<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 March 31, 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 2,956,683
- ------------------------------- ---------
(Class) (Outstanding at March 31, 2000)
<PAGE>
SouthBanc Shares, Inc. and Subsidiary
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000 and
September 30, 1999 (unaudited)................................................. 3
Consolidated Statements of Income for the Six Months Ended
March 31, 2000, and the Three Months Ended March 31, 2000
(unaudited).................................................................... 4
Consolidated Statements of Stockholders' Equity
for the Year Ended September 30, 1999 and
the Six Months Ended March 31, 2000 (unaudited)................................ 5
Consolidated Statements of Cash Flows for the Six Months
Ended March 31, 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 March 31,
2000 and 1999 and the Six Months Ended March 31, 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
</TABLE>
2
<PAGE>
SouthBanc Shares, Inc. and Subsidiary
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
Item I - Financial Statements
March 31, September 30,
- --------------------------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and cash equivalents $18,488,836 $15,546,360
Investment securities available for sale (amortized
cost of $16,052,381 at March 31, 2000,
$17,673,222 at September 30, 1999) 13,984,400 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 $48,331,963 at March 31,
2000, and $60,027,799 at September 30, 1999) 46,231,096 58,384,541
Loans receivable, (net of allowance for loan losses of
$2,849,385 at March 31, 2000, and
$2,617,662 at September 30, 1999) 277,412,473 255,488,141
Investment in limited partnership 1,774,373 1,575,373
Real estate acquired in settlement of loans 357,303 229,900
Real estate held for development 2,235,229 2,095,903
Premises and equipment, net 5,624,974 5,722,230
Accrued interest receivable
Loans receivable 2,158,378 1,860,838
Mortgage-backed and other securities 392,629 453,968
Cash surrender value of life insurance 8,075,067 7,865,743
Other 3,716,253 3,034,571
------------- -------------
Total Assets $384,426,011 $372,151,271
============= =============
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits $230,805,304 $221,257,085
Advances from the Federal Home Loan Bank ("FHLB") 79,500,000 73,000,000
Securities sold under agreements to repurchase 20,371,094 20,254,436
Advance payments by borrowers for property taxes and
insurance 255,633 438,484
Accrued interest payable 1,325,793 1,356,578
Accrued expenses and other liabilities 2,801,729 3,094,136
------------- -------------
Total Liabilities 335,059,553 319,400,719
------------- -------------
Commitments and contingencies - Note 17
Stockholders' Equity
- --------------------
Preferred stock ($0.01 par value; authorized 250,000
shares; none issued or
outstanding at March 31,
2000 and September 30, 1999)
- -
Common stock ($0.01 par value; authorized 7,500,000
shares; issued 4,323,194 and 4,322,030 shares
at March 31, 2000 and September 30, 1999,
respectively) 43,232 43,220
Additional paid-in capital 57,838,296 57,741,324
Retained earnings, restricted 24,105,618 22,351,722
Treasury stock - at cost (1,366,511 shares and
1,117,242 shares at March 31, 2000 and
September 30, 1999, respectively)
(27,361,097) (22,515,585)
Accumulated other comprehensive loss, net (2,751,440) (2,028,033)
Indirect guarantee of ESOP debt (577,801) (622,247)
Deferred compensation for Management
Recognition Plan (MRP) (1,930,350) (2,219,849)
------------- -------------
Total stockholders' equity 49,366,458 52,750,552
------------- -------------
Total liabilities and stockholders' equity $384,426,011 $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 Six Months Ended For the Three Months
March 31, Ended March 31,
- ---------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income:
Loans $10,616,398 $ 9,338,789 $ 5,402,043 $ 4,625,625
Mortgage-backed securities 1,689,825 2,456,344 774,067 1,285,106
Other investments 981,259 1,217,692 457,756 582,947
----------- ----------- ----------- -----------
Total interest income 13,287,482 13,012,825 6,633,866 6,493,678
----------- ----------- ----------- -----------
Interest expense:
Interest on deposits:
Transaction accounts 460,953 568,267 224,683 303,698
Passbook accounts 333,218 303,264 168,459 147,794
Certificate accounts 3,696,759 3,609,617 1,919,196 1,771,684
----------- ----------- ----------- -----------
Total interest on deposits 4,490,930 4,481,148 2,312,338 2,223,176
Interest on borrowings 2,668,867 2,295,857 1,343,182 1,220,778
----------- ----------- ----------- -----------
