<PAGE>
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, 2000
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
------------------------------------------------------------------------
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 2,942,186
------------------------------- ---------
(Class) (Outstanding at June 30, 2000)
<PAGE>
SouthBanc Shares, Inc. and Subsidiary
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2000
TABLE OF CONTENTS
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000 and
September 30, 1999 (unaudited).................................. 3
Consolidated Statements of Income for the Nine Months Ended
June 30, 2000, and the Three Months Ended June 30, 2000
(unaudited)..................................................... 4
Consolidated Statements of Stockholders' Equity
for the Nine Months Ended June 30, 2000 and 1999 (unaudited).... 5
Consolidated Statements of Cash Flows for the Nine Months
Ended June 30, 2000 and 1999 (unaudited)........................ 6
Notes to Consolidated Financial Statements (unaudited).............. 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations for the Three Months Ended June 30,
2000 and 1999 and the Nine Months Ended June 30, 2000 and 1999...... 10
Liquidity and Capital Resources..................................... 15
Capital Compliance.................................................. 16
Impact of New Accounting Pronouncements............................. 16
Effect of Inflation and Changing Prices............................. 17
Item 3. Market Risk Disclosure.............................................. 17
Part II Other Information
Items:
1. Legal Proceedings............................................... 18
2. Changes in Securities and Use of Proceeds....................... 18
3. Defaults Upon Senior Securities................................. 18
4. Submission of Matters to a Vote of Senior Holders............... 18
5. Other Materially Important Events............................... 18
Signatures.......................................................... 19
2
<PAGE>
SouthBanc Shares, Inc. and Subsidiary
Consolidated Balance Sheets (Unaudited)
Item I - Financial Statements
<TABLE>
<CAPTION>
June 30, September 30,
------------------------------
2000 1999
------------------------------
<S> <C> <C>
Assets
------
Cash and cash equivalents $ 12,735,286 $ 15,546,360
Investment securities available for sale (amortized
cost of $20,225,948 at June 30, 2000,
$17,673,222 at September 30, 1999) 18,293,877 16,243,703
Federal Home Loan Bank stock, at cost 3,975,000 3,650,000
Mortgage-backed securities available for sale
(amortized cost of $45,807,377 at June 30,
2000, and $60,027,799 at Septemer 30, 1999) 44,068,829 58,384,541
Loans receivable, (net of allowance for loan losses
of $2,916,095 at June 30, 2000, and
$2,617,662 at September 30, 1999) 281,963,383 255,488,141
Investment in limited partnership 1,864,373 1,575,373
Real estate acquired in settlement of loans 480,941 229,900
Real estate held for development 2,066,249 2,095,903
Premises and equipment, net 5,843,321 5,722,230
Accrued interest receivable
Loans receivable 2,197,909 1,860,838
Mortgage-backed and other securities 378,782 453,968
Cash surrender value of life insurance 8,173,059 7,865,743
Other 3,964,650 3,034,571
------------- -------------
Total Assets $ 386,005,659 $ 372,151,271
============= =============
Liabilities and Stockholders' Equity
------------------------------------
Deposits $ 233,248,528 $ 221,257,085
Advances from the Federal Home Loan Bank ("FHLB") 76,000,000 73,000,000
Securities sold under agreements to repurchase 20,452,480 20,254,436
Advance payments by borrowers for property taxes and
insurance 322,763 438,484
Accrued interest payable 1,565,806 1,356,578
Accrued expenses and other liabilities 4,029,869 3,094,136
------------- -------------
Total Liabilities 335,619,446 319,400,719
------------- -------------
Commitments and contingencies - Note 17
Stockholders' Equity
--------------------
Preferred stock ($0.01 par value; authorized 250,000
shares; none issued or outstanding at June 30,
2000 and September 30, 1999) -- --
Common stock ($0.01 par value; authorized 7,500,000
shares; issued 4,324,940 and 4,306,410 shares
at June 30, 2000 and September 30, 1999,
respectively) 43,249 43,220
Additional paid-in capital 57,888,364 57,741,324
Retained earnings, restricted 24,858,580 22,351,722
Treasury stock - at cost (1,382,754 shares) (27,640,042) (22,515,585)
Accumulated other comprehensive loss, net (2,422,761) (2,028,033)
Indirect guarantee of ESOP debt (555,578) (622,247)
Deferred compensation for Management
Recognition Plan (MRP) (1,785,599) (2,219,849)
------------- -------------
Total stockholders' equity 50,386,213 52,750,552
------------- -------------
Total liabilities and stockholders' equity $ 386,005,659 $ 372,151,271
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
SOUTHBANC SHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
For The Nine Months Ended For The Three Months Ended
June 30, June 30,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 16,208,996 $ 14,139,772 $ 5,592,598 $ 4,800,983
Mortgage-backed securities 2,530,124 3,700,940 840,300 1,244,596
Other investments 1,470,823 1,740,958 489,564 523,266
------------ ------------ ------------ ------------
Total interest income 20,209,943 19,581,670 6,922,462 6,568,845
------------ ------------ ------------ ------------
Interest expense:
Interest on deposits:
Transaction accounts 683,839 840,510 222,886 272,243
Passbook accounts 528,083 463,720 194,865 160,456
Certificate accounts 5,824,681 5,397,886 2,127,923 1,788,269
------------ ------------ ------------ ------------
Total interest on deposits 7,036,603 6,702,116 2,545,674 2,220,968
