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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 June 30, 2000
-------------------------
[ ] 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.
-----------------------------------------
(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
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(Address of principal executive offices)
(770) 531-1240
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(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
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of August 1, 2000: 878,344; $5 par value.
Transitional Small Business Disclosure Format Yes No X
--- ---
1
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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 - June 30, 2000...........3
Condensed Consolidated Statements of Operations and
Comprehensive Loss - Three Months and Six Months Ended
June 30, 2000 and 1999........................................4
Condensed Consolidated Statements of Cash Flows - Six Months
Ended June 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 4 - Submission of Matters to a Vote of Security Holders....13
Item 6 - Exhibits and Reports on Form 8-K.......................13
Signatures......................................................14
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHERN HERITAGE BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Cash and due from banks $ 1,503,837
Federal funds sold 2,525,000
Securities available-for-sale, at fair value 7,046,915
Loans 21,956,597
Less allowance for loan losses 358,437
------------
Loans, net 21,598,160
------------
Premises and equipment 2,208,201
Other assets 314,408
------------
Total assets $ 35,196,521
============
Liabilities and Stockholders' Equity
------------------------------------
Deposits
Demand $ 3,667,159
Interest-bearing demand 6,115,832
Savings 1,474,715
Time 16,420,133
------------
Total deposits 27,677,839
Other liabilities 120,192
------------
Total liabilities 27,798,031
------------
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 (1,137,309)
Accumulated other comprehensive loss (195,906)
------------
Total stockholders' equity 7,398,490
------------
Total liabilities and stockholders' equity $ 35,196,521
============
</TABLE>
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 SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income
Loans $ 591,915 $ 164,765 $ 1,082,245 $ 237,874
Taxable securities 109,009 46,738 214,931 48,723
Federal funds sold 21,449 144,695 42,191 250,509
----------- ----------- ----------- -----------
Total interest income 722,373 356,198 1,339,367 537,106
Interest expense on deposits 298,652 159,878 551,419 196,990
----------- ----------- ----------- -----------
Net interest income 423,721 196,320 787,948 340,116
Provision for loan losses 56,000 58,400 108,255 120,400
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 367,721 137,920 679,693 219,716
----------- ----------- ----------- -----------
Other income 35,993 14,518 69,303 22,686
----------- ----------- ----------- -----------
Other expenses
Salaries and employee benefits 193,379 136,496 372,079 262,938
Occupancy and equipment expenses 70,248 53,884 123,067 102,487
Other operating expenses 147,771 87,541 280,862 281,556
----------- ----------- ----------- -----------
Total other expenses 411,398 277,921 776,008 646,981
----------- ----------- ----------- -----------
Income before income taxes (7,684) (125,483) (27,012) (404,579)
Income tax expense -- -- -- --
----------- ----------- ----------- -----------
Net loss (7,684) (125,483) (27,012) (404,579)
Other comprehensive income (loss):
Unrealized gains (losses) on securities available-for-sale
arising during period (3,717) (89,119) 10,161 (88,322)
----------- ----------- ----------- -----------
Comprehensive loss $ (11,401) $ (214,602) $ (16,851) $ (492,901)
=========== =========== =========== ===========
Basic and diluted losses per common share $ (0.01) $ (0.14) $ (0.03) $ (0.46)
=========== =========== =========== ===========
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.
4
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SOUTHERN HERITAGE BANCORP, INC. AND SUBSIDIARY 51
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS 78
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (27,012) $ (404,579)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 58,989 22,986
Provision for loan losses 108,255 120,400
Other operating activities (270,141) (66,862)
------------ ------------
Net cash used in operating activities (129,909) (328,055)
------------ ------------
INVESTING ACTIVITIES
Purchases of securities available-for-sale (24,500) (4,980,516)
Maturities of securities available-for-sale 5,794 --
Net increase in Federal funds sold (1,320,000) (11,370,000)
Decrease in interest-bearing deposits in banks -- 7,977,209
Net increase in loans (4,465,186) (7,704,188)
Purchase of premises and equipment (13,496) (976,229)
------------ ------------
Net cash used in investing activities (5,817,388) (17,053,724)
------------ ------------
FINANCING ACTIVITIES
Net increase in deposits 5,933,546 17,847,667
------------ ------------
Net cash provided by financing activities 5,933,546 17,847,667
------------ ------------
Net increase (decrease) in cash and due from banks (13,751) 465,888
Cash and due from banks, beginning of period 1,517,588 3,640
------------ ------------
Cash and due from banks, end of period $ 1,503,837 $ 469,528
============ ============
</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
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
period.