Total interest expense 7,159,797 6,777,005 3,655,520 3,443,954
----------- ----------- ----------- -----------
Net interest income 6,127,685 6,235,820 2,978,346 3,049,724
Provision for loan losses 360,000 160,000 210,000 80,000
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 5,767,685 6,075,820 2,768,346 2,969,724
----------- ----------- ----------- -----------
Other income:
Loan and deposit account service charges 1,956,093 1,594,820 948,167 716,037
Gain (loss) on sale of investments (94,702) 297,306 - 5,271
Gain on sale of real estate acquired
in settlement of loans 4,624 23,282 9,774 25,077
Gain on sale of loans, net - 81,178 - 32,437
Gain on sale of real estate held for development 82,649 172,674 29,648 136,501
Earnings on bank owned life insurance 233,556 214,200 125,886 107,100
Other 585,543 327,631 337,859 184,143
----------- ----------- ----------- -----------
Total other income 2,767,763 2,711,091 1,451,334 1,206,566
----------- ----------- ----------- -----------
General and administrative expenses:
Salaries and employee benefits 2,560,773 2,275,273 1,282,952 1,125,204
Occupancy 275,531 246,292 147,739 126,770
Furniture and equipment expense 514,968 559,870 271,973 295,628
FDIC insurance premiums 44,400 60,446 11,567 31,258
Advertising 85,394 61,241 38,832 17,999
Data processing 251,723 281,815 124,840 172,357
Office supplies 179,413 139,033 75,372 92,250
Profit improvement program 94,280 123,185 24,280 48,000
Other 602,105 538,509 315,084 257,290
----------- ----------- ----------- -----------
Total general and administrative expenses 4,608,587 4,285,664 2,292,639 2,166,756
----------- ----------- ----------- -----------
Income before income taxes 3,926,861 4,501,247 1,927,041 2,009,534
Income taxes 1,266,096 1,474,558 612,853 604,769
----------- ----------- ----------- -----------
Net income $ 2,660,765 $ 3,026,689 $ 1,314,188 $ 1,404,765
=========== =========== =========== ===========
Basic earnings per common share $ 0.88 $ 0.83 $ 0.44 $ 0.43
=========== =========== =========== ===========
Diluted earnings per common share $ 0.83 $ 0.79 $ 0.42 $ 0.40
=========== =========== =========== ===========
Weighted average shares outstanding:
Basic 3,011,536 3,626,048 2,962,296 3,288,729
=========== =========== =========== ===========
Diluted 3,192,347 3,818,896 3,136,841 3,483,601
=========== =========== =========== ===========
Cash dividends per common share $ 0.30 $ 0.24 $ 0.15 $ 0.12
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
SouthBanc Shares, Inc. and Subsidiary
Consolidated Statements of Stockholders' Equity
Year Ended September 30, 1999 and Six Months Ended March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>
Accumulated Indirect
Other Guarantee
Additional Retained Comprehensive of
Common Common Paid-in Earnings Income (Loss), Treasury ESOP
Shares Stock Capital Restricted Net Stock Debt
--------- ------- ----------- ------------ ----------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1998 4,306,410 $ 43,064 $57,470,324 $18,154,380 $ 180,009 - ($711,140)
Net income - - - 3,026,689 - - -
Other comprehensive income/(loss) - - - - - - -
Unrealized loss on
securities, net - - - (339,402) - -
Reclassification adjustment - - - -
gains realized in net income, - - - - (196,222) - -
-----------
Total other comprehensive income/
(loss) - - - - (535,624) - -
Comprehensive income
Exercise of stock options 14,369 144 56,984 - - - -
Reduction of ESOP debt - - - - - - 44,446
ESOP expense - - 83,386 - - - -
Earned portion of MRP - -
Dividends on common stock - - - (813,459)
Offering expenses for the sale of
common stock - - (15,669) - - -
-
Purchase of Treasury Stock (1,141,523) - - - - (22,903,655) -
--------- ------- ---------- ----------- ----------- ------------ --------------
Balance at March 31, 1999 3,179,256 43,208 57,595,025 20,367,610 (355,615) (22,903,655) (666,694)
Balance at September 30, 1999 4,322,030 43,220 57,741,324 22,351,722 (2,028,033) (22,515,585) (622,247)
Net Income - - - 2,660,765 - - -
Other comprehensive income:
Unrealized loss on
securities, net - - - - (785,910) -
Reclassification adjustment
losses realized in net - - - - 62,503 -
-----------
Total other comprehensive
income (loss) - - - - (723,407) -
Comprehensive income - - - - -
Exercise of stock options 1,164 12 10,290 - -
Reduction of ESOP debt - - - - - - 44,446
ESOP compensation expense 86,682
Earned portion of MRP - - - - - - -
Dividends on common stock - - - (906,869) - -
Purchase of Treasury Stock - - - (4,845,512)
--------- ------- ----------- ----------- ----------- ------------ --------------
Balance at March 31, 2000 4,323,194 $43,232 $57,838,296 $24,105,618 ($2,751,440) ($27,361,097) ($577,801)