Interest on borrowings
Total interest expense 4,212,609 3,408,426 1,543,742 1,112,569
------------ ------------ ------------ ------------
11,249,212 10,110,542 4,089,416 3,333,537
------------ ------------ ------------ ------------
Net interest income 8,960,731 9,471,128 2,833,046 3,235,308
Provision for loan losses 435,000 330,000 75,000 170,000
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 8,525,731 9,141,128 2,758,046 3,065,308
------------ ------------ ------------ ------------
Other income:
Loan and deposit account service charges 2,950,894 2,518,824 994,800 924,004
Gain (loss) on sale of investments (94,702) 126,418 -- (170,888)
Gain on sale of real estate acquired in settlement of loans (1,564) 13,973 (6,188) (9,310)
Gain on sale of loans, net 3,071 88,070 3,071 6,892
Gain on sale of real estate held for development 84,183 300,889 1,534 128,216
Earnings on bank owned life insurance 343,884 321,300 110,328 107,100
Other 873,663 1,002,351 288,091 674,720
------------ ------------ ------------ ------------
Total other income 4,159,399 4,391,825 1,391,636 1,660,734
------------ ------------ ------------ ------------
General and administrative expenses:
Salaries and employee benefits 3,914,472 3,476,736 1,353,700 1,201,462
Occupancy 407,833 371,264 133,103 124,972
Furniture and equipment expense 789,262 818,064 265,152 258,196
FDIC insurance premiums 55,643 91,923 11,243 31,476
Advertising 148,858 136,685 63,464 75,444
Data processing 398,038 438,115 145,642 156,301
Office supplies 243,182 216,771 63,756 77,738
Profit improvement program 94,280 207,185 -- 84,000
Other 963,213 875,364 370,134 336,854
------------ ------------ ------------ ------------
Total general and administrative expenses 7,014,781 6,632,107 2,406,194 2,346,443
------------ ------------ ------------ ------------
Income before taxes 5,670,349 6,880,846 1,743,488 2,379,599
Income taxes 1,813,944 2,257,457 547,848 782,899
------------ ------------ ------------ ------------
Net income $ 3,856,405 $ 4,623,389 $ 1,195,640 $ 1,596,700
============ ============ ============ ============
Basic earnings per common share $ 1.30 $ 1.34 $ 0.42 $ 0.51
============ ============ ============ ============
Diluted earnings per common share $ 1.23 $ 1.26 $ 0.40 $ 0.48
============ ============ ============ ============
Weighted average shares outstanding:
Basic 2,969,066 3,463,213 2,863,797 3,137,542
============ ============ ============ ============
Diluted 3,136,679 3,670,966 3,023,757 3,350,282
============ ============ ============ ============
Cash dividends per common share $ 0.45 $ 0.39 $ 0.15 $ 0.15
============ ============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
SouthBanc Shares, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
Nine Months Ended June 30, 2000 and 1999 (Unaudited)
<TABLE>
<CAPTION>
Additional Retained
Common Common Paid-in Earnings
Shares Stock Capital Restricted
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at September 30, 1998 4,306,410 $ 43,064 $ 57,470,324 $ 18,154,380
Net income 4,623,389
Other comprehensive income/(loss)
Unrealized loss on securities, net
Reclassification adjustment for
gains realized in net income, net
Total other comprehensive income/(loss)
Comprehensive income
Exercise of stock options 15,620 156 68,057
Reduction of ESOP debt
ESOP expense 132,424
Earned portion of MRP
Dividends on common stock ( 1,292,375)
Transfer from treasury stock
to MRP 91,252 22,813
Purchase of Treasury Stock (1,171,175) -- -- --
------------ ------------ ------------ ------------
Balance at June 30, 1999 3,242,107 $ 43,220 $ 57,693,618 $ 21,485,394
============ ============ ============ ============
Balance at September 30, 1999 3,204,788 $ 43,220 $ 57,741,324 $ 22,351,722
Net Income 3,856,405
Other comprehensive income:
Unrealized loss on securities, net
Reclassification adjustment for
losses realized in net income, net
Total other comprehensive income (loss)
Comprehensive income
Exercise of stock options 2,910 29 25,725
Reduction of ESOP debt
ESOP compensation expense 121,315
Earned portion of MRP
Dividends on common stock (1,349,547)
Purchase of treasury stock (265,512)
------------ ------------ ------------ ------------
Balance at June 30, 2000 2,942,186 $ 43,249 $ 57,888,364 $ 24,858,580
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Accumulated Indirect
Other Guarantee Deferred
Comprehensive of Compensation
Income (Loss), Treasury ESOP for
Net Stock Debt MRP Total
-------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at September 30, 1998 $ 180,009 -- ($ 711,140) ($ 729,311) $ 74,407,326
Net income 4,623,389
Other comprehensive income/(loss)
Unrealized loss on securities, net (1,453,404) (1,453,404)
Reclassification adjustment for
gains realized in net income, net (84,194) (84,194)
------------ -----------
Total other comprehensive income/(loss) (1,537,598) (1,537,598)
Comprehensive income 3,085,791
-----------
Exercise of stock options 68,213
Reduction of ESOP debt 66,670 66,670
ESOP expense 132,424
Earned portion of MRP 218,037 218,037
Dividends on common stock (1,292,375)
Transfer from treasury stock
to MRP 1,830,515 (1,853,328) --
Purchase of Treasury Stock -- (23,540,883) -- -- (23,540,883)
------------ ------------ ------------ ------------ ------------
Balance at June 30, 1999 $ (1,357,589) $(23,540,883) $ (644,470) $ (2,364,602) $(53,145,203)
============ ============ ============ ============ ============
Balance at September 30, 1999 $ (2,028,033) $ (22,515,585)$ (622,247) $ (2,219,849) $ 52,750,552
Net Income 3,856,405
Other comprehensive income:
Unrealized loss on securities, net (457,231) (457,231)
Reclassification adjustment for
losses realized in net income, net 62,503 62,503
------------ ------------
