SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20052
----------------------------------------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission File Number 0-23751
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SouthBanc Shares, Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 58-2361245
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
907 N. Main Street
Anderson, South Carolina 29621
------------------------------
(Address of Principal Executive Offices)
(Zip Code)
(8 6 4 ) 2 2 5 - 0 2 4 1
----------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
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.
(1) Yes X No
------- -------
$0.01 par value of common stock 4,306,410
- ------------------------------- ------------
(Class) (Outstanding at June 30, 1998)
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SouthBanc Shares, Inc. and Subsidiary
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1998
TABLE OF CONTENTS
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1998 and
September 30, 1997 (unaudited)
Consolidated Statements of Operations for the Nine Months
Ended June 30, 1998, and the Three Months Ended June 30,
1998 (unaudited)............................................ 4
Consolidated Statements of Stockholders' Equity
for the Year Ended September 30, 1997 and
the Nine Months Ended June 30, 1998 (unaudited)............. 5
Consolidated Statements of Cash Flows for the Nine Months
Ended June 30, 1998 and 1997 (unaudited).................... 6
Notes to Consolidated Financial Statements (unaudited)....... 8
Computation of Basic and Diluted Earnings Per Share for the
Three Months Ended June 30, 1998 and 1997 (Unaudited)...... 9,10,11
Computation of Basic and Diluted Earnings Per Share for the
Nine Months Ended June 30, 1998 and 1997 (Unaudited)....... 9,10,11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations for the Three Months Ended June
30, 1998 and 1997, and the Nine Months Ended June 30,
1998 and 1997.............................................. 11
Liquidity and Capital Resources ............................ 16
Capital Compliance. ........................................ 18
Impact of New Accounting Pronouncements..................... 18
Effect of Inflation and Changing Prices..................... 19
Year 2000 Considerations.................................... 19
Item 3. Market Risk Disclosure...................................... 20
Part II Other Information
Items:
1. Legal Proceedings........................................ 21
2. Changes in Securities and Use of Proceeds................ 21
3. Defaults Upon Senior Securities.......................... 21
4. Submission of Matters to a Vote of Senior Holders........ 21
5. Other Materially Important Events........................ 21
6. Exhibits and Reports on Form 8-K......................... 21
Signatures.................................................. 22
Exhibit 27 - Financial Data Schedule........................ 23
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Item 1 - Financial Statements
SouthBanc Shares, Inc. and Subsidiary
Consolidated Balance Sheets
June 30, September 30,
1998 1997
Assets: (Unaudited) (Unaudited)
------------ ------------
Cash and cash equivalents $25,503,582 $13,499,332
Investment securities available for sale
(amortized cost of $28,740,404 at June 30,
1998 and $11,188,937 at September 30, 1997) 28,847,328 11,325,700
Federal Home Loan Bank stock, at cost 3,089,200 1,650,000
Mortgage-backed securities available for sale
(amortized cost of $84,247,308 at June 30,
1998 and $35,713,975 at September 30, 1997) 84,580,855 35,862,700
Loans receivable, (net of allowance for loan
losses of $2,055,908 at June 30, 1998 and
$1,886,243 at September 30, 1997) 206,564,656 178,772,266
Investment in Limited Partnership 5,225,373 5,003,835
Real estate acquired in settlement of loans 160,885 162,776
Real estate held for development 2,049,980 2,284,038
Premises and equipment, net 6,492,221 6,294,465
Accrued interest receivable:
Loans receivable 1,584,619 1,330,255
Mortgage-backed and other securities 492,186 238,186
Other 3,075,078 569,787
------------ ------------
Total Assets $367,665,963 $256,993,340
============ ============
Liabilities and Stockholders' Equity:
Deposits $203,369,218 $201,001,858
Advances from the Federal Home Loan Bank (FHLB) 61,783,584 15,000,000
Reverse Repurchase Agreements 20,080,031 0
Advance payments by borrowers for property taxes
and insurance 272,655 396,886
Accrued interest payable 1,417,076 1,362,483
Accrued expenses and other liabilities 4,453,023 8,630,370
------------ ------------
Total Liabilities 291,375,587 226,391,597
------------ ------------
Stockholders' Equity:
Common stock ($0.01 par value; authorized
7,500,000 shares; issued and outstanding
4,306,410 shares at June 30, 1998. $1.00 par
value; authorized 20,000,000 shares; issued
and outstanding 1,508,873 shares at
September 30, 1997) 43,064 1,508,873
Additional paid-in capital 57,464,474 11,651,917
Retained earnings, restricted 20,006,888 18,381,766
Unrealized gain (loss) on securities available
for sale, net 290,712 188,423
Indirect guarantee of ESOP debt (733,363) (804,024)
Deferred compensation for Management
Recognition Plan (MRP) (781,399) (325,212)
----------- -----------
Total stockholders' equity 76,290,376 30,601,743
Total liabilities and stockholders' equity $367,665,963 $256,993,340
============ ============
See accompanying notes to consolidated financial statements.
