UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Mark One
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________ to __________
Commission File Number: 333-47291
Southern Heritage Bancorp, Inc.
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(Exact name of small business issuer as specified in its charter)
Georgia 58-2352014
- ------------------------------- ----------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3461 Atlanta Highway, P.O. Box 907, Oakwood, Georgia 30566
(Address of principal executive offices)
(770) 531-1240
(Issuer's telephone number)
N/A
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(Former name, former address and former fiscal
year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days.
Yes ___X_____ No ___________
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court.
Yes ________ No__________
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of May 1, 1999: 878,344; $5.00 par value.
Transitional Small Business Disclosure Format (Check One) Yes ______ No ___X___
1
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SOUTHERN HERITAGE BANCORP, INC. AND SUBSIDIARY
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INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet - March 31, 1999.......................3
Consolidated Statement of Operations and
Comprehensive Loss - Three Months Ended
March 31, 1999....................................................4
Consolidated Statement of Cash Flows - Three
Months Ended March 31, 1999.......................................5
Notes to Consolidated Financial Statements........................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations............7
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K.........................9
Signatures.......................................................10
2
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PART I - FINANCIAL INFORMATION
FINANCIAL STATEMENTS
SOUTHERN HERITAGE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
MARCH 31, 1999
(Unaudited)
Assets
<TABLE>
<S> <C>
Cash and due from banks $ 1,483,852
Federal funds sold 10,760,000
Securities available-for-sale, at fair value 1,752,973
Loans 3,952,554
Less allowance for loan losses 62,000
---------------------
Loans, net 3,890,554
---------------------
Premises and equipment 370,694
Other assets 45,440
---------------------
Total assets $ 18,303,513
=====================
Liabilities and Stockholders' Equity
Deposits
Demand $ 961,432
Interest-bearing demand 992,455
Savings 1,022,386
Time 7,392,347
---------------------
Total deposits 10,368,620
Other liabilities 18,449
---------------------
Total liabilities 10,387,069
---------------------
Commitments and contingent liabilities
Stockholders' equity
Common stock, par value $5.00; 1,000,000 shares
authorized; 878,344 shares issued
and outstanding 4,391,720
Capital surplus 4,339,985
Accumulated deficit -816,058
Accumulated other comprehensive income 797
---------------------
Total stockholders' equity 7,916,444
---------------------
Total liabilities and stockholders' equity $ 18,303,513
=====================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
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SOUTHERN HERITAGE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
THREE MONTHS ENDED MARCH 31, 1999
(Unaudited)
<TABLE>
<S> <C>
Interest income
Loans $ 73,109
Taxable securities 1,985
Federal funds sold 105,814
--------------------
Total interest income 180,908
Interest expense on deposits 37,112
--------------------
Net interest income 143,796
Provision for loan losses 62,000
--------------------
Net interest income after provision for loan losses 81,796
--------------------
Other operating income 8,168
--------------------
Other expenses
Salaries and other employee benefits 126,442
Occupancy and equipment expenses 48,603
Other operating expenses 194,015
--------------------
369,060
--------------------
Net loss before income taxes -279,096
Income tax expense 0
--------------------
Net loss $ -279,096
Other comprehensive income:
Unrealized gains on securities available-for-sale
arising during period 797
--------------------
Comprehensive loss $ -278,299
====================
Basic and diluted losses per common share $ -0.32
====================
Weighted average shares outstanding 878,344
====================
Cash dividends per share of common stock $ 0
====================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
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SOUTHERN HERITAGE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1999
(Unaudited)
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss $ -279,096
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 11,493
Provision for loan losses 62,000
Other operating activities -42,837
------------------------
Net cash used in operating activities -248,440
------------------------
INVESTING ACTIVITIES
Purchases of securities available-for-sale -1,752,176
Net increase in Federal funds sold -10,760,000
Net increase in loans -3,952,554
Purchase of premises and equipment -152,447
Decrease in interest-bearing deposits in banks 7,977,209
------------------------
Net cash used in investing activities -8,639,968
------------------------
FINANCING ACTIVITIES
Net increase in deposits 10,368,620
------------------------
Net cash provided by financing activities 10,368,620
------------------------
Net increase in cash and due from banks 1,480,212
Cash and due from banks, beginning of period 3,640
------------------------
Cash and due from banks, end of period $ 1,483,852
========================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
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SOUTHERN HERITAGE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Southern Heritage Bancorp, Inc. (the "Company") is a one-bank
holding company whose business is conducted by its
wholly-owned subsidiary, Southern Heritage Bank (the "Bank").
The Bank is a commercial bank located in Oakwood, Hall County,
Georgia. The Company completed the sale of its common stock
and obtained all necessary regulatory approvals to commence
operations in December of 1998. The Company sold a total of
$8,783,440 of common stock and capitalized the Bank with
$8,000,000. The Bank commenced operations on January 4, 1999.