Total other comprehensive income (loss) (394,728) (394,728)
Comprehensive income 3,461,677
------------
Exercise of stock options 25,754
Reduction of ESOP debt 66,669 66,669
ESOP compensation expense 121,315
Earned portion of MRP 434,250 434,250
Dividends on common stock (1,349,547)
Purchase of treasury stock (5,124,457) (5,124,457)
------------ ------------ ------------ ------------ ------------
Balance at June 30, 2000 ($ 2,422,761) ($27,640,042) ($ 555,578) ($ 1,785,599) $ 50,386,213
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
SouthBanc Shares, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 2000 and 1999 (Unaudited)
<TABLE>
<CAPTION>
------------ ------------
2000 1999
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,856,405 $ 4,623,389
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 645,358 657,043
Accretion, net (1,118,585) (1,083,828)
Provision for loan losses 435,000 330,000
(Gain) loss on sale of investments, net 94,702 (126,418)
(Gain) loss on sale of real estate 1,564 (13,973)
Gain on sale of loans, net -- (88,070)
Gain on sale of real estate held for
development (84,183) (300,889)
Deferred compensation 555,565 350,461
Increase in accrued interest
receivable and other assets (1,191,964) (782,060)
Decrease in other liabilities 1,144,961 241,664
------------ ------------
Net cash provided by operating activities 4,338,823 3,807,319
------------ ------------
Cash flows from investing activities:
Increase in loans receivable, net (2,493,714) (791,767)
Purchases of loans receivable (25,000,555) (24,253,800)
Purchase of mortgage-backed securities -- (34,802,010)
Purchases of investment securities (4,816,855) (5,052,771)
Purchases of FHLB stock (1,975,000) (1,060,800)
Purchase of premises and equipment (766,449) (187,512)
Sales of loans receivable -- 7,476,562
Proceeds from redemption of FHLB stock 1,650,000 1,250,000
Principal repayments on mortgage-backed securities 6,675,239 27,081,017
Proceeds from maturities of investment securities 3,000,000 500,000
Proceeds from sale of mortgage-backed securities,
available for sale 7,439,993 9,384,356
Proceeds from sale of investment securities, available
for sale -- 13,314,025
Proceeds from sale of real estate owned 367,250 242,908
Proceeds from sale of real estate held for
development 541,727 880,582
Capital improvements of real estate held for
development (463,718) (709,736)
------------ ------------
Net cash used in investing activities (15,842,082) (6,728,946)
------------ ------------
</TABLE>
Continued
6
<PAGE>
SouthBanc Shares, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Nine Months Ended June 30, 2000 and 1999 (Unaudited)
<TABLE>
<CAPTION>
------------- -------------
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from financing activities:
Increase in deposit accounts 11,991,443 17,217,671
Proceeds from FHLB Advances 113,000,000 67,000,000
Repayment of FHLB Advances (110,000,000) (61,000,000)
Proceeds from securities sold under agreements
to repurchase 198,044 170,239
Payment ot stock offering costs -- --
Exercise of stock options 25,754 68,213
Purchase of Treasury stock (5,124,457) (23,540,883)
Repayments of ESOP loan 66,669 66,670
Dividends paid on common stock (1,349,547) (1,292,375)
Decrease in advance payments by borrowers
for property taxes and insurance (115,721) (27,002)
------------- -------------
Net cash provided by (used for) financing activities 8,692,185 (1,337,467)
------------- -------------
Net increase (decrease) in cash and cash equivalents (2,811,074) (4,259,094)
Cash and cash equivalents, beginning of year 15,546,360 21,197,419
------------- -------------
Cash and cash equivalents, end of year $ 12,735,286 $ 16,938,325
============= =============
Supplemental disclosures:
Cash paid during the year for
Interest $ 11,039,984 $ 10,189,011
============= =============
Taxes $ 2,095,000 $ 1,598,554
============= =============
Noncash investing activities:
Additions to real estate acquired in settlement of loans $ 584,027 $ 577,170
============= =============
Loans receivable exchanged for mortgage-backed
securities $ -- $ --
=============
Change in unrealized net loss on securities
available for sale, net of tax $ (394,728) ($ 1,537,598)
============= =============
Increase in Employee Stock Ownership Plan
debt guaranteed by the Bank $ (66,669) $ (66,670)
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
CONSOLIDATED STATEMENTS OF CASH FLOWS
SouthBanc Shares, Inc. and Subsidiary
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements for
SouthBanc Shares, Inc. ("Company") 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
only 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, 2000 are not necessarily indicative of the
results that may be expected for the entire year. These consolidated
financial statements do not include all disclosures required by
generally accepted accounting principles and should be read in
conjunction with the Company's audited consolidated financial
statements and related notes for the year ended September 30, 1999.
2. Principles of Consolidation
---------------------------
The accompanying unaudited consolidated financial statements include
the accounts of the Company, Perpetual Bank, a Federal Savings Bank,
("Bank"), and the Bank's wholly owned subsidiaries, Mortgage First
Service Corporation and United Service Corporation, and United Service
Corporation's wholly owned subsidiary, United Investment Services.
United Service Corporation is a wholly-owned subsidiary of the Bank. At
June 30, 2000, United Service had assets of $2.2 million. United
Service is involved in two residential and two commercial real estate
development projects.
All significant intercompany items and transactions have been
eliminated in consolidation.