3
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SouthBanc Shares, Inc. and Subsidiary
Consolidated Statements of Operations (Unaudited)
Income
Nine Months Ended Three Months Ended
June 30, June 30,
1998 1997 1998 1997
Interest Income: ----------- ----------- ---------- ----------
Loans $12,554,182 $10,342,812 $4,362,767 $3,719,570
Mortgage-backed securities 2,924,781 2,456,886 1,198,782 878,797
Other investments 1,660,195 597,576 816,504 209,769
----------- ----------- ---------- ----------
Total interest income 17,139,158 13,397,274 6,378,053 4,808,136
----------- ----------- ---------- ----------
Interest expense:
Interest on deposits:
Transaction accounts 438,050 391,431 142,226 140,631
Passbook accounts 476,382 436,487 164,077 145,379
Certificate accounts 5,792,400 5,012,957 1,854,903 1,854,006
----------- ----------- ---------- ----------
Total interest on deposits 6,706,832 5,840,875 2,161,206 2,140,016
Interest on borrowings 2,263,893 951,368 911,833 358,117
----------- ----------- ---------- ----------
Total interest expense 8,970,725 6,792,243 3,073,039 2,498,133
Net interest income 8,168,433 6,605,031 3,305,014 2,310,003
Provision for loan losses 302,500 265,000 40,000 90,000
Net interest income after ----------- ----------- ---------- ----------
provision for loan losses 7,865,933 6,340,031 3,265,014 2,220,003
Other income:
Loan and deposit account
service charges 1,578,413 1,478,551 579,283 487,636
Gain (Loss) on sale of
investments 80,273 10,973 (9,995) 0
Gain (Loss) on sale of real
estate, net 24,257 17,885 14,321 3,607
Gain(Loss) on sale of loans,
net 6,871 9,235 10,799 (1,036)
Gain on Sale of Real Estate Held
for Development 130,551 234,827 63,193 118,031
Gain(Loss) on sale of fixed
assets, Net (4,122) (165,508) (1,230) 0
Other 728,374 311,812 220,740 100,426
----------- ----------- ---------- ----------
Total other income 2,544,617 1,897,775 877,111 708,664
General and administrative
expenses:
Salaries and employee
benefits 3,465,476 2,887,377 1,199,305 966,664
Occupancy 341,842 357,390 152,928 113,412
Furniture and equipment
expense 750,596 513,789 244,981 183,611
FDIC insurance premiums 92,627 122,949 31,152 27,013
Advertising 168,301 280,841 46,921 84,206
Data processing 319,972 205,573 114,376 68,330
Office supplies 255,107 294,120 90,460 82,886
Other 1,082,886 1,077,888 446,057 400,766
Total general and ----------- ----------- ---------- ----------
administrative
expenses 6,476,807 5,739,927 2,326,180 1,926,888
Income before income taxes 3,933,743 2,497,879 1,815,945 1,001,779
Income taxes 1,335,960 849,501 609,968 340,827
----------- ----------- ---------- ----------
Net income $2,597,783 $1,648,378 $1,205,977 $660,952
========== ========== ========== ==========
Basic earnings per share $0.60 $0.38 $0.28 $0.15
========== ========== ========== ==========
Diluted earnings per share $0.59 $0.38 $0.27 $0.15
========== ========== ========== ==========
Weighted average shares
outstanding:
Basic 4,303,977 4,290,580 4,304,596 4,290,580
========== ========== ========== ==========
Diluted 4,410,161 4,309,378 4,411,353 4,309,892
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
4
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<TABLE>
SouthBanc Shares, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
Year Ended September 30, 1997, and
Nine Months Ended June 30, 1998 (Unaudited)
Unrealized
Gain (Loss)
on
Securities Indirect Deferred
Available Guarantee Compen-
Additional Retained for Sale of sation
Common Paid-in Earnings Net of ESOP for
Stock Capital Restricted Taxes Debt MRP Total
---------- ----------- ----------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
September
30, 1996 $1,504,601 $11,696,679 $17,607,269 ($816,855) ($900,900) - $29,090,794
Change in
unrealized
loss on
securities,
net - - - 1,005,278 - - 1,005,278
Exercise of
stock options 4,272 38,448 - - - - 42,720
Reduction of
ESOP debt - - - - 96,876 - 96,876
ESOP Expense - 32,152 - - - - 32,152
Purchase of
common stock
for MRP - - - - - (404,093) (404,093)
Earned portion
of MRP - - - - - 78,881 78,881
Dividends on
common stock - - (953,866) - - - (953,866)
Offering
costs for
the sale of
common stock - (115,362) - - - - (115,362)
Net income - - 1,728,363 - - - 1,728,363
---------- ----------- ----------- --------- --------- --------- -----------
Balance at
September
30, 1997 1,508,873 11,651,917 18,381,766 188,423 (804,024) (325,212) $30,601,743
---------- ----------- ----------- --------- --------- --------- -----------
Change in
unrealized
gain or
loss on
securities,
net - - - 102,289 - - 102,289
Exercise of
Stock Options 1,317 31,937 33,254
Reduction of
ESOP debt - - - - 70,661 - 70,661
ESOP Expense - 138,992 - - - - 138,992
Purchase of
common stock
for MRP - - - - - (616,558) (616,558)
Earned portion
of MRP - - - - - 160,371 160,371
Dividends on
common stock - - (972,661) - - - (972,661)
Sale of
common
stock (less
offering
cost of
$1,451,738 44,174,502 44,174,502
Par value
adjustment (1,467,126) 1,467,126 0
Net income - - 2,597,783 - - - 2,597,783
---------- ----------- ----------- --------- --------- --------- -----------
Balance at
June 30,
1998 $ 43,064 $57,464,474 $20,006,888 $290,712 ($733,363) ($781,399) $76,290,376
========== =========== =========== ======== ========= ========= ===========
5
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SouthBanc Shares, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 1998, and 1997 (Unaudited)
1998 1997
Cash flows from operating activities: ------------ -----------
Net income $2,597,783 $1,648,378
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 277,056 694,619
Provision for loan losses 302,500 265,000
Earnings of investment in limited partnership (40,413) 0
Loss (Gain) on sale of investments, net (80,273) (10,973)
Loss (Gain) on sale of real estate (24,257) (17,885)
Loss (Gain) on sale of loans, net (6,871) (9,235)
Loss (Gain) on sale of real estate held for
development (130,551) 0
Loss (Gain) on sale of fixed assets 4,122 0
Deferred Compensation 295,253 0
Decrease (Increase) in accrued interest receivable
and other assets (1,592,640) 230,097
Increase (Decrease) in other liabilities 1,060,059 442,976
------------ -----------
Net cash provided by operating activities 2,661,768 3,242,977
------------ -----------
Cash flows from investing activities:
Increase in loans receivable, net (21,602,824) (12,418,847)
Purchases of loans receivable (40,012,887) (23,937,810)
Purchase of mortgage-backed securities (76,558,502) (10,499,126)
Purchases of investment securities (21,542,571) (10,176,235)
Purchase of investments in limited partnership (181,125) 0
Purchase of cash surrender value life insurance (1,386,538) 0
Purchases of FHLB stock (2,242,100) (1,056,300)
