EXHIBIT 13.1





















SOUTHERN HERITAGE BANCORP, INC.

AND SUBSIDIARY

CONSOLIDATED FINANCIAL REPORT

DECEMBER 31, 2001



18

<PAGE>





SOUTHERN HERITAGE BANCORP, INC.

AND SUBSIDIARY

CONSOLIDATED FINANCIAL REPORT

DECEMBER 31, 2001





table of contents



Page

INDEPENDENT AUDITOR'S REPORT FINANCIAL STATEMENTS 	20

Consolidated balance sheets 	21

Consolidated statements of income 	22

Consolidated statements of comprehensive income 	23

Consolidated statements of stockholders' equity 	24

Consolidated statements of cash flows 	25

Notes to consolidated financial statements 26-40



19

<PAGE>





















INDEPENDENT AUDITOR'S REPORT



To the Board of Directors

Southern Heritage Bancorp, Inc.

Oakwood, Georgia



We have audited the accompanying consolidated balance sheets of Southern Heritage Bancorp, Inc. and subsidiaryas of December 31, 2001 and 2000, and the related consolidated statements of income, comprehensive income, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.



We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Southern Heritage Bancorp, Inc. and subsidiary as of December 31, 2001 and 2000, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.



s/MAULDIN & JENKINS, LLC







Atlanta, Georgia

January 18, 2002

20

<PAGE>

<TABLE>

|SOUTHERN HERITAGE BANCORP, INC.                          
|---------------------------------------------------------
|AND SUBSIDIARY                                           
|CONSOLIDATED BALANCE SHEETS                              
|DECEMBER 31, 2001 AND 2000                               
|Assets                                                   
|                                                         
|Cash and due from banks                                  
|Federal funds sold                                       
|Securities available-for-sale                            
|Restricted equity securities                             
|                                                         
|Loans                                                    
|Less allowance for loan losses                           
|Loans, net                                               
|                                                         
|Premises and equipment                                   
|Other assets                                             
|                                                         
|Total assets                                             
|                                                         
|Liabilities and Stockholders' Equity                     
|                                                         
|Deposits                                                 
|Noninterest-bearing                                      
|Interest-bearing                                         
|Total deposits                                           
|Other borrowings                                         
|Other liabilities                                        
|Total liabilities                                        
|                                                         
|Commitments and contingencies                            
|                                                         
|Stockholders' equity                                     
|Common stock, par value $5; 10,000,000 shares authorized;
|878,344 issued and outstanding                           
|Capital surplus                                          
|Accumulated deficit                                      
|Accumulated other comprehensive income (loss)            
|                                                         
|Total stockholders' equity                               
|                                                         
|Total liabilities and stockholders' equity               
|See Notes to Consolidated Financial Statements.          

</TABLE>

21

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<TABLE>

|SOUTHERN HERITAGE BANCORP, INC.                
|-----------------------------------------------
|AND SUBSIDIARY                                 
|CONSOLIDATED STATEMENTS OF INCOME              
|YEARS ENDED DECEMBER 31, 2001 AND 2000         
|                                               
|                                               
|Interest income                                
|Loans                                          
|Taxable securities                             
|Federal funds sold                             
|Other                                          
|Total interest income                          
|                                               
|Interest expense                               
|Deposits                                       
|Other borrowings                               
|Total interest expense                         
|                                               
|Net interest income                            
|Provision for loan losses                      
|Net interest income after provision for        
|loan losses                                    
|                                               
|Other income                                   
|Service charges on deposit accounts            
|Mortgage origination fees                      
|Other operating income                         
|Total other income                             
|                                               
|Other expenses                                 
|Salaries and employee benefits                 
|Equipment expenses                             
|Occupancy expenses                             
|Other operating expenses                       
|Total other expenses                           
|                                               
|Income before income taxes                     
|                                               
|Income tax expense                             
|                                               
|Net income                                     
|                                               
|Basic and diluted earnings per share           
|See Notes to Consolidated Financial Statements.