3. Payment of Dividends
--------------------
The payment of dividends by the Company depends primarily on the
ability of the Bank to pay dividends to the Company. The payment of
dividends by the Bank is subject to regulation by the Office of Thrift
Supervision ("OTS"). The Bank may not declare or pay a cash dividend if
the effect thereof would cause the capital of the Savings Bank to be
reduced below regulatory capital requirements imposed by the OTS or
below the liquidation account established by the Bank in connection
with the conversion of the Bank's former mutual holding company
(SouthBanc Shares, M.H.C.) from the mutual to stock form of
organization.
The Company's Board of Directors declared a cash dividend of $.15 per
share to its shareholders during the quarter ended June 30, 2000,
payable on July 18, 2000 to shareholders of record as of July 3, 2000.
4. Earnings Per Share
------------------
In February 1997, the Financial Accounting Standards Board (FASB)
issued 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.
8
<PAGE>
4. Earnings Per Share (Continued)
------------------------------
This standard specifies computation and presentation requirements for
both basic EPS and, for entities with complex capital structures,
diluted EPS. Basic earnings per share are computed by dividing net
income by the weighted average common shares outstanding. Diluted
earnings per share is similar to the computation of basic earnings per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the
dilutive potential common shares had been issued. The dilutive effect
of options outstanding under the Company's stock option plan is
reflected in diluted earnings per share by application of the treasury
stock method. SFAS No. 128 is effective for reporting periods ending
after December 15, 1997. The Company adopted SFAS No. 128 during the
quarter ended December 31, 1997. Accordingly, all prior period earnings
per share have been restated for the purchase of Treasury Stock.
RECONCILIATION OF THE NUMERATORS AND DENOMINATORS OF THE BASIC AND
DILUTED EPS COMPUTATIONS:
<TABLE>
<CAPTION>
For the Nine Months Ended For the Quarter Ended
June 30, 2000 June 30, 2000
---------------------------------- ---------------------------------
Income Shares Per Income Shares Per
(Numer- (Denomi- Share (Numer- (Denomi- Share
ator) nator) Amount ator) nator) Amount
---------- ---------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $3,856,405 2,969,066 $ 1.30 $1,195,640 2,863,797 $ 0.42
Effect of Diluted Securities:
Stock Options 0 85,305 0 77,652
ESOP 0 82,308 0 82,308
---------- ---------- ---------- ---------
Diluted EPS $3,856,405 3,136,679 $ 1.23 $1,195,640 3,023,757 $ 0.40
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended For the Quarter Ended
June 30, 1999 June 30, 1999
---------------------------------- ---------------------------------
Income Shares Per Income Shares Per
(Numer- (Denomi- Share (Numer- (Denomi- Share
ator) nator) Amount ator) nator) Amount
---------- ---------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $4,623,389 3,463,213 $ 1.34 $1,596,700 3,137,542 $ 0.51
Effect of Diluted Securities:
Stock Options 0 102,399 0 107,386
ESOP 0 105,354 0 105,354
---------- ---------- ---------- ---------
Diluted EPS $4,623,389 3,670,966 $ 1.26 $1,596,700 3,350,282 $ 0.48
</TABLE>
5. Subsequent Event -- Merger with Heritage Bancorp, Inc.
------------------------------------------------------
On July 31, 2000 , the Company merged with Heritage Bancorp, Inc.
("Heritage"). The Company is the surviving corporation in the merger
and the transaction has been accounted for under the purchase method of
accounting prescribed by generally accepted accounting principles.
Each share of Heritage common stock was exchanged for either $17.65 in
cash or .992 of a share of the Company common stock. The Company paid
approximately $36.3 million in cash and issued approximately 1.8
million shares in connection with the transaction.
9
<PAGE>
5. Subsequent Event -- Merger with Heritage Bancorp, Inc. (Continued)
------------------------------------------------------------------
Heritage Federal Bank, the former subsidiary of Heritage that now is a
subsidiary of the Company, operates four banking offices in the upstate
region of South Carolina. At June 30, 2000, Heritage had total assets
of $342.3 million, deposits of $209.6 million, and stockholders' equity
of $71.4 million.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Comparison of Financial Condition at June 30, 2000 and September 30, 1999
Total assets increased 3.71% or $13.8 million to $386.0 million at June 30,
2000, from $372.2 million at September 30, 1999. Loans receivable increased
10.37% or $26.5 million to $282.0 million at June 30, 2000, from $255.5 million
at September 30, 1999. The increase in loans receivable resulted from growth in
first mortgage residential loans which increased $18.5 million to $163.2 million
at June 30, 2000, from $144.7 million at September 30, 1999, commercial real
estate which increased $8.5 million to $56.6 million at June 30, 2000, from
$48.1 million at September 30, 1999, commercial loans which increased $1.4
million to $16.8 million at June 30, 2000, from $15.4 million at September 30,
1999, consumer loans which increased $1.7 million to $23.7 million at June 30,
2000, from $22.0 million at September 30, 1999, offset by residential
construction loans which decreased $3.2 million to $24.6 million at June 30,
2000 from $27.8 million at September 30, 1999,
Cash and cash equivalents decreased 18.06% or $2.8 million to $12.7 million at
June 30, 2000, from $15.5 million at September 30, 1999.
Investment securities available-for-sale increased 12.96% or $2.1 million to
$18.3 million at June 30, 2000, from $16.2 million at September 30, 1999. A $2.0
million agency callable bond yielding 8.00% was called, a $1.0 million U. S.
Treasury note yielding 5.50% matured, and the Company purchased $4.8 million of
investments in publicly traded stocks.
Mortgage-backed securities available-for-sale decreased 24.49% or $14.3 million
to $44.1 million at June 30, 2000 from $58.4 million at September 30, 1999. The
Company sold $7.4 million FHLMC fixed rate mortgage-backed securities with
coupon rates between 7.50% and 8.00% maturing in twenty years. Principal
repayments on mortgage-backed securities were $6.7 million.
