     requires  the Treasury and other Federal regulators to  study  the
  appropriateness  of  sharing  information with  affiliates,  including
  considering  both  negative and positive aspects of such  sharing  for
  consumers.

     The bill also imposes an affirmative obligation on banks to respect
their  customers'  privacy  interests.  Language  protects  a  community
bank's ability to share information with third parties selling financial
products  (for  example,  insurance or securities)  to  bank  customers.
Community  banks  can thus continue such sales practices  without  being
subject   to   the  opt-out  provisions  contained  elsewhere   in   the
legislation.

      Bankruptcy  Legislation - Although proposed bankruptcy legislation
is  not  finalized  and  signed into law,  it  appears  that  the  final
legislation  may assist in reducing the number of voluntary  liquidation
bankruptcies. This legislation may be of long-term benefit to  financial
institutions and other creditors.
                                   12

      Various  legislation, including proposals to substantially  change
the  financial institution regulatory system and to expand  or  contract
the  powers of banking institutions and bank holding companies, is  from
time  to  time  introduced  in Congress.  This  legislation  may  change
banking  statutes and the operating environment of the combined  company
and its subsidiaries in substantial and unpredictable ways.  If enacted,
such  legislation could increase or decrease the cost of doing business,
limit or expand permissible activities or affect the competitive balance
among  banks,  savings associations, credit unions, and other  financial
institutions.  The Registrant cannot accurately predict whether  any  of
this  potential legislation will ultimately be enacted, and, if enacted,
the  ultimate  effect that it, or implementing regulations,  would  have
upon  the financial condition or results of operations of itself or  any
of its subsidiaries.

Omnibus Budget Reconciliation Act of 1993

      The  Omnibus  Budget Reconciliation Act of 1993  (the  "Tax  Act")
continues   the   recent  legislation  affecting  banks  and   financial
institutions.   The  Tax  Act was designed as a deficit  reduction  with
similarities  to  the  1990 Act which was also designed  to  slice  $500
billion from the deficit.

      Generally the Tax Act affects all corporations as to a new 35% tax
rate  for  income  in  excess of $10 million and the  maximum  corporate
capital gains rate was increased to 35%.  The Registrant currently  will
not be affected by the change due to the income level of the Registrant.
Various other provisions would restrict certain deductions and/or change
the treatment of certain transactions.

      Provisions that especially affect financial institutions  included
market  to market Accounting for Securities.  The Tax Act requires  that
securities that are inventory in the hands of a dealer be inventoried at
fair   market   value  (market  to market).  For the purposes  of  these
rules,  "securities" and a "dealer" are defined more broadly than  under
prior  law.  A  "dealer"  is any person who either  regularly  purchases
securities from or sells securities to customers in the ordinary  course
of business or regularly offers to enter into, assume, offset, assign or
otherwise  terminate  positions  in securities  with  customers  in  the
ordinary  course of a trade or business.  Banks have been determined  to
qualify  as  a dealer under the new definitions.  Unless securities  are
properly  identified  as  held for investment,  all  inventory  will  be
required to be market to market.

      A second item affecting financial institutions is the treatment of
tax-free FSLIC Assistance that was credited on or after March 4, 1991 in
connection   with  the  disposition  of  "covered"  assets.    Financial
institutions  are required to treat that assistance as compensation  for
any  losses  claimed  on dispositions or charge-offs  of  these  assets,
effectively denying them any tax loss for those assets.  This  provision
should not have any effect on the Registrant.

     The third item affecting financial institutions is the amortization
of  intangible assets effective for purchase after the enactment (August
10,   1993).   Taxpayers  are  required  to  amortize  most  intangibles
(including goodwill, core deposits, going concern value and covenant not
to  compete)  used  in  a  trade or business  over  a  15  year  period.
Exception to this  rule

                                   13

includes  mortgage service rights.  The provision will have  significant
impact  on  any  future  purchases the holding  company  may  decide  to
undertake.

      Some  of  the other provisions such as eliminating deductions  for
lobbying  expense  and club dues will impact the taxes  payable  by  the
Registrant.

Recent and Proposed Changes in Accounting Rules

       In   June,   1997,  the  FASB  issued  SFAS  No.  130,  Reporting
Comprehensive  Income.   The  statement  is  effective  for  annual  and
quarterly financial statements for fiscal years beginning after December
15,  1997,  with  earlier application permitted.  For the  Company,  the
statement  became  effective in the first quarter of 1998  and  required
reclassification  of  earlier  financial  statements   for   comparative
purposes.   SFAS  No.  130  requires that  changes  in  the  amounts  of
comprehensive  income  items be shown in a primary financial  statement.
Comprehensive  income  is defined by the statement  as  "the  change  in
equity  (net  assets)  of a business enterprise  during  a  period  from
transactions  and other events and circumstances from nonowner  sources.
It includes all changes in equity during a period except those resulting
from  investments  by owners and distributions to  owners."   While  the
adoption  of this statement changed the look of the Company's  financial
statements, it did not have a material effect on the Company.

     Also, in June 1997, the FASB issued SFAS No. 131, Disclosures about
Segments  of  an Enterprise and Related Information.  The  statement  is
effective  for  financial statements for fiscal  years  beginning  after
December  15,  1997, with earlier application permitted.  SFAS  No.  131
changes  the  way public companies report information about segments  of
their business in their annual financial statements and requires them to
report selected segment information in their quarterly reports issued to
shareholders.   A  company is required to report on  operating  segments
based  on  the management approach.  An operating segment is defined  as
any  component of an enterprise that engages in business activities from
which  it may earn revenues and incur expenses.  The management approach
is   based on the way that management organizes the segments within  the
enterprise  for  making  operating decisions and assessing  performance.
The  adoption  of this standard did not have a material  effect  on  the
Company.

      In  February  1998,  the  FASB issued  SFAS  No.  132,  Employers'
Disclosures  about  Pensions  and Other  Postretirement  Benefits.   The
statement  is  effective for fiscal years beginning after  December  15,
1997.  SFAS  No.  132  provides  additional  information  to  facilitate
financial  analysis  and  eliminates certain disclosures  which  are  no
longer useful.  To the extent practical, the statement also standardizes
disclosures for retiree benefits.  The adoption of this standard did not
have a material effect on the Company.

      In  June  1998, the Financial Accounting Standards Board  ("FASB")
issued  SFAS No. 133 "Accounting for Derivative Instruments and  Hedging
Activities."   This  Statement  establishes  accounting  and   reporting
standards  for  derivative  instruments,  including  certain  derivative
instruments embedded in other contracts, and for hedging activities.  It
requires  that

                                   14

an  entity recognize all derivatives as either assets or liabilities  in
the  statement  of financial position and measure those  instruments  at
fair  value.   The  accounting  for changes  in  the  fair  value  of  a
derivative  depends  on  the  intended use of  the  derivative  and  the
resulting designation.

      In  June  of  1999, the FASB issued SFAS No. 137, "Accounting  for
Derivative  Instruments  and  Hedging  Activities  -  Deferral  of   the
Effective Date of FASB Statement No. 133."  This statement deferred  the
effective date of SFAS No. 133 to fiscal years beginning after June  15,
2000,  with  early application encouraged.  South is in the  process  of
determining the impact, if any, the implementation of SFAS No.  133  and
SFAS No. 137 will have on its results of operations.

      In  October  1998,  the FASB issued SFAS No. 134,  Accounting  for
Mortgage-Backed Securities Retained after the Securitization of Mortgage
Loans Held for Sale by Mortgage Banking Enterprise, an amendment to SFAS
No.  65.   This  statement  is effective for the  first  fiscal  quarter
beginning after December 15, 1998, (or January 1, 1999 for the Company).
The  statement requires that after the securitization of mortgage  loans
held for sale, any retained mortgage-backed securities be classified  in
accordance  with SFAS No. 115, based on the entity's ability and  intent
to  sell  or hold those investments.  Prior to this statement,  mortgage
banking  entities were required to classify these securities as  trading
only.   The adoption of this standard did not have a material effect  on
the Company.

       In  September  2000,  the  FASB  issued  Statement  of  Financial
Accounting Standards No. 140, "Accounting for transfers and Servicing of
Financial  Assets and Extinguishments of Liabilities - a Replacement  of
FASB Statement No. 125" ("SFAS 140"). SFAS 140 revises the criteria  for
accounting  for securitizations and other transfers of financial  assets
and  collateral.   In  addition, SFAS 140  requires  certain  additional
disclosures.   Except  for  the new disclosure  provisions,  which  were
effective  for the year ended December 31, 2000, SFAS 140 was  effective
for  the  transfer of financial assets occurring after March  31,  2001.
The  provisions  of SFAS 140 did not have a significant  effect  on  the
company.

      In  July  2001, the FASB issued Statements of Financial Accounting
Standards  No.  141, "Business Combinations" ("FAS 141")  and  No.  142,
"Goodwill  and  Other  Intangible Assets"("FAS 142").   These  standards
change  the accounting for business combinations by, among other things,
prohibiting  the prospective use of pooling-of-interests accounting  and
requiring  companies to stop amortizing goodwill and certain  intangible
assets  with  an indefinite useful life created by business combinations
accounted  for  using  the  purchase  method  of  accounting.   Instead,
goodwill and intangible assets deemed to have an indefinite useful  life
will  be  subject to an annual review for impairment.  The new standards
generally  will  be  effective  in  the  first  quarter  of  2002.   The
provisions of these statements did not have an effect on the company.

Industry Developments

      Certain  recently-enacted and proposed legislation could  have  an
effect  on both the costs of doing business and the competitive  factors
facing the financial institution's industry.  Because of the uncertainty
of   the   final  terms  and  likelihood  of  passage  of  the  proposed
legislation, the Company is unable to assess the impact of any  proposed
legislation on its financial condition or operations at this time.

                                   15

Selected Statistical Information

      The  tables and schedules on the following pages set forth certain
significant  statistical data with respect to:  (i) the distribution  of
assets, liabilities and shareholders' equity and the interest rates  and
interest   differentials  experienced  by,  the   Registrant   and   its
subsidiaries;  (ii) the investment portfolio of the Registrant  and  its
subsidiaries;  (iii)  the  loan portfolio  of  the  Registrant  and  its
subsidiaries,  including types of loans, maturities and  sensitivity  to
changes  in interest rates and information on nonperforming loans;  (iv)
summary of the loan loss experience and reserves for loan losses of  the
Registrant and its subsidiaries; (v) types of deposits of the Registrant
and  its subsidiaries; and (vi) the return on assets and equity for  the
Registrant and its subsidiaries.

I.  DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
    INTEREST RATES AND INTEREST DIFFERENTIALS

A.   The condensed average balance sheets for the periods indicated are
    presented below.
                         Year Ended       Year Ended         Year Ended
                         December  31,    December  31,      December 31,
                         2001             2000               1999
ASSETS                                  (In Thousands)
Cash and due from banks $     6,705      $     6,283         $     7,836
Cash in bank - interest
 bearing                        957              822               1,355
Taxable investment
 securities                  16,518           16,884              15,905
Nontaxable investment
 securities                   1,326            1,613               1,825
Ohers                         1,343            1,487               1,435
Federal funds sold and securities
 purchased under agreements to
 resell                      18,028            9,945               8,757
Loans - net                 166,639          148,195             121,166
Other assets                 14,555           10,762               8,031

Total Assets            $   226,071      $   195,991         $   166,310

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits: Demand - non-interest
           bearing      $    24,903      $    22,444         $    20,341
     Demand - interest
       bearing               30,600           24,959              23,777
     Savings                 11,809           11,122              10,674
     Time                   131,154          114,026              92,406
Total Deposits          $   198,466      $   172,551         $   147,198
Federal funds purchased          23              114                  55
Other borrowed funds          6,065            4,518               3,087
Other liabilities             2,453            1,768                 962

Total Liabilities       $   207,007      $   178,951         $   151,302
Shareholders' equity         19,064           17,040              15,008

Total Liabilities and
 Shareholders' Equity   $   226,071      $   195,991         $   166,310

B.  Interest  Rates.  The tables below show for the periods  indicated
    the  average  amount   outstanding   for   major   categories   of
    interest
    earning  assets  and  interest bearing  liabilities;  the  average
    interest  rates  earned or paid; the interest income  and  expense
    earned  or  paid thereon; net interest earnings and the net  yield
    on interest-earning assets.
                                   16
                                     Year Ended December 31, 2001
                              Average        Yield/
                              Balance        Interest      Rate
ASSETS                                       (In Thousands)
Cash in banks - interest
     bearing                 $      957     $       54     5.64%
Loans                           166,639         16,737    10.04%
Taxable  investments             16,518            947     5.73%
Non-taxable investments           1,326             66     4.97%
Other                             1,343             60     4.47%
Federal funds sold and
 securities purchased
  under agreements to resell     18,028            741     4.11%
Total Interest-Bearing
     Assets                  $  204,811     $   18,605     9.08%

LIABILITIES
Demand - interest bearing    $   30,600     $      694     2.27%
Savings  deposits                11,809            314     2.65%
Other  time deposits            131,154          7,897     6.02%
Other  borrowing                  6,065            429     7.07%
Federal funds purchased              23              1     4.34%
Total Interest-Bearing
     Liabilities             $  179,651     $    9,335     5.20%

Net interest earnings                       $    9,270
Net yield on interest earning assets                       3.88%

                                 Year Ended December 31, 2000
                              Average        Yield/
                              Balance        Interest      Rate
ASSETS                                       (In Thousands)
Cash in banks - interest
 bearing                     $     822      $       53     6.44%
Loans                          148,195          16,604    11.20%
Taxable investments             16,884           1,021     6.05%
Non-taxable investments          1,613              79     4.90%
Other                            1,487              73     4.91%
Federal funds sold and
 securities purchased under
 agreements to resell            9,945             623     6.26%
Total Interest-Bearing
 Assets                      $ 178,946      $   18,453    10.31%

LIABILITIES
Demand - interest bearing    $  24,959      $     648      2.59%
Savings deposits                11,122            359      3.23%
Other time deposits            114,026          7,115      6.24%
Other borrowing                  4,518            448      9.91%
Federal funds purchased            114              8      7.02%
Total Interest-Bearing
 Liabilities                 $ 154,739      $   8,578      5.54%

Net interest earnings                       $   9,875
Net yield on interest earning assets                       4.77%

                                       17

                                 Year Ended December 31, 1999
                             Average          Yield/
                             Balance          Interest           Rate
ASSETS                                    (In Thousands)
Cash in banks - interest
      bearing               $    1,355       $      78           5.75%
Loans                          121,166          12,859          10.61%
Taxable investments             15,905             936           5.88%
Non-taxable investments          1,825              87           4.77%
Other                            1,435              96           6.68%
Federal funds sold and
 securities purchased
 under agreements to resell      8,757             462           5.28%
Total Interest-Bearing
 Assets                     $  150,443       $  14,518           9.65%

LIABILITIES
Demand - interest bearing   $   23,777       $     633           2.66%
Savings deposits                10,674             352           3.30%
Other time deposits             92,406           5,037           5.45%
Other borrowing                  3,087             236           7.65%
Federal funds purchased             55               3           5.45%
Total Interest-Bearing
 Liabilities                $  129,999       $   6,261           4.82%

Net interest earnings                        $   8,257
Net yield on interest earning assets                             4.83%

(1)   Note:   Loan fees are  included for  rate  calculation purposes.
Loan fees included in interest amounted to approximately $1,208,871 in
2001,  $999,520 in 2000 and $892,522 in 1999.  Non accrual loans  have
been included in the average balances.

C.    Interest Differentials.  The  following  tables  set   forth   for
the   periods indicated a summary of the changes in interest  earned and
interest paid resulting from changes in volume and changes in rates.

2001 Compared to 2000
                                    Increase (Decrease) Due to (1)
                              Volume         Rate          Change
Interest earned on:                         (In Thousands)
Cash in banks - interest
  bearing                    $      9       $(      8)     $        1
Loans                           2,066        (  1,933)            133
Taxable investments           (    22)       (     52)      (      74)
Nontaxable investments        (    14)              1       (      13)
Other                         (     7)       (      6)      (      13)
Federal funds sold and
 securities purchased under
  agreement to resell             505        (    387)            118

Total Interest-Earning Assets $  2,537      $(  2,385)     $      152

                                       18

2001 Compared to 2000 (Con't)

                                    Increase (Decrease) Due to (1)
                              Volume         Rate          Change
                                            (In Thousands)
Interest paid on:
  NOW deposits              $    144        $(     98)    $       46
  Savings deposits                22         (     67)     (      45)
  Other time deposits          1,070         (    288)           782
  Other borrowing                153         (    172)     (      19)
  Federal funds purchased    (     6)        (      1)     (       7)

Total Interest-Bearing
  Liabilities               $  1,383        $(    626)    $      757

Net  Interest Earnings      $  1,154        $(   1,759)   $(     605)

(1)  The change in interest due to volume has been determined  by
applying  the  rate  from  the earlier year to  the  change  in  average
balances  outstanding from one year to the next.  The change in interest
due  to rate has been determined by applying the change in rate from one
year to the next to average balances outstanding in the later year.

2000 Compared to 1999
                                    Increase (Decrease) Due to (1)
                              Volume         Rate          Change
Interest earned on:                         (In Thousands)
Cash in banks - interest
  bearing                  $(     31)      $     6       $(      25)
Loans                          2,867           878            3,745
Taxable investments               57            28               85
Nontaxable investments      (     10)            2        (       8)
Other                              3        (   26)       (      23)
Federal funds sold and
 securities purchased under
    agreement   to   resell       63            98              161

Total Interest-Earning Assets$  2,949      $   986       $    3,935


Interest paid on:
  NOW deposits            $      31        $(    16)     $       15
  Savings deposits               14         (     7)              7
  Other time deposits         1,178             900           2,078
  Other   borrowing             109             103             212
  Federal funds purchased         3               2               5

Total Interest-Bearing
 Liabilities              $   1,335        $    982      $    2,317

Net Interest Earnings     $   1,614        $      4      $    1,618

(1)  The  change  in  interest due to volume  has  been  determined  by
applying  the  rate  from the earlier year to  the  change  in  average
balances outstanding from one year to the next.  The change in interest
due to rate has been determined by applying the change in rate from one
year to the next to average balances outstanding in the later year.

                                   19

1999 compared to 1998
                                    Increase (Decrease) Due to (1)
                              Volume         Rate          Change
Interest earned on                          (In Thousands)
Cash in banks - interest
  bearing                  $(      3)       $(      1)     $(        4)
Loans                          1,084         (    377)             707
Taxable investments         (     38)              38                -
Nontaxable investments      (      7)               2       (        5)
Other                             24               14               38
Federal funds sold and
 securities purchased under
  agreement to resell       (    137)        (      2)      (      139)

Total Interest-Earning Assets $   923       $(    326)     $       597

Interest paid on:
  NOW deposits             $       31       $(     76)     $(       45)
    Savings   deposits             52              12               64
  Other time deposits             372        (    499)      (      127)
  Other borrowing           (      23)       (      3)      (       26)
  Federal funds purchased           3               -                3

Total Interest-Bearing
  Liabilities              $      435      $(     566)     $(      131)

Net Interest Earnings      $      488      $      240      $       728

(1)   The  change  in  interest due to volume  has  been  determined  by
applying  the  rate  from  the earlier year to  the  change  in  average
balances  outstanding from one year to the next.  The change in interest
due  to rate has been determined by applying the change in rate from one
year to the next to average balances outstanding in the later year.