</TABLE>

22

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<TABLE>

|SOUTHERN HERITAGE BANCORP, INC.                
|-----------------------------------------------
|AND SUBSIDIARY                                 
|                                               
|CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|YEARS ENDED DECEMBER 31, 2001 AND 2000         
|                                               
|                                               
|                                               
|Net income                                     
|                                               
|Other comprehensive income:                    
|                                               
|Unrealized holding gains on securities         
|available-for-sale arising during period       
|                                               
|Comprehensive income                           
|                                               
|                                               
|See Notes to Consolidated Financial Statements.

</TABLE>

23

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<TABLE>

|SOUTHERN HERITAGE BANCORP, INC.
AND SUBSIDIARY                                        
|--------------------------------------------------------------------------------------
|CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2001 AND 2000
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|                                                                                      
|Balance, December 31, 1999                                                            
|Net income                                                                            
|Other comprehensive
Income                                                            
|Balance, December 31, 2000                                                            
|Net income                                                                            
|Other comprehensive Income                                                            
|Balance, December 31, 2001                                                            
|                                                                                      
|                                                                                      
|See Notes to Consolidated Financial Statements.                                       

</TABLE>

24

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<TABLE>

|SOUTHERN HERITAGE BANCORP, INC.                   
|--------------------------------------------------
|AND SUBSIDIARY                                    
|CONSOLIDATED STATEMENTS OF CASH FLOWS             
|YEARS ENDED DECEMBER 31, 2001 AND 2000            
|                                                  
|OPERATING ACTIVITIES                              
|Net income                                        
|Adjustments to reconcile net income to net cash   
|provided by operating activities:                 
|Depreciation                                      
|Amortization                                      
|Provision for loan losses                         
|(Increase) decrease in interest receivable        
|Increase in interest payable                      
|Net other operating activities                    
|                                                  
|Net cash provided by operating activities         
|                                                  
|INVESTING ACTIVITIES                              
|Purchases of securities available-for-sale        
|Maturities of securities available-for-sale       
|Net (increase) decrease in federal funds sold     
|Purchase of restricted equity securities          
|Net increase in loans                             
|Purchase of premises and equipment                
|                                                  
|Net cash used in investing activities             
|                                                  
|FINANCING ACTIVITIES                              
|Net increase in deposits                          
|Proceeds from other borrowings                    
|                                                  
|Net cash provided by financing activities         
|                                                  
|Net increase (decrease) in cash and due from banks
|                                                  
|Cash and due from banks at beginning of year      
|                                                  
|Cash and due from banks at end of year            
|                                                  
|SUPPLEMENTAL DISCLOSURE                           
|Cash paid for:                                    
|Interest                                          
|See Notes to Consolidated Financial Statements.   

25

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SOUTHERN HERITAGE BANCORP, INC.

AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Southern Heritage Bancorp, Inc. (the "Company") is a 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 Bank provides a full range of banking services in its primary market area of Hall County and surrounding counties.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its subsidiary. Significant intercompany transactions and balances are eliminated in consolidation.

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and deferred taxes.

Cash, Due From Banks and Cash Flows

For purposes of reporting cash flows, cash and due from banks include cash on hand, cash items in process of collection and amounts due from banks. Cash flows from loans, federal funds sold and deposits are reported net.

The Company maintains amounts due from banks which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts.

Securities

Debt securities that management has the positive intent and ability to hold to maturity are classified as held-to-maturity and recorded at amortized cost. Securities not classified as held-to-maturity, including equity securities with readily determinable fair values, are classified as available-for-sale and recorded at fair value with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Equity securities, including restricted stock, without a readily determinable fair value are recorded at cost.

Interest and dividends, including amortization of premiums and accretion of discounts, are recognized in interest income. Gains and losses on the sale of securities are determined using the specific identification method. Declines in the fair value of held-to-maturity and available-for-sale securities below their cost that are deemed to be other than temporary are reflected in earnings as realized losses.