========= ======= =========== =========== =========== ============ ==============
<CAPTION>
Deferred
Compensation
for
MRP Total
--------------- ----------------
<S> <C> <C>
Balance at September 30, 1998 ($729,311) $74,407,326
Net income - 3,026,689
Other comprehensive income/(loss) -
Unrealized loss on
securities, net - (339,402)
Reclassification adjustment
gains realized in net income, - (196,222)
-----------
Total other comprehensive income/
(loss) - (535,624)
Comprehensive income 2,491,065
Exercise of stock options - 57,128
Reduction of ESOP debt - 44,446
ESOP expense - 83,386
Earned portion of MRP 104,173 104,173
Dividends on common stock (813,459)
Offering expenses for the sale of
common stock - (15,669)
Purchase of Treasury Stock - (22,903,655)
-----------
Balance at March 31, 1999 (625,138) 53,454,741
Balance at September 30, 1999 (2,219,849) 52,750,552
Net Income - 2,660,765
Other comprehensive income:
Unrealized loss on securities, net (785,910)
Reclassification adjustment for
losses realized in net - 62,503
-----------
Total other comprehensive
income (loss) (723,407)
Comprehensive income - 1,937,358
Exercise of stock options - 10,302
Reduction of ESOP debt - 44,446
ESOP compensation expense - 86,682
Earned portion of MRP 289,499 289,499
Dividends on common stock (906,869)
Purchase of Treasury Stock - (4,845,512)
---------- -----------
Balance at March 31, 2000 ($1,930,350) $49,366,458
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
SouthBanc Shares, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Six Months Ended March 31, 2000 and 1999 (Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
2000 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,660,765 $ 3,026,689
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 432,484 435,928
Accretion, net (537,143) (447,877)
Provision for loan losses 360,000 160,000
(Gain) loss on sale of investments, net 94,702 (297,306)
Gain on sale of real estate (4,624) (23,282)
Gain on sale of loans, net - (81,178)
Gain on sale of real estate held for development (82,649) (172,674)
Deferred compensation 376,181 187,559
Increase in accrued interest
receivable and other assets (1,116,882) (188,211)
Decrease in other liabilities (323,192) (715,343)
------------- -------------
Net cash provided by operating activities 1,859,642 1,884,305
------------- -------------
Cash flows from investing activities:
Increase in loans receivable, net (7,179,740) (5,959,504)
Purchases of loans receivable (15,422,481) (19,588,942)
Purchase of mortgage-backed securities - (34,802,010)
Purchases of investment securities (795,005) (5,052,771)
Purchases of FHLB stock (1,975,000) (860,800)
Purchase of premises and equipment (335,228) (167,019)
Sales of loans receivable - 13,287,087
Proceeds from redemption of FHLB stock 1,650,000 100,000
Principal repayments on mortgage-backed securities 4,277,469 20,025,367
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 - 6,289,891
Proceeds from sale of real estate owned 224,750 284,454
Proceeds from sale of real estate held for development 268,654 717,741
Capital improvements of real estate held for development (354,971) (274,081)
------------- -------------
Net cash used in investing activities (9,201,559) (16,116,231)
------------- -------------
</TABLE>
Continued
6
<PAGE>
SouthBanc Shares, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Six Months Ended March 31, 2000 and 1999 (Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
2000 1999
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from financing activities:
Increase in deposit accounts 9,548,219 15,897,929
Proceeds from FHLB Advances 105,500,000 60,000,000
Repayment of FHLB Advances (99,000,000) (45,000,000)
Proceeds from securities sold under agreements
to repurchase 116,658 192,548
Payment of stock offering costs - (15,669)
Exercise of stock options 10,302 57,128
Purchase of Treasury stock (4,845,512) (22,903,655)
Repayments of ESOP loan 44,446 44,446
Dividends paid on common stock (906,869) (813,459)
Decrease in advance payments by borrowers
for property taxes and insurance (182,851) (108,643)
------------- -------------
Net cash provided by financing activities 10,284,393 7,350,625
------------- -------------
Net increase (decrease) in cash and cash equivalents 2,942,476 (6,881,301)
Cash and cash equivalents, beginning of year 15,546,360 21,197,419
------------- -------------
Cash and cash equivalents, end of year $ 18,488,836 $ 14,316,118
============= =============
Supplemental disclosures:
Cash paid during the year for
Interest $ 7,190,582 $ 6,710,679
============= =============
Taxes $ 1,430,000 $ 1,450,000
============= =============