The results of operations for the three and six month periods ended
June 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
derivatives 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.
6
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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 statements 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 which could provide funds on short
notice.
The liquidity and capital resources of the Company and Bank are monitored on a
periodic basis by management and Federal 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 June 30, 2000, the liquidity ratio of the Bank, as determined under
guidelines established by regulatory authorities, was satisfactory. The
liquidity ratio was 38.0% at June 30, 2000.
7
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At June 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 Company and the Bank are as
follows:
Actual
------------------------------
Southern Southern Regulatory
Heritage Heritage Minimum
Bancorp Bank Requirement
-------------- -------------- ---------------
Leverage capital ratio 21.99 % 21.58 % 4.00 %
Risk-based capital ratios:
Core capital 27.93 27.41 4.00
Total capital 29.28 28.76 8.00
Financial Condition
Following is a summary of the Company's balance sheets for the periods
indicated:
<TABLE>
<CAPTION>
Increase (Decrease)
June 30, December 31, --------------------------------
2000 1999 Amount Percent
------------- ---------------- -------------- --------------
(Dollars in Thousands)
-----------------------------------------------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 1,504 $ 1,518 $ (14) (0.92) %
Federal funds sold 2,525 1,205 1,320 109.54
Securities 7,047 7,018 29 0.41
Loans, net 21,598 17,241 4,357 25.27
Premises and equipment 2,208 2,253 (45) (2.00)
Other assets 315 218 97 44.50
------------- ---------------- --------------
$ 35,197 $ 29,453 $ 5,744 19.50
============= ================ ==============
Deposits $ 27,678 $ 21,744 $ 5,934 27.29 %
Other liabilities 121 294 (173) (58.84)
Stockholders' equity 7,398 7,415 (17) (0.23)
------------- ---------------- --------------
$ 35,197 $ 29,453 $ 5,744 19.50
============= ================ ==============
</TABLE>
As indicated in the above table, the Company's total assets grew at a rate of
19.50% for the six months ended June 30, 2000. This continued high rate of
growth is not uncommon for a de novo bank and is expected over the next year.
Deposit growth of 27.29% was primarily used to fund loan growth and the excess
funds were invested in Federal funds sold. Currently, excess funds are invested
in short-term securities or Federal funds sold in the anticipation of future
loan growth. The Company's loan to deposit ratio has decreased slightly from
80.51% at December 31, 1999 to 79.33% at June 30, 2000. The decrease in the loan
to deposit ratio is due to deposit growth versus loan growth.
The decrease in stockholders' equity includes the net loss for the six months
ended June 30, 2000 of $27,000 offset by a $10,000 improvement in unrealized
losses on securities available-for-sale.
8
<PAGE>
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 2000 and 1999
Net Interest Income
The Company's net interest income has increased by $227,000 and $448,000 for the
three and six month periods ended June 30, 2000, respectively as compared to the
same period in 1999. The Company's net interest margin increased to 4.65% during
the first six 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
primarily to the increased volume of interest-earning assets. Total interest-
earning assets have increased by $7.6 million since June 30, 1999. The increase
in total loans during the same period was $14.3 million. Interest-bearing
deposits have increased from June 30, 1999 $8.2 million, which indicates the use
of the Company's original capital in funding a portion of the loan growth over
the past twelve months.
Provision for Loan Losses
The provision for loan losses was $108,000 during the first six months of 2000
as compared to $120,000 for the same period in 1999. The amount provided is due
primarily to overall loan growth, increases in nonaccrual and past due loans and
an increase in net charge-offs. The increase in nonaccrual and past due loans is
not believed to represent a trend or unusual pattern, and is considered
reasonable at a combined .52% of total loans. The Company's allowance for loan
losses amounted to 1.63% at June 30, 2000 as compared to 1.51% at 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 which may
affect the borrower's ability to repay and the underlying collateral value.
9
<PAGE>
Information with respect to nonaccrual, past due and restructured loans at June
30, 2000 and 1999 is as follows:
June 30,
----------------------------------
2000 1999
----------------------------------
(Dollars in Thousands)
----------------------------------
Nonaccrual loans $ 30 $ -
Loans contractually past due ninety
days or more as to interest or principal
payments and still accruing 85 -
Restructured loans - -
Loans, now current about which there are
serious doubts as to the ability of the
borrower to comply with loan repayment
terms - -
Interest income that would have been
recorded on nonaccrual and restructured
loans under original terms - -
Interest income that was recorded on
nonaccrual and restructured loans - -
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.