26

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Loans

Loans are reported at their outstanding unpaid principal balances less the allowance for loan losses. Interest income is accrued on the unpaid balance.

Loan origination fees and direct origination costs of loans are recognized at the time the loan is placed on the books. Because the loan origination fee approximates the costs of most loans and the majority of loans have maturities of one year or less, the effect on operations is immaterial.

The accrual of interest on loans is discontinued when, in management's opinion, the borrower may be unable to meet payments as they become due, or when a loan becomes past due 90 days or more, unless the loan is well-secured. All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. Interest income on nonaccrual loans is subsequently recognized only to the extent cash payments are received, until the loan is returned to accrual status.

The allowance for loan losses is established through a provision for loan losses charged to expense. Loan losses are charged against the allowance when management believes the collectibility of the principal is unlikely. Subsequent recoveries are credited to the allowance.

The allowance is an amount that management believes will be adequate to absorb estimated losses in the loan portfolio. The allowance for loan losses is evaluated on a regular basis by management and is based upon management's periodic review of the collectibility of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses, and may require the Company to make additions to the allowance based on their judgment about information available to them at the time of their examinations.

A loan is considered impaired when it is probable the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Impaired loans are measured by either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's obtainable market price, or the fair value of the collateral if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses.

Premises and Equipment

Premises and equipment are carried at cost less accumulated depreciation computed principally on the straight-line method over the estimated useful lives of the assets.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

27

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes

Deferred income tax assets and liabilities are determined using the balance sheet method. Under this method, the net deferred tax asset or liability is determined based on the tax effects of the temporary differences between the book and tax bases of the various balance sheet assets and liabilities and gives current recognition to changes in tax rates and laws. A valuation allowance is recorded for those deferred tax items for which it is more likely than not that realization will not occur in the near term.

Profit-Sharing Plan

Profit sharing plan costs are based on a percentage of individual employee's salary, not to exceed the amount that can be deducted for federal income tax purposes.

Stock Compensation Plans

Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation, encourages all entities to adopt a fair value based method of accounting for employee stock compensation plans, whereby compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. However, it also allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, whereby compensation cost is the excess, if any, of the quoted market price of the stock at the grant date (or other measurement date) over the amount an employee must pay to acquire the stock. Stock options issued under the Company's stock option plan have no intrinsic value at the grant date, and under Opinion No. 25 no compensation cost is recognized for them. The Company has elected to continue with the accounting methodology in Opinion No. 25 and, as a result, has provided pro forma disclosures of net income and earnings per share and other disclosures, as if the fair value based method of accounting had been applied.

Earnings Per Share

Basic earnings per share are computed by dividing net income by the weighted average number of shares of common stock outstanding. Diluted earnings per share are computed by dividing net income by the sum of the weighted-average number of shares of common stock outstanding and dilutive potential common shares. Potential common shares include stock options. There were no dilutive potential common shares outstanding at December 31, 2001 and 2000. The weighted average number of shares outstanding for the years ended December 31, 2001 and 2000 was 878,344.

Comprehensive Income

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities, such as unrealized gains and losses on available-for-sale securities, are reported as a separate component in the equity section of the balance sheet, such items, along with net income, are components of comprehensive income.

28

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 1.	SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Reclassifications

Certain assets, liabilities, income and expenses on the balance sheet and statement of income as of and for the year ended December 31, 2000 have been reclassified, with no effect on net income, to be consistent with the classifications adopted for the year ended December 31, 2001.



