<PAGE>
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 March 31, 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.
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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
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(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___
---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of May 1, 2000: 878,344; $5 par value.
Transitional Small Business Disclosure Format Yes No X
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1
<PAGE>
SOUTHERN HERITAGE BANCORP, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet - March 31, 2000................................................3
Condensed Consolidated Statements of Operations and
Comprehensive Loss - Three Months Ended
March 31, 2000 and 1999.............................................................................4
Condensed Consolidated Statements of Cash Flows - Three
Months Ended March 31, 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.............................................8
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K..............................................................12
Signatures.............................................................................................13
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHERN HERITAGE BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Cash and due from banks $ 1,155,001
Federal funds sold 1,345,000
Securities available-for-sale, at fair value 7,027,486
Loans 21,181,217
Less allowance for loan losses 315,488
----------------------
Loans, net 20,865,729
----------------------
Premises and equipment 2,224,582
Other assets 264,482
----------------------
Total assets $ 32,882,280
======================
<CAPTION>
Liabilities and Stockholders' Equity
------------------------------------
<S> <C>
Deposits
Demand $ 3,317,636
Interest-bearing demand 4,772,839
Savings 1,229,108
Time 16,033,457
----------------------
Total deposits 25,353,040
Other liabilities 119,348
----------------------
Total liabilities 25,472,388
----------------------
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 (1,129,624)
Accumulated other comprehensive loss (192,189)
----------------------
Total stockholders' equity 7,409,892
----------------------
Total liabilities and stockholders' equity $ 32,882,280
======================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
SOUTHERN HERITAGE BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
-------------------- --------------------
<S> <C> <C>
Interest income
Loans $ 490,330 $ 73,109
Taxable securities 105,922 1,985
Federal funds sold 20,742 105,814
-------------------- --------------------
Total interest income 616,994 180,908
Interest expense on deposits 252,767 37,112
-------------------- --------------------
Net interest income 364,227 143,796
Provision for loan losses 52,255 62,000
-------------------- --------------------
Net interest income after provision for loan losses 311,972 81,796
-------------------- --------------------
Other operating income 33,310 8,168
-------------------- --------------------
Other expenses
Salaries and other employee benefits 173,352 126,442
Occupancy and equipment expenses 60,259 48,603
Other operating expenses 130,999 194,015
-------------------- --------------------
364,610 369,060
-------------------- --------------------
Net loss before income taxes (19,328) (279,096)
Income tax expense - -
-------------------- --------------------
Net loss $ (19,328) $ (279,096)
Other comprehensive income:
Unrealized gains on securities available-for-sale
arising during period 13,878 797
-------------------- --------------------
Comprehensive loss $ (5,450) $ (278,299)
==================== ====================
Basic and diluted losses per common share $ (0.02) $ (0.32)
==================== ====================
Weighted average shares outstanding 878,344 878,344
==================== ====================
Cash dividends per share of common stock $ - $ -
==================== ====================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
SOUTHERN HERITAGE BANCORP, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---------------------- ------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (19,328) $ (279,096)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 30,746 11,493
Provision for loan losses 52,255 62,000
Other operating activities (221,058) (42,837)
---------------------- ------------------------
Net cash used in operating activities (157,385) (248,440)
---------------------- ------------------------
INVESTING ACTIVITIES
Purchases of securities available-for-sale - (1,752,176)
Maturities of securities available-for-sale 4,440 -
Net increase in Federal funds sold (140,000) (10,760,000)
Increase in interest-bearing deposits in banks - 7,977,209
Net increase in loans (3,676,755) (3,952,554)
Purchase of premises and equipment (1,634) (152,447)
---------------------- ------------------------
Net cash used in investing activities (3,813,949) (8,639,968)
---------------------- ------------------------
FINANCING ACTIVITIES
Net increase in deposits 3,608,747 10,368,620
---------------------- ------------------------
Net cash provided by financing activities 3,608,747 10,368,620
---------------------- ------------------------
Net increase (decrease) in cash and due from banks (362,587) 1,480,212
Cash and due from banks, beginning of period 1,517,588 3,640
---------------------- ------------------------
Cash and due from banks, end of period $ 1,155,001 $ 1,483,852
====================== ========================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
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 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,
2000 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" 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.
6
<PAGE>
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
- -------------------------------
As of March 31, 2000, the liquidity ratio of the Bank, as determined under
guidelines established by regulatory authorities, was satisfactory.
At March 31, 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:
<TABLE>
<CAPTION>
Actual
------------------------------
Southern Southern
Heritage Heritage Regulatory
Bancorp Bank Requirement
-------------- -------------- ---------------
<S> <C> <C> <C>
Leverage capital ratios 24.78 % 24.24 % 4.00 %
Risk-based capital ratios:
Core capital 37.80 36.98 4.00
Total capital 39.07 38.25 8.00
</TABLE>
7
<PAGE>
Financial Condition
Following is a summary of the Company's balance sheets for the periods
indicated:
<TABLE>
<CAPTION>
Increase (Decrease)
March 31, December 31, --------------------------------
2000 1999 Amount Percent
-------------- ---------------- -------------- --------------
(Dollars in Thousands)
------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 1,155 $ 1,518 $ (363) (23.91) %
Federal funds sold 1,345 1,205 140 11.62
Securities 7,027 7,018 9 0.13
Loans 20,866 17,241 3,625 21.03
Premises and equipment 2,225 2,253 (28) (1.24)
Other assets 264 218 46 21.10
-------------- ---------------- --------------
$ 32,882 $ 29,453 $ 3,429 11.64
============== ================ ==============
Deposits $ 25,353 $ 21,744 $ 3,609 16.60 %
Other liabilities 119 294 (175) (59.52)
Stockholders' equity 7,410 7,415 (5) (0.07)
-------------- ---------------- --------------
$ 32,882 $ 29,453 $ 3,429 11.64
============== ================ ==============
</TABLE>
As indicated in the above table, the Company's total assets grew at a rate of
11.64%. This continued high rate of growth is not uncommon for a de novo bank.