The Company's net investment in a limited partnership increased $0.3 million to
$1.9 million at June 30, 2000, from $1.6 million at September 30, 1999. The
investment is recorded under the equity method and the increase represents the
Company's portion of the earnings for the quarter. The limited partnership
invests in mortgage servicing rights tied to a national portfolio of residential
mortgage loans.
Real estate held for development was $2.1 million at June 30, 2000 and September
30, 1999. United Service Corporation sold seven single-family residential lots
in The Meadows Subdivision at a cost of $153,000. Forty-two lots remain
available for sale in Phase II in The Meadows residential subdivision and all
infrastructure has been completed. One tract of 8.0 acres and another tract of
5.0 acres remain available for sale in Perpetual Square, a commercial real
estate development. Northpark, an industrial park, has nineteen unsold acres of
land. During the nine months ended June 30, 2000, United Service Corporation
sold a one acre lot in Northpark at a cost of $28,000.
Deposits increased 5.38% or $11.9 million to $233.2 million at June 30, 2000,
from $221.3 million at September 30, 1999. The Company consolidated the number
of checking and statement saving accounts being offered and initiated a new
deposit fee schedule. Non interest bearing checking accounts decreased 19.75% or
$3.1 million to $12.6 million at June 30, 2000, from $15.7 million at September
30, 1999. Interest bearing checking accounts decreased 0.92% or $0.4 million to
$42.9 million at June 30, 2000, from $43.3 million at September 30, 1999.
Statement savings accounts increased 7.20% or $1.9 million to $28.3 million at
June 30, 2000, from $26.4 million at September 30, 1999.
10
<PAGE>
Certificates of deposits increased 9.93% or $13.5 million to $149.4 million at
June 30, 2000, from $135.9 million at September 30, 1999.
Advances from the Federal Home Loan Bank ("FHLB") increased 4.11% or $3.0
million to $76.0 million at June 30, 2000, from $73.0 million at September 30,
1999. The advances were used to fund loan originations and loan purchases from a
mortgage banking company in which Mortgage First Service Corporation, a
subsidiary of the Bank, has a one-third equity interest.
Stockholders' equity decreased 4.55% or $2.4 million to $50.4 million at June
30, 2000, from $52.8 million at September 30, 1999. Retained earnings were
offset by dividends paid in the amount of $1.3 million. Common stock repurchased
through the common stock repurchase programs is recorded on the Company's
balance sheet as Treasury Stock, a contra-equity account. During the nine months
ended June 30, 2000, the Company repurchased 265,512 shares at an average cost
of $19.30 per share and a total cost of $5.1 million.
Accumulated other comprehensive loss net increased $0.4 million to $2.4 million
at June 30, 2000, from $2.0 million at September 30, 1999, due to a decrease in
the market value of the investment securities available for sale and
mortgage-backed securities available for sale resulting from an increase in
interest rates in the securities markets.
Deferred compensation for Management Recognition Plan (MRP) decreased $0.4
million to $1.8 million at June 30, 2000, from $2.2 million at September 30,
1999, due to the amortization of the cost of the MRP.
Comparison of Operating Results for the Three Months Ended June 30, 2000 and
1999
Net Income
----------
Net income for the three months ended June 30, 2000, decreased to $1.2 million
or $0.42 basic earnings per share and $0.40 diluted earnings per share, compared
to $1.6 million or $0.51 basic earnings per share and $0.48 diluted earnings per
share for the same three months a year ago.
Net Interest Income
-------------------
Net interest income was $2.8 million for the three months ended June 30, 2000,
and $3.1 million for the three months ended June 30, 1999. Total interest income
increased 5.37% or $354,000 to $6.9 million for the three months ended June 30,
2000, from $6.6 million for the three months ended June 30, 1999, due primarily
to a higher average balance of outstanding loans which increased $41.7 million
or 17.72% to an average of $277.0 million yielding 8.08% for the three months
ended June 30, 2000, from $235.3 million yielding 8.16% for the three months
ended June 30, 1999. Interest income on mortgage-backed securities decreased
32.53% or $405,000 to $0.8 million for the three months ended June 30, 2000, as
the average balance decreased $30.9 million to $45.1 million for the three
months ended June 30, 2000, from $76.0 million for the three months ended June
30, 1999 due to sales and principal repayments on mortgage-backed securities.
Interest income on other investments decreased 6.50% or $34,000 due primarily to
a lower balance of investment securities and interest bearing securities which
decreased 18.85% or $5.9 million, to an average balance of $25.4 million
yielding 7.75% for the three months ended June 30, 2000, from $31.3 million
yielding 6.69% for the three months ended June 30, 1999.
Interest Expense
----------------
Interest expense on deposits increased 14.63% or $325,000 as the average
outstanding balance of deposits increased 2.34% or $5.3 million to $232.0
million at an average cost of 4.39% for the three months ended June 30, 2000,
from $226.7 million at an average cost of 3.92% for the three months ended June
30, 1999. Interest on borrowings increased $431,000 to $1.5 million for the
three months ended June 30, 2000, from $1.1 million for the three months ended
June 30, 1999, as the average borrowings increased 9.56% or $8.3 million to
$95.1 million at an average cost of 6.49% for the three months ended June 30,
2000, from $86.8 million at an average cost of 5.13% for the three months ended
June 30, 1999.
11
<PAGE>
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 55.9% or $95,000, to $75,000 for the
three months ended June 30, 2000, from $170,000 for the three months ended June
30, 1999, as charge-offs were $26,000 for the three months ended June 30, 2000,
compared to $59,000 for the three months ended June 30, 1999.