NOTE 2.	SECURITIES

The amortized cost and fair value of securities are summarized as follows

<TABLE>

| |                               | Amortized
Cost |           | Gross
Unrealized
Gains |   | Gross
Unrealized
Losses |  | Fair
Value
| | ----------------------------- | -------------- | --------- | ---------------------- | - | ----------------------- |  | ----------
| |                               |                |           |                        |   |                         |  |           
| | Securities Available-for-Sale |                |           |                        |   |                         |  |           
| | December 31, 2001:            |                |           |                        |   |                         |  |           
| | U. S. Government and          |                |           |                        |   |                         |  |           
| | agency securities             | $              | 7,146,190 |                        | $ | 144,058                 |  | $         
| | December 31, 2000:            |                |           |                        |   |                         |  |           
| | U. S. Government and          |                |           |                        |   |                         |  |           
| | agency securities             | $              | 7,219,248 |                        | $ | 9,268                   |  | $         

</TABLE>

The amortized cost and fair value of debt securities as of December 31, 2001 by contractual maturity are shown below.

<TABLE>

| |                            |  |  |  |  |  |  | Amortized
Cost |           | Fair
Value
| | -------------------------- |  |  |  |  |  |  | -------------- | --------- | ----------
| |                            |  |  |  |  |  |  |                |           |           
| | Due in less than one year  |  |  |  |  |  |  | $              | 499,383   |           
| | Due from one to five years |  |  |  |  |  |  |                | 4,891,284 |           
| | Due from five to ten years |  |  |  |  |  |  |                | 1,755,523 |           
| |                            |  |  |  |  |  |  | $              | 7,146,190 |           

</TABLE>

Securities with a carrying value of $3,037,037 and $3,747,655 at December 31, 2001 and 2000, respectively, were pledged to secure public deposits and for other purposes required or permitted by law.

29

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 3.	LOANS

The composition of loans is summarized as follows:

<TABLE>

|  |                            | December 31,
|- | -------------------------- | ------------
|  |                            |             
|1 | Commercial                 | $           
|2 | Real estate - construction |             
|3 | Real estate - mortgage     |             
|4 | Consumer and other         |             
|5 |                            |             
|7 | Allowance for loan losses  |             
|8 | Loans, net                 | $           

</TABLE>

Changes in the allowance for loan losses are as follows:

<TABLE>

| |                                            | Years Ended December 31,
| | ------------------------------------------ | ------------------------
| |                                            |                         
| | Balance, beginning of year                 | $                       
| | Provision for loan losses                  |                         
| | Loans charged off                          |                         
| | Recoveries of loans previously charged off |                         
| | Balance, end of year                       | $                       

</TABLE>

The following is a summary of information pertaining to impaired loans:

<TABLE>

| |                                               | As of and for the Years Ended
| | --------------------------------------------- | -----------------------------
| |                                               | December 31,                 
| |                                               | 2001                         
| | Impaired loans without a valuation allowance  | $                            
| | Impaired loans with a valuation allowance     |                              
| | Total impaired loans                          | $                            
| | Valuation allowance related to impaired loans | $                            
| | Average investment in impaired loans          | $                            
| | Interest income recognized on impaired loans  | $                            

</TABLE>

In the ordinary course of business, the Company has granted loans to certain directors, executive officers, and their related affiliates. The interest rates on these loans were substantially the same as rates prevailing at the time of the transaction and repayment terms are customary for the type of loan. Changes in related party loans for the year ended December 31, 2001 are as follows:

30

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 3.	LOANS (Continued)

<TABLE>

| | Balance, beginning of year | $ | 40,106   
| | -------------------------- | - | ---------
| | Advances                   |   | 2,531,897
| | Repayments                 |   | (393,195)
| | Balance, end of year       | $ | 2,178,808

</TABLE>

NOTE 4.	PREMISES AND EQUIPMENT

Premises and equipment are summarized as follows:

|  |                               | December 31,
|- | ----------------------------- | ------------
|  |                               |             
|1 | Leasehold improvements        | $           
|2 | Building                      |             
|3 | Furniture and equipment       |             
|4 |                               |             
|5 | Less accumulated depreciation |             
|6 |                               | $           

</TABLE>

The Company leases the land on which its banking facility is located under a noncancelable lease. The lease is or a twenty year term and can be extended for four additional periods of five years each. The original base annual rent was $40,000, payable in monthly installments. Beginning on the first day of the fourth lease year and on the first day of each lease year thereafter, ("change date"), rent shall increase by the percentage by which the average CPI for the previous lease year exceeds the average CPI for the year preceding the previous change date, but not to exceed 5% in any event. In no event shall the rent be less than it was for the prior lease year. For this lease, the "average CPI" is the average monthly consumer price index for the particular lease year in question during the term of this lease. As of December 31, 2001, the monthly rent is $3,500. The Company is responsible for building and personal property taxes.