II.  INVESTMENT PORTFOLIO

A.   Types of Investments  The carrying amounts of investment securities
at the dates indicated are summarized as follows:

	                        Year Ended     Year Ended    Year Ended
      	                  December 31,   December 31,  December 31,
                              2001           2000          1999
                                            (In Thousands)
U. S. Treasury and other
 U. S. government agencies
 and corporations             $    15,691    $    18,449   $    16,292
State and political
 subdivisions (domestic)            1,131          1,529         1,714
Mortgage backed securities            236            399           502
Equities                              262            465           545

Totals                        $    17,320    $    20,842   $    19,053

                                   20

B.  Maturities  The amounts of investment securities in each category as
of  December  31,  2001 are shown in the following  table  according  to
maturity  classifications  (1) one year or  less,  (2)  after  one  year
through  five years, (3) after five years through ten years,  (4)  after
ten years.

                  U. S. Treasury
                  and Other U. S.
                  Government        State
                  Agencies and      and Political     Mortgage Backed
                  Corporations      Subdivisions      Securities
                            Average          Average
                            Yield            Yield             Average
                 Amount     (1)     Amount   (1)(2)   Amount   Yield
                                       (In Thousands)
Maturity:
One year or less  $  1,962    4.46% $   359     8.14%$     -        -
After one year
 through five years 10,815    5.00      309    7.35        -        -
After five years
 through ten years   2,914   4.92       103    7.33        -       -
After ten years          -      -      360     9.14      236     7.27

Totals            $ 15,691    4.92%  $ 1,131     8.17% $   236   7.27%

(1)   Yields  were  computed  using  coupon  interest,  adding  discount
accretion  or  subtracting premium amortization, as  appropriate,  on  a
ratable  basis  over  the life of each security.  The  weighted  average
yield  for each maturity range was computed using the acquisition  price
of each security in that range.

(2)  Yields on securities of state and political subdivisions are stated
on a tax equivalent basis, using a tax rate of 34%.

III.  Loan Portfolio

   A.   Types of Loans  The amount of loans outstanding at the indicated
dates are shown in the following table according to type of loan.

                            Year Ended     Year Ended  	Year Ended
                            December 31,   December  31,	December 31,
                            2001           2000             1999
(In Thousands)
Commercial, financial and
 agricultural                 $    49,558    $    42,973   $    34,607
Real  estate - mortgage            85,876         81,314        62,829
Real  estate - construction         9,015          7,646        13,413
Installments                       27,929         31,294        21,433

                              $   172,378    $   163,227   $   132,282
Less - Unearned income                289            253           216
       Reserve for possible
         losses                     2,756          2,728         2,169

Total   Loans                 $   169,333    $   160,246       129,897

                                   21

B.   Maturities and Sensitivity to Changes in Interest Rates  The amount
of  total  loans by category outstanding as of December 31, 2001  which,
based  on remaining repayments of principal, are due in (1) one year  or
less,  (2) more than one year but less than five and (3) more than  five
years are shown in the following table.  The amounts due after one  year
are  classified  according to the sensitivity  to  changes  in  interest
rates.

                                     Maturity Classification
                                    Over One
                        One Year    Through       Over
                        or Less     Five Years    Five Years  Total
Types of Loans                             (In Thousands)
Commercial,
 financial and
 agricultural           $  21,309   $   13,789    $ 14,460   $  49,558
Real estate
    mortgage               37,159       29,669      19,048      85,876
Real estate
    construction            4,178        1,331       3,506       9,015
Installment                 8,736       13,320       5,873      27,929

Total loans due
 after one year
 with:
 Predetermined
  interest rate                         50,484
 Floating interest
  rate                                  48,512

C.   Nonperforming  Loans  The following table presents,  at  the  dates
indicated,  the  aggregate  amounts  of  nonperforming  loans  for   the
categories indicated.
                             Year Ended     Year Ended    Year Ended
                             December 31,   December 31,  December 31,
                             2001           2000          1999
                                            (In Thousands)
Loans accounted for on a
 non-accrual basis            $     1,002    $       876   $       422

Loans contractually past
 due ninety days or more
 as to interest or principal
 payments                           1,028            734           419

Loans, the terms of which
 have been renegotiated to
 provide a reduction or
 deferral of interest or
 principal because of a
 deterioration in the financial
 position of the borrower               4              8            29

                                   22

C. Nonperforming Loans - (con't)

                              Year Ended     Year Ended    Year Ended
                              December 31,   December 31,  December 31,
                              2001           2000          1999
                                            (In Thousands)
Loans now current about which
 there are serious doubts as
 to the ability of the borrower
 to comply with present loan
 repayment terms                      -               -               -

      Loans  are  placed on non-accrual basis when loans  are  past  due
ninety  days or more.  Management can elect not to place loans  on  non-
accrual  status if net realizable value of collateral is  sufficient  to
cover the balance and accrued interest.

D.    Commitments and Lines of Credit  The banks provide commitments and
lines  of  credit to their most worthy customers only.  Commitments  are
for  short terms, usually not exceeding 30 days, and are provided for  a
fee  of  1%  of the amount committed.  Lines of credit are  for  periods
extending up to one year.  No fee is usually charged with respect to the
unused  portion  of  a  line of credit.  Interest rates  on  loans  made
pursuant to commitments or under lines of credit are determined  at  the
time that the commitment is made or line is established.
                                   23
E. Rate Sensitivity Analysis

                              SOUTH BANKING COMPANY
                                DECEMBER 31, 2001
                               INTEREST RATE RISK

Note:  Dollar amounts in columns are cumulative amounts

Total assets on this date equaled $224,791

Interest Rate Risk      0 - 3      0 - 12      0 to 3     0 to 5     0 - 15
                        Months     Months      Years      Years      Years
Rate sensitive assets:
 Securities (fixed rates)$   -    $  4,483     $7,837     $ 15,711  $  16,823
 Securities (floating rates) 236       236        236        236          236
 Mutual funds @ UVEST         57       45          57         57           57
 CD's at banks               797    1,174       1,273      1,273        1,273
 Loans (fixed rates)      19,975   44,265      73,030     83,519       93,379
 Loans (floating rates)   74,473   75,893      75,893     75,893       75,893
 Federal funds sold       10,252   10,252      10,252     10,252       10,252
Total rate sensitive
  assets                $105,790 $136,348    $168,578 $  186,941 $    197,913

Rate sensitive liabilities:
 CD/IRA's under $100M   $ 30,333  $ 83,714   $ 90,930  $  91,426  $     91,426
 CD/IRA's => $100M         8,589    30,200     31,760     31,760        31,760
 Regular savings/Christmas11,510    11,510     11,510     11,510        11,510
 Now/Super Now            23,382    23,382     23,382     23,382       23,382
 Money market deposit      7,923     7,923      7,923      7,923        7,923
 Treasury, tax & loan note    35        35         35         35           35
 Federal funds purchased       0         0          0          0            0
 Note payable-Ford Motor       3         7          7          7            7
 Note payable-Banker's Bank    0       325      1,125      2,125       4,725
 Note payable-Waycross
   Bank & Trust                0         0          0          0           0
 Note payable-Banker's
   Bank (BDS)                 51       204         612        849         849
 Note payable-FHLB         1,500     1,500       1,500      1,500       1,500
Total rate sensitive
   liabilities          $ 83,326  $158,800    $168,784 $  170,517 $   173,117

Rate sensitive assets
 less Rate sensitive
 liabilities            $ 22,464  $(22,452)   $(   206)$   16,424 $    24,796

Rate sensitive assets
 less Rate sensitive
 liabilities/Total assets   9.99%  (9.99%)     ( 0.09%)     7.31%      11.03%

Rate sensitive assets/
Rate sensitive liabilities 126.96%  85.86%      99.88%     109.63%    114.32%


                                       24
E.   Rate Sensitivity Analysis

                          SOUTH BANKING COMPANY
                            DECEMBER 31, 2001

     The  rate  sensitivity analysis table is designed to  demonstrate
South's  sensitivity to changes in interest rates by setting forth  in
comparative  form  the  repricing maturities  of  South's  assets  and
liabilities  for the period shown. A ratio of greater than  1.0  times
interest  earnings  assets to interest bearing  liabilities  indicates
that  an  increase  in  interest rates will  generally  result  in  an
increase in net income for South and a decrease in interest rates will
result  in  a decrease in net income.  A ratio of less than 1.0  times
earnings  assets  to  interest-bearing liabilities  indicates  that  a
decrease in interest rates will generally result in an increase in net
income  for South and an increase in interest rates will result  in  a
decrease in net income.
                                   24

IV.  Summary of Loan Loss Experience

      The  following table summarizes loan balances at the end  of  each
period  and average balances during the year for each category;  changes
in  the reverse for possible loan losses arising from loans charged  off
and recoveries on loans previously charged off; additions to the reserve
which  have  been  charged to operating expense; and the  ratio  of  net
charge-offs during the period to average loans.

                            Year Ended     Year Ended    Year Ended
                            December 31,   December 31,  December 31,
                            2001           2000          1999
                                            (In Thousands)

A.  Average amount of loans
     outstanding              $   166,639    $   148,195   $   121,166
B.  Balance of reserve for
     possible loan losses at
     beginning of period      $     2,728    $     2,169   $     1,971
C.  Loans charged off:
     Commercial, financial
      and agricultural        $       398    $       274   $       149
     Real estate - mortgage           225            127            67
           Installments               379            263           217

                              $     1,002    $       664   $       433
D.  Recoveries of loans
     previously charged off:
     Commercial, financial
      and agricultural        $         4    $        83   $         2
     Real estate                       49             29            31
     Installment                       85             99            95

                              $       138    $       211   $       128
E.  Net loans charged off
     during period            $       864    $       453   $       305
    Additions to reserve
     charged to operating
     expense during period (1)$       893    $      424    $       503
    Addition from bank
           acquisition                  -           588              -
                              $       893    $     1,012   $       503
F.  Balance of reserve for
     possible loan losses at
     end of period            $     2,757    $     2,728   $     2,169

G.  Ratio of net loans charged
     off during the period to
       average loans outstanding      .52            .31           .25

                                   25

(1)      Although the provisions exceeded the minimum provision required
    by  regulatory authorities, the Board of Directors believe that  the
    provision has not been in excess of the amount required to maintain the
    reserve at a sufficient level to cover potential losses.  The amount
    charged to operations and the related balance in the reserve for loan
    losses is based upon periodic evaluations by management of the  loan
    portfolio. These evaluations consider several factors including, but not
    limited to, general economic conditions, loan portfolio composition,
    prior  loan  loss experience and management's estimation  of  future
    potential losses.

(2)     Management's  review  of  the loan portfolio  did  not  allocate
    reserves  by  category  due  to  the portfolio's  small  size.   The
    reserves  were  allocated on the basis of a  review  of  the  entire
    portfolio.   The portfolio does not contain excessive concentrations
    in  any  industry  or  loan  category that  might  expose  South  to
    significant risk.

V.  Deposits

A.    Average  deposits, classified as demand deposits, savings deposits
   and time certificates of deposit for the periods indicated are presented
   below:
                           Year Ended     Year Ended    Year Ended
                           December 31,   December 31,  December 31,
                           2001           2000          1999
                                           (In Thousands)
     Demand deposits      $    24,903    $    22,444   $    20,341
     NOW deposits              30,600         24,959        23,777
     Savings deposits          11,809         11,122        10,674
     Time certificates of
      deposits                131,154        114,026        92,406

     Total Deposits       $   198,466    $   172,551   $   147,198


     B.   The  amounts of time certificates of deposit issued in amounts
     of  $100,000  or  more as of December 31, 2001 are shown  below  by
     category,  which is based on time remaining until maturity  of  (1)
     three  months or less, (2) over three through six months, (3)  over
     six through twelve months and (4) over twelve months.

     Three months or less                          $    8,741
     Over three through twelve months                  21,505
     Over twelve months                                 1,560

     Total                                         $   31,806

                                   26

VI.  Return on Assets and Shareholders' Equity

         The  following  rate of return information  for  the  periods
     indicated is presented below:

                          Year Ended     Year Ended     Year Ended
                          December 31,   December 31,   December 31,
                          2001           2000           1999

Return  on  assets  (1)         .74%           1.35%           1.28%
Return  on  equity  (2)        8.83%          15.53%          14.18%
Dividend payout ratio (3)     16.63%          10.57%          12.20%
Equity to assets ratio (4)     8.43%           8.69%           9.02%

(1)  Net income divided by average total assets.
(2)  Net income divided by average equity.
(3)  Dividends declared per share divided by net income per share.
(4)  Average equity divided by average total assets.

Item 2.  Properties

      Alma  Bank's main banking office and the Registrant's principal
executive  offices  are  located at 104  North  Dixon  Street,  Alma,
Georgia 31510.  The building, containing approximately 13,040  square
feet  of usable office and banking space, and the land, approximately
1.2  acres,  are  owned by Alma Bank. Alma Bank also has  a  separate
drive-in  banking facility located at 505 South Pierce Street,  Alma,
Georgia.   The  building, containing 510 square feet,  in  which  the
branch  is located and the land, approximately .4 acres, on which  it
is located are owned by Alma Bank.

      Citizens Bank's main banking office is located at 205 East King
Street,   Kingsland,   Georgia  31548.   The   building,   containing
approximately  6,600 square feet of usable office and banking  space,
and the land, approximately 2 acres, are owned by Citizens Bank.

      Peoples Bank's main banking office is located at Comas  and  E.
Parker  Streets,  Baxley,  Georgia 31513.  The  building,  containing
approximately  7,800 square feet of usable office and banking  space,
and the land, approximately 2.5 acres, are owned by the Peoples Bank.
The Bank does not have branches.

      Pineland  Bank's main banking office is located  at  257  North
Broad  Street,  Metter,  Georgia  30439.   The  building,  containing
approximately 10,000 square feet of usable office and banking  space,
and the land, approximately 1 acre, are owned by the Pineland Bank.

      Pineland  Bank also has three branches. The branch  in  Metter,
Georgia   is   a   limited  service  drive-in   facility   containing
approximately 500  square feet and is situated on land  covered by  a
long term lease.

                                   27

A  building  acquired in the Flag acquisition houses  the  branch  in
Cobbtown,  Georgia.  This facility consists of a  3,396  square  foot
building on a 90 x 120 ft. lot.  A building in Statesboro, Georgia is
leased  to accommodate a small branch.  This lease is renewed  on  an
annual basis.

Item 3. Legal Proceedings

      Neither the Registrant or its subsidiaries are parties to,  nor
is  any of their property the subject of, any material pending  legal
proceedings,  other than ordinary routine proceedings  incidental  to
the business of the Banks, nor to the knowledge of the management  of
the  Registrant are any such proceedings contemplated  or  threatened
against it or its subsidiaries.

Item 4.  Submission of Matters to a vote of Security Holders

     None applicable.

Part II.

Item  5.   Market  for  the  Registrant's Common  Stock  and  Related
Security          Holder Matters

      There is no public market for the common stock of South or  the
Banks.   The last known selling price of South's common stock,  based
on  information available to South's management, was $12.00 per share
on  September  13, 2001.  As of March 1, 2002, the  Company  had  469
shareholders with 399,500 shares outstanding.

     For the years ended December 31, 2001, 2000 and 1999, South paid
cash  dividends of $279,628 or $.70 per share, $279,628 or  $.70  per
share,  and $259,675 or $.65 per share, respectively.  These  dollars
equate to  dividend payout ratios (dividends declared divided by  net
income)  of  16.63%,  10.57%  and 12.20%  in  2001,  2000  and  1999,
respectively.   Certain  other information concerning  dividends  and
historical trading prices is set forth below:

                     QUARTERLY COMMON STOCK DATA

      Set  forth below is information concerning high and  low  sales
prices  by quarter for each of the last two fiscal years and dividend
information  for  the  last two fiscal years.  The  Company's  common
stock  is  not traded on any established pubic trading  market.   The
Company   acts  as  its  own  transfer  agent,  and  the  information
concerning sales prices set forth below is derived from the Company's
stock  transfer  records.  As of December 31, 2001,  there  were  469
shareholders of record.
                                                  SALES   PRICES   BY
QUARTER
                                                 High        Low
     Fiscal Year 2001
     First Quarter                                $    -      $    -
     Second Quarter                                    -           -
     Third Quarter                                 12.00       12.00
     Fourth Quarter                                    -           -
                                   28

                                                SALES PRICES BY QUARTER
                                                  High          Low
     Fiscal Year 2000
     First Quarter                                $12.00        $12.00
     Second Quarter                                    -             -
     Third Quarter                                 12.00         12.00
     Fourth Quarter                                    -             -

                                               DIVIDENDS PAID PER SHARE
     Fiscal Year                                  2001          2000
     March 31                                     $  .00           .00
     June 30                                         .00           .00
     September 30                                    .00           .00
     December 31                                     .70           .70

Item 6.  Selected Financial Data

                              Years Ended December 31,
	                2001       2000       1999        1998       1997
                                   (In Thousands)
Total Assets 	 $ 224,791  $ 220,450  $ 173,807   $164,890   $149,895

Operations:
 Interest income    $ 18,605  $  18,454  $  14,518   $ 13,920   $12,328
  Interest expense     9,335      8,578      6,261      6,392     5,387
Net interest
 income            $   9,270  $   9,876  $   8,257   $  7,528   $  6,941
Provision for
    loan losses          893        424        503        286        179
Net interest
 income after
 provision for
 loan losses      $   8,377  $   9,452  $   7,754   $  7,242   $  6,762
Other income      $   3,125  $   2,718  $   2,298   $  1,905   $  1,569
Other expenses    $   9,085  $   8,302  $   6,906   $  6,387   $  6,017
Income before
 income taxes     $   2,417  $   3,868  $   3,146   $  2,760   $  2,314
Federal income
    taxes               733      1,222      1,017        831        768
Net income before
 extraordinary
 items            $   1,684  $   2,646  $   2,129   $  1,929   $  1,546
Extraordinary
 items            $       -  $       -  $       -   $      -   $      -
Net income        $   1,684  $   2,646  $   2,129   $  1,929   $  1,546

Per Share Data:
 Income after
  extraordinary
  items           $    4.21  $    6.62  $    5.33   $   4.83   $   3.86
 Net income       $    4.21  $    6.62  $    5.33   $   4.83   $   3.86
 Dividends
  declared        $     .70  $     .70  $     .65   $    .65   $    .60
 Book value       $   49.71  $   45.73  $   39.57   $  35.56   $  31.28

                                   29

Item 6.  Selected Financial Data (con't)

                			Years Ended December 31,
               	 2001       2000       1999        1998       1997
                                   (In Thousands)
Profitability Ratios
 Net income to
 average total
    assets          .74%      1.35%     1.28%        1.23%       1.13%
Net income to average
 stockholders'
    equity         8.83%     15.52%    14.18%       14.45%      13.06%
Net interest
    Margin         3.88%     4.77%      4.83%        4.52%       5.18%


Item  7. Management's Discussion and Analysis of  Financial Condition  and
Results of Operations

      The  purpose of this discussion is to focus on information  about
South  Banking Company's financial condition and results of  operations
which  is  not  otherwise  apparent  from  the  consolidated  financial
statement included in this report.  Reference should be made  to  those
statements, selected statistical information and the selected financial
data  presented  elsewhere in this report for an understanding  of  the
following discussion and analysis.