Non-performing assets at June 30, 2000, were $5.4 million, consisting of $2.1
million of residential construction loans, $481,000 of real estate acquired in
settlement of loans, $1.4 million of single family residential loans, $1.3
million of commercial real estate loans, $138,000 of commercial loans, and
$49,000 of consumer loans.
Non-performing assets at September 30, 1999, were $2.6 million, consisting of
$88,000 of residential mortgage construction loans, $208,000 of real estate
acquired in settlement of loans, $1,184,000 of single family residential loans,
$873,000 of commercial real estate loans, $126,000 of commercial loans, and
$86,000 of consumer loans.
The allowance for loan losses to total loans was 1.01% at June 30, 2000 and at
September 30, 1999.
Other Income
------------
Total other income decreased 16.2%, or $269,000, to $1.4 million for the three
months ended June 30, 2000, from $1.7 million for the three months ended June
30, 1999. Loan and deposit service charges increased $71,000 to $995,000 from
$924,000 for the three months ended June 30, 1999, as a result of an increase to
the fee structure of deposit accounts. There was no gain (loss) on sale of
investments for the three months ended June 30, 2000, compared to a loss of
$171,000 for the three months ended June 30, 1999. Gain (loss) on sale of real
estate acquired in settlement of loans was a loss of $6,000 for the three months
ended June 30, 2000, compared to a loss of $9,000 for the three months ended
June 30, 1999.
Gain on sale of loans was $3,000 for the three months ended June 30, 2000,
compared to a gain of $7,000 for the three months ended June 30, 1999. Gain on
sale of real estate held for development was $2,000 for the three months ended
June 30, 2000, as two residential lots and one residential house were sold by
United Service Corporation in The Meadows residential subdivision compared to
$128,000 for the three months ended June 30, 1999, as two lots (five acres of
land) were sold in the Northpark Industrial Park. Earnings on bank owned life
insurance increased 2.80% or $3,000 to $110,000 for the three months ended June
30, 2000, compared to $107,000 for the three months ended June 30, 1999. Other
income decreased $387,000 to $288,000 for the three months ended June 30, 2000,
compared to $675,000 for the three months ended June 30, 1999, due to a decrease
in the Bank's portion of earnings of the investment in limited partnership
because the prepayment rates on the underlying mortgages have increased at a
lower rate when compared to the same three months a year ago. Earnings on the
investment in limited partnership decreased $310,000 to $90,000 for the three
months ended June 30, 2000 compared to $400,000 for the three months ended June
30, 1999.
General and Administrative Expense
----------------------------------
Salaries and employee benefits increased 12.66% or $152,000 to $1.4 million for
the three months ended June 30, 2000, from $1.2 million for the three months
ended June 30, 1999, due to the expense of the 1999 Management Recognition Plan
(MRP) and additional overtime expense involved with the anticipated Heritage
merger. Office occupancy increased 6.40% or $8,000 to $133,000 for the three
months ended June 30, 2000, from $125,000 for the three months
12
<PAGE>
ended June 30, 1999, due to an increase in building maintenance. Furniture and
equipment expenses increased 2.71% or $7,000 to $265,000 for the three months
ended June 30, 2000 from $258,000 for the three months ended June 30, 1999, due
to increases in depreciation expense and equipment maintenance expense.
Advertising decreased 16.00% or $12,000 to $63,000 for the three months ended
June 30, 2000, from $75,000 for the three months ended June 30, 1999 due to a
decrease in the purchase of specialty items. Data processing decreased 6.41% or
$10,000 to $146,000 for the three months ended June 30, 2000, from $156,000 for
the three months ended June 30, 1999 due to Year 2000 computer and computer
software testing incurred in the three months ending June 30, 1999. Office
supplies decreased 17.95% or $14,000 to $64,000 for the three months ended June
30, 2000, from $78,000 for the three months ended June 30, 1999, due to a
decrease in the purchase of data processing supplies. There was no profit
improvement program expense for the three months ended June 30, 2000 compared to
$84,000 for the three months ended June 30, 1999 as the two year program has
been concluded. The profit improvement program included consultant fees for
sales training, staff realignment, and product fee enhancement. Other operating
expenses increased 9.79% or $33,000 to $370,000 for the three months ended June
30, 2000, from $337,000 for the three months ended June 30, 1999, due to an
increase in real estate owned expenses.
Income Taxes
------------
Income taxes decreased 30.01% or $235,000 to $548,000 for the three months ended
June 30, 2000, from $783,000 for the three months ended June 30, 1999. This was
due to a decrease in income before taxes of 26.76% or $637,000 to $1,743,000
from $2,380,000 for the nine months ended June 30, 2000 and 1999, respectively.
Comparison of Operating Results for the Nine Months Ended June 30, 2000 and 1999
Net Income
----------
Net income for the nine months ended June 30, 2000, decreased to $3.9 million or
$1.30 basic earnings per share and $1.23 diluted earnings per share, compared to
$4.6 million or $1.34 basic earnings per share and $1.26 diluted earnings per
share for the same nine months a year ago.
Net Interest Income
-------------------
Net interest income was $9.0 million for the nine months ended June 30, 2000,
and $9.5 million for the nine months ended June 30, 1999. Total interest income
increased 3.21% or $628,000 to $20.2 million for the nine months ended June 30,
2000, from $19.6 million for the nine months ended June 30, 1999, due primarily
to a higher average balance of outstanding loans which increased $34.8 million
or 14.85% to an average of $269.1 million yielding 8.03% for the nine months
ended June 30, 2000, from $234.3 million yielding 8.05% for the nine months
ended June 30, 1999. Interest income on mortgage-backed securities decreased
31.64% or $1,171,000 to $2.5 million for the nine months ended June 30, 2000, as
the average balance of mortgage backed securities decreased $29.0 million to
$47.9 million for the nine months ended June 30, 2000 from $76.9 million for the
nine months ended June 30, 1999 due to sales and principal repayments on
mortgage-backed securities. Interest income on other investments decreased
15.51% or $270,000 due primarily to a lower balance of investment securities and
interest bearing securities which decreased 26.18% or $9.4 million, to an
average balance of $26.5 million yielding 7.39% for the nine months ended June
30, 2000, from $35.9 million yielding 6.46% for the nine months ended June 30,
1999.
