FORM 10 Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
Commission file number 0-15945
CENTRAL AND SOUTHERN HOLDING COMPANY
-------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1413533
------- ----------
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
150 West Greene St.
Milledgeville, Georgia 31061
---------------------- -----
(address of principal executive offices) (zip code)
Registrants telephone number, including area code 912-452-5541
------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 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
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at April 4, 1995
- ------------------------- ----------------------------
Common stock, $1 par value 3,777,017
<PAGE>
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
Part I. Page
Item 1. Consolidated condensed financial statements............ 3
Item 2. Management s discussion and analysis of financial
condition and results of operations.................... 7
Part II.
Item 1. Legal proceedings...................................... 12
Item 2. Changes in securities.................................. 12
Item 3. Defaults upon senior securities........................ 12
Item 4. Submission of matters to a vote of security holders.... 12
Item 5. Other information...................................... 12
Item 6. Exhibits and reports on Form 8-K....................... 12
2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(unaudited)
ASSETS MARCH 31, 1995 DECEMBER 31, 1994
(dollar amounts in thousands)
<S> <C> <C>
Cash and due from banks................................ $ 6,630 $ 7,033
Federal funds sold..................................... 14,075 15,069
Interest-bearing deposits with other banks............. 1,000 ---
Securities available for sale approximate
amortized cost of $32,180 and $37,528 at
March 31, 1995 and December 31, 1994................ 31,559 35,670
Securities held to maturity approximate market
value of $36,426 and $34,779 at March 31,
1995 and December 31, 1994.......................... 37,017 35,592
Loans.................................................. 108,584 109,208
Less: Unearned income.................................. (1,040) (1,478)
Allowance for loan losses........................ (4,256) (4,313)
--------- -------
Net loans........................................ 103,288 103,417
Premises and equipment................................. 2,574 2,601
Other assets........................................... 4,009 4,615
--------- -------
Total assets $200,152 $203,997
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing................................ $ 15,620 $ 16,742
Interest-bearing................................... 160,148 159,940
-------- --------
Total deposits................................ 175,768 176,682
Repurchase agreements................................... 2,765 6,715
Other liabilities....................................... 846 1,116
-------- --------
Total liabilities.................................. 179,379 184,513
-------- --------
Shareholders' Equity:
Preferred stock, 2,000,000 shares authorized, none issued --- ---
Common stock, $1 par value; authorized
10,000,000 shares; issued and outstanding
3,777,017 shares.................................. 3,777 3,777
Additional paid incapital............................... 6,492 6,492
Unrealized loss on investment securities, net of tax.... (406) (1,226)
Retained earnings....................................... 10,910 10,441
-------- -------
Total shareholders' equity......................... 20,773 19,484
-------- -------
Total liabilities and shareholders' equity $200,152 $203,997
======== ========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(unaudited)
Three Months Ended March 31
---------------------------
(dollar amounts in thousands except per share data)
Interest Income 1995 1994
---- ----
<S> <C> <C>
Loans, including fees.................................. $ 2,709 $ 2,908
Investment securities:
Tax-exempt........................................ 163 269
Taxable........................................... 873 1,066
Federal funds sold..................................... 223 130
-------- -------
Total interest income............................ 3,968 4,373
-------- -------
Interest Expense:
Deposits............................................... 1,960 2,431
Other borrowings....................................... 51 ---
-------- -------
Total interest expense............................ 2,011 2,431
-------- --------
Net interest income............................... 1,957 1,942
Provision for loan losses................................... (200) ---
-------- --------
Net interest income after provision for loan losses....... 2,157 1,942
-------- --------
Noninterest Income:
Service charges on deposit accounts.................... 169 168
Gain (loss) on sale of securities...................... (232) ---
Other noninterest income............................... 222 173
------- -------
Total noninterest income.......................... 159 341
------- --------
Noninterest Expense:
Salaries and employee benefits......................... 730 889
