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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
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[ ] 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: 333-47291
Southern Heritage Bancorp, Inc. .
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(Exact name of small business issuer as specified in its charter)
Georgia 58-2352014
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3461 Atlanta Highway, P.O. Box 907, Oakwood, Georgia 30566
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(Address if 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 change 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
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State the number of shares outstanding of each of the issuer's classes of common
equity, as of November 1, 2000: 878,344; $5 par value.
Transitional Small Business Disclosure Format Yes No X
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SOUTHERN HERITAGE BANCORP, INC. AND SUBSIDIARY
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INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet - September 30, 2000.......... 3
Condensed Consolidated Statements of Operations and
Comprehensive Loss - Three Months and Nine Months ended
September 30, 2000 and 1999 ..................................... 4
Condensed Consolidated Statements of Cash Flows - Nine
Months ended September 30, 2000 and 1999 ....................... 5
Notes to Condensed 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 ....................... 10
Signatures ...................................................... 11
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHERN HERITAGE BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 2000
(Unaudited)
Assets
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Cash and due from banks $ 904,002
Federal funds sold 1,785,000
Securities available-for-sale, at fair value 7,124,717
Loans 25,665,970
Less allowance for loan losses 394,807
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Loans, net 25,271,163
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Premises and equipment 2,187,093
Other assets 340,136
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Total assets $ 37,612,111
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Liabilities and Stockholders' Equity
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Deposits
Demand $ 3,486,790
Interest-bearing demand 4,650,372
Savings 1,679,132
Time 20,143,554
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Total Deposits 29,959,848
Other liabilities 149,101
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Total liabilities 30,108,949
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Commitments and contingent liabilities
Stockholders' equity
Common stock, par value $5; 1,000,000 shares authorized;
878,344 shares issued and outstanding 4,391,720
Capital surplus 4,339,985
Accumulated deficit (1,109,791)
Accumulated other comprehensive loss (118,752)
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Total stockholders' equity 7,503,162
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Total liabilities and stockholders' equity $ 37,612,111
==============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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SOUTHERN HERITAGE BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Interest income
Loans $ 673,256 $ 292,767 $ 1,755,501 $ 530,641
Taxable securities 111,010 86,416 325,941 135,139
Federal funds sold 16,881 106,830 59,072 357,339
--------------- --------------- --------------- ---------------
Total interest income 801,147 486,013 2,140,514 1,023,119
--------------- --------------- --------------- ---------------
Interest expense
Deposits 342,883 202,917 894,302 399,907
Other borrowings 2,654 - 2,654 -
--------------- --------------- --------------- ---------------
Total interest expense 345,537 202,917 896,956 399,907
--------------- --------------- --------------- ---------------
Net interest income 455,610 283,096 1,243,558 623,212
Provision for loan losses 45,000 85,830 153,255 206,230
--------------- --------------- --------------- ---------------
Net interest income after
provision for loan losses 410,610 197,266 1,090,303 416,982
--------------- --------------- --------------- ---------------
Other income 39,383 24,776 108,686 47,462
--------------- --------------- --------------- ---------------
Other expenses
Salaries and employee benefits 242,738 146,141 614,817 409,079
Occupancy and equipment expenses 61,794 49,433 184,861 151,920
Other operating expenses 117,944 117,015 398,806 398,571
--------------- --------------- --------------- ---------------
Total other expenses 422,476 312,589 1,198,484 959,570
--------------- --------------- --------------- ---------------
Income (loss) before income taxes 27,517 (90,547) 505 (495,126)
Income tax expense - - - -
--------------- --------------- --------------- ---------------
Net income (loss) $ 27,517 $ (90,547) $ 505 $ (495,126)
Other comprehensive income (loss):
Unrealized gains (losses) on securities available-
for-sale arising during period 77,154 (27,036) 87,315 (115,358)
--------------- --------------- --------------- ---------------
Comprehensive income (loss) $ 104,671 $ (117,583) $ 87,820 $ (610,484)
=============== =============== =============== ================
Basic and diluted income (losses) per common share $ 0.03 $ (0.10) $ 0.00 $ (0.56)
=============== =============== =============== ================
Weighted average shares outstanding 878,344 878,344 878,344 878,344
=============== =============== =============== ================
Dividends declared per common share $ - $ - $ - $ -
=============== =============== =============== ================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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SOUTHERN HERITAGE BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
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<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 505 $ (495,126)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation 87,846 41,983
Provision for loan losses 153,255 206,230
Other operating activities (261,813) (121,978)
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Net cash used in operating activities (20,207) (368,891)
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INVESTING ACTIVITIES
Purchases of securities available-for-sale - (6,734,473)
Maturities of securities available-for sale - -
Purchase of FHLB stock (24,500) -
Net change in Federal funds sold (580,000) (4,915,000)
Decrease in interest-bearing deposits in banks - 7,977,209
Net increase in loans (8,183,189) (13,741,541)
Purchase of premises and equipment (21,245) (1,762,299)
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Net cash used in investing activities (8,808,934) (19,176,104)
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FINANCING ACTIVITIES
Net increase in deposits 8,215,555 20,431,250
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Net cash provided by financing activities 8,215,555 20,431,250
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Net increase (decrease) in cash and due from banks (613,586) 886,255
Cash and due from banks, beginning of period 1,517,588 3,640
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Cash and due from banks, end of period $ 904,002 $ 889,895
=============== ==============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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SOUTHERN HERITAGE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONDENSED 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 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
periods.