Financial Condition and Liquidity

Financial Condition

      South  functions  as  a financial institution  and  as  such  its
financial  condition  should be examined in  terms  of  trends  in  its
sources  and  uses  of funds.  A comparison of daily  average  balances
indicate how South has managed its sources and uses of funds.  Included
in  the  selected  statistical information,  the  comparison  of  daily
average  balance  in the business portion of the filing  indicated  how
South  has managed its sources and uses of funds.  South used its funds
primarily to support its lending activities.

      South's  total assets increased to $224,790,523 at year end  2001
from  $220,450,038  at  year  end 2000.  This  increase  of  $4,340,485
represents a 1.9% increase in 2001 compared to 14.7% increase in  2000.
This  increase is attributable to normal growth within the banking area
with limited entry into competitive situations for large deposits.  Due
to  the  increased  competition in certain markets,  the  net  interest
margins  have  declined. The net interest margin is not anticipated  to
change  much  in  2002  as the effect of the new competition  and  rate
reductions have leveled off.  However, continued decreases in the prime
rate could impact the margins.  The interest rate sensitivity analysis,
which is a part of this report, gives some indication of the  repricing
opportunities  of South. The gap ratios for the first twelve months are
outside  the  limits  established by the Bank as  ideal,  however,  the
current  interest  rates  are not favorable to   customers   purchasing
certificates  in excess of twelve

                                   30

months.  Loan  demand  continues to be  strong  with  loans  increasing
$9,151,132 in 2001.  The banks continue to look for good quality  loans
as loans represent the highest yielding asset on the Bank's books.  The
rural  economy of the Banks' market area has been stable prior to 1998.
The Banks have noticed some decline beginning in 1999, 2000 and 2001 in
the  overall  economy,  and especially in the agricultural  and  timber
industries.  While the Banks are not heavy into these  industries,  the
decline  in  these areas have impacted the overall economy.  Classified
loans  for  regulatory purposes remain at low levels and,  despite  the
problem  in  the  local  economies,  do  not  represent  any  trend  or
uncertainties  which  management  reasonably  expects  will  materially
impact  future  operating results, liquidity of capital  resources,  or
represents material credits about which management is aware that causes
management  to have serious doubts as to the ability of such  borrowers
to comply with the loan payment terms.

      South's  investment portfolio, including certificates of deposits
in  other  banks,  decreased  to  $18,593,836  from  $21,667,660.   The
decrease  of  $3,073,824 from operations is an indication of  the  loan
demand  of the banks and the desire of the banks to utilize the  assets
of  South in the highest yielding manner available to the banks without
creating  liquidity  problems. South has  maintained  adequate  federal
funds  sold and investments available for sale to sufficiently maintain
adequate  liquidity.  South's securities are primarily  short  term  of
three  years or less in maturity, enabling South to better monitor  the
rate  sensitivity of these assets. Unrealized gain and losses  on  this
portfolio is not material to the statement as South maintains a  slight
unrealized gain of $158,707.

      As  the primary source of funds, aggregate deposits increased  by
$3,321,388  in 2001 compared to $21,505,401 in 2000. This represents  a
1.72%  increase  for the year compared to a 14.07%  increase  in  2000.
This  illustrates  the  efforts of the  banks  to  maintain  good  core
deposits.  Most of the growth was from the demand accounts  which  have
lower  interest rates as time certificate rates have dropped to  levels
customers do not wish to lock-in rates for extended periods.

Liquidity

      The  primary function of asset/liability management is to  assure
adequate liquidity and maintain an appropriate balance between interest
sensitive  earning assets and interest bearing liabilities.   Liquidity
management  involves the ability to meet the cash flow requirements  of
customers  who may  be either  depositors desiring to  withdraw   funds
or
borrowers  requiring assurance that sufficient funds will be  available
to meet their credit needs.  Interest rate sensitivity management seeks
to  avoid  fluctuating net interest margins and to  enhance  consistent
growth  of  net  interest income through periods of  changing  interest
rates.

                                   31

     Interest rate sensitivity varies with different types of interest-
earning  assets  and interest bearing liabilities.   Overnight  federal
funds  on  which rates change daily and loans which are tied  to  prime
differ  considerably from long-term investment and  fixed  rate  loans.
Similarly,  time deposits over $100,000 and money market  accounts  are
much  more  interest  sensitive  than passbook  savings  and  long-term
capital notes. The shorter-term interest rate sensitivities are key  to
measuring  the  interest sensitivity gap, or excess  interest-sensitive
earning  assets  over interest-bearing liabilities.  An  interest  rate
sensitivity table is included elsewhere in this document, and it  shows
the  interest  sensitivity  gaps for different  time  intervals  as  of
December  31,  2001. The first 30 days there is an excess of  interest-
bearing  assets over interest-bearing liabilities. South  becomes  more
sensitive to interest rate fluctuations on a short time period.   While
the  cumulative  gap  declines with each time interval,  South  remains
within a manageable position.

     Marketable  investment securities, particularly those  of  shorter
maturities, and federal funds sold are the principal sources  of  asset
liquidity.   Securities  maturing in  one  year  or  less  amounted  to
$2,062,259  and federal funds sold net of federal funds purchased  with
daily  maturities amounted to $10,252,000 at year end 2001, a  decrease
from  prior  years  as loan demand exceeded deposit  growth.   Maturing
loans and certificates of deposits in other banks are other sources  of
liquidity.

      The overall liquidity of South has been enhanced by a significant
aggregate  amount of core deposits.  These core deposits have  remained
constant during this period.  South has utilized less stable short-term
funding  sources  to enhance liquidity such as large denomination  time
deposits  and  money  market certificates within its  current  customer
base, but has not attempted to acquire these type of accounts from non-
core  deposit customers.  South has utilized its core deposit  base  to
help insure it maintains adequate liquidity.

      Historically,  the  trend in cash flows  as  represented  in  the
statement  of  cash flows shows a steady increase in cash generated  by
operations  from the last three years.  This is a result of  increasing
net  income for each year until 2001.  While income is not predictable,
it  is  anticipated that liquidity will continue to be enhanced by  the
operations of the bank. Operations activity, however, generate  only  a
small  portion of the cash flow activities of the bank.   Primary  cash
flow  comes from investing activities such as sales and/or maturity  of
investment securities and in the financing activity through an increase
in  deposits.   The primary use of cash flow includes the  purchase  of
securities  and making new loans as investing activities.  The  history
of  the  bank's  cash  flow  indicates a nonrepeating  source  such  as
proceeds from borrowings utilized as sources of cash for the purpose of
acquisition  or  expansion.  South's overall cash  flows  indicate  the
relative  stability and manageable growth of the bank's assets.   South
utilized  deposit  growth  as its primary source  of  funds  to  handle
growth.   South's  liquidity  is maintained  at  levels  determined  by
management to be sufficient to handle the cash needs that  might  arise
at

                                   32

any  given  date.  Outside sources are maintained, but South  looks  to
these  sources  only  on a very short term basis.   South's  long  term
liquidity plans include utilizing internally generated deposits as  its
primary source of cash flows and utilizing the shifting of the make  up
of assets to handle short term demands on cash.

Capital Resources

      In January 1989, the Federal Reserve Board released new standards
for  measuring capital adequacy for U. S. banking organizations.  These
standards  are  based  on the original risk-based capital  requirements
first  proposed  in  early  1986 by U.  S.  bank  regulators  and  then
developed  jointly  by authorities from the twelve  leading  industrial
countries.    As  a  result, the standards are  designed  to  not  only
provide   more   risk-responsive  capital  guidelines   for   financial
institutions in the U. S., but also incorporate a consistent  framework
for  use by financial institutions operating in the major international
financial markets.

     In general, the standards require banks and bank holding companies
to  maintain capital based on "risk-adjusted" assets so that categories
of assets with potentially higher credit risk will require more capital
backing  than  assets  with lower risk.  In addition,  banks  and  bank
holding  companies are required to maintain capital to  support,  on  a
risk-adjusted basis, certain off-balance sheet activities such as  loan
commitments and interest rate swaps.

      The  Federal  Reserve Board standards classify capital  into  two
tiers,  referred to as Tier 1 and Tier 2.  Tier 1 capital  consists  of
common  shareholders' equity, noncumulative and cumulative (BHCs  only)
perpetual preferred stock and minority interest less goodwill.  Tier  2
capital  consists  of  allowance for loan and lease  losses,  perpetual
preferred  stock (not included in Tier 1), hybrid capital  instruments,
term  subordinated  debt  and intermediate-term  preferred  stock.   By
December  31, 1992, all banks were required to meet a minimum ratio  of
8%  of  qualifying total capital to risk-adjusted total assets with  at
least  4%  Tier 1 capital. Capital that qualifies as Tier 2 capital  is
limited to 100% of Tier 1 capital.

Loans and Asset Quality

      Management  of  the Company believes that the loan  portfolio  is
adequately  diversified.  Commercial loans are spread through  numerous
types  of businesses with no particular industry concentrations.  Loans
to  individuals are made primarily to finance consumer goods purchased.
At  December 31, 2001, total loans, net of unearned discounts, were 85%
of  total  earning assets.  Loans secured by real estate accounted  for
55%  of  total  loans  as  of December 31, 2001.   Most  of  the  loans
classified  as  real estate-mortgage are commercial  loans  where  real
estate provides additional collateral.  The Banks do not participate in
the secondary loan market.

                                   33

     Nonperforming assets include nonaccrual loans, accruing loans past
due 90 days or more and other real estate, which includes foreclosures,
deeds in lieu of foreclosure and in-substance foreclosures.

       A   loan  is  generally  classified  as  nonaccrual  when   full
collectibility of principal or interest is doubtful or a  loan  becomes
90  days  past  due  as  to  principal or interest,  unless  management
determines that the estimated net realizable value of the collateral is
sufficient  to cover the principal balance and accrued interest.   When
interest accruals are discontinued, unpaid interest credited to  income
in  the  current year is reversed and unpaid interest accrued in  prior
years  is charged to the allowance for loan losses. Nonperforming loans
are  returned to performing status when the loan is brought current and
has  performed in accordance with contract terms for a period of  time.
A summary of South's loan loss experience is included elsewhere in this
report.

Distribution of Nonperforming Assets
                                           2001      2000    1999
                                                 (In Thousands)
Nonaccrual loans                           $ 1,002   $   876   $   442
Past due 90 days still accruing              1,028       734       419
Other real estate (ORE)                      1,265       725       168

                                           $ 3,295   $ 2,335   $ 1,029
Nonperforming loans to year
  end loans                                  1.18%      .99%       .65%
Nonperforming assets to year
 end loan and ORE                            1.91%     1.42%       .78%

      The  ratio of nonperforming assets has increased each  year  from
1994 to 1997.  However in 1998 and 1999, a slight decrease occurred  as
90  days past dues declined. During 2000 and 2001, the economy  in  the
banks'  market  area  declined  with  certain  loans  deteriorating  to
nonperforming  status.  Management continues to work  on  nonperforming
assets to reduce this ratio.

Asset-Liability Management and Market Risk Sensitivity

      Market  risk is the risk of loss from adverse changes  in  market
prices  and  rates.  The Company's market risk arises principally  from
interest  rate  risk  inherent in its lending,  deposit  and  borrowing
activities. Management actively monitors and manages its inherent  rate
risk  exposure. Although the Company manages other risks, as in  credit
quality   and  liquidity  risk,  in  the  normal  course  of  business,
management  considers  interest rate risk to be  its  most  significant
market risk and could potentially  have the largest material effect  on
the  Company's  financial condition and results of  operations.   Other
types of market risks, such as foreign currency exchange rate risk  and
commodity  price  risk,  do  not arise in  the  normal  course  of  the
Company's business activities.

                                   34

      The  Company's  profitability  is  affected  by  fluctuations  in
interest rates.  Management's goal is to maintain a reasonable  balance
between exposure to interest rate fluctuations and earnings.  A  sudden
and  substantial  increase in interest rates may adversely  impact  the
Company's  earnings to the extent that the interest rates on  interest-
earning  assets and interest-bearing liabilities do not change  at  the
same  speed,  to  the  same extent or on the same basis.   The  Company
monitors  the  impact of changes in interest rates on its net  interest
income using several tools.

     The Banks' goal is to minimize interest rate risk between interest
bearing  assets  and  liabilities at various  maturities   through  its
Asset-
Liability Management (ALM).  ALM involves managing the mix and  pricing
of  assets and liabilities in the face of uncertain interest rates  and
an  uncertain economic outlook.  It seeks to achieve steady  growth  of
net interest income with an acceptable amount of interest rate risk and
sufficient   liquidity.    The  process  provides   a   framework   for
determining,  in  conjunction with the profit planning  process,  which
elements  of  the Company's profitability factors can be controlled  by
management. Understanding the current position and implications of past
decisions  is necessary in providing direction for the future financial
management  of the Company.  The Company uses an asset-liability  model
to determine the appropriate strategy for current conditions.

      Interest  sensitivity management is part of  the  asset-liability
management  process.  Interest sensitivity gap (GAP) is the  difference
between total rate sensitive assets and rate sensitive liabilities in a
given  time  period.   The Company's rate sensitive  assets  are  those
repricing  within one year and those maturing within  one  year.   Rate
sensitive  liabilities include insured money market  accounts,  savings
accounts,  interest-bearing  transaction accounts,  time  deposits  and
borrowings.    The   profitability  of  the   Company   is   influenced
significantly  by  management's  ability  to  manage  the  relationship
between  rate sensitive assets and liabilities.  At December 31,  2001,
approximately  69% of the Company's earnings assets could  be  repriced
within  one  year compared to approximately 92% of its interest-bearing
liabilities.  This compares to 58% and 92% in 2000.

      The  Company's current GAP analysis reflects that in  periods  of
increasing  interest rates, rate sensitive assets will  reprice  slower
than rate sensitive liabilities.  The Company's GAP analysis also shows
that  at the interest repricing of one year, the Company's net interest
margin  would be adversely impacted.  This analysis, however, does  not
take  into  account the dynamics of the marketplace.  GAP is  a  static
measurement  that  assumes if the prime rate  increases  by  100  basis
points,  all  assets  and  liabilities that are  due  to  reprice  will
increase  by  100 basis points at the next opportunity.   However,  the
Company  is actually able to experience a benefit from rising rates  in
the  short term  because deposit rates do not follow the national money
market.  They are controlled by the local market.  Loans do follow  the
money market; so when rates increase they reprice immediately, but  the
Company is able to manage the deposit side. The Company generally  does
not  raise deposit rates as fast or as much. The Company also  has  the
ability to manage its funding costs by choosing alternative sources  of
funds.

                                   35

      The  Company's current GAP position would also be interpreted  to
mean  that  in  periods of declining interest rates, the Company's  net
interest margin would benefit.  However, competitive pressures  in  the
local market may not allow the Company to lower rates on deposits,  but
force the Company to lower rates on loans.

      Computation of prospective effects of hypothetical interest  rate
changes are based on numerous assumptions including relative levels  of
market  interest rates, loan prepayments and deposit decay  rates,  and
should  not  be relied upon as indicative of actual results.   Further,
the  computations  do  not contemplate any actions  the  Company  could
undertake in response to changes in interest rates.

      The  rate  sensitivity  analysis as  presented  in  the  selected
statistical information shows the Company's financial instruments  that
are  sensitive  to changes in interest rates, categorized  by  expected
maturity. Market risk sensitive instruments are generally defined as on
and off balance sheet derivatives and other financial instruments.

Notes to Market Risk Sensitivity Table:

  n     Expected  maturities  are contractual maturities  adjusted  for
     prepayments of principal when possible.  The Company uses  certain
     assumptions to estimate expected maturities.

  n    For loans, the Company has used contractual maturities due to the
     fact  that the Company has no historical information on prepayment
     speeds.  Since most of these loans are consumer and commercial loans,
     and since the Company's customer base is community-based, the Company
     feels its prepayment rates are insignificant.

  n    For mortgage-backed securities, expected maturities are based upon
     contractual maturity, projected repayments and prepayment of principal.
     The prepayment experience herein is based on industry averages  as
     provided by the Company's investment trustee.

  n    Loans receivable includes non-performing loans.

  n    Interest-bearing liabilities are included in the period in which
     the balances are expected to be withdrawn as a result of contractual
     maturities.  For accounts with no stated maturities, the balances are
     included in the 0 to 90 day category.

  n    The interest rate sensitivity gap represents the difference between
     total interest-earning assets and total interest-bearing liabilities.

      An important aspect of achieving satisfactory net interest income
is  the  composition  and  maturities  of  rate  sensitive  assets  and
liabilities.  The  table generally reflects that in periods  of  rising
interest  rates,  rate sensitive liabilities will reprice  faster  than
rate  sensitive assets, thus having a negative effect on  net  interest
income.  It must be understood, however, that such an analysis is  only
a snapshot picture  and

                                   36

does  not  reflect  the  dynamics  of  the  market  place.   Therefore,
management reviews simulated earnings statements on a monthly basis  to
more  accurately  anticipate its sensitivity  to  changes  in  interest
rates.

Results of Operations

                          2001 Compared to 2000

      Net  interest income remains an effective measurement of how well
management  has  balanced South's interest rate  sensitive  assets  and
liabilities.  Net interest income decreased by $605,669.  The  decrease
of  6.1%,  which included a full year of the 2000 branch  acquisitions,
compared to a 25.8% increase in 2000 when the branch acquisitions  were
included  after August.  The primary determinants of the decrease  were
loans and time deposits.  Loan demand increased slightly and funds were
channeled  into  loans  as they represent the highest  yielding  asset.
Management  continued  its  policy  of  limited  solicitation  of  high
interest   deposits.  The drastic reduction in  rates  by  the  Federal
Reserve system resulted in repricing of most of interest rate sensitive
assets  and deposits.  As the tables presented earlier demonstrate  the
assets rates decreased faster than deposits therefore, the margins were
squeezed  resulting in the decrease in net interest income.  The  yield
on  interest  earning  assets  decreased to  9.08%  from  10.31%  while
interest bearing deposits yield decreased to 5.20% from 5.54%.  The net
yield  decreased  to  3.88% from 4.77%.  With the  rate  reduction  not
anticipated  to continue this trend should correct itself during  2002;
however,  with the low rates currently in the market, this margin  will
remain low.