The total minimum rental commitment at December 31, 2001 is due as follows:

<TABLE>

| | 2002           |  |  |  | $ | 42,000 
| | -------------- |  |  |  | - | -------
| | 2003           |  |  |  |   | 42,000 
| | 2004           |  |  |  |   | 42,000 
| | 2005           |  |  |  |   | 42,000 
| | 2006           |  |  |  |   | 42,000 
| | Due thereafter |  |  |  |   | 479,500
| |                |  |  |  | $ | 689,500

</TABLE>

Total rental expense for the years ended December 31, 2001 and 2000 was $66,514 and $65,089, respectively. Total rental expense includes the land lease and all other equipment rental expense.



31

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 5.	DEPOSITS

The aggregate amount of time deposits in denominations of $100,000 or more at December 31, 2001 and 2000 was $8,974,590 and $6,480,206, respectively. The scheduled maturities of time deposits at December 31, 2001 are as follows:

<TABLE>

| | 2002 | $ | 23,012,006
| | ---- | - | ----------
| | 2003 |   | 2,805,156 
| | 2004 |   | 626,264   
| | 2005 |   | 259,746   
| | 2006 |   | 56,888    
| |      | $ | 26,760,060

`</TABLE>`

NOTE 6.	OTHER BORROWINGS

Other borrowings consist of the following:

<TABLE>

|  |                                                   | December 31,
|- | ------------------------------------------------- | ------------
|  |                                                   |             
|1 | Advance from Federal Home Loan Bank with interest |             
|2 | at 5.84%, due October 13, 2005.                   | $           

</TABLE>

The Company's advances from the Federal Home Loan Bank are collateralized with $1,809,223 of the Company's security portfolio and with the Company's stock in the Federal Home Loan Bank.



NOTE 7.	INCOME TAXES

The components of income tax expense are as follows:

<TABLE>

| |                               | Years Ended December 31,
| | ----------------------------- | ------------------------
| |                               |                         
| | Deferred                      | $                       
| | Change in valuation allowance |                         
| | Income tax expense            | $                       

</TABLE>

32

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 7.	INCOME TAXES (Continued)

The Company's income tax expense differs from the amounts computed by applying the federal income tax statutory rates to income before income taxes. A reconciliation of the differences is as follows:

<TABLE>

|  |                                | Years Ended December 31,
|- | ------------------------------ | ------------------------
|  |                                | 2001                    
|  |                                | Amount                  
|1 | Income taxes at statutory rate | $                       
|2 | Change in valuation allowance  |                         
|3 | State taxes                    |                         
|4 | Other                          |                         
|  | Income tax expense             | $                       

</TABLE>

The components of deferred income taxes are as follows:

<TABLE>

|   |                                      | December 31,
|-- | ------------------------------------ | ------------
|   |                                      |             
|1  | Deferred tax assets:                 |             
|2  | Loan loss reserves                   | $           
|3  | Depreciation                         |             
|4  | Securities available-for-sale        |             
|5  | Preopening and organization expenses |             
|6  | Net operating loss carryforward      |             
|7  | Contributions                        |             
|8  |                                      |             
|9  |                                      |             
|10 | Valuation allowance                  |             
|11 |                                      |             
|12 |                                      |             
|13 | Deferred tax liabilities:            |             
|14 | Depreciation                         |             
|14 | Securities available-for-sale        |             
|14 | Accrual to cash adjustment           |             
|15 |                                      |             
|16 | Net deferred taxes                   | $           

</TABLE>

At December 31, 2001, the Company had available net operating loss carryforwards of approximately $68,000 to reduce future federal taxable income.