The results of operations for the three and nine month periods ended
September 30, 2000 are not necessarily indicative of the results to be
expected for the full year.
NOTE 2. CURRENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities" as
was amended by SFAS 137 delaying the effective date. This statement is
required to be adopted for fiscal years beginning after June 15, 2000.
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, 2001. 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.
There are no other recent accounting pronouncements that have had, or
are expected to have, a material effect on the Company's financial
statements.
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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
--------------------------
This quarterly report contains certain forward-looking statements which are
based on certain assumptions and describe future plans, strategies and our
expectations. These forward-looking statements are generally identified by use
of the words "believe," "intend," "anticipate," "estimate," "project," or
similar expressions. Our ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which could have a
material adverse effect on our operations include, but are not limited to,
changes in interest rates, general economic conditions, legislation and
regulation, monetary and fiscal policies of the U.S. Government, including
policies of the U.S. Treasury and the Federal Reserve Board, the quality or
composition of our loan or security portfolio, demand for loans, deposit flows,
competition, demand for financial services in our market area, and accounting
principles and guidelines. You should consider these risks and uncertainties in
evaluating forward-looking statements, and should not place undue reliance on
such statements. We will not publicly release the result of any revisions, which
may be made to any forward-looking statement to reflect events or circumstances
after the date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
Liquidity and Capital Resources
-------------------------------
Liquidity management involves the matching of the cash flow requirements of
customers who may be either depositors desiring to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs and the ability of the Company to meet those needs. The Company seeks to
meet liquidity requirements primarily through management of short-term
investments, monthly amortizing loans, maturing single payment loans, and
maturities and prepayments of securities. Also, the Company maintains
relationships with correspondent banks and with the Federal Home Loan Bank which
could provide funds on short notice.
The liquidity and capital resources of the Company and the Bank are monitored on
a periodic basis by management and by the regulatory authorities. Management
reviews liquidity on a periodic basis to monitor and adjust liquidity as
necessary. Management has the ability to adjust liquidity by selling securities
available for sale, selling participations in loans generated by the Company and
accessing available funds through various borrowing arrangements. The Company's
short-term investments and available borrowing arrangements are adequate to
cover any reasonably anticipated immediate need for funds.
As of September 30, 2000, the liquidity ratio of the Bank was 31.1%. This is a
satisfactory ratio as determined under guidelines established by regulatory
authorities.
At September 30, 2000, the capital ratios of the Company and the Bank were
adequate based on regulatory minimum capital requirements. The minimum capital
requirements and the actual capital ratios for the Bank are as follows:
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Regulatory
Actual Minimum
Southern Heritage Bank Requirement
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Leverage capital ratio 19.90% 4.00%
Risk-based capital ratios:
Core capital 20.03% 4.00%
Total capital 21.09% 8.00%
Financial Condition
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The Company's total assets increased $8.2 million, or 27.70%, for the nine
months ended September 30, 2000. This continued high rate of growth is not
uncommon for a de novo bank and is expected over the next year. Deposits
increased $8.2 million, or 37.79%, for the nine-month period. This growth in
deposits was used to fund loan growth of $8.2 million, or 46.61%. The Company's
loan to deposit ratio increased from 80.51% at December 31, 1999 to 85.67% at
September 30, 2000.
The increase in stockholders' equity includes the net income of $500 for the
nine months ended September 30, 2000 and the improvement in unrealized losses on
securities available-for-sale of $87,000.