      Interest and fees on loans increased only $133,211 or .8% in 2001
from 2000 due to rate decreases of 123 basis points and loan growth  of
5.6% in 2001.  Interest on investment securities decreased $131,101  or
11.1%  in  2001  from 2000 due to a slight decrease  in  the  yield  in
investments  as rates have decreased. Interest income on federal  funds
sold  increased  $117,989  or  18.9% due  to  higher  average  balances
invested and lower rates.

      Total  interest expense increased 8.8% or $756,847 from  2000  to
2001.  The  largest  component of total interest  expense  is  interest
expense on deposits, which increased $783,123 or 9.6% from 2000 to 2001
due  to  a  growth in deposits.  The average rate paid on deposits  was
5.13%, 5.54% and 4.82% in 2001, 2000 and 1999, respectively.

      The  allowance  for  possible loan losses is established  through
charges  to  expense in the form of a provision for loan  losses.   The
provision for loan losses was $893,000 and $424,000, respectively,  for
the  years  ended  December 31, 2001 and 2000.  The provision  in  2001
reflects replenishing the allowance for loan losses to cover net charge-
offs  of  $864,439,  plus  providing for the increase  in  total  loans
outstanding.  The allowance for loan losses to total loans  outstanding
is  1.60%  at December 31, 2001.  Net charge-offs to average loans  are
..52% for 2001 as compared to 0.31% for 2000.

      The allowance for loan losses is based on an in-depth analysis of
the  loan  portfolio.  Specifically included in that analysis  are  the
following types of loans:  loans determined to be of a material amount,
loans  commented  on by regulatory authorities, loans commented  on  by
internal and external auditors, loans past due more  than 60  days, and

                                   37

loans  on  a nonaccrual status.  The allowance for loan losses  is  not
allocated  to  specific credit risk, but rather  to  the  overall  loan
portfolio  as  the  individual banks are relatively small  and  can  be
looked  at  as  a  whole.  The overall loan portfolio remains  of  good
quality,  however,  some deterioration has been noted  in  the  economy
which  reflects on the loan portfolio.  The Banks have made  provisions
where necessary to reflect the overall quality of loans.

Non-Interest Income

      Non-interest income for 2001 increased by $407,219 or 15.0%  over
2000,  as  compared to an increase in 2000 of $420,249  or  15.5%  over
1999.  These  increases generally resulted from increased  activity  in
data processing, financial services and service charges on deposits.  A
significant  contributor to non-interest income is service  charges  on
deposit  accounts which increased 13.4%.  Management views deposit  fee
income as critical influence on profitability.  Periodic monitoring  of
competitive  fee schedules and examination of alternative opportunities
ensure  that the Company realizes the maximum contribution  to  profits
from this area.  The addition of the branch acquisition contributed  to
the increase in fees.

Non-Interest Expense

      Non-interest expenses totaled $9,084,778 in 2001 as  compared  to
$8,301,997  in  2000.  This represented a 9.4% increase  from  2000  to
2001,  and  a 20.2% increase from 1999 to 2000.  The overall  increases
during  the year were attributable to growth in all geographic markets,
and includes operations of branches acquired during 2000.  Salaries and
other  personnel  expenses, which comprised 54% of  total  non-interest
expenses  for 2001, were up $694,299 or 16.4% over 2000 due  to  normal
salary  increases, benefit cost increases, and increased personnel  due
to  two  new  branches.   During  2000 and  1999,  salaries  and  other
personnel  expenses accounted for 52% and 54% of total other  operating
expenses, respectively.

      Combined  net  occupancy  and furniture  and  equipment  expenses
decreased  $130,966,  or  8.8% from 2000 to 2001,  as  compared  to  an
increase of $298,051, or 25.4% in 2000.

Income Taxes

      Income  tax  expense  totaled $733,859 in  2001  as  compared  to
$1,221,738  in  2000.  The changes in net income tax  expense  for  the
years  were due to changes in taxable income for each respective  year.
Taxable  income  is  affected  by net  income,  income  on  tax  exempt
investment securities and loans, and the provision for loan losses. For
tax  purposes,  the Bank can only recognize actual  loan  losses.   The
Company  works  actively with outside tax consultants to  minimize  tax
expenses.
                                   38

                          2000 Compared to 1999

      Net  interest income remains an effective measurement of how well
management  has  balanced South's interest rate  sensitive  assets  and
liabilities.   Net  interest  income  increased  by  $1,619,133.    The
increase   of  25.8%,  which  included  the  results  of   the   branch
acquisitions,  compared  to  a 9.68% increase  in  1999.   The  primary
determinants  of  the increase were loans and time deposits.   As  loan
demand  increases,  funds  are channeled into  higher  yielding  loans.
Management  continues  its  policy  of  not  soliciting  high  interest
deposits and was able to maintain stable cost of funds.  The growth  of
assets and liabilities was primarily the reason for the increase as net
interest  yield decreased slightly to 4.77% from 4.83%.  With  the  low
interest  rate  currently in the market and South's current  rate  gap,
South  will continue its efforts to channel funds into higher  yielding
assets.  Due to the rate sensitivity gap, South will attempt to improve
its current position with a controlled attempt to lengthen its maturity
of  interest rate sensitive liabilities although this remains difficult
without rate adjustments upward.

      Interest and fees on loans increased $3,744,981 or 29.13% in 2000
from  1999 due to rate increases of 59 basis points and loan growth  of
23.8% in 2000.  Interest on investment securities increased $53,083  or
4.8%  in  2000  from  1999 due to a slight increase  in  the  yield  in
investments  as  rates  have  increased slightly.  Interest  income  on
federal  funds  sold increased $160,488 or 34.7% due to higher  average
balances invested and higher rates.

      Total  interest expense increased 37% or $2,316,587 from 1999  to
2000.   The  largest  component of total interest expense  is  interest
expense  on deposits, which increased $2,109,540 or 35.1% from 1999  to
2000  due to a rate increase and growth in deposits.  The average  rate
paid  on  deposits was 5.54%, 4.82% and 5.27% in 2000, 1999  and  1998,
respectively.

      The  allowance  for  possible loan losses is established  through
charges  to  expense in the form of a provision for loan  losses.   The
provision for loan losses was $424,000 and $503,000, respectively,  for
the  years  ended  December 31, 2000 and 1999.  The provision  in  2000
reflects replenishing the allowance for loan losses to cover net charge-
offs  of  $452,964,  plus  providing for the increase  in  total  loans
outstanding.  The allowance for loan losses to total loans  outstanding
is  1.67%  at December 31, 2000.  Net charge-offs to average loans  are
..31% for 2000 as compared to 0.25% for 1999.

      The allowance for loan losses is based on an in-depth analysis of
the  loan  portfolio.  Specifically included in that analysis  are  the
following types of loans:  loans determined to be of a material amount,
loans  commented  on by regulatory authorities, loans commented  on  by
internal and external auditors, loans past due more  than  60 days, and
loans  on  a nonaccrual status.  The allowance for loan losses  is  not
allocated  to  specific credit risk, but rather  to  the  overall  loan
portfolio  as  the  individual banks are relatively small  and  can  be
looked  at  as  a  whole.  The overall loan portfolio remains  of  good
quality,  however,  some deterioration has been noted  in  the  economy
which  reflects on the loan portfolio.  The Banks have made  provisions
where necessary to reflect the overall quality of loans.

                                   39

Non-Interest Income

      Non-interest income for 2000 increased by $420,249 or 15.5%  over
1999,  as  compared to an increase in 1999 of $392,788  or  20.6%  over
1998.  These  increases generally resulted from increased  activity  in
data processing, financial services and service charges on deposits.  A
significant  contributor to non-interest income is service  charges  on
deposit  accounts which increased 24.2%.  Management views deposit  fee
income as critical influence on profitability.  Periodic monitoring  of
competitive  fee schedules and examination of alternative opportunities
ensure  that the Company realizes the maximum contribution  to  profits
from this area.  The addition of the branch acquisition contributed  to
the increase in fees.

Non-Interest Expense

      Non-interest expenses totaled $8,301,997 in 2000 as  compared  to
$6,905,856  in 1999.  This represented an 20.2% increase from  1999  to
2000,  and  a  8%  increase from 1998 to 1999.  The  overall  increases
during  the year were attributable to growth in all geographic markets,
and includes operations of branches acquired during the year.  Salaries
and other personnel expenses, which comprised 51% of total non-interest
expenses  for 2000, were up $535,840 or 14.5% over 1999 due  to  normal
salary  increases, benefit cost increases, and increased personnel  due
to  two  new  branches.   During  1999 and  1998,  salaries  and  other
personnel  expenses accounted for 54% and 51% of total other  operating
expenses, respectively.

      Combined  net  occupancy  and furniture  and  equipment  expenses
increased  $298,051,  or 25.4% from 1999 to 2000,  as  compared  to  an
increase of $26,489, or 2.3% in 1999.

Income Taxes

      Income  tax  expense totaled $1,221,738 in 2000  as  compared  to
$1,017,056  in  1999.  The changes in net income tax  expense  for  the
years  were due to changes in taxable income for each respective  year.
Taxable  income  is  affected  by net  income,  income  on  tax  exempt
investment securities and loans, and the  provision  for  loan  losses.
For  tax purposes, the Bank can only recognize actual loan losses.  The
Company  works  actively with outside tax consultants to  minimize  tax
expenses.

                                   40

Results of Operations

                        1999 Compared to 1998

      Net  interest income remains an effective measurement of how well
management  has  balanced South's interest rate  sensitive  assets  and
liabilities.  Net interest income increased by $728,607.  The  increase
of   9.68%  compared  to  a  8.45%  increase  in  1998.   The   primary
determinants  of  the increase were loans and time deposits.   As  loan
demand  increased,  funds were channeled into  higher  yielding  loans.
Management  continues  its  policy  of  not  soliciting  high  interest
deposits and was able to maintain stable cost of funds.  The growth  of
assets and liabilities was only part of the reason for the increase  as
net  interest  yield  increased to 4.83%  from  4.52%.   With  the  low
interest  rates  in  the market and South's interest  rate  gap,  South
continued  its  efforts to channel funds into higher  yielding  assets.
Due to the rate sensitivity gap, South attempted to improve its current
position with a controlled attempt to lengthen its maturity of interest
rate  sensitive  liabilities although this is  difficult  without  rate
adjustments upward.

      Interest and fees on loans increased $706,985 or 5.82% from  1998
to  1999  due to loan growth of 15.1% in 1999.  Interest on  investment
securities  decreased  $29,504 or 2.5% from  1998  to  1999  due  to  a
reduction in the yield in investments as rates have increased slightly.
Interest  income on federal funds sold decreased $113,905 or 18.9%  due
to higher average balances invested.

      Total  interest expense decreased 20% or $131,134  from  1998  to
1999.  The  largest  component of total interest  expense  is  interest
expense on deposits, which decreased $117,482 or 1.9% from 1998 to 1999
due  to  a  rate decrease that offset growth in deposits.  The  average
rate  paid  on  deposits was 4.82%, 5.27% and 5.10% in 1999,  1998  and
1997, respectively.

      The  allowance  for  possible loan losses is established  through
charges  to  expense in the form of a provision for loan  losses.   The
provision for loan losses was $503,000 and $286,000, respectively,  for
the  years  ended  December 31, 1999 and 1998.  The provision  in  1999
reflects replenishing the allowance for loan losses to cover net charge-
offs of $432,472, plus providing for the 15.10% increase in total loans
outstanding.  The allowance for loan losses to total loans  outstanding
is  1.64%  at December 31, 1999.  Net charge-offs to average loans  are
..25% for 1999 as compared to 0.12% for 1998.

      The allowance for loan losses is based on an in-depth analysis of
the  loan  portfolio.  Specifically included in that analysis  are  the
following types of loans:  loans determined to be of a material amount,
loans  commented  on by regulatory authorities, loans commented  on  by
internal  and external auditors, loans past due more than 60 days,  and
loans  on  a nonaccrual status.  The allowance for loan losses  is  not
allocated  to  specific credit risk, but rather  to  the  overall  loan
portfolio  as  the  individual banks are relatively small  and  can  be
looked  at  as  a  whole. The overall loan portfolio  remains  of  good
quality,  however,  some deterioration was noted in the  economy  which
reflects  on the loan portfolio.  The Banks have made provisions  where
necessary to reflect the overall quality of loans.

                                   41

Non-Interest Income

      Non-interest income for 1999 increased by $392,788 or 20.6%  over
1998,  as  compared to an increase in 1998 of $335,546  or  21.4%  over
1997.  These  increases generally resulted from increased  activity  in
data processing, financial services and service charges on deposits.  A
significant  contributor to non-interest income is service  charges  on
deposit  accounts which increased 24.2%.  Management views deposit  fee
income as critical influence on profitability.  Periodic monitoring  of
competitive  fee schedules and examination of alternative opportunities
ensure  that the Company realizes the maximum contribution  to  profits
from this area.

Non-Interest Expense

      Non-interest expenses totaled $6,905,856 in 1999 as  compared  to
$6,386,678 in 1998.  This represented an 8% increase from 1998 to 1999,
and a 6% increase from 1997 to 1998.   The overall increases during the
year  were  due to growth in all geographic markets, which is evidenced
by  the growth in deposits of 4.7% from 1998 to 1999 and 11% from  1997
to  1998. Salaries and other personnel expenses, which comprised 54% of
total  non-interest expenses for 1999, were up $410,409 or  12.5%  over
1998  due  to  normal  salary increases, benefit  cost  increases,  and
increased  personnel due to the one new branch.  During 1998 and  1997,
salaries  and  other personnel expenses accounted for 51%  and  50%  of
total other operating expenses, respectively.

      Combined  net  occupancy  and furniture  and  equipment  expenses
increased  $26,489,  or  2.3% from 1998 to  1999,  as  compared  to  an
increase of $102,423, or 9.8%, in 1998.

Income Taxes

      Income  tax  expense totaled $1,017,056 in 1999  as  compared  to
$830,744 in 1998.  The changes in net income tax expense for the  years
were  due  to  changes  in  taxable income for  each  respective  year.
Taxable  income  is  affected  by net  income,  income  on  tax  exempt
investment  securities and loans, and the provision  for  loan  losses.
For  tax purposes, the Bank can only recognize actual loan losses.  The
Company  works  actively with outside tax consultants to  minimize  tax
expenses.

Regulatory Matters

      During  the  year  2001,  federal and state  regulatory  agencies
completed  asset  quality  examinations at  South's  subsidiary  banks.
South's level and classification of identified potential problem  loans
was  not  revised  significantly  as  a  result  of   this   regulatory
examination   process.  However, one bank has  seen  some  increase  in
classified loans as a result of branch acquisitions in the year 2000.

      Examination  procedures  require  individual  judgments  about  a
borrower's ability to repay loans, sufficiency of collateral values and
the  effects of changing economic circumstances.  These procedures  are
similar to those employed by South in determining the adequacy  of  the
allowance for loan losses and in classifying loans.  Judgments made  by
regulatory examiners may differ from those made by management.

                                   42

      Management  and the boards of directors of South  and  affiliates
evaluate  existing  practices and procedures on an ongoing  basis.   In
addition,  regulators often make recommendations during the  course  of
their  examinations  that relate to the operations  of  South  and  its
affiliates.   As  a matter of practice, management and  the  boards  of
directors  of  South and its subsidiaries consider such recommendations
promptly.

Impact of Inflation and Changing Prices

      The  majority of assets and liability of a financial  institution
are  monetary in nature; therefore, differ greatly from most commercial
and  industrial  companies that have significant investments  in  fixed
assets  or  inventories.   However, inflation does  have  an  important
impact  on the growth of total assets in the banking industry  and  the
resulting  need to increase equity capital at higher than normal  rates
in  order  to  maintain  an  appropriate  equity-to-assets  ratio.   An
important effect of this has been  the  reduction  of  asset  growth to
maintain   appropriate levels. Another significant effect of  inflation
is  on  other  expenses, which tend to rise during periods  of  general
inflation.

      Management  believes  the most significant  impact  on  financial
results  is South's ability to react to changes in interest rates.   As
discussed   previously,  management  is  attempting  to   maintain   an
essentially  balanced  position between interest sensitive  assets  and
liabilities   in   order  to  protect  against   wide   interest   rate
fluctuations.

Item 8.  Financial Statements and Supplementary Data

      The following consolidated financial statements of the Registrant
and  its subsidiaries are included on pages F1 through F47 of this Annual
report on Form 10-K.

     Consolidated Balance Sheets - December 31, 2001 and 2000

     Consolidated Statements of Income and Other Comprehensive Income -
        Years ended December 31, 2001, 2000 and 1999

     Consolidated Statements of Changes in Stockholders' Equity - Years
        ended December 31, 2001, 2000 and 1999

     Consolidated Statements of Cash Flow - Years ended December 31,
        2001, 2000 and 1999

     Notes to Consolidated Financial Statements

Item 9.  Disagreement on Accounting and Financial Disclosures

     Not applicable.

                                   43

Part III.

Item 10. Directors and Executive Officers of the Registrant

      The  Directors and Executive Officers of the Registrant and  their
respective ages, positions with the Registrant, principal occupation and
Common  Stock of the Registrant beneficially owned as of March  1,  2001
are as follows:
                                                Director
                                               (Officer) of  # of shares
                           Position with        Registrator Owned
                           Registrant          of one of     Beneficiary
                           & Principal         the Banks     (Percent of
Name (Age)                 Occupation          Since        Class)
Paul T. Bennett (46)       President,          1978(1)(2)        19,000
                            Treasurer and             (3)      (  4.75%)
                            Director; Vice            (4)
                            Chairman and Director,
                            Citizens Bank; Vice
                            Chairman and Director,
                            Peoples State Bank &
                            Trust, Baxley, Georgia;
                            President Peoples Bank,
                            Lyons, Georgia; Director
                                          and President
                            Banker's Data Services;
                            Director, Alma Exchange
                            Bank and Trust;
                            Director, Chairman and
                            President Pineland
                            State Bank

Olivia Bennett (82)        Executive Vice      1969(1)(2)       189,307
                            President, Secretary      (3)     (  47.39%)
                            and Director; Chairman
                            and Director, Alma
                            Bank; Director,
                            Banker's Data Services;
                            Chairman of Board,
                            President, Citizens Bank;
                            Director, Peoples Bank

Lawrence Bennett (54)      President and       1987(1)(2)        12,498
                            Director, Alma            (4)       (  3.13%)
                            Bank; Director,
                            Banker's Data Services;
                            Director, Peoples
                            Bank, Baxley; Director
                            Peoples Bank, Lyons
                           Director, Pineland State
                           Bank

                                   44

Item 10. Directors and Executive Officers of the Registrant (Con't)

                                                Director
                                                (Officer) of # of shares
                           Position with        Registrator Owned
                           Registrant          of one of     Beneficiary
                           & Principal         the Banks     (Percent of
Name (Age)                 Occupation          Since        Class)
Charles Stuckey (54)      Director; Executive     1990(3)           992
                           Vice President,                      (    .2%)
                           Peoples Bank; Director,
                           Banker's Data Services

James W. Whiddon (57)      Director; Executive     1989(2)          279
                            Vice President and                  (    .1%)
                            Director, Citizens
                            Bank; Director,
                            Banker's Data Services

Kenneth F. Wade (59)       Director; Executive     1980(1)        4,934
                            Vice President, Director            (  1.23%)
                            and Cashier, Alma Bank;
                            Director, Banker's
                            Data Services

(1) Director of Alma Bank
(2) Director of Citizens Bank
(3) Director of Peoples Bank
(4) Director of Pineland State Bank

      Included  in  shares owned by Olivia Bennett are  166,085  shares
owned  by  Estate of Valene Bennett of which she is the  Executrix  and
22,983 shares owned by Bennett Family Limited Partnership of which  she
is the general partner.