Net occupancy and equipment expense.................... 184 264
Other noninterest expense.............................. 612 888
-------- --------
Total noninterest expense.......................... 1,526 2,041
Earnings before income taxes........................... 790 242
Income taxes................................................ 182 20
-------- --------
Net earnings...................................... $ 608 $ 222
======== ========
Per Share Information:
Net Earnings........................................... $ 0.16 $ .06
Weighted average shares outstanding.................... 3,777,017 3,777,017
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1995 and 1994
(unaudited)
1995 1994
---- ----
(dollar amounts in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 608 $ 222
Adjustments to reconcile net earnings to net cash provided by
(used) in operating activities:
Provision for loan losses (200) ---
Depreciation expense 97 119
Amortization and accretion, net 41 32
Loss on sale of securities 232 ---
Changes in assets and liabilities:
(Increase) decrease in other assets 579 (115)
Decrease in other liabilities (681) (316)
------ ------
Net cash provided by (used in) operating activities 676 (58)
Cash flows from investing activities:
Increase in interest earning deposits (1,000) 8,932
Proceeds from maturities and pay-downs of investment securities 1,831 (4,570)
Proceeds from sales of investment securities available for sale 3,755 ---
Purchases of investment securities (1,904) ---
Net decrease in loans 329 3,730
Additions to premises and equipment (69) (38)
------ ------
Net cash provided by investing activities 2,942 8,054
------ ------
Cash flows from financing activities:
Net decrease in deposits (914) (193)
Repayment of repurchase agreements (3,950) ---
Cash dividends paid (151) ---
------ ------
Net cash used in financing activities (5,015) (193)
------ ------
Net increase (decrease) in cash and cash equivalents (1,397) 7,803
Cash and cash equivalents at beginning of period 22,102 20,548
------ ------
Cash and cash equivalents at end of period $ 20,705 $28,351
======== =======
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 1,980 $ 1,846
Income taxes $ --- ---
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
<PAGE>
Central and Southern Holding Company
and Subsidiaries
Notes to Consolidated Condensed Financial Statements
(1) Basis of Presentation
The consolidated condensed financial statements include the accounts
of Central and Southern Holding Company (the Company) and its wholly
owned subsidiaries, The Central and Southern Bank of Georgia and The
Central and Southern Bank of Greensboro. All significant intercompany
accounts and transactions have been eliminated in consolidation.
The consolidated condensed financial statements reflect all
adjustments which are, in the opinion of management, necessary to
fairly present the consolidated financial position and results of
operations for the periods covered herein and should be read in
conjunction with the Annual Report on form 10K. All such adjustments
are of a normal recurring nature.
(2) Recent Accounting Pronouncements
In May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ( SFAS ) No. 114,
Accounting by Creditors for Impairment of a Loan. SFAS No. 114
requires that impaired loans be measured on the present value of
expected future cash flows discounted at the loan s effective interest
rate, which is the contractual interest rate adjusted for any deferred
loan fees or cost, premium or discount existing at the inception or
acquisition of the loan, or at the loan s observable market price, or
the fair value of the collateral of the loan if the loan is collateral
dependent. SFAS No.114 became effective January 1, 1995. In October
1994, SFAS No. 118, Accounting by Creditors for Impairment of a Loan-
Income Recognition and Disclosures was issued. SFAS No. 118 amends
SFAS No. 114 to require information about the recorded investment in
certain impaired loans and eliminates its porvisions regarding how a
creditor should report income on an impaired loan. SFAS No. 118,
effective January 1, 1995, allows creditors to use existing methods
for recognizing income on impaired loans, including methods used by
certain industry regulators. The adoption of these pronouncements did
not have a material impact on the Company s consolidated financial
statements.
6
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial Condition
At the end of the first quarter 1995, total assets had declined $3.8
Million from December 31, 1994. During the first quarter, the Company
sold approximately $4 Million in securities which were held as
available for sale. The securities sale resulted in a loss of
approximately $232,000.
Total loans remained relatively stable over the first quarter even
though the sales finance portfolio continued it s runoff with $5.2
Million maturing during the first quarter. Loan demand has been good
for the past two quarters but a general slowing of the economy may
have a negative impact on loan demand for the rest of 1995.