Results of Operations
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Three and Nine Months ended September 30, 2000 and 1999
Net Interest Income
The Company's net interest income has increased by $173,000 and $620,000 for the
three- and nine-month periods ended September 30, 2000, respectively as compared
to the same period in 1999. The Company's net interest margin increased to 4.97%
during the first nine months of 2000 as compared to 4.58% for the year ended
December 31, 1999. The increase in net interest income and net interest margin
is due to the increased volume of interest-earning assets, particularly in the
higher yielding loan portfolio. Total interest-earning assets have increased by
$9.3 million since September 30, 1999. Total loans have grown $12.0 million to
$25.7 million, or 74% of total interest-earning assets at September 30, 2000,
compared to $13.7 million, or 54% of total interest-earning assets as of
September 30, 1999.
Provision for Loan Losses
The provision for loan losses was $153,000 during the first nine months of 2000
as compared to $206,000 for the same period in 1999. The amount provided is
determined by management as a result of the review of overall loan growth, the
amount of loans in non-accrual or classified status, and the amount of net
charge-offs. The allowance for loan losses was $395,000, or 1.54% of total
loans, as of September 30, 2000, compared to $265,000, or 1.51% of total loans,
as of December 31, 1999. The allowance for loan losses is maintained at a level
that is deemed appropriate by management to adequately cover all known and
inherent risks in the loan portfolio. Management's evaluation of the loan
portfolio includes a continuing review of loan loss experience, current economic
conditions that may affect the borrower's ability to repay and the underlying
collateral value.
8
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It is the policy of the Company to discontinue the accrual of interest income
when, in the opinion of management, collection of such interest becomes
doubtful. This status is accorded such interest when (1) there is a significant
deterioration in the financial condition of the borrower and full repayment of
principal and interest is not expected and (2) the principal or interest is more
than ninety days past due, unless the loan is both well-secured and in the
process of collection. At September 30, 2000, non-accrual loans were $74,000 or
.29% of total loans. There were no loans past due more than 90 days still
accruing interest nor any restructured loans.
At September 30, 2000, loans classified as substandard were $764,000, or 2.98%
of total loans. Total loans charged off during the first nine months of 2000
were $23,000, or .10% of average loans. There were no loans charged off during
the same period of 1999. There were no recoveries of previously charged off
loans during either period.
The level of classified, non-accrual, past due and charged-off loans is
considered reasonable. Increases are not believed to represent a trend or
unusual pattern.
Other Income
Other income increased by $15,000 and $61,000 for the three and nine months
ended September 30, 2000, respectively, as compared to the same period in 1999.
The increase is due primarily to increased service charges of $12,000 and
$48,000, respectively. The increase in service charges is a result of increased
deposit customers and related activity.
Other Expenses
Other expenses increased by $110,000 and $239,000 for the three- and nine- month
periods ended September 30, 2000, respectively, as compared to the same periods
in 1999. The largest component of other expenses is salaries and employee
benefits, which increased $97,000 and $206,000, respectively, during the same
time periods. The increase in salaries and employee benefits is due primarily to
an increase in the number of employees from 13 at September 30, 1999 to 18 at
September 30, 2000. Occupancy and equipment expenses increased $12,000 and
$33,000 for the three- and nine-month periods ended September 30, 2000, as
compared to the same periods in 1999. The increases are due to depreciation
expense and routine maintenance expenses related to the main office building,
which was completed during the third quarter of 1999. Other operating expenses
remained constant in 2000 as compared to the same period in 1999.
Income Taxes
The Company has recorded no provision for income taxes due to cumulative net
operating losses.
Net Income
Net income was $27,517 and $505 for the three and nine months ended September
30, 2000, compared to a net loss of $90,547 and $495,126 for the same periods in
1999. The improvement in earnings is directly related to success in attracting
loan and deposit growth since the inception of the Bank. This trend is expected
to continue.
9
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27. Financial Data Schedule.
(b) Reports on Form 8-K.
On July 17, 2000, the Company filed a Form 8-K announcing the
resignation of James E. Palmour, III from the position of Director and
Secretary of Southern Heritage Bancorp, Inc. and Southern Heritage
Bank.
10
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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.
DATE: November 13, 2000 BY: /s/ Tren Watson
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Tren Watson, President and Chief Executive Officer
DATE: November 13, 2000 BY: /s/ Rita B. Gray
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Rita B. Gray, Chief Financial Officer
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