Noncash investing activities:
Additions to real estate acquired in settlement of loans $ 318,069 $ 318,069
============= =============
Loans receivable exchanged for mortgage-backed
securities - -
============= =============
Change in unrealized net loss on securities
available for sale, net of tax ($723,407) ($535,624)
============= =============
Increase in Employee Stock Ownership Plan
debt guaranteed by the Bank $ 44,446 $ 44,446
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
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 March 31, 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
March 31, 2000, United Service had assets of $2.4 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 March 31, 2000,
payable on April 17, 2000 to shareholders of record as of April 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 Six Months Ended For the Quarter Ended
---------------------------------- -----------------------------------
March 31, 2000 March 31, 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 $ 2,660,765 3,011,536 $ 0.88 $ 1,314,188 2,962,296 $ 0.44
Effect of Diluted Securities:
Stock Options 0 88,626 0 82,360
ESOP 0 92,185 0 92,185
----------- --------- ----------- -----------
Diluted EPS $ 2,660,765 3,192,347 $ 0.83 $ 1,314,188 3,136,841 $ 0.42
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended For the Quarter Ended
---------------------------------- ---------------------------------
March 31, 1999 March 31, 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 $ 3,026,689 3,626,048 $ 0.83 $ 1,404,765 3,288,729 $ 0.43
Effect of Diluted Securities:
Stock Options 0 87,494 0 89,518
ESOP 0 105,354 0 105,354
----------- --------- ----------- ---------
Diluted EPS $ 3,026,689 3,818,896 $ 0.79 $ 1,404,765 3,483,601 $ 0.40
</TABLE>
5. Proposed Merger with Heritage Bancorp, Inc.
On February 14, 2000, the Boards of Directors of the Company and Heritage
Bancorp, Inc. ("Heritage") approved an agreement and plan of merger of the
companies. Heritage Federal Bank, the subsidiary of Heritage, operates four
banking offices in the upstate region of South Carolina. At December 31,
1999, Heritage had total assets of $334.1 million, deposits of $202.6
million, and stockholders' equity of $73.5 million.
9
<PAGE>
5. Proposed Merger with Heritage Bancorp, Inc. (Continued)
-------------------------------------------------------
The completion of the merger requires approval by regulatory authorities
and by both the Company's and Heritage's stockholders. The Company has
filed the required applications with the Office of Thrift Supervision and
has filed a registration statement with the Securities and Exchange
Commission. The merger is expected to be completed in third calendar
quarter of 2000 and will be accounted for under the purchase method of
accounting prescribed by generally accepted accounting principles.
If the merger is approved, each share of Heritage common stock will be
converted into either cash or shares of Company common stock, and each
share of Company common stock will remain unchanged. The number of shares
of Company common stock to be exchanged for each share of Heritage common
stock will be based on the average closing price of Company common stock
over a ten day measurement period shortly before the closing of the merger.
The value of the shares of Company common stock to be exchanged for each
share of Heritage common stock will range between $15.58 and $20.06.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Comparison of Financial Condition at March 31, 2000 and September 30, 1999
Total assets increased 3.28% or $12.2 million to $384.4 million at March 31,
2000, from $372.2 million at September 30, 1999. Loans receivable increased
8.57% or $21.9 million to $277.4 million at March 31, 2000, from $255.5 million
at September 30, 1999. The increase in loans receivable resulted from growth in
first mortgage residential loans which increased $13.9 million to $158.6 million
at March 31, 2000, from $144.7 million at September 30, 1999, commercial real
estate which increased $7.1 million to $55.2 million at March 31, 2000, from
$48.1 million at September 30, 1999, commercial loans which increased $0.9
million to $16.3 million at March 31, 2000, from $15.4 million at September 30,
1999, consumer loans which increased $1.8 million to $23.8 million at March 31,
2000, from $22.0 million at September 30, 1999, offset by residential
construction loans which decreased $1.3 million to $26.5 million at March 31,
2000 from $27.8 million at September 30, 1999,
Cash and cash equivalents increased 19.35% or $3.0 million to $18.5 million at
March 31, 2000, from $15.5 million at September 30, 1999.