33

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8.	EMPLOYEE BENEFIT PLANS

401(k) Profit Sharing Plan

The Company has a contributory 401(k) profit sharing plan for the benefit of its eligible employees and their beneficiaries, subject to certain eligibility and participation rules. The contributions expensed were $37,380 for the year ended December 31, 2001. There were no contributions for the year ended December 31, 2000.

NOTE 9.	STOCK COMPENSATION PLAN

In connection with the organization of the Company, employment contracts were provided to senior management granting a total of 25,000 options. These options are exercisable at book value or $10 per share, whichever is less, and expire five years from the grant date, unless extended by the Board of Directors for an additional five year period.

Other pertinent information related to the options is as follows:

<TABLE>

| |                                           | December 31,
| | ----------------------------------------- | ------------
| |                                           | 2001        
| |                                           | Number      
| | Under option, beginning of year           | 25,000      
| | Granted                                   | -           
| | Exercised                                 | -           
| | Terminated                                | -           
| | Under option and exercisable, end of year | 25,000      
| |                                           |             
| | Weighted average life of                  |             
| | options outstanding                       | 2 years     

</TABLE>

NOTE 10. 	COMMITMENTS AND CONTINGENCIES

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Such commitments involve, to varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized in the balance sheets.

The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. A summary of the Company's commitments is as follows:

34

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 10. 	COMMITMENTS AND CONTINGENCIES (Continued)



| |                              | December 31,
| | ---------------------------- | ------------
| |                              |             
| | Standby letters of credit    | $           
| | Commitments to extend credit |             
| |                              | $           

</TABLE>

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the customer.

Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. Collateral held varies as specified above and is required in instances which the Company deems necessary.

In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material effect on the Company's financial statements.



NOTE 11. 	CONCENTRATIONS OF CREDIT

The Company originates primarily commercial, residential, and consumer loans to customers in Hall County and surrounding counties. The ability of the majority of the Company's customers to honor their contractual loan obligations is dependent on the economy in these areas.

Seventy-nine percent of the Company's loan portfolio is concentrated in loans secured by real estate, of which a substantial portion is secured by real estate in the Company's primary market area. Accordingly, the ultimate collectibility of the loan portfolio is susceptible to changes in market conditions in the Company's primary market area. The other significant concentrations of credit by type of loan are set forth in Note 3.

The Company, as a matter of policy, does not generally extend credit to any single borrower or group of related borrowers in excess of 25% of the lesser of statutory capital or net assets as defined, or approximately $1,980,000 at December 31, 2001.



35

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 12.	REGULATORY MATTERS

The Bank is subject to certain restrictions on the amount of dividends that may be declared without prior regulatory approval. At December 31, 2001, no dividends could be declared without regulatory approval due to the Bank having an accumulated deficit, which is normal for a de novo bank.

The Company and Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Prompt corrective provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios of Total and Tier I capital to risk-weighted assets and of Tier I capital to average assets. Management believes, as of December 31, 2001 and 2000, the Company and Bank met all capital adequacy requirements to which they are subject.

As of December 31, 2001, the most recent notification from the Federal Deposit Insurance Corporation 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 risk-based, and Tier I leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes have changed the Bank's category.