Deposit growth of 16.60% was invested in loans. The Company's loan to deposit
ratio has increased slightly from 80.51% at December 31, 1999 to 83.55% at March
31, 2000 indicating continued strong loan demand in the Company's primary market
area.
8
<PAGE>
Results of Operations For The Three Months Ended March 31, 2000 and 1999
Following is a summary of the Company's operations for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Increase (Decrease)
March 31, -----------------------------------
2000 1999 Amount Percent
--------------- ------------- --------------- -----------------
(Dollars in Thousands)
-------------------------------------------------
<S> <C> <C> <C> <C>
Interest income $ 617 $ 181 $ 436 240.88 %
Interest expense 253 37 216 583.78
--------------- ------------- ---------------
Net interest income 364 144 220 152.78
Provision for loan losses 52 62 (10) (16.13)
Other income 33 8 25 312.50
Other expense 364 369 (5) (1.36)
--------------- ------------- ---------------
Net loss (19) (279) 260 93.19
=============== ============= ===============
</TABLE>
As indicated in the above table, the Company's net interest income has increased
by $220,000 during the first quarter of 2000 as compared to the same period in
1999. The Company's net interest margin increased to 5.26% during the first
quarter of 2000 as compared to 4.58% for the entire year of 1999. The increase
in net interest income and net interest margin is due primarily to the increased
volume of average loans.
The provision for loan losses was $52,000 during the first quarter of 2000 as
compared to $62,000 for the same period in 1999. The amounts provided are due
primarily to the net loan growth. The Company's reserve for loan losses amounted
to 1.49% at March 31, 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 March
31, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
March 31,
----------------------------------
2000 1999
----------------------------------
(Dollars in Thousands)
----------------------------------
<S> <C> <C>
Nonaccrual loans $ 7 $ -
Loans contractually past due ninety days or more as to interest
or principal payments and still accruing - -
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 - -
</TABLE>
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
March 31, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------------
2000 1999
--------------- ----------------
(Dollars in Thousands)
----------------------------------
<S> <C> <C>
Average amount of loans outstanding $ 19,223 $ 1,967
=============== ================
Balance of allowance for loan losses at beginning of period $ 265 $ -
--------------- ----------------
Loans charged off
Commercial and financial $ - $ -
Real estate mortgage - -
Instalment (2) -
--------------- ----------------
(2) -
--------------- ----------------
Loans recovered
Commercial and financial - -
Real estate mortgage - -
Installment - -
--------------- ----------------
- -
--------------- ----------------
Net charge-offs (2) -
--------------- ----------------
Additions to allowance charged to operating expense during period 52 62
--------------- ----------------
Balance of allowance for loan losses at end of period $ 315 $ 62
=============== ================
Ratio of net loans charged off during the period to
average loans outstanding 0.01% -%
=============== ================
</TABLE>
Other income has increased during the first quarter of 2000 as compared to the
same period in 1999 by $25,000 due primarily to increased service charges of
$20,000.
The Company has recorded no provision for income taxes due to cumulative net
operating losses.
Overall net loss has decreased by $260,000 during the first quarter of 2000 as
compared to the same period in 2000 due to increased net interest income,
increased other income, and decreased operating costs.
11
<PAGE>
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.
None.
12
<PAGE>
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: May 15, 2000 BY: /s/ John Evans
--------------------- -------------------------------------
John Evans, Chief Financial Officer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MARCH 31,
2000 FINANCIAL STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,155
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,345
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,027
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 21,181
<ALLOWANCE> 315
<TOTAL-ASSETS> 32,882
<DEPOSITS> 25,353
<SHORT-TERM> 0
<LIABILITIES-OTHER> 119
<LONG-TERM> 0
0
0
<COMMON> 4,392
<OTHER-SE> 3,018
<TOTAL-LIABILITIES-AND-EQUITY> 32,882
<INTEREST-LOAN> 490
<INTEREST-INVEST> 106
<INTEREST-OTHER> 21
<INTEREST-TOTAL> 617
<INTEREST-DEPOSIT> 253
<INTEREST-EXPENSE> 253
<INTEREST-INCOME-NET> 364
<LOAN-LOSSES> 52
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 365
<INCOME-PRETAX> (19)
<INCOME-PRE-EXTRAORDINARY> (19)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (19)
<EPS-BASIC> (.02)
<EPS-DILUTED> (.02)
<YIELD-ACTUAL> 5.26
<LOANS-NON> 7
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 265
<CHARGE-OFFS> (2)
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 315
<ALLOWANCE-DOMESTIC> 315
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 315
</TABLE>