Purchase of premises and equipment (853,174) (1,936,423)
Sales of loans receivable 28,185,649 3,567,769
Proceeds from redemption of FHLB stock 802,900 650,000
Principal repayments on mortgage-backed securities 12,323,751 0
Proceeds from maturities of investment securities 4,327,517 2,404,861
Proceeds from sale of mortgage-backed securities,
Available For Sale 15,317,719 2,668,383
Proceeds from sale of investment securities,
Available For Sale 430,298 0
Proceeds from the sales of fixed assets 20,800 0
Proceeds from sale of real estate owned 148,908 116,299
Proceeds from sale of real estate held for
development 520,581 0
Capital improvements of real estate held for
development (155,972) (686,917)
------------ -----------
Net cash used in investing activities (102,457,570) (51,304,346)
------------ -----------
(continued)
6
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SouthBanc Shares, Inc. and Subsidiary
Consolidated Statements of Cash Flows, Continued
Nine Months Ended June 30, 1998 and 1997 (Unaudited)
1998 1997
Cash flows from financing activities: ------------ -----------
Increase in deposit accounts 2,367,360 33,443,663
Proceeds from FHLB Advances 116,813,120 54,000,000
Repayment of FHLB Advances (70,029,536) (42,000,000)
Proceeds from Reverse Repurchase Agreements 20,080,031 0
Proceeds from the sale of stock subscriptions 45,659,494 0
Payment of Stock Offering Costs (1,451,738) (115,362)
Purchase of stock for MRP (612,448) (200,599)
Repayments of ESOP Loan 70,661 72,657
Dividends paid on common stock (972,661) (457,991)
(Decrease) increase in Advance payments by
borrowers for property taxes and insurance (124,231) (714,278)
------------ -----------
Net cash provided by financing activities 111,800,052 44,028,090
Net increase (decrease) in cash and cash
equivalents 12,004,250 (4,033,279)
Cash and cash equivalents, beginning of year 13,499,332 13,584,568
------------ -----------
Cash and cash equivalents, end of year $ 25,503,582 $ 9,551,289
============ ===========
Supplemental disclosures:
Cash paid during the year for
Interest $8,916,132 $6,820,963
============ ===========
Taxes $576,000 $453,000
============ ===========
Noncash investing activity:
Additions to real estate acquired in settlement
of loans $174,058 $134,332
Loans receivable exchanged for mortgage-backed ============ ===========
securities $5,167,985 $0
Change in unrealized net loss on securities ============ ===========
available for sale, net of tax $102,289 $264,538
Change in Employee Stock Ownership Plan debt ============ ===========
guaranteed by the Bank $70,661 $72,657
============ ===========
See accompanying notes to consolidated financial statements.
7
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SouthBanc Shares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(1) Basis of Presentation
---------------------
SouthBanc Shares, Inc. ("Holding Company"), a Delaware corporation, was formed
at the direction of Perpetual Bank, A Federal Savings Bank ("Savings Bank"),
to become the holding company for the Savings Bank in connection with the
conversion of the Savings Bank's parent mutual holding company, SouthBanc
Shares, M.H.C., to the stock form of organization ("Conversion and
Reorganization"). The Conversion and Reorganization was consummated on April
14, 1998. The Holding Company's primary business is directing the affairs of
the Savings Bank. Accordingly, the information contained herein relates
primarily to the Savings Bank.
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-Q and, therefore, do not include all
disclosures necessary for a complete presentation of financial condition,
results of operations, and cash flows in conformity with generally accepted
accounting principles. All adjustments, consisting of normal recurring
accruals, which are, in the opinion of management, necessary for fair
presentation of the interim consolidated financial statements have been
included. The results of operations for the period ended June 30, 1998, are
not necessarily indicative of the results that may be expected for the entire
year.
(2) Principles of Consolidation
---------------------------
These consolidated financial statements do not include all disclosures
required by generally accepted accounting principles and should be read in
conjunction with the Savings Bank's audited consolidated financial statements
and related notes for the year ended September 30, 1997, included in the
Holding Company's Prospectus dated February 11, 1998. The accompanying
unaudited consolidated financial statements include the accounts of the
Holding Company, the Savings Bank and the Savings Bank's wholly owned
subsidiaries, Mortgage First Service Corporation and United Service
Corporation, and United Service Corporation's wholly owned subsidiary, United
Investment Services. All significant intercompany items and transactions have
been eliminated in consolidation.
(3) Payment of Dividends
--------------------
The payment of dividends by the Holding Company depends primarily on the
ability of the Savings Bank to pay dividends to the Holding Company. The
payment of dividends by the Savings Bank is subject to regulation by the
Office of Thrift Supervision ("OTS"). The Holding Company may not declare or
pay a cash dividend or repurchase any of its capital stock if the effect
thereof would cause the capital of the Savings Bank to be reduced below
regulatory capital requirements imposed by the OTS.
The Holding Company's Board of Directors declared a cash dividend of $.12 per
share to its shareholders during the quarter ended June 30, 1998, payable to
shareholders of record as of July 20, 1998. Prior to the reorganization in
April 1998, the Savings Bank declared a cash dividend
8
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of $.35 per share ($.12 per share adjusted for the reorganization) for the
first and second quarters of the fiscal year.
(4) Earnings Per Share
------------------
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per
Share. SFAS No. 128 specifies the computation, presentation and disclosure
requirements for earnings per share (EPS for entities with publicly held
common stock or potential common stock such as options, warrants, convertible
securities or contingent stock agreements if those securities trade in a
public market. This standard specifies computation and presentation
requirements for both basic EPS and, for entities with complex capital
structures, diluted EPS. SFAS No. 128 is effective for reporting periods
ending after December 15, 1997. The Holding Company adopted SFAS No. 128
during the quarter ended December 31, 1997. Accordingly, all prior period
earnings per share have been restated for SFAS No. 128.