Total liabilities decreased $5 Million from year end 1994. Short term
borrowing declined as the Company paid down almost $4 Million on a
repurchase agreement during the quarter. Noninterest bearing deposits
were down $1 Million by the end of the quarter due in part to the
cyclical nature of these deposits and because interest rates on bank
certificates of deposit have encouraged depositors to keep smaller
balances in noninterest bearing accounts.
The unrealized loss on securities held for sale decreased by
approximately $800,000 during the quarter. The sale of these
securities combined with the general improvement and stabilization of
market interest rates during the quarter helped reduce the unrealized
loss on securities.
The Company declared and paid a $.04 dividend on its common stock on
March 31, 1995. The financial strength of the Company continues to
improve along with the ability to pay and possibly increase the
dividend payout.
Results of Operations
For the three months period, the Company recorded net income of
$608,000 as compared to $222,000 for the same period in 1994. This
net increase is due primarily to the following:
Net interest income increased $15,000.
A negative provision for loan losses increased income $200,000.
Total noninterest income declined $182,000.
Total noninterest expense declined $515,000.
The reasons for these changes are discussed below:
Net Interest Income
Net interest income remained relatively stable in comparing the like
periods. However, average earning assets declined approximatley $40
Million and interest bearing liabilities averages declined
approximately $42 Million due to a balance sheet restructuring during
1994. This restructuring was the result of the bank branch sales in
the third quarter of 1994 that helped provide a positive boost to the
net interest margin of 67 basis points.
7<PAGE>
During the first quarter of 1995, the Company sold $4 Million of
securities and reinvested approximately $2 Million in three year
securities at interest rates yielding some 260 basis points over
the securites sold.
Provision for Loan Losses
The Company recorded a negative provision of $200,000 for the quarter.
The Company had net recoveries during the quarter of $196,000 from
prior period charge offs of sales finance loans being recovered.
First quarter 1994 had net charge offs of $62,000. Management
anticipates that the net recovery situation will continue due to the
anticipated decline in charge offs and continued high recoveries of
prior period charge offs. Management will monitor and adjust the
level of the allowance for loan losses in relation to this net
recovery stream as well as the overall level of the allowance for loan
losses to loans outstanding.
<TABLE>
<CAPTION>
Nonperforming Assets
- --------------------
Consolidate
Non Performing Assets 3/31/95 12/31/94 9/30/94 12/31/93
(in thousands) ------- -------- ------- --------
<S> <C> <C> <C> <C>
Loans past due 90 days or more $2 $205 $8 $99
Non Accrual Loans 601 1,060 989 2,761
--- ----- --- -----
Total nonperforming loans 603 1,265 997 2,860
Other real estate 1,199 1,110 1,218 1,902
Total nonperforming assets $1,802 $2,375 $2,215 $4,762
====== ====== ====== ======
Nonperforming loans/Total loans 0.56% 1.17% 0.93% 2.33%
Nonperforming assets/Total 0.90% 1.16% 1.06% 1.94%
Loan loss allowance/Total loans 3.96% 4.00% 4.08% 3.81%
Loan loss allowance/Nonperforming loans 705.89% 340.95% 438.82% 163.67%
</TABLE>
The table above illustrates the changes in the level of nonperforming
assets over the past five quarters. Total nonperforming assets have
declined approx. $3 Million while the allowance/Total loans has
remained the same. Declining past due loans and workouts of
nonaccrual loans have contributed to the improved condition. The
coverage ratios have improved dramatically over the same periods.
Management anticipates continued improvements in the levels of
nonperforming loans and assets.
Noninterest Income
The Company sold $4 Million of collateral mortgage obligations
("CMO"s) securities in the first quarter of 1995 which resulted in a
$232,000 loss. The sale reduced the outstanding balance of CMOs
approximately 43%. A majority of the proceeds was reinvested in
agency securities yielding some 260 basis points over the securities
sold.
8
<PAGE>
Noninterest Expense
- -------------------
Salaries and occupancy expense are down due to the sale of branches
discussed above. Other noninterest expenses are down due to the
overall improved operations of the Company. The Company has taken
necessary steps to improve it s efficiencies without harming the
delivery of services. Management expects to see continued improvement
in the noninterest expenses of the Company in the near future.