Interest Expense
----------------
Interest expense on deposits increased 5.00% or $335,000 as the average
outstanding balance of deposits increased 2.45% or $5.4 million to $225.5
million at an average cost of 4.16% for the nine months ended June 30, 2000,
from $220.1 million at an average cost of 4.06% for the nine months ended June
30, 1999. Interest on borrowings increased $805,000 to $4.2 million for the nine
months ended June 30, 2000, from $3.4 million for the nine months ended June 30,
1999, as the average borrowings increased 6.82% or $6.0 million to $94.0 million
at an average cost of 5.98% for the nine months ended June 30, 2000 from $88.0
million at an average cost of 5.16% for the nine months ended June 30, 1999.
13
<PAGE>
Provision 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 increased 31.82% or $105,000 to $435,000 for the
nine months ended June 30, 2000, from $330,000 for the nine months ended June
30, 1999 as charge offs were $176,000 for the nine months ended June 30, 2000,
compared to $116,000 for the nine months ended June 30, 1999, and non-performing
assets at June 30, 2000 were $5.4 million compared to $2.6 million at September
30, 1999.
Other Income
------------
Total other income decreased 4.87% or $213,000 to $4.2 million for the nine
months ended June 30, 2000, from $4.4 million for the nine months ended June 30,
1999. Loan and deposit service charges increased $432,000 to $3.0 million from
$2.5 million for the nine months ended June 30, 2000, as a result of an increase
to the fee structure of deposit accounts. Gain (loss) on sale of investments was
a loss of $95,000 for the nine months ended June 30, 2000, compared to a gain of
$126,000 for the nine months ended June 30, 1999. Gain (loss) on sale of real
estate acquired in settlement of loans was a loss of $2,000 for the nine months
ended June 30, 2000, compared to a gain of $14,000 for the nine months ended
June 30, 1999.
Gain on sale of loans was $3,000 for the nine months ended June 30, 2000,
compared to a gain of $88,000 for the nine months ended June 30, 1999. Gain on
sale of real estate held for development was $84,000 for the nine months ended
June 30, 2000, as nine residential lots were sold by the United Service
Corporation in The Meadows residential subdivision one residential house and two
lots in the Northpark Industrial Park compared to $300,000 for the nine months
ended June 30, 1999, as thirteen residential lots were sold in The Meadows and
one five acre tract of commercial real estate sold in Perpetual Square. Earnings
on bank owned life insurance increased 7.17% or $23,000 to $344,000 for the nine
months ended June 30, 2000, compared to $321,000 for the nine months ended June
30, 1999 due to an annual yield adjustment. Other income decreased $128,000 to
$874,000 for the nine months ended June 30, 2000, compared to $1,002,000 for the
nine months ended June 30, 1999, due to a decrease in the Bank's portion of
earnings of the investment in limited partnership because the prepayment rates
on the underlying mortgages for the nine months ended June 30, 2000 have
increased at a lower rate when compared to the nine months end June 30, 1999.
Earnings on the investment in limited partnership decreased $461,000 to $289,000
for the nine months ended June 30, 2000, compared to $750,000 for the nine
months ended June 30, 1999.
General and Administrative Expense
----------------------------------
Salaries and employee benefits increased 12.57% or $437,000 to $3.9 million for
the nine months ended June 30, 2000, from $3.5 million for the nine months ended
June 30, 1999, due to the expense of the 1999 Management Recognition Plan (MRP).
Office occupancy increased 9.97% or $37,000 to $408,000 for the nine months
ended June 30, 2000 from $371,000 for the nine months ended June 30, 1999, due
to an increase in building maintenance. Furniture and equipment expenses
decreased 3.55% or $29,000 to $789,000 for the nine months ended June 30, 2000
from $818,000 for the nine months ended June 30, 1999 due to decreases in
depreciation expense and equipment maintenance expense. Advertising increased
8.76% or $12,000 to $149,000 for the nine months ended June 30, 2000 from
$137,000 for the nine months ended June 30, 1999 due to a checking account
promotion.
Data processing decreased 9.13% or $40,000 to $398,000 for the nine months ended
June 30, 2000 from $438,000 for the nine months ended June 30, 1999 due to Year
2000 computer and computer software testing for the nine months ended June 30,
1999. Office supplies increased 11.98% or $26,000 to $243,000 for the nine
months ended June 30, 2000 from $217,000 for the nine months ended June 30,
1999, due to an increase in the purchase of data processing supplies. The profit
improvement program expense decreased 54.59% or $113,000 to $94,000 for the
14
<PAGE>
nine months ended June 30, 2000 from $207,000 for the nine months ended June 30,
1999 as the two year program has been concluded. The profit improvement program
included consultant fees for sales training, staff realignment and product fee
enhancement. Other operating expenses increased 10.06% or $88,000 to $963,000
for the nine months ended June 30, 2000 from $875,000 for the nine months ended
June 30, 1999 due to increased telephone, postage, real estate owned expenses,
and a decrease in deferred loan expense.
Income Taxes
------------
Income taxes decreased 19.63% or $443,000 to $1,814,000 for the nine months
ended June 30, 2000 from $2,257,000 for the nine months ended June 30, 1999.