       None  of  the  directors  are  a  director  of  a  publicly-held
corporation  which is required to file reports with the Securities  and
Exchange Commission.

      Each of the Directors and Executive Officers have been engaged in
his  or  her  present  principal occupation for at  least  five  years.
Olivia  Bennett is the mother of Paul T. Bennett and Lawrence  Bennett.
There  are no other family relationships between any other Director  or
Executive  Officer.  Directors serve until the next annual  meeting  of
shareholders  or  until  their successors are  elected  and  qualified.
Officers serve at the pleasure of the Board of Directors.

                                   45

  Item 11.  Management Renumeration and Transactions

      The  following  information is given  as  to  the  cash  and  cash
equivalent forms of renumeration received by South's CEO.

                                                Long-Term Compensation
                   Annual Compensation          Awards           Payouts
(A)        (B)   (C)      (D)       (E)         (F)       (G)      (H)
(I)

                                                                 Other
All
Name and                         Annual    Restricted                 Other
Principal                        Compen-     Stock  Options/ LTIP    Compen-
Position           Year          Salary   Bonus    sation (2)  Award   SARS
#     Payouts sation
Paul T.
Bennett 2001   196,700       -    32,090         -       -        -     -
CEO     2000   182,848       -    31,440         -       -        -     -
CEO     1999   164,348       -    28,910         -       -        -     -
CEO      1998   140,956       -    26,200         -       -         -      -
1997  125,138      -  20,235         -         -       -       -
Olivia
Bennett
Secretary2001  202,618       -    20,875         -       -        -     -
        2000   215,099       -    20,915         -       -        -     -
        1999   205,366       -    20,345         -       -        -     -
        1998   195,935       -    22,010         -       -        -    -
        1997   182,936       -    15,135         -       -        -    -

(1)   Does  not include fees and dues for clubs and fraternal and  civic
organizations paid by the Banks to certain officers for business related
purposes.  Also, does not include any amounts for use of an automobile.

(2)   Other  compensation consists of director fees from registrant  and
subsidiary banks.

Transactions with Management

Item 12.  Security Ownership of Certain Beneficial Owners and Management

     The following table sets forth, as of March 1, 2002, the beneficial
ownership  of Common Stock of Registrant by the Only "person"  (as  that
term is defined by the Securities and Exchange Commission), who owns  of
record  or is known by the Registrant to own beneficially 5% or more  of
the  outstanding  shares of Common Stock of the Registrant  and  by  all
Executive Officers and Directors of the Registrant as a group.

                                   46

                                             Number of     Percent of
                                              Shares Owned  Outstanding
Name                                          Beneficially Shares
Estate of Valene Bennett
Route 4
Alma, Georgia 31510                                166,085       41.57%

Olivia Bennett
Route 4
Alma, Georgia 31510                                 23,222        5.81%

ll Executive Officers and Directors
 as a group (7 persons)                            227,248        56.9%

Item 13.  Certain Relationships and Related Transactions

      The  Banks  have  had, and expect to have in the future,  banking
transactions  in  the ordinary course of business  with  Directors  and
Officers  of  the  Banks and their associates, including  corporations,
partnerships  and  other  organizations in  which  such  Directors  and
Officers  have an interest, on substantially the same terms  (including
interest  rates  and collateral) as those prevailing at  the  time  for
comparable transactions with unrelated parties.  Such transactions have
not  involved more than the normal risk of collectibility or  presented
other unfavorable features.

Item 14.  Exhibits, Financial Statement Schedule and Reports on Form 8-K
Item 14(a)  1. and 3. and Item 14(d)

     (a)  The following documents are filed as part of this report:

          1.  Financial Statements

          (a)   South Banking Company and Subsidiaries:
           (i)  Consolidated Balance Sheets - December  31,  2001  and
                    2000
           (ii) Consolidated   Statements   of   Income   and   Other
                    Comprehensive Income - Years ended December 31,
                    2001, 2000 and 1999
           (iii)Consolidated  Statements  of  Stockholders'  Equity   -
                    Years ended December 31, 2001, 2000 and 1999
           (iv) Consolidated  Statements of Cash  Flow  -  Years  ended
                    December 31, 2001, 2000 and 1999
          (b)   South Banking Company (Parent Corporation Only):
          (i)  Balance Sheets - December 31, 2001 and 2000
           (ii)Statements of Income and Other Comprehensive  Income  -
                    Periods ended December 31, 2001, 2000 and 1999
           (iii)Statements  of  Stockholders'  Equity  -  Periods  ended
                    December 31, 2001, 2000 and 1999
           (iv) Statements  of  Cash Flow - Years  ended  December  31,
                    2001, 2000, and 1999

                                   47

Item 14.  Exhibits, Financial Statement Schedule and Reports on  Form  8-K
          (Con't)

          3.  Exhibits required by Item 7 of regulation S-K:

          (3)   Articles of Incorporation and By-Laws (included as
           Exhibits  3(a)  and  (b), respectively, to  Appendix  II  to
           Registrant's Registration Statement on Form S-14, File No. 2-
           71249, previously filed with the Commission and incorporated
           herein by reference).

          (13)  2002  Annual  Report to Shareholders of  South  Banking
          Company  (not deemed filed except to the extent that sections
          thereof  are  specifically incorporated into this  report  on
          Form 10-K by reference).

          (22)  List of the Registrant's subsidiaries:

          (1)   Alma Exchange Bank & Trust
          (2)   Citizens State Bank
          (3)   Peoples State Bank & Trust
          (4)   Bankers' Data Services, Inc.
          (5)   Pineland State Bank
          (6)   South Financial Products, Inc.

     All of the Registrant's subsidiaries were incorporated under the
laws  of the State of Georgia and are doing business in Georgia under
the above names.

          (b)   The  registrant has not filed a Form 8-K  during  the
          last quarter of the period.

          (c)  The response to this Item 14(c) is included in item 14(a).

          (d)  Financial Statements Schedules - None.

                                   48

                            POWER OF ATTORNEY

      Know all men by these present, that each person whose signature
appears below constitutes and appoints Paul T. Bennett, his attorney-
in-fact, to sign any amendments to this Report, and to file the same,
with  exhibits thereto, and other documents in connection  therewith.
The   Securities  and  Exchange  Commission  hereby   ratifying   and
confirming  all  that  said attorney-in-fact, or  his  substitute  or
substitutes, may do or cause to be done by virtue hereof.

      Pursuant  to  the requirements of Section 13 or  15(d)  of  the
Securities Exchange Act of 1934, this report has been signed below by
the  following  persons  on  behalf of  the  Registrant  and  in  the
capacities and on the dates indicated.

Date:      March 29, 2002
                                      Paul T. Bennett
                                      Principal Executive,
                                      Financial and Accounting
                                      Officer and Director

Date:      March 29, 2002
                                      Olivia Bennett
                                      Executive Vice President
                                      And Director

Date:     March 29, 2002
                                      Charles Stuckey
                                      Director

Date:      March 29, 2002
                                      James W. Whiddon
                                      Director

Date:      March 29, 2002
                                      Kenneth F. Wade
                                      Director

Date:      March 29, 2002
                                      Lawrence Bennett
                                      Director

                                   49

                              SIGNATURES

      Pursuant  to  the requirements of Section 13 or  15(d)  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

Date:      March 29, 2002               By:
                                              Paul    T.    Bennett
                                              President, Treasurer
                                                and Director

                                   50

                        SUPPLEMENTAL INFORMATION

      The following supplemental information has not been sent to the
Registrant's shareholders, but will be sent subsequent to the  filing
of this Annual Report on Form 10-K:

     (1)  2001 annual report to shareholders.

     (2)  Proxy statement for 2001 annual meeting of shareholders.

      The  foregoing   materials will be furnished to the  Commission
when they are sent to the shareholders since the Registrant does  not
have  securities registered pursuant to Section 12 of the  Securities
Exchange Act of 1934.  The foregoing materials shall not be deemed to
be   "filed"  with  the  Commission  or  otherwise  subject  to   the
liabilities of Section 18 of that Act.
                                   51
                          SOUTH BANKING COMPANY

                              ALMA, GEORGIA

                          FINANCIAL STATEMENTS

                            DECEMBER 31, 2001

                                   F1

                    REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors
South Banking Company
Alma, Georgia 31510

      We  have  audited the accompanying consolidated balance sheets  of
South Banking Company and Subsidiaries as of December 31, 2001 and  2000
and the related consolidated statements of income, stockholders' equity,
and  cash flows for each of the three years in the period ended December
31, 2001. These consolidated financial statements are the responsibility
of  the  Company's  management.  Our responsibility  is  to  express  an
opinion on these consolidated financial statements based on our audits.

      We  conducted  our  audit  in accordance with  auditing  standards
generally  accepted in the United States.  Those standards require  that
we  plan  and  perform  the audit to obtain reasonable  assurance  about
whether the financial statements are free of material misstatement.   An
audit  includes  examining,  on a test basis,  evidence  supporting  the
amounts  and  disclosures in the financial statements.   An  audit  also
includes  assessing  the  accounting  principles  used  and  significant
estimates  made  by  management,  as  well  as  evaluating  the  overall
financial statement presentation.  We believe that our audits provide  a
reasonable basis for our opinion.

      In our opinion, the  consolidated financial statements referred to
above  present  fairly,  in  all  material  respects,  the  consolidated
financial position of South Banking Company and Subsidiaries at December
31,  2001  and  2000  and the consolidated results  of  its  operations,
stockholders' equity, and cash flows for each of the three years in  the
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.

                                          Respectfully submitted,


                                          H. H. BURNET & COMPANY, P.C.

Waycross, Georgia
February 6, 2002

                                   F2

                          SOUTH BANKING COMPANY
                             ALMA, GEORGIA
                      CONSOLIDATED BALANCE SHEETS

                                           December 31,    December 31,
                                           2001            2000
ASSETS

Cash and due from banks                    $  11,140,462   $    8,911,914
Deposits in other banks -
 interest bearing                          $   1,273,000   $      825,279
Investment securities
 Available for sale                        $  17,173,350   $   20,695,055
 Held to maturity - market value
  of $152,583 in 2001 and
  $151,512 in 2000                         $     147,536   $      147,326

Georgia Bankers stock                      $     547,283   $      547,283

Federal Home Loan Bank stock               $     426,100   $      426,100

Federal funds sold                         $  10,252,000   $   14,693,000

Loans                                      $ 172,378,811   $  163,227,679
Less: Unearned discount                     (    288,968)   (     253,273)
Reserve for loan losses                     (  2,756,780)   (   2,728,219)
                                           $ 169,333,063   $  160,246,187
Bank premises and equipment                $   6,715,813   $    6,111,361
Intangible assets                          $   1,680,572   $    1,916,358
Other assets                               $   6,101,344   $    5,930,175

Total Assets                               $ 224,790,523   $  220,450,038

     The accompanying notes are an integral part of these financial
                               statements.

                                   F3

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
                   CONSOLIDATED BALANCE SHEETS (Con't)

                                            December 31,    December 31,
                                            2001            2000

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities
Deposits:  Demand - non-interest
                     bearing              $  29,999,788   $  24,298,756
           Demand - interest bearing         32,764,586      27,404,525
           Savings                           10,537,057      11,326,824
           Time                             122,699,172     129,649,110

                                          $ 196,000,603   $ 192,679,215
Borrowing                                     5,581,251       6,223,363
Accrued expenses and other
     liabilities                              1,850,430       2,236,900
Federal funds purchased                               -               -
N/P - Federal Home Loan Bank                  1,500,000       1,040,000
Total Liabilities                         $ 204,932,284   $ 202,179,478
Stockholders' Equity
Common stock $1 par value; shares
 authorized - 1,000,000,  shares
 issued and outstanding -
 2001 and 2000 - 399,500
 and 399,500, respectively                $     399,500   $     399,500
Surplus                                       3,070,831       3,070,831
Undivided profits                            16,291,126      14,887,046
Accumulated other comprehensive income           96,782    (     86,817)
Total Stockholders' Equity                $  19,858,239   $  18,270,560
Total Liabilities and
 Stockholders' Equity                     $ 224,790,523   $ 220,450,038

     The accompanying notes are an integral part of these financial
                               statements.

                                   F4

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
                    CONSOLIDATED STATEMENTS OF INCOME
                        AND COMPREHENSIVE INCOME

                          Year Ended      Year Ended      Year Ended
                          December 31,    December 31,    December 31,
                          2001            2000            1999
Interest Income
Interest and other
 fees on loans            $  16,737,159   $  16,603,948   $  12,858,967
Interest on deposits -
   interest bearing              54,303          53,224          78,124
Interest on federal
   funds sold                   740,769         622,780         462,292
Interest on investment
 securities:
   U. S. Treasury                31,021          77,571         144,635
   U. S. Government agencies    898,919         910,190         753,245
 Mortgage backed securities      16,360          33,411          37,875
 State and municipal
     subdivisions                66,100          79,343          86,777
     Other securities            60,031          73,017          95,849

Total Interest Income     $  18,604,662   $  18,453,484   $  14,517,764
Interest Expense
Interest on deposits      $   8,904,780   $   8,121,657   $   6,012,117
Interest - other borrowing      429,874         456,150         249,103

Total Interest Expense    $   9,334,654   $   8,577,807   $   6,261,220
Net interest income       $   9,270,008   $   9,875,677   $   8,256,544
Provision for loan losses       893,000         424,000         503,000
Net interest income after
 provision for loan losses$   8,377,008   $   9,451,677   $   7,753,544
Other Operating Income
Service charge on deposits$   1,787,500   $   1,576,094   $   1,446,630
Commission on insurance          81,052          89,036          68,614
Other income                    528,323         429,101         399,993
Securities gains (losses)  (      3,684)              7             236
Data   processing  fees         537,212         459,036         382,396
Gain (Loss) on sale of fixed
    assets                       60,333           2,019               -
Financial service income        134,601         162,825               -
Total Other Operating
 Income                   $   3,125,337   $   2,718,118   $   2,297,869

 The accompanying notes are an integral part of these financial statements.

                                   F5

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
                    CONSOLIDATED STATEMENTS OF INCOME
                    AND COMPREHENSIVE INCOME (Con't)

                          Year Ended      Year Ended      Year Ended
                          December 31,    December 31,    December 31,
                          2001            2000            1999
Other Operating Expenses
Salaries                  $   3,676,504   $   3,354,689   $   2,866,950
Profit sharing and other
   personnel  expenses        1,247,944         875,460         827,359
Occupancy expense of bank
   premises                     514,595         475,452         408,211
Furniture and equipment
   expense                      826,664         996,773         756,963
Stationery and supplies         199,901         254,881	    167,909
Data processing                 295,852         310,141         240,633
Director fees                   182,760         174,260         170,260
Other real estate expenses       92,080          13,006          21,112
Other expenses                2,048,478       1,847,335       1,437,459
Total Other Operating
 Expenses                 $   9,084,778   $   8,301,997   $   6,905,856
Income before income taxes$   2,417,567   $   3,867,798   $   3,145,557
Applicable income taxes         733,859       1,221,738       1,017,056
Net Income                $   1,683,708   $   2,646,060   $   2,128,501
Other comprehensive income
 before tax
Unrealized gain on
 securities               $     291,307   $     151,160   $(    402,268)
Other comprehensive income
 before tax               $     291,307   $     151,160   $(    402,268)
Income tax expenses related
 to items of other
   comprehensive income         107,708          57,048    (    136,771)
Other comprehensive income,
 net of tax               $     183,599   $      94,112   $(    265,497)

Comprehensive Income      $   1,867,307   $   2,740,172   $   1,863,004
Per share data based on
 weighted outstanding shares:
   Weighted average
     outstanding                399,500         399,500         399,500

Net Income                $        4.21   $        6.62   $        5.33

The   accompanying  notes  are  an  integral  part  of  these  financial
statements.

                                   F6

                              SOUTH BANKING COMPANY
                                         ALMA, GEORGIA
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


                                                  Accumulated
                                                  Other          Total
                Common    		 Undivided    Comprehensive  Stockholders'
                Stock    Surplus     Profits      Income         Equity
Balance,
 December 31,
    1998        $399,500 $3,070,831  $10,651,788  $   84,568      $14,206,687
 Net income            -          -    2,128,501           -        2,128,501
 Cash dividends        -          -   (  259,675)          -      (   259,675)
 Unrealized gain
  (loss) on securities
  available for
  sale                 -          -            -   (  265,497)    (   265,497)
Balance,
 December 31,
     1999       $399,500 $3,070,831  $12,520,614  $(  180,929)  $  15,810,016
 Net income            -          -    2,646,060            -       2,646,060
 Cash dividends        -          -  (   279,628)           -     (   279,628)
 Unrealized gain
  (loss) on securities
  available for
  sale                 -          -            -       94,112     (    94,112)
 Redemption of shares  -          -            -            -               -

Balance,
   December 31,
      2000      $399,500 $3,070,831  $14,887,046   $(  86,817)  $  18,270,560
 Net income            -          -    1,683,708            -       1,683,708
 Cash dividends        -          -  (   279,628)           -     (   279,628)
 Unrealized gain
  (loss) on securities
  available for
  sale                 -          -            -      183,599         183,599
 Redemption of shares  -          -            -            -               -
Balance,
 December 31,
    2001        $399,500 $3,070,831  $16,291,126   $   96,782  $   19,858,239

   The accompanying notes are an integral part of these financial statements.

                                       F7

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
                  CONSOLIDATED STATEMENTS OF CASH FLOWS

                          Year Ended      Year Ended      Year Ended
                          December 31,    December 31,    December 31,
                          2001            2000            1999
Cash Flows From Operating
 Activities:
 Net income               $  1,683,708   $  2,646,060     $  2,128,501
 Add expenses not
  requiring cash:
  Provision for depreciation
   and amortization          1,080,954       930,972           668,207
  Provision for loan losses    893,000       424,000           503,000
  Provision for loss on ORE     52,000         3,408             5,000
  Bond portfolio losses
  (gains)                        3,685             -          (    202)
 (Gain) loss on sale of
  premises & equipment     (    60,070)   (    2,019)         (  6,080)
 (Gain) loss on sale of
  other real estate owned       20,625        23,040            34,444
Increase (decrease) in
  taxes payable                136,792    (  236,230)          290,973
 Increase (decrease) in
  interest payable         (   403,513)      568,654          ( 39,109)
 Increase (decrease) in
  other liabilities        (   119,749)      324,957          (348,857)
 (Increase) decrease in
  interest receivable          341,390    (  460,066)          167,420
 (Increase) decrease in
  prepaid expenses         (   175,310)   (   80,167)           17,824
 (Increase) decrease in
  other assets                 260,171    (  284,686)        ( 101,191)
 Recognition of unearned
  loan income                   60,094             -            61,852
 Net Cash Provided By
  Operating Activities    $   3,773,777   $   3,857,923   $  3,381,782
Cash Flows From Investing
 Activities:
 Proceeds from maturities
  of securities held to
  maturity                $           -   $     600,000   $         -
 Purchase of securities
  held to maturity                    -               -             -

  The  accompanying  notes  are an integral part  of  these  financial
statements.