Loans classified for regulatory purposes as loss, doubtful, substandard, or
special mention that have not been included in the table above do not represent
or result from trends or uncertainties which management reasonably expects will
materially impact future operating results, liquidity or capital resources.
These classified loans do not represent material credits about which management
is aware of any information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment terms.
10
<PAGE>
Information regarding certain loans and allowance for loan loss data through
June 30, 2000 and 1999 is as follows:
Six Months Ended
June 30,
----------------------------------
2000 1999
--------------- ----------------
(Dollars in Thousands)
----------------------------------
Average amount of loans outstanding $ 20,795 $ 4,087
=============== ================
Balance of allowance for loan losses
at beginning of period $ 265 $ -
--------------- ----------------
Loans charged off
Commercial and financial $ (8) $ -
Real estate mortgage - -
Instalment (7) -
--------------- ----------------
(15) -
--------------- ----------------
Loans recovered
Commercial and financial - -
Real estate mortgage - -
Installment - -
--------------- ----------------
- -
--------------- ----------------
Net charge-offs (15) -
--------------- ----------------
Additions to allowance charged to
operating expense during period 108 120
--------------- ----------------
Balance of allowance for loan losses at
end of period $ 358 $ 120
=============== ================
Ratio of net loans charged off during
the period to average loans outstanding 0.07% -%
=============== ================
Other Income
Other income increased by $21,000 and $47,000 for the three and six months ended
June 30, 2000, respectively, as compared to the same period in 1999. The
increase is due primarily to increased service charges of $17,000 and $36,000
for the three and six months ended June 30, 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.
11
<PAGE>
Other Expenses
Other expenses increased by $133,000 and $129,000 for the three and six month
periods ended June 30, 2000 as compared to the same periods in 1999. The single
most significant expense item included in other expenses is salaries and
employee benefits which represents 47% of total other expenses. The increase in
salaries and employee benefits of $57,000 and $104,000 for the three and six
month periods in 2000 as compared to 1999 is due to the increase in number of
employees. The number of full-time equivalent employees as of June 30, 2000 was
15 compared to 11 a year earlier. Occupancy and equipment expenses have
increased by $28,000 for the six month period ended June 30, 2000 as compared to
the same period in 1999. The increases are due to depreciation expense and
routine maintenance expenses related to the main office building, which was not
completed until the third quarter of 1999. Other operating expenses increased by
$60,000 for the three month period and decreased by $3,000 for the six month
period ended June 30, 2000. The increase for the second quarter of 2000 is
directly related to overall growth of the Bank. Other operating expenses for the
six month period ended June 30, 1999 included one-time start-up expenses of
approximately $45,000.
Net Income
The net loss has decreased by $118,000 and $378,000 during the three and six
month periods ended June 30, 2000 as compared to 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.
12
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The annual meeting of the stockholders of the Company was held
on June 14, 2000.
(b) The following directors were elected at the meeting to serve
terms through the year indicated:
A. Terry Hayes 2003
Wm. David Merritt 2003
C. Talmadge Garrison 2003
Earl C. Gilleland 2003
(c) Mauldin & Jenkins, LLC was ratified as the Company's
independent auditors for fiscal year 2000.
The shares represented at the meeting (528,946 shares or
60.22%) voted as follows:
Item (b) For Against Abstain Total
A. Terry Hayes 519,476 - 9,470 528,946
Wm. David Merritt 519,676 - 9,270 528,946
C. Talmadge Garrison 519,676 - 9,270 528,946
Earl C. Gilleland 519,676 - 9,270 528,946
Item (c) For Against Abstain Total
Ratification of
Mauldin & Jenkins, LLC 517,596 6,350 5,000 528,946
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
27. Financial Data Schedule.
(b) Reports on Form 8-K.
On April 14, 2000, the Company filed an 8-K announcing the
resignation of Mr. Gary Anderson from the position of
Director, President and Chief Executive Officer of Southern
Heritage Bancorp, Inc. and Southern Heritage Bank.
13
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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: August 11, 2000 BY: /s/ Tren Watson
--------------- --------------------------
Tren Watson, President and
Chief Executive Officer
DATE: August 11, 2000 BY: /s/ John Evans
--------------- --------------------------
John Evans, Chief Financial Officer
14