Interest Rate Sensitivity Management
- ------------------------------------
Interest rates play a major part in the net interest income of a
financial institution. The sensitivity to rate changes is known as
interest rate risk . The repricing of interest-earning assets and
interest-bearing liabilities can influence the changes in net interest
income. As part of the Company s asset/liability management program,
the timing of repricing assets and liabilities is referred to as Gap
management. It is the policy of the Company to maintain a Gap ratio
in the one year time horizon of .80 to 1.20. The table below has two
measures of Gap, regulatory and management adjusted. The regulatory
Gap considers only contractual maturities or repricings. The
management adjusted Gap considers such things as prepayments on
certain interest rate sensitive assets and the circumstances under
which core deposits are repriced. Although interest-bearing
transaction accounts are available to reprice in the three month
window, historical experience shows these deposits to be more stable
over the course of one year. This management adjusted Gap indicates
the Company to be somewhat neutral in relation to changes in market
interest rates.
<TABLE>
<CAPTION>
GAP ANALYSIS
Regulatory Defined
3-MONTH 6-MONTH 1-YEAR
(dollars in thousands)
----------------------------------
<S> <C> <C> <C>
Rate Sensitive Assets 55,477 68,424 93,376
Rate Sensitive 68,466 80,989 113,747
------ ------ -------
RSA minus RSL (Gap) (12,989) (12,565) (20,371)
Gap Ratio (RSA/RSL) .81 .84 .82
</TABLE>
<TABLE>
<CAPTION>
Management Defined
3-MONTH 6-MONTH 1-YEAR
(dollars in thousands)
-------------------------------
<S> <C> <C> <C>
Rate Sensitive Assets 55,477 68,424 93,376
Rate Sensitive 47,110 63,905 100,934
------ ------ -------
RSA minus RSL (Gap) 8,367 4,519 (7,558)
Gap Ratio (RSA/RSL) 1.18 1.07 .93
</TABLE>
<PAGE>
The Company uses simulation analysis to monitor changes in net
interest income due to changes in market interest rates. The
simulation of rising, declining, and a most likely interest rate
scenarios allow management to monitor and adjust interest rate
sensitivity to minimize the impact of market interest rate swings.
Each month management updates all available data concerning cash flows
of assets and liabilities, changes in market interest rates, and
expectations as to new volumes of loans.
LIQUIDITY
Liquidity is an important factor in the financial condition of
the Company and affects the Company's ability to meet the borrowing
needs and deposit withdrawal requirements of its customers. Assets,
consisting principally of loans and investment securities, are funded
by customer deposits, purchased funds and borrowed funds.
The investment portfolio is one of the Company's primary sources
of liquidity. Maturities of securities provide a constant flow of
funds which are available for cash needs. Contractual investment
securities that mature within one year total $10.5 Million. However,
mortgage-backed securities and securities with call provisions create
cash flows earlier than the contractual maturities. Estimates of
prepayments on mortgage-backs and call provisions on other securities
increase the forecasted cash flow from the investment portfolio within
one year to approximately $16 Million. Maturities in the loan
portfolio also provide a steady flow of funds. The projected
repayments on the Company s sales finance portfolio are $6 Million
within one year. The Company's liquidity also continues to be
enhanced by a relatively stable core deposit base. At March 31, 1995,
the loan to deposit ratio was 61%.
SHAREHOLDERS' EQUITY
The Company maintains a ratio of shareholders' equity to total
assets that is adequate relative to industry standards. The Company's
ratio of shareholders' equity to total assets was 10.37% at March 31,
1995, compared to 9.55% at December 31, 1994. The Company redeemed
all $1,708,605 in preferred stock during December 1994. All the
preferred stock was converted into 379,690 shares of common stock and
increased the outstanding common shares to 3,777,017.
The Company and its subsidiary banks are required to comply with
capital adequacy standards established by the Federal Reserve and the
FDIC. Currently, there are two basic measures of capital adequacy:
risk-based measure and leverage measure.
The risk-based capital standards are designed to make regulatory
capital requirements more sensitive to differences in risk profile
among banks and bank holding companies, to account for off-balance
sheet exposure and to enhance the value of holding liquid assets. The
resulting capital ratios represent capital as a percentage of total
risk-weighted assets and off-balance sheet items. Recently the
Federal Reserve and the FDIC proposed that interest rate risk be
considered in computing risk-based capital ratios.