                                   F8

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
              CONSOLIDATED STATEMENTS OF CASH FLOWS (Con't)

                          Year Ended      Year Ended      Year Ended
                          December 31,    December 31,    December 31,
                          2001            2000            1999
Cash Flows From Investing
 Activities: (con't)
 Proceeds from maturity of
  securities available for
  sale                    $  25,668,030     2,101,866       6,371,028
 Net loans to customers    ( 11,476,813) ( 13,197,595)    (17,816,584)
 Proceeds from sale of
  securities available for
  sale                          295,094             -               -
 Purchase of securities
  available for sale      (  22,139,058)  $(  4,339,254)  $( 7,849,323)
 Purchase of premises and
  equipment               (   2,044,019)   (  1,645,225)   (   696,558)
 Proceeds from sale of
  premises and equipment        639,520          29,970         11,538
 Proceeds from sale of
  other real estate owned       659,090         885,084        163,262
 Purchase of Bank stock               -               -    (   250,000)
 Purchase of FHLB stock               -               -    (    29,900)
 Purchase of Bank Branches            -    (  4,193,634)             -

Net Cash Provided By
 Investing Activities     $(  8,398,156)  $( 19,758,788)  $(20,096,537)
Cash Flows From Financing
 Activities:
 Net increase (decrease) in
  demand deposits, NOW and
  money markets           $  11,061,093   $   1,686,060   $( 3,360,349)
 Net increase in savings
  and time deposits        (  7,739,705)     19,819,341     10,170,379
 Proceeds from borrowing      1,523,810       4,756,750         38,812
 Payments on borrowing     (  1,705,922)   (    256,463)   (   578,499)
 Dividends paid            (    279,628)   (    279,628)   (   259,675)
 Payments to retire stock             -               -             -
 Increase in federal funds
  purchased                           -    (  1,140,000)     1,140,000

The   accompanying  notes  are  an  integral  part  of  these  financial
statements.

                                   F9

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

                          Year Ended      Year Ended      Year Ended
                          December 31,    December 31,    December 31,
                          2001            2000            1999
Cash Flows From Financing
 Activities: (con't)
Net Cash Provided By
 Financing Activities    $   2,859,648   $  24,586,060   $  7,150,668
Net increase (decrease) in
 Cash and Cash
    Equivalents          $(  1,764,731)  $   8,685,195   $( 9,564,087)
Cash and Cash Equivalents
 at Beginning of Year       24,430,193      15,744,998     25,309,085

Cash and Cash Equivalents
 at End of Year           $  22,665,462   $  24,430,193   $ 15,744,998


Note 1.  Significant Accounting Policies

              The accounting and reporting policies of South Banking
         Company,  Inc. and its subsidiaries conform with  generally
         accepted  accounting principles and with  practices  within
         the banking industry.

         (a)  Basis of Presentation

              During 1996, Pineland State Bank was acquired by South
         Banking  Company.  The transaction was accounted for  using
         the  purchase  method.  During 2000,  Pineland  State  Bank
         acquired,  in  its  immediate vicinity, three  branches  of
         Flag,  Inc.  The transaction was accounted  for  using  the
         purchase method.

         (b)  Principles of Consolidation

              The  consolidated  financial  statements  include  the
         accounts of South Banking Company, Alma, Georgia (The Bank)
         and its wholly owned bank subsidiaries, Alma Exchange Bank,
         Alma,   Georgia;  Peoples  State  Bank,  Baxley,   Georgia;
         Citizens  State  Bank, Kingsland, Georgia;  Pineland  State
         Bank,  Metter,  Georgia;  and  its  wholly  owned  computer
         center,  Bankers' Data Services, Inc., Alma, Georgia.   All
         significant  intercompany transactions  and  balances  have
         been eliminated in consolidation.

                                   F10

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

Note 1.  Significant Accounting Policies (Con't)

         (c)  Nature of Operations:

             The  Banks  provide  a variety of banking  services  to
         individuals  and  businesses through its offices  in  Alma,
         Georgia;  Kingsland,  Georgia;  Baxley,  Georgia;   Metter,
         Georgia;  Cobbtown, Georgia; and Statesboro, Georgia.   Its
         primary  source  of revenue is loans to customers  who  are
         primarily low to middle income individuals and small to mid
         size businesses.

         (d)  Use of Estimates:

               The preparation of financial statements in conformity
         with  generally  accepted  accounting  principles  requires
         management  to make estimates and assumptions  that  affect
         the   reported  amounts  of  assets  and  liabilities   and
         disclosure of contingent assets and liabilities at the date
         of  the  financial statements and the reported  amounts  of
         revenues and expenses during the reporting period.   Actual
         results could differ from those estimates.

             Material estimates that are particularly susceptible to
         significant  change  relate to  the  determination  of  the
         allowance  for losses  on  loans  and  the   valuation   of
         fore-closed   real   estate.   In   connection   with   the
         determination  of  the  estimated  losses  on   loans   and
         foreclosed  real  estate,  management  obtains  independent
         appraisals for significant properties.

                While  management  uses  available  information   to
         recognize  losses  on  loans and  foreclosed  real  estate,
         further  reductions in the carrying amounts  of  loans  and
         foreclosed  assets  may be necessary based  on  changes  in
         local   economic   conditions.   In  addition,   regulatory
         agencies, as an integral part of their examination process,
         periodically  review  the estimated  losses  on  loans  and
         foreclosed  real  estate.  Such agencies  may  require  the
         Bank   to  recognize  additional  losses  based  on  their

                                   F11

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

         Note 1.  Significant Accounting Policies (Con't)

         (d)  Use of Estimates: (Con't)

         judgments about information available to them at  the  time
         of  their  examination.  Because of these  factors,  it  is
         reasonably possible that the estimated losses on loans  and
         foreclosed  real estate may change materially in  the  near
         term.  However, the amount of the change that is reasonably
         possible cannot be estimated.

         (e)  Securities:

              The Bank's investments in securities  are classified in two
        categories  and  accounted for as follows.

             Securities to be Held to Maturity.  Bonds, notes and debentures
           for which the Bank has the positive intent and ability to hold to
           maturity are reported at cost, adjusted for amortization of
           premiums and accretion of discounts which are recognized in
           interest income using the interest method over the period to
           maturity.

             Securities Available for Sale.  Securities available for sale
           consist of bonds, notes, debentures, and certain equity
           securities not classified as trading securities or as securities
           to be held to maturity.

               Declines in fair value of individual held-to-maturity
         and available-for-sale securities below their cost that are
         other  than temporary have resulted in write-downs  of  the
         individual  securities to their fair  value.   The  related
         write-downs  have  been included in  earnings  as  realized
         losses.

                                   F12

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

Note 1.  Significant Accounting Policies (Con't)

        (e)  Securities: (Con't)

              Unrealized holding gains and losses, net  of  tax,  on
         securities available for sale are reported as a net  amount
         in  a  separate  component  of shareholders'  equity  until
         realized.

               Gains and losses on the sale of securities available-
         for-sale  are  determined using the specific-identification
         method.

         Federal Home Loan Bank Stock

               Individual  banks  within the  holding  company  have
         joined  the  Federal Home Loan Bank ("FHLB") of Atlanta  to
         increase  the  Bank's  available  liquidity.   As  a   FHLB
         member,  the  Banks  are  required to  acquire  and  retain
         shares  of  capital stock in FHLB of Atlanta in  an  amount
         equal   to  the  greater  of  (1)  1.0%  of  the  aggregate
         outstanding  principal amount of the  residential  mortgage
         loans,  home  purchase contracts, and similar  obligations,
         or  (2)  0.3%  of  total assets at the  beginning  of  each
         year.   The  Bank  is in compliance with  this  requirement
         with  an  investment in FHLB stock of $426,100 and $426,100
         at  December  31,  2001 and 2000, respectively.   No  ready
         market  exists  for this stock and it has no quoted  market
         value.  However, redemption of this stock has  historically
         been at par value.

         (f)   Loans Receivable:

         Loans and Interest Income

                Loans  are  carried at principal amounts outstanding
         reduced  by  unearned discounts.  Interest  income  on  all
         loans  is  recorded on an accrual basis.   The  accrual  of
         interest is generally discontinued on loans which become 90
         days past due as to principal or interest.  The accrual  of
         interest on some loans, however, may  continue even  though
         they   are 90 days past due, if the loans are well secured,
         in   the  process  of  collection,  and  management   deems
         inappropriate.   If non-accrual loans decrease  their  past
         due   status  to  60  days  or  less,  they  are   reviewed
         individually by management to determine if they  should  be
         returned to accrual status.

                                   F13

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

Note 1.  Significant Accounting Policies (Con't)

         Impaired Loans

                The Bank accounts for its impaired loans in accordance
         with SFAS No. 114, Accounting by Creditors for Impairment  of
         a   Loan,  which  requires  that  all  creditors  value   all
         specifically

         reviewed nonhomogeneous loans for which it is probable that
         the  creditor  will  be unable to collect all  amounts  due
         according to the terms of the loan agreement at the  loan's
         fair  value.  Fair value may be determined based  upon  the
         present value of expected cash flows, market price  of  the
         loan,  if available, or value of the underlying collateral.
         Expected  cash flows are required to be discounted  at  the
         loan's  effective interest rate.  SFAS No. 114 was  amended
         by  SFAS  No.  118  to allow a creditor  to   use  existing
         methods  for recognizing interest income on impaired  loans
         and  by  requiring  additional  disclosures  about  how   a
         creditor  recognizes  interest income related  to  impaired
         loans.

                The Bank determines which loans are impaired through
         a  loan  review process.   When the ultimate collectibility
         of  an  impaired  loan's principal is in doubt,  wholly  or
         partially, all cash receipts are applied to principal. When
         this  doubt  no  longer exists, cash receipts  are  applied
         under the contractual terms of the loan agreement first  to
         principal  and then to interest income.  Once the  recorded
         principal  balance  has been reduced to zero,  future  cash
         receipts are applied to interest income, to the extent that
         any  interest has been foregone. Further cash receipts  are
         recorded  as  recoveries or any amounts previously  charged
         off.  SFAS No. 114 specifically states that it need not  be
         applied  to  "large  groups of smaller-balance  homogeneous
         loans  that  are  collectively evaluated  for  impairment".
         Thus,  the Company determined that the statement  does  not
         apply  to  its  consumer loan, credit card, or  residential
         mortgage  loan  portfolios, except that it  may  choose  to
         apply  it  to  certain specific larger loans determined  by
         management.   In  effect,  these  portfolios  are   covered
         adequately  in the Company's normal formula for determining
         loan loss reserves.

                                   F14

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
                      NOTES TO FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

Note 1.  Significant Accounting Policies (Con't)

         Loan Fees and Costs

                 Nonrefundable   fees  and  certain   direct   costs
         associated  with  originating   or  acquiring  loans    are
         recognized  as  yield adjustment over the contractual  life
         of  the  related loans, or if the related loan is held  for
         resale,  until  the loan is sold. Recognition  of  deferred
         fees  and costs is discontinued on non-accrual loans  until
         they   return   to  accrual  status  or  are   charged-off.
         Commitment  fees associated with lending are deferred   and
         if the  commitment is  exercised,  the  fee  is
         recognized  over the life of the related loan  as  a  yield
         adjustment.   If  the commitment expires  unexercised,  the
         amount is recognized upon expiration of the commitment.

         (g)  Allowances for Loan Losses:

              The allowance for loan losses is maintained at a level
         which,  in  management's judgment, is  adequate  to  absorb
         credit  losses inherent in the loan portfolio.  The  amount
         of the allowance is based on management's evaluation of the
         collectibility of the loan portfolio, including the  nature
         of   the   portfolio,  credit  concentrations,  trends   in
         historical   loss  experience,  specific  impaired   loans,
         economic  conditions,  and  other  risks  inherent  in  the
         portfolio.   Allowances for impaired  loans  are  generally
         determined based on collateral values or the present  value
         of   estimated   cash  flows.   Although  management   uses
         available information to recognize losses on loans, because
         of uncertainties associated with local economic conditions,
         collateral values, and future cash flows on impaired loans,
         it  is  reasonably  possible that a material  change  could
         occur  in  the allowance for loan losses in the near  term.
         However,  the  amount  of  the change  that  is  reasonably
         possible cannot be estimated. The allowance is increased by
         a  provision for loan losses, which is charged  to  expense
         and reduced by charge-offs, net of recoveries.  Changes  in
         the  allowance  relating to impaired loans are  charged  or
         credited to the provision for loan losses.

                                   F15

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

Note 1.  Significant Accounting Policies (Con't)

         (h)  Premises and Equipment:

              Land is carried at cost.  Other premises and equipment
         are  carried  at  cost  net  of  accumulated  depreciation.
         Depreciation  is computed using the straight-line  and  the
         declining   balance  methods  based  principally   on   the
         estimated  useful  lives  of the assets.   Maintenance  and
         repairs are expensed as incurred while major additions  and
         improvements   are  capitalized.   Gains  and   losses   on
         dispositions are included in current operations.

        (i)  Other Real Estate (ORE)

              Real estate acquired in satisfaction of a loan and in-
         substance  foreclosures are reported in other  assets.  In-
         substance foreclosures are properties in which  a  borrower
         with  little   or no equity in the collateral,  effectively
         abandons  control  of  the  property  or  has  no  economic
         interest  to  continue involvement in the  property.    The
         borrower's ability to rebuild equity based on current financial
         condition also is   considered doubtful. Properties acquired by
         foreclosure or deed in lieu of foreclosure and properties
         classified as in-substance foreclosures are transferred to ORE and
         recorded at  the  lower of  cost or  fair  market  value based on
         appraised  value at the date actually or constructively received.
         Loan losses arising from the acquisition of such property are
         charged against the allowance for loan losses.  Losses on ORE due
         to subsequent valuation adjustments are recorded on a specific
         property basis.

         (j)  Income Taxes

              Income taxes are provided for the tax effects  of  the
         transactions  reported  in  the  financial  statements  and
         consist  of taxes currently due plus deferred taxes related
         primarily to differences between the basis of the allowance
         for loan losses and accumulated depreciation.  The deferred
         tax  assets and liabilities represent the future tax return
         consequences  of those differences, which  will  either  be
         taxable  or deductible when the assets and liabilities  are
         recovered  or settled. Deferred tax assets and  liabilities
         are  reflected at income tax rates applicable to the period
         in  which  the  deferred tax assets  or   liabilities   are
         expected  to  be  realized  or settled. As

                                   F16

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31,2001

         Note 1.  Significant Accounting Policies  (Con't)

         (j)  Income Taxes (Con't)

         changes  in  tax  laws or rates are enacted,  deferred  tax
         assets  and liabilities are adjusted through the  provision
         for  income  taxes.  The Bank files a consolidated  federal
         income  tax  return with its subsidiaries.  Each subsidiary
         provides  for income taxes on a separate return  basis  and
         remits  to  the  parent company amounts  determined  to  be
         currently payable.

         (k)  Intangibles

               The intangibles (Goodwill and Core Deposits) recorded
         by  the  Company in the acquisition of Pineland State  Bank
         and  subsequent branches are being amortized on a  straight
         line basis over eight to ten years.

         (l)  Earnings Per Share

              Earnings  per share are based on the weighted  average
         number of shares outstanding.

        (m)  Comprehensive Income

             Comprehensive income includes net income and all  other
        changes  in  equity during a period except  those  resulting
        from  investments  by  owners and distributions  to  owners.
        Other  comprehensive  income  includes  revenues,  expenses,
        gains,  and  losses that under generally accepted accounting
        principles   are  included  in  comprehensive   income   but
        excluded from net income.

               Comprehensive    income   and    accumulated    other
        comprehensive  income  are reported net  of  related  income
        taxes.  Accumulated other comprehensive income for the  Bank
        consists  solely of unrealized holding gains  or  losses  on
        available-for-sale securities.  In accordance with SFAS  No.
        130,   the   Company   elected  to   disclose   changes   in
        comprehensive  income  in  its  Consolidated  Statements  of
        Income and Comprehensive Income.

                                   F17

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31,2001

Note 1.  Significant Accounting Policies  (Con't)

         (n)  Cash Flow Information

              For  purposes  of the statements of  cash  flows,  the
         Company  considers cash, federal funds sold  and  due  from
         banks  as cash and cash equivalents.  Cash paid during  the
         years  ended December 31, 2001, 2000 and 1999 for  interest
         was   $9,738,167, $8,117,741, and $6,300,329, respectively.
         Total  income tax payments during 2001, 2000 and 1999  were
         $844,223, $1,552,939, and $1,025,000, respectively.

         (o)  Recent Pronouncements and Accounting Changes

              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.

                                   F18

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31,2001

Note 1.  Significant Accounting Policies  (Con't)

         (o)  Recent Pronouncements and Accounting Changes (Con't)

              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.

                                   F19

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31,2001

Note 2.  Investment Securities

               The   amortized cost and estimated market  values  of
          investments in debt securities are as follows:

                                Gross         Gross
                  Amortized     Unrealized    Unrealized    Fair
                  Cost          Gains         Losses        Value
Securities available
 for sale -
December 31, 2001:

 U.S. Government
  and agency
  securities      $15,583,819   $   165,042    $57,519     $  15,691,342
 State and municipal
  securities          948,774        34,883         -            983,657
 Mortgage backed
  securities          227,844         8,207         -            236,051
 Equity securities    259,253         3,047         -            262,300

  Totals           $17,019,690   $   211,179   $57,519     $  17,173,350


December 31, 2000:

 U.S. Government
  and agency
   securities      $18,538,619   $   13,424    $102,839    $  18,449,204
 State and municipal
     securities      1,349,710       31,796           -        1,381,506
 Mortgage backed
     securities        394,373        5,187         975          398,585
     Equity securities 550,000            -      84,240          465,760

  Totals           $20,832,702   $   50,407    $188,054    $  20,695,055

                                   F20

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

Note 2. Investment Securities (Con't)

                                Gross         Gross
                  Amortized     Unrealized    Unrealized    Fair
                  Cost          Gains         Losses        Value
Securities to be
 Held to Maturity -
December 31, 2001:

 U.S. Government
  and agency
  securities      $       -    $       -     $       -      $       -
 State and municipal
     securities     147,536        5,047             -        152,583
 Mortgage backed
     securities           -            -             -              -

  Totals        $   147,536   $    5,047     $       -      $ 152,583

December 31, 2000

 U.S. Government
  and agency
  securities    $         -   $        -     $       -      $       -
 State and municipal
  securities        147,326        4,186             -        151,512
 Mortgage backed
  securities              -            -             -              -

 Totals         $   147,326   $    4,186     $       -      $ 151,512

               Gross realized gains and loses on sales of available-
         for-sale  securities  were  $-0-  and  $(3,685)  in   2001,
         respectively and $-0- and $-0-, respectively for 2000 and $-
         0-  and $-0-, respectively in 1999.  During the year  ended
         December  31,  2001,  investment securities  available  for
         sale,  with  a fair value at the date of sale of  $295,094,
         were  sold.  In the years 2000 and 1999, no securities were
         sold.