QUARTERS ENDED
JUNE 30
1998 1997
---- ----
Basic weighted average shares outstanding 4,304,596 4,290,580
Plus stock option incremental shares considered
outstanding for diluted EPS calculations 106,757 19,312
--------- ---------
Diluted Weighted Average Shares Outstanding 4,411,353 4,309,892
RECONCILIATION OF THE NUMERATORS AND DENOMINATORS OF THE BASIC AND DILUTED EPS
COMPUTATIONS:
FOR THE QUARTER ENDED JUNE 30, 1998
INCOME SHARE PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
BASIC EPS $1,205,977 4,304,596 $0.28
Effect of Diluted Securities
Stock Options 0 106,757
---------- ---------
Diluted EPS $1,205,977 4,411,353 $0.27
9
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(4) Earnings Per Share - (Continued)
--------------------------------
FOR THE QUARTER ENDED JUNE 30, 1998
INCOME SHARE PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
Basis EPS $660,952 4,290,580 $0.15
Effect of Diluted Securities
Stock Options 0 19,312
-------- ---------
Diluted EPS $660,952 4,309,892 $0.15
NINE MONTHS ENDED
JUNE 30
1998 1997
---- ----
Basic weighted average shares outstanding 4,303,977 4,290,580
Plus stock option incremental shares considered
outstanding for diluted EPS calculations 106,184 18,798
--------- ---------
Diluted Weighted Average Shares Outstanding 4,410,161 4,309,378
RECONCILIATION OF THE NUMERATORS AND DENOMINATORS OF THE BASIC AND DILUTED EPS
COMPUTATIONS:
FOR THE NINE MONTHS ENDED JUNE 30, 1998
INCOME SHARE PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
BASIC EPS $2,597,783 4,303,977 $0.60
Effect of Diluted Securities
Stock Options 0 106,184
---------- ---------
Diluted EPS $2,597,783 4,410,161 $0.59
10
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(4) Earnings Per Share - (Continued)
--------------------------------
FOR THE NINE MONTHS ENDED JUNE 30, 1997
INCOME SHARE PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ------
Basis EPS $1,648,378 4,290,580 $0.38
Effect of Diluted Securities
Stock Options 0 18,798
---------- ---------
Diluted EPS $1,648,378 4,309,378 $0.38
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Comparison of Financial Condition at June 30, 1998 and September 30, 1997
Total assets increased $110.7 million from $257.0 million at September 30,
1997, to $367.7 million at June 30, 1998, primarily from the net proceeds from
the stock offering of $44.2 million effective April 14, 1998. There were
increases in cash and cash equivalents, investment securities
available-for-sale, Federal Home Loan Bank (FHLB) stock, mortgage-backed
securities available-for-sale, and loans receivable, net. These increases
were funded by proceeds from the stock offering, increases in deposits and
borrowings in the form of reverse repurchase agreements. The purchase of
investment securities and mortgage-backed securities with Reverse Repurchase
Agreements and FHLB Advances are part of a "wholesale leveraging" strategy
designed to provide the opportunity to earn income based on the differential
between the interest rates earned on such securities and the interest paid on
the borrowed funds.
Investment securities available-for-sale increased 154.9% from $11.3 million
at September 30, 1997, to $28.8 million at June 30, 1998. The $28.8 million
of investment securities had an average yield of 7.16% at June 30, 1998.
Mortgage-backed securities available-for-sale increased $48.7 million from
$35.9 million at September 30, 1997, to $84.6 million at June 30, 1998. At
June 30, 1998, the Company owned $13.9 million of adjustable rate
mortgage-backed securities with an average yield of 5.54%, $26.3 million of
fixed rate mortgage-backed securities with an average yield of 7.08%, $16.3
million of adjustable rate collateralized mortgage obligations (CMO's) secured
by FHLMC and GNMA obligations with a weighted average yield of 6.80%, and
$28.1 million of fixed rate (CMO's) secured by FHLMC and GNMA obligations with
a weighted average yield of 7.43%.
Loans receivable increased $27.8 million from September 30, 1997, to June 30,
1998, as residential mortgage loans increased $15.7 million, commercial real
estate loans increased $6.1 million, consumer loans increased $2.4 million,
and commercial loans increased $3.6 million.
A loss reserve of $100,000 was established for the investment in the limited
partnership, as residential mortgage loan prepayments have increased sharply
in light of falling interest rates decreasing the value of the mortgage
servicing rights owned by the limited partnership.
11
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Other assets increased $2.5 million as a result of the purchase of single
premium whole life insurance policies of $2.1 million to fund future
retirement benefits.
Deposits increased $2.4 million from $201.0 million at September 30, 1997, to
$203.4 million at June 30, 1998, as consumer and commercial checking accounts
increased $8.1 million, and statement savings and money market accounts
increased $2.0 million. Certificates of deposits decreased $7.7 million as
$5.4 million of certificates of deposits were withdrawn to purchase stock in
the offering. The Savings Bank continued to promote the Free Checking Program
and recent local bank mergers increased commercial checking and money market
opportunities.
Borrowings at June 30, 1998, consisted of FHLB Advances and reverse repurchase
agreements. FHLB Advances increased $46.8 million from $15.0 million at
September 30, 1997, to $61.8 million at June 30, 1998, and were used to fund
loan growth and the purchase of CMO's, investment securities, and
mortgage-backed securities. Reverse repurchase agreements amounted to $20.1
million at June 30, 1998. Reverse repurchase agreements are a form of
borrowings by the Savings Bank where the Savings Bank sells securities under
the agreement that it will repurchase them at a later date, for which the
Savings Bank receives funds from the purchaser of the securities at an agreed
upon interest rate. At June 30, 1998, there were two reverse repurchase
agreements outstanding: (i) $10.0 million at an interest rate of 5.59%, which
is callable away from the Savings Bank after November 13, 2000, and has a
maturity date of November 13, 2002, and (ii) $10.0 million at an interest rate
of 5.49%, which is callable away from the Savings Bank after November 6, 1998,
and has a maturity date of November 6, 2000.
Stockholders equity increased $45.7 million from $30.6 million at September
30, 1997, to $76.3 million at June 30, 1998. Additional paid-in capital
increased $45.8 million primarily from the net proceeds from the stock
offering of $44.2 million and an increase of $1.5 million from the par value
adjustment. Common stock was adjusted by the change in the par value of
common stock in conjunction with the stock offering. As of September 30,
1997, there were 1,508,873 shares with a par value of $1.00 per share or
$1,508,873, and at June 30, 1998, there were 4,306,410 shares with a par value
of $0.01 per share or $43,064. Retained income was offset by dividends paid
and increased deferred compensation expense for the 1996 Management
Recognition Plan (MRP). The Holding Company paid $973,000 in dividends during
the nine months ended June 30, 1998. Deferred compensation associated with
the 1996 MRP, which is recorded on the Holding Company's balance sheet as a
contra equity account, increased from $325,000 to $781,000 as a result of open
market purchases by the 1996 MRP Trust during the nine months ended June 30,
1998, of the remaining 11,415 shares required to fund the plan.