Investment securities available-for-sale decreased 13.58% or $2.2 million to
$14.0 million at March 31, 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 $0.8 million
of equity investments.
Mortgage-backed securities available-for-sale decreased 20.89% or $12.2 million
to $46.2 million at March 31, 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 $4.3 million.
The Company's net investment in a limited partnership increased $0.2 million to
$1.8 million at March 31, 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 increased $0.1 million to $2.2 million at March
31, 2000, from $2.1 million at September 30, 1999. United Service Corporation
sold four single-family residential lots in The Meadows Subdivision at a cost of
$97,000. Forty-five lots remain available for sale in Phase II in The Meadows
residential subdivision with all infrastructure to be completed by June 2000.
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. United Service Corporation
sold a one acre lot in Northpark at a cost of $28,000.
10
<PAGE>
Deposits increased 4.29% or $9.5 million to $230.8 million at March 31, 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 5.10% or
$0.8 million to $14.9 million at March 31, 2000, from $15.7 million at September
30, 1999. Interest bearing checking accounts decreased 0.23% or $0.1 million to
$43.2 million at March 31, 2000, from $43.3 million at September 30, 1999.
Statement savings accounts increased 4.92% or $1.3 million to $27.7 million at
March 31, 2000, from $26.4 million at September 30, 1999. Certificates of
deposits increased 6.70% or $9.1 million to $145.0 million at March 31, 2000,
from $135.9 million at September 30, 1999.
Advances from the Federal Home Loan Bank ("FHLB")increased 8.90% or $6.5 million
to $79.5 million at March 31, 2000, from $73.0 million at September 30, 1999.
The advances were used to fund loan originations and loan purchases from
Mortgage First Service Corporation, a subsidiary of the Bank.
Stockholder's equity decreased 6.44% or $3.4 million to $49.4 million at March
31, 2000, from $52.8 million at September 30, 1999. Retained earnings were
offset by dividends paid in the amount of $0.9 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 six months
ended March 31, 2000, the Company repurchased 249,269 shares at an average cost
of $19.44 per share and a total cost of $4.8 million. The Company has no plans
to repurchase additional shares of stock at this time.
Accumulated other comprehensive loss net increased $0.8 million to $2.8 million
at March 31, 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 $0.3
million to $1.9 million at December 31, 1999, 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 March 31, 2000 and
1999
Net Income
- ----------
Net income for the three months ended March 31, 2000, decreased to $1.3 million
or $0.44 basic earnings per share and $0.42 diluted earnings per share, compared
to $1.4 million or $0.43 basic earnings per share and $0.40 diluted earnings per
share for the same three months a year ago.
Net Interest Income
- -------------------
Net interest income was $3.0 million for the three months ended March 31, 2000,
and the three months ended March 31, 1999. Total interest income increased 2.16%
or $140,000 to $6.6 million for the three months ended March 31, 2000, from $6.5
million for the three months ended March 31, 1999, due primarily to a higher
average balance of outstanding loans which increased $35.6 million or 15.27% to
an average of $268.8 million yielding 8.04% for the three months ended March 31,
2000, from $233.2 million yielding 7.94% for the three months ended March 31,
1999. Interest income on mortgage-backed securities decreased 39.76% or $511,000
to $0.8 million for the three months ended March 31, 2000, as the average
balance decreased $34.2 million to $46.9 million for the three months ended
March 31, 2000, from $81.1 million for the three months ended March 31, 1999 due
to sales and principal repayments on mortgage-backed securities. Interest income
on other investments decreased 21.44% or $125,000 due primarily to a lower
balance of investment securities and interest bearing securities which decreased
33.33% or $7.5 million, to an average balance of $15.0 million yielding 7.60%
for the three months ended March 31, 2000, from $22.5 million yielding 6.80% for
the three months ended March 31, 1999.
11
<PAGE>
Interest Expense
- ----------------
Interest expense on deposits increased 4.00% or $89,000 as the average
outstanding balance of deposits increased 1.86% or $4.1 million to $224.5
million at an average cost of 4.12% for the three months ended March 31, 2000,
from $220.4 million at an average cost of 4.04% for the three months ended March
31, 1999. Interest on borrowings increased $122,000 to $1.3 million for the
three months ended March 31, 2000, from $1.2 million for the three months ended
March 31, 1999, as the average borrowings increased 0.43% or $0.4 million to
$92.4 million at an average cost of 5.82% for the three months ended March 31,
2000, from $95.0 million at an average cost of 5.14% for the three months ended
March 31, 1999.