                 Assets,    principally   securities   carried    at
         approximately  $11,615,367  at  December   31,   2001   and
         $12,406,833  at December 31, 2000, were pledged  to  secure
         public   deposits  and  for  other  purposes  required   or
         permitted by law.

                                   F21

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

Note 2.  Investment Securities (Con't)

               The scheduled contractual maturities of securities to
         be held to maturity  and  securities  available for sale at
         December 31, 2001 were as follows:

                  Securities                    Securities
                  To Be Held                    Available
                  To Maturity                   for Sale
                  Amortized                     Amortized
                  Cost         Fair Value       Cost          Fair Value
     Due in one year
       or  less   $  100,000   $  100,836       $ 1,931,605   $ 1,962,259
     Due from one
      year to  five
      years               -             -        11,103,871    11,227,555
     Due from five
       years to ten
       years              -             -         3,198,257     3,173,119
     Due after ten
        years        47,536        51,747           526,704       548,117

                  $ 147,536   $   152,583       $16,760,437   $16,911,050

                   The  market  value of State and  Other  Political
         Subdivision Obligations is established with the  assistance
         of  an  outside bond department and is based  on  available
         market data which often reflects transactions of relatively
         small  size and is not necessarily indicative of prices  at
         which  large amounts of particular issues could readily  be
         sold or purchased.

                                   Expected  maturities will  differ
         from  contractual maturities because issuers may  have  the
         right to call on prepay obligations with or without call on
         prepayment penalties.

                                   F22

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

Note 3.  Loans

         The composition of the bank's portfolio was as follows:

                                             2001         2000
                                                   (In Thousands)
         Commercial, financial and
           agricultural                     $  49,558    $   42,973
         Real estate - mortgage                85,876        81,314
         Real  estate - construction            9,015         7,646
         Installment and consumer              27,929        31,294
            Total  Loans                    $ 172,378    $  163,227
         Less:  Unearned discount            (    289)    (     253)
                Reserve for loan losses      (  2,756)    (   2,728)

         Loans, net                         $ 169,333    $  160,246

               Non-accrual loans (principally collateralized by real
         estate) amounted to approximately $1,002,000, $876,000  and
         $442,000   at   December   31,  2001,   2000,   and   1999,
         respectively. Impaired loans were $-0- and $-0- at December
         31, 2001 and 2000.

              The Company and its subsidiaries have granted loans to
         the   officers   and   directors  of   the   Company,   its
         subsidiaries, and to their associates.  Related party loans
         are   made  on  substantially  the  same  terms,  including
         interest rates and collateral, as those prevailing  at  the
         time  for  comparable transactions  with unrelated  persons
         and do not involve more than normal risk of collectibility.
         The aggregate dollar amount of these loans was $520,150 and
         $633,116  at  December  31, 2001 and  2000.   During  2001,
         $358,381  of  new  loans were made, and repayments  totaled
         $471,347.

                                   F23

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

Note 4.  Reserve for Loan Losses

               Transactions  in  the reserve  for  loan  losses  are
         summarized
         as follows:
                            Year Ended    Year Ended    Year Ended
                            December 31,  December 31,  December 31,
                            2001          2000          1999

         Balance at beginning
          of period         $  2,728,219   $  2,168,877   $ 1,970,620
         Additions:  Provision
          charged to operating
          expenses          $    893,000   $    424,000   $   503,000
         Balance from bank
          acquisition                  -        588,306             -
                            $    893,000   $  1,012,306   $   503,000

         Deductions: Loans
          charged off       $  1,002,886   $    664,298   $   432,472
         Less: recoveries        138,447        211,334       127,729
                            $    864,439   $    452,964   $   304,743

         Balance at end of
          period            $  2,756,780   $  2,728,219   $ 2,168,877

               Additions to the reserve for loan losses are based on
         management's evaluation of the loan portfolio under current
         economic  conditions, past loan loss  experience  and  such
         other  factors  which,  in management's  judgment,  deserve
         recognition  in estimating loan losses.  Loans are  charged
         off  when,  in  the opinion of management, such  loans  are
         deemed  to be uncollectible.  Recognized losses are charged
         to the reserve and subsequent recoveries added.

                Loans  having  carrying  values  of  $1,436,843  and
         $833,029 were transferred to foreclosed real estate in 2001
         and 2000, respectively.

             The  bank is not committed to lend additional funds  to
         debtors whose loans have been modified.

                                   F24

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

Note 5.  Deposits

             The aggregate amount of short-term jumbo CDs, each with
         a  minimum  denomination  of  $100,000,  was  approximately
         $31,805,741 in 2001 and $37,569,711 in 2000.

              At  December 31, 2001, the scheduled maturities of CDs
         are as follows:
                                                       (In Thousands)
                    2002                 $      113,427
                    2003 and 2004                 8,777
                    2005 and thereafter             495

                                         $      122,699

Note 6.  Premises and Equipment

         A summary of the account:
                                        Year Ended     Year Ended
                                        December 31,   December 31,
                                        2001           2000

           Land                         $   640,582    $   526,763
           Buildings                      5,971,572      4,936,869
           Furniture and equipment        5,697,359      5,470,568
                                        $12,309,513    $10,934,200
           Less: Accumulated
                  depreciation            5,593,700      4,822,839
                                        $ 6,715,813    $ 6,111,361

                Depreciation expense was $860,117 in 2001, $803,318 in
          2000 and $614,430 in 1999.

                                   F25

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

Note 7. Borrowings

         Data relating to borrowing is as follows:

                                            Year Ended     Year ended
                                            December 31,   December 31,
         Parent Company -                   2001           2000

        Note payable in 10 annual payments
         with interest payable quarterly
         and accrues at prime rate minus
         50 basis points.  Subsidiary bank
         stock is pledged to secure loan.  $ 4,725,000    $ 5,000,000

        Note payable due June 30, 2001.
          Interest payable quarterly and
          accrues at prime rate and is
          secured by bank stock                     -         200,000

        Subsidiary - Bankers Data Services, Inc.

        Note payable due January 27, 2002
         monthly principal amount of
         $10,833.33 plus interest. Interest
         accrues at prime minus 1%.
         Computer equipment is pledged as
         collateral for loan.                 824,419         987,847

        Note payable in 36 monthly payments
         of $434.02.  Interest accrues at
         1.9% rate and is secured by vehicle.     433           5,580

        Note payable in 24 monthly payments
         of $664.13.  Interest accrues at
         5.9% rate and is secured by vehicle.   6,465          13,816

        Note payable in 24 monthly payments
         of $791.66.  Interest accrues at 0%
         and is secured by auto.               17,416               -

       Subsidiary - Alma Exchange Bank

        Note payable in 36 monthly payments
         of $696.98.  Interest accrues at
         3.9% rate and is secured by vehicle.   7,517          16,120

                                   F26

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

Note 7. Borrowings (Con't)

                                           Year Ended     Year ended
                                           December 31,   December 31,
                                           2001           2000

        Note payable in 3 annual payments
         of $7,937.  Interest accrues at 0%
         and is secured by auto.               23,811               -

                Following are maturities of long term debt for each of
        the next five years.

                    2002                     $   486,851
                    2003                         520,853
                    2004                         562,937
                    2005                         605,000
                    2006                         655,000

Note 8.  Income Taxes

             Income  tax expense (benefit) was $733,859 for 2001,  (an
        effective  rate of 30.4%), $1,221,738 for 2000  (an  effective
        rate  of 31.6%) and $1,017,056 for 1999 (an effective rate  of
        32.3%).  The  actual expense for 2001, 2000 and  1999  differs
        from  the "expected" tax expense for those years (computed  by
        applying the federal corporate rate of 34%) as follows:

                                  2001           2000          1999
        Computed "expected"
            tax   expenses        34.0%         34.0%          34.0%
        Alternative minimum tax      -             -              -
         Effect of State
            Income  Tax        (    .1%)         1.1%           2.4%
         Tax exempt interest
          on securities and
           loans               (   4.6%)     (  3.6%)      (    2.9%)
         Other, net                1.1%          .1%       (    1.2%)

                                  30.4%        31.6%           32.3%

                                   F27

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

Note 8.  Income Taxes (Con't)

             The  current and deferred amounts of these tax provisions
        were as follows:
                                2001        2000          1999

         Current  - Federal     $ 725,566   $1,178,493    $1,140,833
                  - State               -       83,299       104,994
         Deferred - Federal         7,123   (   24,534)   (  146,891)
                  - State           1,170   (   15,520)   (   81,880)

                                $ 733,859   $1,221,738    $1,017,056

              The  tax effects of each type of income and expense item
          that gave rise to deferred taxes are:

                                            December 31,   December 31,
                                            2001           2000
        Net unrealized appreciation on
           securities available for sale    $(     55,726) $      50,833
        Depreciation                         (    219,899)  (    190,400)
        Deferred loan fees                        101,281         85,229
        Allowance for credit losses               788,595        806,587
        Other                                      32,728          9,626
        Purchase accounting treatment        (     65,820)  (     65,820)
        Net deferred tax asset (liability)  $     581,159  $     696,055

                                   F28

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

Note 9.  Employee Benefit Plans

               The Company maintains a 401K deferred compensation plan
         for  all subsidiaries effective January 1, 1993.  The Company
         elected  to match 75% of employee  contributions   for  2001,
         2000 and 1999. The expense to the Company for 2001, 2000  and
         1999 was $140,000, $134,297, and $115,297, respectively.

Note 10. Leases

               The  Pineland State Bank leases 5.35 acres of  land  in
         Candler County under an operating lease expiring December 31,
         2054  with  an option to lease the land for an additional  75
         years.

                Minimum  future  rental payments under  non-cancelable
         operating lease having remaining term in excess of 1 year  as
         of  December 31, 2001 for each of the next 5 years and in the
         aggregate is:

                    Year Ended

                    2002                      $    4,000
                    2003                           4,000
                    2004                           4,000
                    2005                           4,000
                    2006                           4,000
                    Subsequent to 2007           192,000

                    Total minimum future
                      rental payments         $  212,000

                   In  June,  1997, the parties amended the  lease  to
        allow  Pineland State Bank to sublet part of the property  and
        in  consideration,  the landlord will  receive  50%  of  gross
        rental  under  the sublease in addition to the minimum  amount
        above.

                                   F29

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

Note 11. Liabilities

         Standby  Letters of Credit.  These transactions are  used  by
         the  Company's customers as a means of improving their credit
         standing   in  their  dealings  with  others.   Under   these
         agreements,  the  Company agrees to honor  certain  financial
         commitments in the event that its customers are unable to  do
         so.   As  of  December  31, 2001 and 2000,  the  Company  had
         $911,779  and  $450,240  in outstanding  standby  letters  of
         credit.

         Loan  Commitments.   As of December 31, 2001  and  2000,  the
         Company   had  commitments  outstanding  to   extend   credit
         totaling  $15,710,009  and $28,328,739,  respectively.  These
         commitments  generally  require  the  customers  to  maintain
         certain credit standards.  Management does not anticipate any
         material losses as a result of these commitments.

Note 12. Financial Instruments

               The  Bank is a party to financial instruments with off-
         balance-sheet risk in the normal course of business  to  meet
         the  financing needs of its customers and to reduce  its  own
         exposure  to fluctuations in interest rates.  These financial
         instruments include commitments to extend credit, and standby
         letters   of   credit,  and  financial   guarantees.    Those
         instruments  involve,  to  varying   degrees,   elements   of
         credit and  interest-rate  risk in
         excess   of   the  amount  recognized  in  the   consolidated
         statements of financial condition.  The contract or  notional
         amounts of those instruments reflect the extent of the Bank's
         involvement in particular classes of financial instruments.

                The  Bank's  exposure to credit loss in the  event  of
         nonperformance by the other party to the financial instrument
         for  commitments to extend credit, standby letters of credit,
         and  financial  guarantees  written  is  represented  by  the
         contractual notional amount of those instruments.   The  Bank
         uses  the  same  credit  policies in making  commitments  and
         conditional  obligations  as  it  does  for  on-balance-sheet
         instruments.

                                   F30

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

Note 12. Financial Instruments (Con't)

         Commitments to Extend Credit and Financial Guarantees.

              Commitments to extend credit are agreements to lend to a
         customer  as  long as there is no violation of any  condition
         established  in  the  contract.  Commitments  generally  have
         fixed  expiration dates or other termination clauses and  may
         require payment of a fee.  Since many of the commitments  are
         expected   to  expire  without being drawn  upon,  the  total
         commitment  amounts do not necessarily represent future  cash
         requirements.   The  Bank evaluates each  customer's   credit
         worthiness  on   a   case-by-case  basis.   The   amount   of
         collateral  obtained, if it is deemed necessary by  the  Bank
         upon  extension  of  credit, is based on management's  credit
         evaluation of the counterparty.  Collateral held varies; but,
         may  include accounts receivable; inventory, property,  plant
         and equipment; and income-producing commercial properties.

               Standby  letters  of  credit and  financial  guarantees
         written  are  conditional commitments issued by the  Bank  to
         guarantee  the  performance of a customer to a  third  party.
         Those  guarantees  are primarily issued  to  support  private
         borrowing   arrangements,  including  commercial  paper   and
         similar  transactions.  The  credit risk involved in  issuing
         letters of credit is essentially the same as that involved in
         extending  loan  facilities  to  customers.  The  Bank  holds
         various assets as collateral supporting those commitments for
         which collateral is deemed necessary.

               The  Bank  has  not  been required to  perform  on  any
         financial guarantees during the past two years.  The Bank has
         not  incurred any losses on its commitments in 2001, 2000  or
         1999.

                                   F31

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

Note 13. Restrictions on Subsidiary Dividends, Loans or Advances

               Dividends are paid by the Company from its assets which
         are  mainly  provided by dividends from the  Banks.  However,
         certain restrictions exist regarding the ability of the Banks
         to  transfer  funds  to  the Company  in  the  form  of  cash
         dividends,  loans or advances.  The approval of  the  Georgia
         Department of Banking is required to pay dividends in  excess
         of 50% of the Bank's net profits for the prior year.

Note 14. Restrictions on Cash and Due from Banks

               Under  Federal  Reserve regulation, the  Bank  also  is
         limited  as  to  the  amount it may loan to  its  affiliates,
         including  the  Company, unless such loans are collateralized
         by  specified obligations.  At December 31, 2001, the maximum
         amount available for transfer from the Bank to the Company in
         the  form  of  loans  approximated 20%  of  consolidated  net
         equity.

               The  bank is required to maintain reserve balances with
         the  Federal  Reserve  Bank.  The  average  amount  of  those
         reserve  balances for the year ended December  31,  2001  was
         approximately $-0-.

Note 15. Related Party Transactions

               The  Company  has  entered into  a  split  dollar  life
         insurance   arrangement  with  a  director  and   substantial
         shareholder.    The   Company  and  director's   trust   each
         contribute  toward the payment of premium for life  insurance
         policy.   The Company records its contribution at the present
         value  of  anticipated future return or total cash  surrender
         value  of  policy, whichever is higher; however, the carrying
         amount  cannot  exceed  the amount of premiums  paid  by  the
         Company.   The  Company will receive all  reimbursement  from
         anticipated  withdrawal of cash surrender value or  from  the
         proceeds  of  policy in  the event of   the   death   of  the
         director.  All cash surrender value of the policy accrues  to
         the  benefit  of  the Company until such  time  as  the  cash
         surrender value exceeds advances made by the Company.  As  of
         December  31,  2001,  $962,596 is  carried  in  other  assets
         related to this arrangement.

                                   F32

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

Note 16. Fair Value of Financial Instruments

               The following table shows the estimated fair value  and
         the  related  carrying  values  of  South  Banking  Company's
         financial  instruments at December 31, 2001 and 2000.   Items
         which are not financial instruments are not included.
                                                       2001
                                            Carrying       Estimated
        Cash and due from financial         Amount         Fair Value
         institutions                       $ 11,140,462   $11,140,462
        Interest earning balances with
          financial institutions               1,273,000     1,273,000
        Federal funds sold                    10,252,000    10,252,000
        Securities available for sale         17,173,350    17,173,350
        Securities held to maturity              147,536       152,583
        Federal Home Loan Bank stock             426,100       426,100
        Georgia Bankers Bank - stock             547,283       770,240
        Loans - net of allowances            169,333,063   161,938,092
        Demand and savings deposits           73,301,431    73,301,431
        Time deposits                        122,699,172   123,606,169
        Federal funds purchased                        -             -

                                                       2000
        Cash and due from financial
         institutions                          8,911,914   $ 8,911,914
        Interest earning balances with
         financial institutions                  825,279       825,279
        Federal funds sold                    14,693,000    14,693,000
        Securities available for sale         20,695,055    20,695,055
        Securities held to maturity              147,326       151,512
        Federal Home Loan Bank stock             426,100       426,100
        Georgia Bankers Bank - stock             547,283       784,085
        Loans - net of allowances            160,246,187   158,371,357
        Demand and savings deposits           63,030,105    63,030,105
        Time deposits                        129,649,110   132,081,000
        Federal funds purchased                        -             -

                                   F33

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

Note 16.  Fair Value of Financial Instruments (Con't)

              For  purposes of the above disclosures of estimated fair
        value, the following assumptions were used as of December  31,
        2001 and 2000.  The estimated fair value for cash and due from
        financial  institutions and federal funds sold are  considered
        to  approximate cost.  The estimated fair value for  interest-
        earning   balances  with  financial  institutions,  securities
        available-for-sale, securities held-to-maturity,  and  Georgia
        Bankers  Bank stock are based on quoted market values for  the
        individual  securities  or  for  equivalent  securities.   The
        estimated  fair  value  for   commercial  loans  is  based  on
        estimates  of  the  difference in interest rates  the  Company
        would charge the borrowers for similar such loans with similar
        maturities made at December 31, 2001 and 2000, applied for  an
        estimated time period until the loan is assumed to reprice  or
        be paid.  The estimated fair value for other loans is based on
        estimates  of  the rate the Company would charge  for  similar
        such  loans at December 31, 2001 and 2000 applied for the time
        period  until estimated repayment.  The estimated  fair  value
        for  individual retirement account deposits and time  deposits
        is  based  on estimates of the rate the Company would  pay  on
        such  deposits  or borrowings at December 31, 2001  and  2000,
        applied  for  the time period until maturity.   The  estimated
        fair  value  for other financial instruments and  off-balance-
        sheet  loan commitments are considered to approximate cost  at
        December 31, 2001 and 2000.