The Company and Bank's actual capital amounts and ratios are presented in the following table:

| |                                         |                        |       |          |        |                   |             |       |                   |        |  | To Be Well
| | --------------------------------------- | ---------------------- | ----- | -------- | ------ | ----------------- | ----------- | ----- | ----------------- | ------ |  | ----------
| |                                         |                        |       |          |        |                   | For Capital |       | Capitalized Under
| |                                         |                        |       |          |        |                   | Adequacy    |       | Prompt Corrective
| |                                         | Actual                 |       | Purposes |        | Action Provisions
| |                                         | Amount                 |       | Ratio    |        | Amount            |             | Ratio |                   | Amount |  | Ratio     
| |                                         | (Dollars in Thousands)
| | December 31, 2001:                      |                        |       |          |        |                   |             |       |                   |        |  |           
| | Total Capital to Risk Weighted Assets:  |                        |       |          |        |                   |             |       |                   |        |  |           
| | Consolidated                            | $                      | 8,543 |          | 20.00% |                   | $           | 3,417 |                   | 8.00%  |  | $         
| | Bank                                    | $                      | 8,468 |          | 19.82% |                   | $           | 3,418 |                   | 8.00%  |  | $         
| | Tier I Capital to Risk Weighted Assets: |                        |       |          |        |                   |             |       |                   |        |  |           
| | Consolidated                            | $                      | 8,008 |          | 18.75% |                   | $           | 1,708 |                   | 4.00%  |  | $         
| | Bank                                    | $                      | 7,933 |          | 18.57% |                   | $           | 1,708 |                   | 4.00%  |  | $         
| | Tier I Capital to Average Assets:       |                        |       |          |        |                   |             |       |                   |        |  |           
| | Consolidated                            | $                      | 8,008 |          | 15.25% |                   | $           | 2,100 |                   | 4.00%  |  | $         
| | Bank                                    | $                      | 7,933 |          | 15.11% |                   | $           | 2,100 |                   | 4.00%  |  | $         

</TABLE>

36

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 12.	REGULATORY MATTERS (Continued)

<TABLE>

| |                                         |                        |       |          |        |                   |             |       |                   |        |  | To Be Well
| | --------------------------------------- | ---------------------- | ----- | -------- | ------ | ----------------- | ----------- | ----- | ----------------- | ------ |  | ----------
| |                                         |                        |       |          |        |                   | For Capital |       | Capitalized Under
| |                                         |                        |       |          |        |                   | Adequacy    |       | Prompt Corrective
| |                                         | Actual                 |       | Purposes |        | Action Provisions
| |                                         | Amount                 |       | Ratio    |        | Amount            |             | Ratio |                   | Amount |  | Ratio     
| |                                         | (Dollars in Thousands)
| | December 31, 2000:                      |                        |       |          |        |                   |             |       |                   |        |  |           
| | Total Capital to Risk Weighted Assets:  |                        |       |          |        |                   |             |       |                   |        |  |           
| | Consolidated                            | $                      | 8,040 |          | 24.95% |                   | $           | 2,578 |                   | 8.00%  |  | $         
| | Bank                                    | $                      | 7,921 |          | 24.58% |                   | $           | 2,578 |                   | 8.00%  |  | $         
| | Tier I Capital to Risk Weighted Assets: |                        |       |          |        |                   |             |       |                   |        |  |           
| | Consolidated                            | $                      | 7,637 |          | 23.70% |                   | $           | 1,289 |                   | 4.00%  |  | $         
| | Bank                                    | $                      | 7,518 |          | 23.33% |                   | $           | 1,289 |                   | 4.00%  |  | $         
| | Tier I Capital to Average Assets:       |                        |       |          |        |                   |             |       |                   |        |  |           
| | Consolidated                            | $                      | 7,637 |          | 18.77% |                   | $           | 1,628 |                   | 4.00%  |  | $         
| | Bank                                    | $                      | 7,518 |          | 18.47% |                   | $           | 1,628 |                   | 4.00%  |  | $         

</TABLE>



NOTE 13. 	FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument. SFAS 107, Disclosures about Fair Value of Financial Instruments, excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

Cash, Due From Banks and Federal Funds Sold:

The carrying amounts of cash, due from banks and federal funds sold approximate fair values.

Securities:

Fair values for securities are based on available quoted market prices. The carrying values of equity securities with no readily determinable fair value approximate fair values.