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 increased 162.5% or $130,000 to $210,000 for the
three months ended March 31, 2000, from $80,000 for the three months ended March
31, 1999, due to an increase in non-performing assets during the quarter ended
March 31, 2000.
Non-performing assets at March 31, 2000, were $5.1 million, consisting of $1.8
million of residential mortgage construction loans, $357,000 of real estate
acquired in settlement of loans, $1.5 million of single family residential
loans, $1.2 million of a commercial real estate loan, $200,000 of commercial
loans, and $87,000 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 March 31, 2000 and at
September 30, 1999.
Other Income
- ------------
Total other income increased 20.3% or $245,000 to $1.5 million for the three
months ended March 31, 2000, from $1.2 million for the three months ended March
31, 1999. Loan and deposit service charges increased $232,000 to $948,000 from
$716,000 for the three months ended March 31, 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 March 31, 2000, compared to a loss of
$5,000 for the three months ended March 31, 1999. Gain on sale of real estate
acquired in settlement of loans was $10,000 for the three months ended March 31,
2000, compared to a gain of $25,000 for the three months ended March 31, 1999.
There was no gain on sale of loans for the three months ended March 31, 2000,
compared to a gain of $32,000 for the three months ended March 31, 1999. Gain on
sale of real estate held for development was $30,000 for the three months ended
March 31, 2000, as four residential lots were sold by United Service Corporation
in The Meadows residential subdivision compared to $137,000 for the three months
ended March 31, 1999, as five 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 17.76% or $19,000 to $126,000 for the three
months ended March 31, 2000, compared to $107,000 for the three months ended
March 31, 1999 due to an annual yield adjustment. Other income increased
$154,000 to $338,000 for the three months ended March 31, 2000, compared to
$184,000 for the three months ended March 31, 1999, due to an increase in the
Bank's portion of earnings of the investment in limited partnership because
interest rates have increased which has lowered the prepayment rates on the
underlying mortgages.
12
<PAGE>
General and Administrative Expense
- ----------------------------------
Salaries and employee benefits increased 14.04% or $158,000 to $1.3 million for
the three months ended March 31, 2000, from $1.1 million for the three months
ended March 31, 1999, due to the expense of the 1999 Management Recognition Plan
(MRP). Office occupancy increased 16.57% or $21,000 to $148,000 for the three
months ended March 31, 2000, from $127,000 for the three months ended March 31,
1999, due to an increase in building maintenance. Furniture and equipment
expenses decreased 8.11% or $24,000 to $272,000 for the three months ended March
31, 2000 from $296,000 for the three months ended March 31, 1999, due to
decreases in depreciation expense and equipment maintenance expense. Advertising
increased 116.67% or $21,000 to $39,000 for the three months ended March 31,
2000, from $18,000 for the three months ended March 31, 1999 due to a checking
account promotion. Data processing decreased 27.33% or $47,000 to $125,000 for
the three months ended March 31, 2000, from $172,000 for the three months ended
March 31, 1999 due to Year 2000 computer and computer software testing incurred
in the three months ending March 31, 1999. Office supplies decreased 18.48% or
$17,000 to $75,000 for the three months ended March 31, 2000, from $92,000 for
the three months ended March 31, 1999, due to a decrease in the purchase of data
processing supplies. The profit improvement program expense decreased 50.0% or
$24,000 to $24,000 for the three months ended March 31, 2000 from $48,000 for
the three months ended March 31, 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 22.57%% or $58,000 to $315,000 for the three months ended
March 31, 2000, from $257,000 for the three months ended March 31, 1999, due to
increased postage expense and a decrease in deferred loan expense.
Income Taxes
- ------------
Income taxes increased 1.32% or $8,000 to $613,000 for the three months ended
March 31, 2000, from $605,000 for the three months ended March 31, 1999. This
was due to an increase in the income tax rate to 31.80% for the three months
ended March 31, 2000 compared to 30.09% for the three months ended March 31,
1999.
Comparison of Operating Results for the Six Months Ended March 31, 2000 and 1999
Net Income
- ----------
Net income for the six months ended March 31, 2000, decreased to $2.7 million or
$0.88 basic earnings per share and $0.83 diluted earnings per share, compared to
$3.0 million or $0.83 basic earnings per share and $0.79 diluted earnings per
share for the same six months a year ago.