              While  these  estimates  of  fair  value  are  based  on
        management's  judgment of the most appropriate factors,  there
        is no assurance that were the Company to have disposed of such
        items  at December 31, 2001  and  2000, the   estimated   fair
        values   would  necessarily have been achieved at  that  date,
        since   market   values  may  differ  depending   on   various
        circumstances.  The estimated fair values at December 31, 2001
        and  2000  should not necessarily be considered  to  apply  at
        subsequent dates.

              In addition, other assets and liabilities of the Company
        that are not defined as financial instruments are not included
        in  the  above  disclosures, such as property  and  equipment.
        Also,  non-financial instruments typically not  recognized  in
        the financial statements, nevertheless, may have value but are
        not  included in the above disclosures.  These include,  among
        other  items,  the estimated earnings power  of  core  deposit
        accounts, the earnings potential of loan servicing rights, the
        trained work force, customer goodwill, and similar items.

                                   F34

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

Note 17. Regulatory Matters

            The  Company and its subsidiaries are subject  to  various
        regulatory  capital requirements administered by  the  federal
        banking   agencies.    Failure   to   meet   minimum   capital
        requirements  can initiate certain mandatory  -  and  possibly
        additional  discretionary - actions  by  regulators  that,  if
        undertaken,  could  have  a  direct  material  effect  on  the
        Company's   financial  statements.   Under  capital   adequacy
        guidelines  and the regulatory framework for prompt corrective
        action, the Company must meet specific capital guidelines that
        involve   quantitative  measures  of  the  Company's   assets,
        liabilities,   and   certain    off-balance-sheet   items   as
        calculated   under   regulatory  accounting   practices.   The
        Company's capital amounts and classification are also  subject
        to  qualitative judgments by the regulators about  components,
        risk weightings and other factors.

            Quantitative measures established by regulation to  ensure
        capital  adequacy  require  the Company  to  maintain  minimum
        amounts and ratios of total and Tier I capital (as defined  in
        the  regulations) to risk-weighted assets (as defined) and  of
        Tier  I  capital (as defined) to average assets (as  defined).
        Management believes, as of December 31, 2001, that the Company
        and its subsidiaries meet all capital adequacy requirements to
        which it is subject.

              As  of  December 31, 2001, the most recent  notification
        from  the FDIC categorized the Bank as well capitalized  under
        the regulatory framework for prompt corrective action.  To  be
        categorized  as  well capitalized, the   Bank  must   maintain
        minimum  total  risk-based, Tier  I  risk-based,  and  Tier  I
        leverage  ratios  as  set forth in the table.   There  are  no
        conditions  or events since that notification that, management
        believes, have changed the institution's category.

                                   F35

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

Note 17. Regulatory Matters (Con't)

              The Company and its subsidiaries' actual capital amounts
        and ratios are also presented in the table.

                                                       To Be Well
                                                       Capitalized Under
                                 For Capital           Prompt Corrective
                   Actual        Adequacy Purposes     Action Provisions:
               Amount     Ratio   Amount      Ratio    Amount      Ratio

As of December 31, 2001:

Total Capital
 (to Risk
 Weighted
 Assets)
 Consolidated$   20,435   10.9%  >$ 15,041  >  8.0%   >$ 18,801  >  10.0%
 Subsidiary -
  Alma            7,775   11.5%  >    5,384 >  8.0%   >   6,730  >  10.0%
 Subsidiary -
  Baxley          6,737   15.9%  >    3,381 >  8.0%   >   4,227  >  10.0%
 Subsidiary -
  Kingsland       3,192   12.4%  >    2,065 >  8.0%   >   2,581  >  10.0%
 Subsidiary -
  Metter         5,410    10.4%  >    4,159 >  8.0%   >   5,199  >  10.0%

As of December 31, 2001:

Tier I Capital
 (to Risk Weighted
  Assets)
Consolidated $  18,080     9.6%  >$  7,520  >  4.0%   >$ 11,280  >   6.0%
 Subsidiary -
  Alma            6,924   10.3%  >    2,692 >  4.0%   >   4,038  >   6.0%
 Subsidiary -
  Baxley          6,207   14.7%  >    1,691 >  4.0%   >   2,536  >  6.0%
 Subsidiary -
  Kingsland       2,868   11.1%  >    1,032 >  4.0%   >   1,549  >   6.0%
 Subsidiary -
  Metter          4,769    9.2%  >    2,080 >  4.0%   >   3,120  >   6.0%

                                   F36

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

                                                       To Be Well
                                                       Capitalized Under
                                 For Capital           Prompt Corrective
                   Actual        Adequacy Purposes     Action Provisions:
             Amount   Ratio      Amount      Ratio     Amount    Ratio

As of December 31, 2001:

Tier I
 Capital (to
  Average Assets)
Consolidated $  18,080     8.1%  >$  8,924  >  4.0%   >$ 11,155  >   5.0%
Subsidiary -
  Alma            6,924    8.9%  >    3,104 >  4.0%   >   3,881  >   5.0%
Subsidiary -
  Baxley          6,207   12.1%  >    2,052 >  4.0%   >   2,565  >  5.0%
Subsidiary -
  Kingsland       2,868    9.1%  >    1,266 >  4.0%   >   1,583  >   5.0%
Subsidiary -
  Metter          4,769    7.8%  >    2,435 >  4.0%   >   3,043  >   5.0%

As of December 31, 2000:

Total Capital
 (to Risk Weighted
 Assets)
 Consolidated  $ 18,647   10.7%  >  $13,933    8.0%   > $17,407  >  10.0%
 Subsidiary -
  Alma            7,463  12.9%   >    4,597    8.0%   >   5,746  >  10.0%
 Subsidiary -
  Baxley          6,444  16.1%   >    3,324    8.0%   >   4,155  >  10.0%
 Subsidiary -
  Kingsland       2,914  12.7%   >    1,841    8.0%  >    2,302  >  10.0%
 Subsidiary -
  Metter          4,924   8.9%   >    4,435    8.0%  >    5,544  >  10.0%

                                   F37

                          SOUTH BANKING COMPANY
                              ALMA, GEORGIA
               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                            DECEMBER 31, 2001

                                                       To Be Well
                                                       Capitalized Under
                                 For Capital           Prompt Corrective
                   Actual        Adequacy Purposes     Action Provisions:
             Amount   Ratio      Amount      Ratio     Amount    Ratio

As of December 31, 2000:

Tier I Capital
 (to Risk
 Weighted
 Assets)
 Consolidated  $ 16,441   9.4%    >  $6,963   4.0%  >  $10,444  >  6.0%
 Subsidiary -
   Alma            6,739 11.7%     >   2,298  4.0%   >   3,448  >  6.0%
 Subsidiary -
   Baxley          5,924 14.8%     >   1,662  4.0%   >   2,493  >  6.0%
 Subsidiary -
  Kingsland       2,625 11.4%     >     921   4.0%  >     1,381 >  6.0%
 Subsidiary -
  Metter          4,251  7.7%     >   2,217  4.0%    >    3,326 >  6.0%

As of December 31, 2000:

Tier I
 Capital (to
  Average Assets)
 Consolidated  $ 16,441   9.3%    >  $7,038   4.0%   >   $8,797 >  5.0%
 Subsidiary -
  Alma            6,739  9.1%     >   2,977  4.0%    >    3,721 >  5.0%
 Subsidiary -
  Baxley          5,924 12.2%     >   1,938  4.0%    >    2,422 >  5.0%
 Subsidiary -
  Kingsland       2,625  8.8%     >  1,182   4.0%    >    1,477 >  5.0%
 Subsidiary -
  Metter          4,251  6.9%     >   2,461  4.0%    >    3,077 >  5.0%

                                   F38

                     SOUTH BANKING COMPANY
                   (PARENT CORPORATION ONLY)

                         ALMA, GEORGIA

                      FINANCIAL STATEMENTS

                       DECEMBER 31, 2001

                               F39

               REPORT OF INDEPENDENT ACCOUNTANTS

Board of Directors
South Banking Company
Alma, Georgia 31510

      Under  date  of  February  14, 2002,  we  reported  on  the
consolidated  balance  sheets of South  Banking  Company,  as  of
December 31, 2001 and 2000, and the related statements of income,
cash  flows and stockholders' equity for the three years  in  the
period ended December 31, 2001.

      In  connection  with our examination of the  aforementioned
consolidated   financial  statements,   we   also   audited   the
accompanying  balance  sheets (Parent  Corporation  Only)  as  of
December 31, 2001 and 2000 and the related statements of  income,
cash  flows and stockholders' equity for each of the three  years
in   the   period  ended  December  31,  2001.   These  financial
statements  are  the responsibility of the company's  management.
Our  responsibility  is to express an opinion  on  the  financial
statements based on our audit.

     We conducted our audit in accordance with auditing standards
generally  accepted  in  the United  States  of  America.   Those
standards  require that we plan and perform the audit  to  obtain
reasonable  assurance  about whether the  consolidated  financial
statements are free of material misstatement.  An audit  includes
examining,  on a test basis, evidence supporting the amounts  and
disclosures in the financial statements.  An audit also  includes
assessing   the   accounting  principles  used  and   significant
estimates  made by management, as well as evaluating the  overall
financial  statement presentation.  We believe  that  our  audits
provide a reasonable basis for our opinion.

      In  our opinion, the financial statements referred to above
present  fairly, in all material respects, the financial position
of South Banking Company (Parent Corporation Only) as of December
31,   2001   and  2000,  and  the  results  of  its   operations,
stockholders' equity and its cash flows for the three years  then
ended in conformity with accounting principles generally accepted
in the United States of America.

                                Respectfully submitted,


                                H. H. BURNET & COMPANY, P. C.

February 14, 2002
                               F40

                          SOUTH BANKING COMPANY
                        (PARENT CORPORATION ONLY)
                              ALMA, GEORGIA
                             BALANCE SHEETS

                                           December 31,   December 31,
                                           2001           2000

                                 ASSETS
Cash and due from banks
 Interest bearing                          $ 1,243,497    $ 1,064,896
 Non-interest bearing                           36,862         32,846
Investment in bank's subsidiaries           22,543,800     21,420,680
Investment in nonbank subsidiaries             463,535        341,298
Investment-Habersham Bank Corp.-available
        for sale                                     -        215,760
Investment-Nexity Financial-available
        for sale                               250,000        250,000
Other assets                                    16,423         60,948
Prepaid income taxes                           351,370        214,577
Due from subsidiaries                                -              -

Total Assets                               $24,905,487    $23,601,005

                  LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable                           $       186   $         186
Other liabilities                                3,018             788
Accrued income taxes                                -               -
Notes payable                                4,725,000       5,200,000
Due to subsidiaries                            319,044         129,471

Total Liabilities                          $ 5,047,248   $   5,330,445

Stockholders' Equity
Common stock of $1 par value;
 authorized 1,000,000 shares;
 issued and outstanding, 2000 and 1999
 399,500 and 399,500, respectively         $   399,500   $     399,500
Surplus                                      3,070,831       3,070,831
Undivided profits                           16,291,126      14,887,046
Accumulated other comprehensive income          96,782    (     86,807)
Total Stockholders' Equity                 $19,858,239   $  18,270,560

Total Liabilities and Stockholders'Equity  $24,905,487   $  23,601,005

The accompanying note is an integral part of these financial statements.

                                   F41

                          SOUTH BANKING COMPANY
                        (PARENT CORPORATION ONLY)
                              ALMA, GEORGIA
                           STATEMENT OF INCOME

                              Year Ended     Year Ended     Year Ended
                              December 31,   December 31,   December 31,
                              2001           2000           1999
Income
Dividends from bank
 Subsidiaries                 $    994,156   $  985,387     $   977,614
Miscellaneous income                     -          788             682
Interest income                     45,641       23,479          18,431
Management fees                    108,000      102,000         102,000
Dividends - other                    2,673        5,345          10,091
Loss on sale of stock          (     4,906)           -               -

Total Income                  $   1,145,564   $1,116,999    $ 1,108,818

Expenses
Salaries                      $      80,543   $   83,169    $    79,300
Amortization                          1,498       13,526         13,526
Interest                            337,286      318,822        212,684
Professional fees                    25,791       75,045         33,045
Other                                67,837       75,621         63,109

Total Expenses                $     512,955   $  566,183    $   401,664
Income before income taxes
 and equity in undistributed
 income (loss) of subsidiaries $    632,609   $  550,816    $   707,154
Provision (credit) for
  income  taxes                 (   136,526)   ( 164,606)    (   95,172)

Income before equity in
 undistributed income in
 subsidiaries                 $     769,135   $  715,422    $   802,326

Equity in undistributed
 income of bank subsidiaries  $     792,336   $1,904,756    $ 1,251,684
Equity in undistributed
 income (loss) of nonbank
     subsidiaries                   122,237       25,882         74,491

                              $     914,573   $1,930,638    $ 1,326,175

Net Income                    $   1,683,708   $2,646,060    $ 2,128,501

The accompanying note is an integral part of these financial statements.

                                   F42

                          SOUTH BANKING COMPANY
                        (PARENT CORPORATION ONLY)
                              ALMA, GEORGIA
                       STATEMENT OF INCOME (con't)

                              Year Ended      Year Ended     Year Ended
                              December 31,    December 31,  December 31,
                              2001            2000          1999

Other Comprehensive Income
 before tax
Unrealized  gain  on securities $  278,166   $  151,160     $(   402,268)
Other Comprehensive Income
  before  tax                   $  278,166   $  151,160     $(   402,268)
Income tax expenses related
  to items of other
  comprehensive income              94,577       57,048      (   136,771)
Other comprehensive income,
  net  of  tax                  $  183,589   $   94,112     $(   265,497)

Comprehensive income           $ 1,867,297   $2,740,172     $  1,863,004

Per share data based on
 weighted outstanding shares:

  Weighted average
   outstanding                     399,500      399,500          399,500

Net Income                    $        4.21   $     6.62    $      5.33

The accompanying note is an integral part of these financial statements.

                                   F43
                              SOUTH BANKING COMPANY
                            (PARENT CORPORATION ONLY)
                                  ALMA, GEORGIA
                        STATEMENT OF STOCKHOLDERS' EQUITY

                                                 Accumulated
                                                 Other         Total
               Common                Undivided   Comprehensive Stockholders'
               Stock     Surplus     Profits     Income        Equity
Balance,
 December 31,
     1998     $ 399,500 $3,070,831  $10,651,788  $  84,568     $ 14,206,687
Net income            -          -    2,128,501          -        2,128,501
Cash dividends        -          -  (   259,675)         -     (    259,497)
 Unrealized gain
  (loss) on
  securities
  available for
  sale                -          -            -   (265,497)    (    265,497)

Balance,
 December 31,
   1999       $ 399,500 $3,070,831  $12,520,614 $( 180,929)   $  15,810,016
Net income            -          -    2,646,060          -        2,646,060
Cash dividends        -          -  (   279,628)         -     (    279,628)
 Unrealized gain
  (loss) on
  securities
  available for
  sale                -          -            -     94,112           94,112
Redemption of shares  -          -            -          -                -

Balance,
 December 31,
    2000      $ 399,500 $3,070,831  $14,887,046  $( 86,817)   $  18,270,560
Net income            -          -    1,683,708          -        1,683,708
Cash dividends        -          -  (   279,628)         -     (    279,628)
 Unrealized gain
  (loss) on
  securities
  available for
  sale                -          -            -     183,599         183,599
Redemption of shares  -          -            -           -               -

Balance,
 December 31,
    2001      $ 399,500 $3,070,831  $16,291,126   $  96,782   $  19,858,239

    The accompanying note is an integral part of these financial statements.

                                       F44
                          SOUTH BANKING COMPANY
                        (PARENT CORPORATION ONLY)
                              ALMA, GEORGIA
                         STATEMENT OF CASH FLOWS

                             Year Ended     Year Ended    Year Ended
                             December 31,   December 31,  December 31,
                             2001           2000          1999
Cash Flows From Operating
 Activities:
 Net income                 $  1,683,708   $ 2,646,060   $ 2,128,501
 Add expenses not requiring
  cash:
 Depreciation and
      Amortization                11,731        21,870        17,649
 Undistributed earnings of
    Subsidiaries             (   914,573)   (1,930,638)  ( 1,326,175)
 Loss on sale of stock       (     4,906)            -             -
 Increase (decrease) in
  other liabilities                2,230           788             -
 Increase (decrease) in
   accrued income taxes                -    (   21,653)       21,652
 (Increase) decrease in
  other assets                     1,369           635   (     1,979)
 (Increase) decrease in
   prepaid  income taxes     (   136,793)   (  214,577)      145,937
 (Increase) decrease in
  due from subsidiary-taxes            -       105,672   (    129,928)
 Increase (decrease) in
  due to subsidiary              189,573       129,471              -

Net Cash Provided by Operating
 Activities                 $    842,151   $   737,718   $   855,657

Cash Flows From Investing
 Activities:
Capital contribution to
 Subsidiary                 $(   200,000)  $(2,700,000)  $          -
Purchase of Nexity Financial
 Stock                                 -             -    (    250,000)
Purchase of C B Financial
   Stock
Purchase of fixed assets               -    (   27,532)             -
Sale of CB Financial             295,094             -              -
Net Cash Used by Investing
  Activities                $     95,094   $( 2,727,532) $(    250,000)

The   accompanying  note  is  an  integral  part  of  these  financial
statements.

                                   F45

                          SOUTH BANKING COMPANY
                        (PARENT CORPORATION ONLY)
                              ALMA, GEORGIA
                     STATEMENT OF CASH FLOWS (con't)

                              Year Ended     Year Ended    Year Ended
                              December 31,   December 31,  December 31,
                              2001           2000          1999

Cash Flows From Financing
 Activities:
Payments on note payable
   bank                      $(   475,000)  $(    60,000)   $(  390,000)
Proceeds from notes payable
   to   banks                           -      2,900,000              -
Dividends  paid               (   279,628)   (   279,628)    (  259,675)
Redemption of common stock              -              -              -

 Net Cash Provided (Used)
  by Financing Activities     $(   754,628)  $ 2,560,372   $(  649,675)

Net increase (decrease) in
 cash and cash equivalents    $    182,617   $   570,558   $(   44,018)

Cash and Cash Equivalents at
  beginning of year              1,097,742       527,184       571,202

Cash and Cash Equivalents
 at end of year               $  1,280,359   $ 1,097,742   $   527,184

The   accompanying  note  is  an  integral  part  of  these  financial
statements.

                                   F46
                          SOUTH BANKING COMPANY
                        (PARENT CORPORATION ONLY)
                              ALMA, GEORGIA
                      NOTES TO FINANCIAL STATEMENTS

(A)  Summary of Significant Accounting Policies

     General-
               The  following  notes  to the financial  statements  of
               South  Banking  Corporation, formed on July  28,  1981,
               (parent  corporation  only) (the corporation)  includes
               only   that   information  which  is  in  addition   to
               information  presented  in the  consolidated  financial
               statements   and   notes   to  consolidated   financial
               statements.

     Investment in subsidiaries-
               The  corporation reports its investment in  the  common
               stock  of  its subsidiaries at its equity  in  the  net
               assets of the subsidiaries.

     Organization costs-
               Organization  costs have been deferred  and  are  being
               amortized  on a straight-line basis over  a  period  of
               five years.

                                   F47