The consolidated financial information included herein is
unaudited; however, such information reflects all adjustments
(consisting solely of normal recurring adjustments) which are,
in the opinion of management, necessary for a fair statement
of results for the interim period.
The results of operations for the three month period ended
March 31, 1999 is not necessarily indicative of the results to
be expected for the full year.
NOTE 2. CURRENT ACCOUNTING DEVELOPMENTS
In April of 1998, the Accounting Standards Executive Committee
issued Statement of Position ("SOP") 98-5, "Reporting on the
Costs of Start Up Activities". SOP 98-5 requires that costs of
start-up activities and organization costs be expensed as
incurred. SOP 98-5 became effective for financial statements
for fiscal years beginning after December 15, 1998. During
1998, the Company wrote off $63,175 of unamortized
organization costs upon adoption of SOP 98-5. In addition,
Bank related organization costs totaling $35,620 were expensed
immediately upon capitalization of the Bank.
In June 1998, the Financial Accounting Standards Board issued
SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities". This statement is required to be adopted
for fiscal years beginning after June 15, 1999. However, the
statement permits early adoption as of the beginning of any
fiscal quarter after its issuance. The Company expects to
adopt this statement effective January 1, 2000. SFAS No. 133
requires the Company to recognize all derivatives as either
assets or liabilities in the balance sheet at fair value. For
derivatives that are not designated as hedges, the gain or
loss must be recognized in earnings in the period of change.
For derivatives that are designated as hedges, changes in the
fair value of the hedged assets, liabilities, or firm
commitments must be recognized in earnings or recognized in
other comprehensive income until the hedged item is recognized
in earnings, depending on the nature of the hedge. The
ineffective portion of a derivative's change in fair value
must be recognized in earnings immediately. Management has not
yet determined what effect the adoption of SFAS No. 133 will
have on the Company's earnings or financial position.
6
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3. CONSTRUCTION IN PROCESS
The Company is currently in process of constructing its
banking facility. The estimated costs to complete and furnish
the facility is approximately $2,000,000.
7
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SOUTHERN HERITAGE BANCORP, INC. AND SUBSIDIARY
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
The Management's Discussion and Analysis which follows, contains forward-looking
statements in addition to historical information, including, but not limited to
statements regarding Management's beliefs, current expectations, estimates and
projections about the financial services industry, the economy, and about the
Company and the Bank in general. Such forward-looking statements are subject to
certain factors that could cause actual results to differ materially from
historical results or anticipated events, trends or results.
Financial Condition
As of March 31, 1999, the Company had total assets of $18.3 million. The Company
raised $8.8 million from the sale of its common stock and has received $10.4
million in deposits since the commencement of operations on January 4, 1999. The
Company has invested the proceeds from its stock sale and deposit growth in
Federal funds sold ($10.8 million), U. S. Treasury and Agency securities ($1.8
million), and loans ($4.0 million). The Company expects that loan and deposit
growth will be significant during its early years of operations. This growth is
not uncommon for de novo banks and is consistent with management's long-term
plan.
Liquidity
As of March 31, 1999, the Bank's liquidity ratio was far in excess of its target
ratio, due to its investment in Federal funds sold and other short-term assets.
As loan growth continues to increase, the Bank's liquidity ratio will decrease
rapidly to levels more in line with its target range of 25% to 30%.
Capital
The minimum capital requirements for banks and bank holding companies require a
leverage capital to assets ratio of at least 4%, core capital to risk-weighted
assets ratio of at least 4%, and total capital to risk-weighted assets of at
least 8%. The Company and the Bank's capital ratios are far in excess of these
regulatory requirements. As asset growth continues, these ratios will decrease
rapidly to levels closer to, but still in excess of the regulatory minimum
requirements.
Results of Operations
The Bank commenced its operations on January 4, 1999. Prior to the commencement,
the Company was engaged in activities involving the formation of the Company,
selling its common stock and obtaining necessary regulatory approvals. The
Company incurred operating losses totaling $536,962 during its organizational
period, $56,344 in 1997, and $480,618 in 1998. The Company incurred total
organizational and stock issue costs of $150,530 of which $51,735 has been
recorded as a reduction of capital surplus. From commencement of operations to
the end of the first quarter, the Company has incurred additional operating
losses of $279,096. The Company expects that it will continue to incur operating
losses during its first full year of operations, until the increase in loans and
other interest-earning assets will generate the income necessary to cover
interest expense and other operating expenses.
8
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The Company was in its organizational stage as of March 31, 1998.
Therefore, comparative analysis with March 31, 1999 is not presented.