Net Interest Income
- -------------------
Net interest income was $6.1 million for the six months ended March 31, 2000,
and $6.2 million for the six months ended March 31, 1999. Total interest income
increased 2.11% or $275,000 to $13.3 million for the six months ended March 31,
2000, from $13.0 million for the six months ended March 31, 1999, due primarily
to a higher average balance of outstanding loans which increased $29.5 million
or 12.59% to an average of $263.8 million yielding 8.05% for the six months
ended March 31, 2000, from $234.3 million yielding 7.97% for the six months
ended March 31, 1999. Interest income on mortgage-backed securities decreased
31.22% or $767,000 to $1.7 million for the six months ended March 31, 2000, as
the average balance of mortgage backed securities decreased $28.0 million to
$49.3 million for the six months ended March 31, 2000 from $77.3 million for the
six months ended March 31, 1999 due to sales and principal repayments on
mortgage-backed securities. Interest income on other investments decreased
19.38% or $236,000 due primarily to a lower balance of investment securities and
interest bearing securities which decreased 27.23% or $10.4 million, to an
average balance of $27.8 million yielding 7.05% for the six months ended March
31, 2000, from $38.2 million yielding 6.37% for the six months ended March 31,
1999.
13
<PAGE>
Interest Expense
- ----------------
Interest expense on deposits increased $10,000 as the average outstanding
balance of deposits increased 2.54% or $5.5 million to $222.3 million at an
average cost of 4.04% for the six months ended March 31, 2000, from $216.8
million at an average cost of 4.13% for the six months ended March 31, 1999.
Interest on borrowings increased $373,000 to $2.7 million for the six months
ended March 31, 2000, from $2.3 million for the six months ended March 31, 1999,
as the average borrowings increased 5.42% or $4.8 million to $93.4 million at an
average cost of 5.71% for the three months ended March 31, 2000 from $88.6
million at an average cost of 5.18% for the six months ended March 31, 1999.
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 125.0% or $200,000 to $360,000 for the
six months ended March 31, 2000, from $160,000 for the six months ended March
31, 1999 as charge offs were $150,000 for the six months ended March 31, 2000,
compared to $38,000 for the six months ended March 31, 1999, and non-performing
assets at March 31, 2000 were $5.1 million compared to $2.6 million at September
30, 1999.
Other Income
- ------------
Total other income decreased 2.1% or $57,000 to $2.8 million for the six months
ended March 31, 2000, from $2.7 million for the six months ended March 31, 1999.
Loan and deposit service charges increased $361,000 to $2.0 million from $1.6
million for the six months ended March 31, 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 six months ended March 31, 2000, compared to a gain of
$297,000 for the six months ended March 31, 1999. Gain on sale of real estate
acquired in settlement of loans was $5,000 for the six months ended March 31,
2000, compared to a gain of $23,000 for the six months ended March 31, 1999.
There was no gain on sale of loans for the six months ended March 31, 2000,
compared to a gain of $81,000 for the six months ended March 31, 1999. Gain on
sale of real estate held for development was $83,000 for the six months ended
March 31, 2000, as seven residential lots were sold by the United Service
Corporation in The Meadows residential subdivision compared to $173,000 for the
six months ended March 31, 1999, as seven 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 9.35% or $20,000 to
$234,000 for the six months ended March 31, 2000, compared to $214,000 for the
six months ended March 31, 1999 due to an annual yield adjustment. Other income
increased $258,000 to $586,000 for the six months ended March 31, 2000, compared
to $328,000 for the six months ended March 31, 2000, due to an increase in the
Bank's portion of earnings of the investment in limited partnership because
interest rates have increased which has lowered the prepayment rates on the
underlying mortgages.
General and Administrative Expense
- ----------------------------------
Salaries and employee benefits increased 12.57% or $286,000 to $2.6 million for
the six months ended March 31, 2000, from $2.3 million for the six months ended
March 31, 1999, due to the expense of the 1999 Management Recognition Plan
(MRP). Office occupancy increased 12.20% or $30,000 to $276,000 for the six
months ended March 31, 2000 from $246,000 for the six months ended March 31,
1999, due to an increase in building maintenance. Furniture and equipment
expenses decreased 8.04% or $45,000 to $515,000 for the six months ended March
31, 2000 from $560,000 for the six months ended March 31, 1999 due to decreases
in depreciation expense
14
<PAGE>
and equipment maintenance expense. Advertising increased 39.34% or $24,000 to
$85,000 for the six months ended March 31, 2000 from $61,000 for the six months
ended March 31, 1999 due to a checking account promotion.