Comparison of Operating Results for the Three Months Ended June 30, 1998 and
1997
Net Income
- ----------
Net income for the three months ended June 30, 1998, increased 82.5% to
$1,206,000 or $0.28 basic earnings per share and $0.27 diluted earnings per
share, compared to $661,000 or $0.15 basic earnings per share and $0.15
diluted earnings per share for the same three months a year ago.
Net Interest Income
- -------------------
12
<PAGE>
<PAGE>
Net interest income increased $1.0 million from $2.3 million for the three
months ended June 30, 1997, to $3.3 million for the three months ended June
30, 998. Total interest income increased 32.6% or $1,570,000 from $4,808,000
for the three months ended June 30, 1997, to $6,378,000 for the three months
ended June 30, 1998, due primarily to a higher average balance of outstanding
loans which increased $30.0 million or 17.6% from an average of $170.0 million
for he three months ended June 30, 1997, to $200.0 million for the three
months ended June 30, 1998. Interest income on mortgage-backed securities
increased 320,000 or 36.4% due to a higher average balance of mortgage-backed
securities and interest income on other investments increased $607,000 or
289.0% as the average balance of investment securities and interest bearing
deposits increased 30.9 million or 161.8%.
Interest Expense
- ----------------
Interest expense on deposits increased $21,000 or 1.0% from $2,140,000 for the
three months ended June 30, 1997, to $2,161,000 for the three months ended
June 0, 1998, as the average deposits increased $15.2 million or 8.0% from
$189.5 million and an average cost of 4.52% for the three months ended June
30, 1997, to $204.7 million and an average cost of 4.22% for the three months
ended June 30, 1998. Interest expense on borrowings increased $554,000 or
154.7% from $358,000 for the three months ended June 30, 1997, to $912,000
for the three months ended June 30, 1998, as the average borrowings increased
$50.5 million or 200.0% from $25.3 million for the three months ended June 30,
1997, to $75.8 million for the three months ended June 30, 1998.
Provisions for Loan Losses
- --------------------------
Provisions for loan losses are charges to earnings to bring the total
allowance for loan losses to a level considered adequate by management to
provide for management's best estimate of inherent loan losses. In
determining the adequacy of the allowance for loan losses, management
evaluates various factors including the market value of the underlying
collateral, growth, and composition of the loan portfolio, the relationship of
the allowance for loan losses to outstanding loans, loss experience,
delinquency trends and economic conditions. Management evaluates the carrying
value of loans periodically, and the allowance for loan losses is adjusted
accordingly.
The provision for loan losses decreased $50,000 or 55.6% from $90,000 for the
three months ended June 30, 1997, to $40,000 for the three months ended June
30, 1998. Net charge-offs for the three months ended June 30, 1998, were
$6,000 compared to $241,000 for the three months ended June 30, 1997.
Management determined that with the decrease in charge-offs for the quarter
ended June 30, 1998, that the provision of $40,000 was adequate. At June 30,
1998, the allowance for loan losses was 0.99% compared to 1.04% at September
30, 1997.
Other Income
- ------------
Total other income increased from $709,000 for the three months ended June 30,
1997, to $877,000 for the three months ended June 30, 1998. Loan and deposit
account service charges increased $91,000 from $488,000 for the three months
ended June 30, 1997, to $579,000 for the three months ended June 30, 1998, due
to increases in fees generated by checking accounts. Gain or loss on sale of
investments was a loss of $10,000 for the three months ended June 30, 1998,
compared to no gain or loss for the three months ended June 30, 1997. Gain or
loss on sale of real estate held for development decreased $55,000 from
$118,000 for the three months ended June 30, 1997, to $63,000 for the three
months ended June 30, 1998. Other income increased $121,000 from $100,000 for
the three months ended June 30, 1997, to $221,000 for the
13
<PAGE>
<PAGE>
three months ended June 30, 1998, as the Holding Company's income from its
investment in Mortgage First Service Corporation increased $100,000, and the
income from United Investment Services increased $121,000. Limited
partnership investment income decreased $129,000 from $45,000 for the three
months ended June 30, 1997, to a loss of $84,000 for the three months ended
June 30, 1998, as the Holding Company established a loss reserve of $100,000
due to the decrease of the value of the mortgage servicing rights owned by the
limited partnership. The loss reserve of $100,000 was established for the
investment in the limited partnership, as residential mortgage loan
prepayments have increased sharply in light of falling interest rates
decreasing the value of the mortgage servicing rights owned by the limited
partnership.
General and Administrative Expense
- ----------------------------------
General and administrative expenses increased $399,000 from $1,927,000 for the
three months ended June 30, 1997, to $2,326,000 for the three months ended
June 30, 1998. Salaries and employee benefits increased 24.0% from $967,000
for the three months ended June 30, 1997, to $1,199,000 for the three months
ended June 30, 1998, as a result of opening a full service office and closing
a grocery store office ($21,000), expenses with the ESOP ($73,000), and the
expenses associated with 1996 MRP ($52,000). Office occupancy increased
$40,000 from $113,000 for the three months ended June 30, 1997, to $153,000
for the three months ended June 30, 1998, due to expenses of a full service
office. Furniture and equipment expense increased $61,000 from $184,000 for
the three months ended June 30, 1997, to $245,000 for the three months ended
June 30, 1998, due to upgrades in data processing equipment and software
resulting in an increase of depreciation expense of $28,000 and service
contracts of $34,000. The FDIC insurance premium increased $4,000 from
$27,000 for the three months ended June 30, 1997, to $31,000 for the three
months ended June 30, 1998.
Advertising expenses decreased $37,000 or 44.0% from $84,000 for the three
months ended June 30, 1997, to $47,000 for the three months ended June 30,
1998, as a result of winding down of the Free Checking Advertising Campaign
that began in October 1994. Data processing increased $46,000 or 67.6% from
$68,000 for the three months ended June 30, 1997, to $114,000 for the three
months ended June 30, 1998, as a result of increased volume and cost of ATM
and debit card processing. Office supplies increased $7,000 or 8.4% from
$83,000 for the three months ended June 30, 1997, to $90,000 for the three
months ended June 30, 1998. Other expenses increased $45,000 or 11.2% from
$401,000 for the three months ended June 30, 1997, to $446,000 for the three
months ended June 30, 1998, due to consultant fees for a profit enhancement
program.