This was due to a decrease in income before taxes of 17.60% or $1,211,000 to
$5.7 million from $6.9 million for the nine months ended June 30, 2000 and 1999,
respectively.
Liquidity and Capital Resources
-------------------------------
The Company's primary sources of funds are deposits, repayment of loan
principal, and repayment of mortgage backed securities and collateralized
mortgage obligations, 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 Company 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 Company is
eligible to borrow funds from the Federal Home Loan Bank ("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 Company at June 30, 2000 was 11.32%.
The primary investing activity of the Company is lending. During the nine months
ended June 30, 2000, the Company originated $64.8 million of loans and no loans
were sold. The Company also purchased $25.0 million of loans. The retained
originations were primarily funded by principal repayments of loans and
mortgage-backed securities and collateralized mortgage obligations, and FHLB
advances.
Liquidity management is both a short and long-term responsibility of management.
The Company 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 Company requires funds beyond its
ability to generate them internally, it has additional borrowing capacity with
the FHLB and collateral eligible for repurchase agreements.
The Company anticipates that it will have sufficient funds available through
normal loan repayments to meet current loan commitments. At June 30, 2000, the
Company had outstanding commitments to originate loans of approximately $68.3
million which is comprised of $37.8 million adjustable rate commitments and
$30.5 million fixed rate commitments.
Certificates of deposit scheduled to mature in one year or less at June 30,
2000, totaled $121.5 million. Based upon management's experience and familiarity
with the customers involved and the Company's pricing policy relative to that of
its perceived competitors, management believes that a significant portion of
such deposits will remain with the Company.
15
<PAGE>
Capital Compliance
------------------
The Company is not subject to any regulatory capital requirements. The Bank's
actual capital and ratios as required by the OTS, as well as those required to
be considered well capitalized according to the Prompt Corrective Action
Provisions are presented in the following table. As of June 30, 2000, the most
recent notification from the OTS 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
risked-based, and Tier I core ("leverage") ratios as set forth in the table.
There are no conditions or events since that notification that management
believes have changed the Bank's category.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Adequacy Prompt Corrective
Actual Purposes Action Provisions
------ -------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 2000:
Tangible Capital (To Total Assets) $39,723 10.58% $ 5,632 1.50%$ -- --%
Core Capital (To Total Assets) 39,723 10.58% 15,020 4.00% 18,775 5.00%
Tier I Capital (To Risk-Based Assets) 39,723 15.65% -- -- 15,228 6.00%
Risk-Based Capital (To Risk-Based
Assets) 42,388 16.70% 20,303 8.00% 25,379 10.00%
</TABLE>
If the Bank were to fail to meet the minimum capital requirements, it will be
required to file a written capital restoration plan with regulatory agencies and
would be subject to various mandatory and discretionary restrictions on its
operations.
Impact of New Accounting Pronouncements
---------------------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." All derivatives are to be measured at fair
value and recognized in the balance sheet as assets or liabilities. This
statement's effective date was delayed by the issuance of SFAS No. 137
"Accounting for Derivative Instruments and hedging Activities - Deferral of the
Effective Date of SFAS 133", and is effective for fiscal years and quarters
beginning after June 15, 2000. The Company does not expect that the adoption of
SFAS No. 133 will have a material impact on the presentation of the Company's
financial results or financial position.
Accounting standards that have been issued by the FASB that will not require
adoption until a future date and will impact the preparation of the financial
statements will not have a material effect upon adoption.
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 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.
16
<PAGE>
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 Company's
Annual Report for the year ended September 30, 1999.
17
<PAGE>
PART II
Item 1. Legal Proceedings
-----------------------------------
The Company is not a party to any legal proceedings at this time. 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 Savings 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
--------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
2 Agreement and Plan of Merger *
3(a) Certificate of Incorporation of the Company **
3(b) Bylaws of the Company **
10.1 Employment Agreement between SouthBanc Shares,
Inc. and Robert W. Orr ***
10.2 Employment Agreement between SouthBanc Shares,
Inc. and Thomas C. Hall ***
10.3 Employment Agreement between SouthBanc Shares,
Inc. and Barry C. Visioli ***
10.4 Employment Agreement between Perpetual Bank,
A Federal Savings Bank and Robert W. Orr ***
10.5 Employment Agreement between Perpetual Bank,
A Federal Savings Bank and Thomas C. Hall ***
10.6 Employment Agreement between Perpetual Bank,
A Federal Savings Bank and Barry C. Viosoli ***
10.7 1998 Stock Option Plan ****
10.8 1998 Management Development and Recognition Plan ****
10.9 Supplemental Executive Retirement Agreement with
Robert W. Orr ***
10.10 Supplemental Executive Retirement Agreement with
Thomas C. Hall ***
10.11 Supplemental Executive Retirement Agreement with
Barry C. Visioli ***
27 Financial Data Schedule
</TABLE>
18
<PAGE>
* Incorporated by reference to the Company's Current
Report on Form 8-K filed February 22, 2000
** Incorporated by reference to the Company's
Registration Statement on Form S-1, as amended (File
No. 333-42517)
*** Incorporated by reference to the Company's Annual
Report on Form 10-K for the year ended September 30,
1999.
**** Incorporated by reference to the Company's Definitive
Proxy Statement dated December 18, 1998.
B. Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended
June 30, 2000.
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 14, 2000 /s/ Robert W. Orr
--------------------------------
Robert W. Orr
President and Managing Officer
(Duly Authorized Representative)
Date: August 14, 2000 /s/ Thomas C. Hall
---------------------------------
Thomas C. Hall
Chief Financial Officer
19