Year 2000 Issues
Like many financial institutions, the Company relies on computers to conduct its
business and information systems processing. Industry experts are concerned that
on January 1, 2000, some computers may not be able to interpret the new year
properly, causing computer malfunctions. As described in more detail below, we
have developed and are executing a plan to insure that our computer and
telecommunication systems do not have these year 2000 problems and we do not
anticipate that the year 2000 issue will materially impact our business or
operations. We will rely on third party vendors to supply our computer and
telecommunication systems and other office equipment, and we will also rely on a
third party to process our data and account information. Because we are a de
novo bank, we have chosen only those vendors who are ready for the year 2000,
and therefore will not have to address problems in older systems. We will
continue to monitor this situation up to and through the century change.
Although we believe we have addressed the year 2000 issue, we cannot be entirely
sure that the year 2000 will not have any adverse effect on the Bank.
We have prepared a comprehensive year 2000 plan to monitor and insure the year
2000 compliance of our third party vendors of computer and telecommunication
systems, data processing services, and other office equipment. We are executing
this plan under the supervision of our chief financial officer and senior vice
president of operations, with oversight from our board of directors. Under the
plan, we will investigate the year 2000 readiness of each vendor, review year
2000 testing completed by each vendor, test our own systems if necessary, and
require comprehensive year 2000 statements from each vendor. Our investigation
of each vendor will primarily consist of requesting and reviewing its year 2000
test results.
The Intercept Group, Inc. provides our mission critical computer software and
data processing services. The Intercept Group is a well-established company and
provides computer systems and data processing services to financial institutions
throughout the United States. The Intercept Group has substantially completed
testing of its systems for year 2000 issues. Rather than test all of its
customers individually, the Intercept Group, like other vendors, perfoms tests
of its systems on selected financial institutions which run its systems under a
variety of conditions and configurations. The purpose of this selective testing
was to avoid the prohibitive cost and expense of testing every installed system,
while still providing a high level of comfort that its systems will perform
under all conditions. The Intercept Group system includes interfaces to other
systems provided by other vendors, such as our ATM hardware. The Intercept Group
is in the process of testing these interfaces and will provide the results of
these tests to us as soon as they are complete. We expect to have all of these
test results prior to June 30, 1999.
Our year 2000 plan extends to our other less critical vendors as well, including
telephone systems, credit card processors, and suppliers of office equipment
such as copy and fax machines. Under our plan, we are reviewing the test
results, assurances and statements of all of these vendors. Based on our review
of our vendors' systems and year 2000 testing results to date, we do not believe
that any of them will have any significant year 2000 problems.
9
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Our customers may also have year 2000 issues. Such issues could disrupt certain
businesses with high year 2000 risk and affect their deposit balances and their
ability to repay their loans. We intend to review each customer's exposure and
assess year 2000 readiness through year 2000 surveys. For those customers with
high credit risk and high potential exposure, we may require more substantial
proof of year 2000 compliance. Although these surveys will be helpful, it would
be very difficult for us to accurately assess the year 2000 readiness of any
particular borrower or depositor. Additionally, there may be a higher than usual
demand for liquidity immediately prior to the century change due to deposit
withdrawals by customers concerned about year 2000 issues. To address this
possible demand, we plan to have a higher percentage of our investment portfolio
in readily accessible funds during this time frame.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27. Financial Data Schedule.
(b) Reports on Form 8-K.
None.
11
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SOUTHERN HERITAGE BANCORP, INC.
(Registrant)
DATE: May 13, 1999 BY: /s/ Gary H. Anderson
Gary H. Anderson, President and C.E.O.
DATE: May 13, 1999 BY: /s/ Jeanie Bridges
Jeanie Bridges, C.F.O.
12
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31,
1999 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,483,852
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 10,760,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,752,973
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 3,952,554
<ALLOWANCE> 62,000
<TOTAL-ASSETS> 18,303,513
<DEPOSITS> 10,368,620
<SHORT-TERM> 0
<LIABILITIES-OTHER> 18,449
<LONG-TERM> 0
0
0
<COMMON> 4,391,720
<OTHER-SE> 3,524,724
<TOTAL-LIABILITIES-AND-EQUITY> 18,303,513
<INTEREST-LOAN> 73,109
<INTEREST-INVEST> 1,985
<INTEREST-OTHER> 105,814
<INTEREST-TOTAL> 180,908
<INTEREST-DEPOSIT> 37,112
<INTEREST-EXPENSE> 37,112
<INTEREST-INCOME-NET> 143,796
<LOAN-LOSSES> 62,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 369,060
<INCOME-PRETAX> (279,096)
<INCOME-PRE-EXTRAORDINARY> (279,096)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (279,096)
<EPS-PRIMARY> (.32)
<EPS-DILUTED> (.32)
<YIELD-ACTUAL> 5.61
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 62,000
<ALLOWANCE-DOMESTIC> 62,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 62,000
</TABLE>