Income Taxes
- ------------
Income taxes increased $269,000 or 78.9% to $610,000 for the three months
ended June 30, 1998, from $341,000 for the three months ended June 30, 1997.
This was due to an increase in income before taxes of $814,000 or 81.2% from
$1,002,000 to $1,816,000 for the three months ended June 30, 1997, and 1998,
respectively.
Comparison of Operating Results for the Nine Months Ended June 30, 1998 and
1997
Net Income
- ---------- 14
<PAGE>
<PAGE>
Net income for the nine months ended June 30, 1998, increased 57.6% to
$2,598,000 or $0.60 basic earnings per share and $0.59 diluted earnings per
share, compared to $1,648,000 or $0.38 basic earnings per share and $0.38
diluted earnings per share for the same nine months a year ago.
Net Interest Income
- -------------------
Net interest income increased $1.6 million from $6.6 million for the nine
months ended June 30, 1997, to $8.2 million for the nine months ended June 30,
1998. Total interest income increased 27.9% or $3,742,000 from $13,397,000
for the nine months ended June 30, 1997, to $17,139,000 for the nine months
ended June 30, 1998, due primarily to a higher average balance of outstanding
loans which increased $34.7 million or 22.0% from an average of $157.8 million
for the nine months ended June 30, 1997, to an average of $192.5 million for
the nine months ended June 30, 1998. The interest income on loans increased
$2.3 million or 22.3% from $10.3 million to $12.6 million for the nine months
ended June 30, 1997 and 1998, respectively. Interest income on mortgage-
backed securities increased $468,000 or 19.0% due to a higher average balance
of mortgage-backed securities which increased $14.2 million or 29.6% from an
average of $48.0 million for the nine months ended June 30, 1997, to an
average of $62.2 million for the nine months ended June 30, 1998. Interest
income on other investments increased $1,063,000 or 177.8% as the average
balance of investment securities increased from an average of $16.1 million
for the nine months ended June 30, 1997, to $30.8 million for the nine months
ended June 30, 1998, an increase of $14.7 million or 91.3%.
Interest Expense
- ----------------
Interest expense increased 32.4% from $6.8 million for the nine months ended
June 30, 1997, to $9.0 million for the nine months ended June 30, 1998.
Interest on deposits increased 15.5% from $5.8 million for the nine months
ended June 30, 1997, to $6.7 million for the nine months ended June 30, 1998,
as the average balance of deposits increased 16.2% from $175.7 million for the
nine months ended June 30, 1997, to $204.1 million for the nine months ended
June 30, 1998, and the weighted average cost of deposits decreased from 4.43%
for the nine months ended June 30, 1997, to 4.38% for the nine months ended
June 30, 1998.
Interest expense on borrowings (Federal Home Loan Bank Advances and reverse
repurchase agreements) increased $1,313,000 or 138.1% from $951,000 for the
nine months ended June 30, 1997, to $2,264,000 for the nine months ended June
30, 1998, as the average borrowings increased from $22.8 million for the nine
months ended June 30, 1997, to $59.4 million for the nine months ended June
30, 1998.
Provision for Loan Losses
- -------------------------
The provision for loan losses increased $37,500 or 14.2% from $265,000 for the
nine months ended June 30, 1997, to $302,500 for the nine months ended June
30, 1998. Net charge-offs for the nine months ended June 30, 1998, were
$133,000 compared to $293,000 for the nine months ended June 30, 1997. At
June 30, 1998, the allowance for loan losses was 0.99%, compared to 1.04% at
September 30, 1997.
Other Income
- ------------
Total other income increased from $1,898,000 for the nine months ended June
30, 1997, to $2,545,000 for the nine months ended June 30, 1998. Loan and
deposit account service charges increased $99,000 from $1,479,000 for the nine
months ended June 30, 1997, to $1,578,000 for the nine months ended June 30,
1998 due to increases in fees generated by checking accounts. Gain or loss on
sale of investments
15
<PAGE>
<PAGE>
was a gain of $80,000 for the nine months ended June 30, 1998, compared to a
gain of $11,000 for the nine months ended June 30, 1997. Gain or loss on sale
of real estate held for development decreased $104,000 from $235,000 for the
nine months ended June 30, 1997, to $131,000 for the nine months ended June
30, 1998. Gain or loss on sale of fixed assets was a loss of $412.2 million
for the nine months ended June 30, 1998, compared to a loss of $165,508 for
the nine months ended June 30, 1997, due to a write-off of data processing
software and hardware. Other income increased $416,000 from $312,000 for the
nine months ended June 30, 1997, to $728,000 for the nine months ended June
30, 1998. The Company's income from its investment in Mortgage First Service
Corporation increased $269,000 from $96,000 for the nine months ended June 30,
1997, to $173,000 for the nine months ended June 30, 1998. The income from
the United Investment Services, Inc. increased $149,000 from $179,000 for the
nine months ended June 30, 1997, to $328,000 for the nine months ended June
30, 1998. Limited partnership investment income decreased $160,000 from
$120,000 for the nine months ended June 30, 1997, to a loss of $40,000 for the
nine months ended June 30, 1998, as the Company established a loss reserve of
$100,000 due to the decrease of the value of the mortgage servicing rights
owned by the limited partnership. The loss reserve of $100,000 was
established for the investment in the limited partnership, as residential
mortgage loan prepayments have increased sharply in light of falling interest
rates decreasing the value of the mortgage servicing rights owned by the
limited partnership.