37

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 13. 	FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Loans:

For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. For other loans, the fair values are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers with similar credit quality. Fair values for impaired loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.

Deposits:

The carrying amounts of demand deposits, savings deposits, and variable-rate certificates of deposit approximate their fair values. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits.

The fair values of the Company's fixed rate other borrowings are estimated using discounted cash flow models based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.

Accrued Interest:

The carrying amounts of accrued interest approximate their fair values.

Off-Balance Sheet Instruments:

Fair values of the Company's off-balance sheet financial instruments are based on fees currently charged to enter into similar agreements. Since the majority of the Company's off-balance sheet instruments consist of nonfee-producing, variable-rate commitments, the Company has determined they do not have a distinguishable fair value.

The carrying amounts and estimated fair values of the Company's financial instruments were as follows:

<TABLE>

| |                               | December 31, 2001 |            | December 31, 2000
| | ----------------------------- | ----------------- | ---------- | -----------------
| |                               | Carrying
Amount   |            | Fair
Value       
| | Financial assets:             |                   |            |                  
| | Cash, due from banks,         |                   |            |                  
| | and federal funds sold        | $                 | 3,628,656  |                  
| | Securities available-for-sale |                   | 7,290,248  |                  
| | Restricted equity securities  |                   | 85,000     |                  
| | Loans                         |                   | 40,399,472 |                  
| | Accrued interest receivable   |                   | 298,426    |                  
| |                               |                   |            |                  
| | Financial liabilities:        |                   |            |                  
| | Deposits                      |                   | 43,626,073 |                  
| | Other borrowings              |                   | 1,700,000  |                  
| | Accrued interest payable      |                   | 189,043    |                  

</TABLE>

38

<PAGE>



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 14.	SUPPLEMENTAL FINANCIAL DATA

Components of other operating expenses in excess of 1% of total revenue are as follows:

<TABLE>

| |                             | Years Ended December 31,
| | --------------------------- | ------------------------
| |                             |                         
| | Other operating expenses:   |                         
| | Advertising                 | $                       
| | Legal and professional fees |                         
| | Data processing             |                         

</TABLE>

NOTE 15.	PARENT COMPANY FINANCIAL INFORMATION

The following information presents the condensed balance sheets, statements of income and cash flows of Southern Heritage Bancorp, Inc., as of and for the years ended December 31, 2001 and 2000:

|   | CONDENSED BALANCE SHEETS                  
|-- | ------------------------------------------
|   |                                           
|1  | Assets                                    
|2  | Cash                                      
|4  | Investment in subsidiary                  
|4  | Income tax receivable                     
|5  |                                           
|6  | Total assets                              
|   |                                           
|1  | Liabilities                               
|4  | Deferred taxes payable                    
|   |                                           
|9  | Stockholders' equity                      
|10 |                                           
|11 | Total liabilities and stockholders' equity

</TABLE>

<TABLE>

|   | CONDENSED STATEMENTS OF INCOME            
|-- | ------------------------------------------
|   |                                           
|1  | Other expenses                            
|7  |                                           
|8  | Loss before equity in income of subsidiary
|9  |                                           
|10 | Equity in income of subsidiary            
|11 |                                           
|12 | Net income                                

39

<PAGE>





NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 15.	PARENT COMPANY FINANCIAL INFORMATION (Continued)

<TABLE>

|   | CONDENSED STATEMENTS OF CASH FLOWS             
|-- | -----------------------------------------------
|   |                                                
|1  | OPERATING ACTIVITIES                           
|2  | Net income                                     
|3  | Adjustments to reconcile net income to net cash
|4  | used in operating activities:                  
|5  | Equity in earnings of subsidiary               
|7  |                                                
|8  | Net cash used in operating activities          
|9  |                                                
|15 |                                                
|16 | Net decrease in cash                           
|17 |                                                
|18 | Cash at beginning of year                      
|19 |                                                
|20 | Cash at end of year                            

40

<PAGE>