Data processing decreased 10.64% or $30,000 to $252,000 for the six months ended
March 31, 2000 from $282,000 for the six months ended March 31, 1999 due to Year
2000 computer and computer software testing for the six months ended March 31,
1999. Office supplies increased 28.78% or $40,000 to $179,000 for the six months
ended March 31, 2000 from $139,000 for the six months ended March 31, 1999, due
to an increase in the purchase of data processing supplies. The profit
improvement program expense decreased 23.58% or $29,000 to $94,000 for the six
months ended March 31, 2000 from $123,000 for the six months ended March 31,
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 11.68% or $63,000 to $602,000
for the six months ended March 31, 2000 from $539,000 for the six months ended
March 31, 1999 due to increased telephone and postage expenses and a decrease in
deferred loan expense.
Income Taxes
- ------------
Income taxes decreased 14.17% or $209,000 to $1,266,000 for the six months ended
March 31, 2000 from $1,475,000 for the six months ended December 31, 1999. This
was due to a decrease in income before taxes of 12.76% or $574,000 to $3.9
million from $4.5 million for the six months ended March 31, 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 March 31, 2000 was 11.91%.
The primary investing activity of the Company is lending. During the six months
ended March 31, 2000, the Company originated $47.2 million of loans and no loans
were sold. The Company also purchased $42.2 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.
15
<PAGE>
The Company anticipates that it will have sufficient funds available through
normal loan repayments to meet current loan commitments. At March 31, 2000, the
Company had outstanding commitments to originate loans of approximately $60.8
million.
Certificates of deposit scheduled to mature in one year or less at March 31,
2000, totaled $118.9 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.
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 March 31, 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 March 31, 2000:
- --------------------
Tangible Capital (To Total Assets) 38,942 10.41% $ 5,610 1.50% $ - -%
Core Capital (To Total Assets) 38,942 10.41% 14,961 4.00% 18,702 5.00%
Tier I Capital (To Risk-Based Assets) 38,942 15.60% - - 14,974 6.00%
Risk-Based Capital (To Risk-Based
Assets) 41,612 16.67% 19,965 8.00% 24,956 10.00%
</TABLE>
If the Savings 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.
16
<PAGE>
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.
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 dated 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
- ----------------------------------------------
A. Exhibits:
---------
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
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
-------------------
The Company filed a report on Form 8-K on February 22, 2000 to report
the signing of the merger agreement with Heritage Bancorp, Inc. A copy
of the merger agreement dated February 14, 2000, is attached as an
exhibit.
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: May 15, 2000 /s/ Robert W. Orr
---------------------------------
Robert W. Orr
President and Managing Officer
(Duly Authorized Representative)
Date: May 15, 2000 /s/ Thomas C. Hall
---------------------------------
Thomas C. Hall
Chief Financial Officer
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains financial information extracted from the consolidated
financial statements of SouthBanc Shares, Inc. for the six months ended March
31, 2000, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 8,081,704
<INT-BEARING-DEPOSITS> 10,407,132
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 60,215,496
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 277,412,473
<ALLOWANCE> (2,849,385)
<TOTAL-ASSETS> 384,426,011
<DEPOSITS> 230,805,304
<SHORT-TERM> 81,871,094
<LIABILITIES-OTHER> 0
<LONG-TERM> 18,000,000
0
0
<COMMON> 30,520,431
<OTHER-SE> 18,846,027
<TOTAL-LIABILITIES-AND-EQUITY> 384,426,011
<INTEREST-LOAN> 10,616,398
<INTEREST-INVEST> 2,671,084
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 13,287,482
<INTEREST-DEPOSIT> 4,490,930
<INTEREST-EXPENSE> 7,159,797
<INTEREST-INCOME-NET> 6,127,685
<LOAN-LOSSES> 360,000
<SECURITIES-GAINS> (94,702)
<EXPENSE-OTHER> (4,608,587)
<INCOME-PRETAX> 3,926,861
<INCOME-PRE-EXTRAORDINARY> 3,926,861
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,660,765
<EPS-BASIC> 0.88
<EPS-DILUTED> 0.83
<YIELD-ACTUAL> 7.79
<LOANS-NON> 4,700,463
<LOANS-PAST> 0
<LOANS-TROUBLED> 357,303
<LOANS-PROBLEM> 149,530
<ALLOWANCE-OPEN> 2,744,405
<CHARGE-OFFS> 115,656
<RECOVERIES> 10,636
<ALLOWANCE-CLOSE> 2,849,385
<ALLOWANCE-DOMESTIC> 149,530
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,699,855
</TABLE>