General and Administrative Expenses
- -----------------------------------
General and administrative expenses increased $737,000 from $5,740,000 for the
nine months ended June 30, 1997, to $6,477,000 for the nine months ended June
30, 1998. Salaries and employee benefits increased $578,000 or 20.0% from
$2,887,000 for the nine months ended June 30, 1997, to $3,465,000 for the nine
months ended June 30, 1998, as a result of opening a full service office and
closing a grocery store office ($48,000), expenses with the ESOP ($107,000),
and the expenses of the 1996 MRP ($156,000). Office occupancy decreased
$15,000 from $357,000 for the nine months ended June 30, 1997, to $342,000 for
the nine months ended June 30, 1998, due to a decrease in building maintenance
costs. Furniture and equipment expenses increased $237,000 from $514,000 for
the nine months ended June 30, 1997, to $751,000 for the nine months ended
June 30, 1998, due to increased computer equipment depreciation expense and
service contract expense. FDIC insurance premiums decreased $30,000 from
$123,000 for the nine months ended June 30, 1997, to $93,000 for the nine
months ended June 30, 1998, due to a decrease in the insurance premium rate
charged by the FDIC. Advertising decreased $113,000 from $281,000 for the
nine months ended June 30, 1997, to $168,000 for the nine months ended June
30, 1998, as the Free Checking Advertising Campaign was winding down. Data
processing increased $114,000 from $206,000 for the nine months ended June 30,
1997, to $320,000 for the nine months ended June 30, 1998, due to increased
cost in processing ATM and debit cards. Office supplies decreased $39,000
from $294,000 for the nine months ended June 30, 1997, to $255,000 for the
nine months ended June 30, 1998, as the Holding Company was changing computer
systems in the nine months ended June 30, 1997, that required new internal
processing supplies. Other expenses increased $5,000 from $1,078,000 for the
nine months ended June 30, 1997, to $1,083,000 for the nine months ended June
30, 1998.
Income Taxes
- ------------
Income taxes increased $486,000 or 57.2% from $850,000 for the nine months
ended June 30, 1997, to $1,336,000 for the nine months ended June 30, 1998,
due to an increase in income before taxes. The effective tax rate was 34% for
both nine months ended June 30, 1997 and 1998.
16
<PAGE>
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Savings Bank's primary sources of funds are deposits, repayment of loan
principal, and repayment of mortgage backed securities and CMOs, and, to a
lesser extent, maturities of investment securities, and short-term investments
and operations. While scheduled loan repayments and maturing investments are
relatively predictable, deposit flows and early loan repayments are more
influenced by interest rates, general economic conditions, and competition.
The Savings Bank attempts to price its deposits to meet its asset/liability
objectives consistent with local market conditions. Excess balances are
invested in overnight funds. In addition, the Savings Bank is eligible to
borrow funds from the FHLB of Atlanta. Under OTS regulations, a member thrift
institution is required to maintain an average daily balance of liquid assets
(cash, certain time deposits and savings accounts, bankers' acceptances, and
specified U. S. government, state or federal agency obligations and certain
other investments) equal to a monthly average of not less than a specified
percentage of its net withdrawable accounts plus short-term borrowings. This
liquidity requirement, which is currently 4.0%, may be changed from time to
time by the OTS to any amount within the range of 4.0% to 10.0%, depending
upon economic conditions and the savings flow of member associations.
Monetary penalties may be imposed for failure to meet liquidity requirements.
The liquidity of the Savings Bank at June 30, 1998, was 23.3%.
The primary investing activity of the Savings Bank is lending. During the
nine months ended June 30, 1998, the Savings Bank originated $60.1 million of
loans, $18.7 million of which were sold. The Savings Bank also purchased
$26.5 million of loans. The retained originations were primarily funded by
increases in deposits, principal repayments of loans and mortgage-backed
securities and CMO's, Federal Home Loan Bank Advances, and Reverse Repurchase
Agreements.
Liquidity management is both a short and long-term responsibility of the
Savings Bank's management. The Savings Bank adjusts its investments in liquid
assets based upon management's assessment of (i) expected loan demand, (ii)
projected loan sales, (iii) expected deposit flows, (iv) yields available on
interest-bearing deposits, and (v) liquidity of its asset/liability management
program. Excess liquidity is generally invested in interest-bearing overnight
deposits and other short-term government and agency obligations. If the
Savings Bank requires funds beyond its ability to generate them internally, it
has additional borrowing capacity with the FHLB and collateral eligible for
repurchase agreements.
The Savings Bank anticipates that it will have sufficient funds available
through normal loan repayments to meet current loan commitments. At June 30,
1998, the Savings Bank had outstanding commitments to originate loans of
approximately $14,244,000.
Certificates of deposit scheduled to mature in one year or less at June 30,
1998, totaled $101.4 million. Based upon management's experience and
familiarity with the customers involved and the Savings Bank's pricing policy
relative to that of its perceived competitors, management believes that a
significant portion of such deposits will remain with the Savings Bank.
17
<PAGE>
<PAGE>
Capital Compliance
- ------------------
The Holding Company is not subject to any separate regulatory capital
requirements. The Savings Bank is required to meet certain statutory capital
ratios including tangible capital, core capital, and risk-based capital
components. The Savings Bank met all of these requirements at June 30, 1998.
The following table summarizes the Savings Bank's capital ratios and the
statutory requirements at June 30, 1998:
Capital Compliance
------------------
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
(Dollars in Thousands) ------ -------- -----------------
- ----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Tier 1 Core Capital $50,449 14.73% $13,700 4.00% $17,125 5.00%
(To adjusted total assets)
Total Risk-Based Capital $50,728 23.94% $16,948 8.00% $12,711 6.00%
(To risk-weighted assets)
Tier 1 Risk-Based Capital $50,449 23.81% $ 8,474 4.00% $21,185 10.00%
(To risk-weighted assets)
Tangible Equity Capital $50,449 14.73% $ 6,850 2.00% - -
(To tangible assets)
Impact of New Accounting Pronouncements
- ---------------------------------------
Disclosure of Information about Capital Structure
- -------------------------------------------------
The FASB also issued SFAS No. 129, "Disclosure of Information about Capital
Structure" in February 1997. The purpose of SFAS 129 is to consolidate
existing disclosure requirements for ease of retrieval. SFAS 129 contains no
change in disclosure requirements for companies, such as the Holding Company
that were subject to the previously existing requirements. It applies to all
entities and is effective for financial statement issued for periods ending
after December 15, 1997.
Reporting Comprehensive Income
- ------------------------------
The FASB also issued SFAS No. 130, "Reporting Comprehensive Income" in June
1997. The purpose of SFAS 130 is to address concerns over the practice of
reporting elements of comprehensive income directly in equity. This SFAS
requires all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed in equal prominence with the other financial
statements. This statement is effective for periods beginning after December
15, 1997. Comparative financial statements are required to be reclassified to
reflect the provisions of this statement. The Holding Company will adopt the
provisions of this SFAS for calendar year 1998.
18
<PAGE>
<PAGE>
Disclosures about Segments of an Enterprise and Related Information
- -------------------------------------------------------------------
The FASB also issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" in June 1997. This statement applies to
all public entities. The provisions of SFAS 131 require certain disclosures
regarding material industry segments within an entity. Due to the Holding
Company's structure, SFAS 131 is not expected to have a material impact.
Accounting for Derivative Instrument and Hedging Activities
- -----------------------------------------------------------
The FASB issued SFAS 133, "Accounting for Derivative Instrument and Hedging
Activities" in June 1998. All derivatives are to be measured at fair value
and recognized in the statement of financial position as assets or
liabilities. The statement is effective for fiscal years and quarters
beginning after June 15, 1999. Because the Company has limited use of
derivative transactions at this time, management does not expect that this
standard would have a significant effect on the Company.
Employers' Disclosures about Pensions and Other Postretirement Benefits
- -----------------------------------------------------------------------
In April 1998, the FASB issued SFAS 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits". The new Statement revises the
required disclosures for employee benefit plans, but it does not change the
measurement or recognition of such plans. While the new standard requires
some additional information about benefit plans, it helps preparers of
financial statements by eliminating certain disclosures and by standardizing
the disclosures for pensions and other postretirement benefits to the extent
practicable. SFAS 132 supersedes the disclosure requirements in SFAS 87,
"Employers' Accounting for Pensions", SFAS 88, "Employers' Accounting for
Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits", and SFAS 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions". The new disclosures are effective for fiscal
years beginning after December 15, 1997. The adoption of SFAS 132 will not
have an impact on the financial statements of the Company due to the
disclosure only requirements.
Accounting for the Costs of Computer Software Developed or Obtained for
- -----------------------------------------------------------------------
Internal Use
- ------------
In March 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or obtained for Internal Use" (SOP 98-1), which provided
guidance as to when it is or is not appropriate to capitalize the cost of
software developed or obtained for internal use. SOP 98-1 is effective for
financial statements for fiscal years beginning after December 15, 1998, with
early adoption encouraged. The Company does not anticipate that adoption of
SOP 98-1 will have a material effect on its financial statements.
Effect of Inflation and Changing Prices
- ---------------------------------------
The Consolidated Financial Statements and related financial data presented
herein have been prepared in accordance with Generally Accepted Accounting
Principles ("GAAP") which require the measurement of financial position and
operating results in terms of historical dollars, without considering the
changes in relative purchasing power of money over time due to inflation.
The primary impact of inflation on operations of the Holding Company is
reflected in increased operating costs. Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates generally have a more
significant impact on a financial institution's performance than do general
levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
19
<PAGE>
<PAGE>
Year 2000 Considerations
- ------------------------
Many existing computer programs use only two digits to identify a year in the
date datum field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If uncorrected,
many computer applications could fail or create erroneous results by or at the
Year 2000. The Year 2000 issue affects virtually all companies and
organizations.
The Holding Company has an in-house computer system to process customer
records and monetary transactions, post deposit and general ledger entries and
record activity in installment lending, loan servicing and loan originations.
Although no assurances can be given, based on internal testing procedures and
conversations with the software provider, the Bank does not expect that the
cost of addressing any Year 2000 issue will be a material event or uncertainty
that would cause its reported financial information not to be necessarily
indicative of future operating results or future financial condition, or that
the costs of consequences of incomplete or untimely resolution of any Year
2000 issue represent known material event or uncertainty that is reasonably
likely to affect its future financial results, or cause its reported financial
information not to be necessarily indicative of future operating results or
future financial condition. Incomplete or untimely compliance, however, would
have a material adverse effect on the Savings Bank, the dollar amount of which
cannot be accurately quantified at this time because of the inherent variables
and uncertainties involved. The Savings Bank has formed a Year 2000
Compliance Committee that reports the progress of the Year 2000 Plan to the
Board of Directors on a quarterly basis. This Plan includes commercial
borrowers that may be subject to some degree of risk. The Savings Bank's core
software vendor has provided a written testing plan that will be tested by
December 31, 1998. The cost of testing the software will be approximately
$42,000.00. An evaluation of risks associated with the failure of core
business processes has been made. Contingency plans covering business
resumption have been written encompassing a plan of action in the event of
system failures.
ITEM 3 - Market Risk Disclosure
- -------------------------------
There have been no material changes to the market risk information set forth
under "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Market Risk and Asset Liability Management" in the Holding
Company's Prospectus dated February 11, 1998.
20
<PAGE>
<PAGE>
PART II
Item 1. Legal Proceedings
- --------------------------------
The Savings Bank from time to time and currently is involved as plaintiff or
defendant in various legal actions incident to its business. These actions
are not believed to be material, either individually or collectively, to the
consolidated financial condition or results of operations of the Bank.
Item 2. Changes in Securities and Use of Proceeds
- --------------------------------------------------------
None
Item 3. Defaults Upon Senior Securities
- ----------------------------------------------
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------------
None
Item 5. Other Information
- --------------------------------
None
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------------
A. Exhibits:
---------
3(a) Certificate of Incorporation of the Holding Company *
3(b) Bylaws of the Holding Company *
10(a) Employment Agreement with Robert W. Orr **
10(b) Employment Agreement with Thomas C. Hall **
10(c) Employment Agreement with Barry C. Visioli **
27 Financial Data Schedule
* Incorporated by reference to the Holding Company's
Registration Statement on Form S-1, as amended (File No.
333-42517).
** Incorporated by reference to the Holding Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998.
B. A Form 8-K was filed on May 26, 1998, as amended on June 3, 1998, to
report a change in independent accountants.
21
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amended report to be signed on its behalf by
the undersigned thereunto duly authorized.
SouthBanc Shares, Inc.
Date: August 12, 1998 /s/ Robert W. Orr
--------------------------------------
Robert W. Orr
President and Managing Officer
(Duly Authorized Representative)
Date: August 12, 1998 /s/ Thomas C. Hall
--------------------------------------
Thomas C. Hall
Chief Financial Officer
22
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1998
<CASH> 7547637
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<COMMON> 57507538
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<RECOVERIES> 20082
<ALLOWANCE-CLOSE> 2055908
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2055908
</TABLE>