The minimum standard for the ratio of total capital to risk-
weighted assets is 8%. At least 50% of that capital level must
consist of common equity, undivided profits and noncumulative
perpetual preferred stock, less goodwill and certain other intangibles
("Tier I capital"). The remainder ("Tier II capital") may consist of
a limited amount of other preferred stock, mandatory convertible
securities, subordinated debt and a limited amount of the allowance
for loan losses. The sum of Tier I capital and Tier II capital is
"total risk-based capital."
10<PAGE>
The Federal Reserve and the FDIC also adopted regulations which
supplement the risk-based guidelines to include a minimum leverage
ratio of 3% of Tier I capital to total assets less goodwill (the
"leverage ratio"). Depending upon the risk profile of the institution
and other factors, the regulatory agencies may require a leverage 1%
to 2% higher than the minimum 3% level.
<TABLE>
<CAPTION>
Capital Levels
Milledge Greensboro Consolidated
<S> <C> <C> <C>
Tier 1 Capital 9.84% 8.46% 10.30%
Tier 1 Risk-based 16.37% 13.35% 16.32%
Tier 2 Risk-based 1.25% 1.25% 1.25%
------ ------ ------
Total Risk-based 17.62% 14.60% 17.57%
====== ====== =======
</TABLE>
RECENT ACCOUNTING PRONOUNCEMENTS
In May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ( SFAS ) No. 114,
Accounting by Creditors for Impairment of a Loan. SFAS No. 114
requires that impaired loans be measured on the present value of
expected future cash flows discounted at the loan s effective interest
rate, which is the contractual interest rate adjusted for any deferred
loan fees or cost, premium or discount existing at the inception or
acquisition of the loan, or at the loan s observable market price, or
the fair value of the collateral of the loan if the loan is collateral
dependent. SFAS No.114 became effective January 1, 1995. In October
1994, SFAS No. 118, Accounting by Creditors for Impairment of a Loan-
Income Recognition and Disclosures was issued. SFAS No. 118 amends
SFAS No. 114 to require information about the recorded investment in
certain impaired loans and eliminates its porvisions regarding how a
creditor should report income on an impaired loan. SFAS No. 118,
effective January 1, 1995, allows creditors to use existing methods
for recognizing income on impaired loans, including methods used by
certain industry regulators. The adoption of these pronouncements did
not have a material impact on the Company s consolidated financial
statements.
11
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
(Not Applicable)
Item 2. Changes in Securities
(Not Applicable)
Item 3. Defaults Upon Senior Securities
(Not Applicable)
Item 4. Submissions of Matters to a Vote of Securities Holders
(Not Applicable)
Item 5. Other Information
(Not Applicable)
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
The following exhibit is filed as a part of this Report on Form 10-Q:
Exhibit 27 Financial Data Schedule
(B) No reports filed on Form 8-K
12
<PAGE>
<PAGE>
Exhibit Index
--------------
Exhibit 27 Financial Data Schedule
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Corporation has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
CENTRAL AND SOUTHERN HOLDING COMPANY
- -------------------------------------
Registrant
Date 5/4/95 /s/ Robert C. Oliver
------ -----------------------------------
Robert C. Oliver
President & Chief Executive Officer
Date 5/4/95 /s/ Michael E. Ricketson
------ -----------------------------------
Michael E. Ricketson
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000815032
<NAME> CENTRAL AND SOUTHERN HOLDING COMPANY
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 6,630
<INT-BEARING-DEPOSITS> 1,000
<FED-FUNDS-SOLD> 14,075
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 31,559
<INVESTMENTS-CARRYING> 37,017
<INVESTMENTS-MARKET> 36,426
<LOANS> 108,584
<ALLOWANCE> 4,256
<TOTAL-ASSETS> 200,152
<DEPOSITS> 175,768
<SHORT-TERM> 2,765
<LIABILITIES-OTHER> 846
<LONG-TERM> 0
<COMMON> 3,777
0
0
<OTHER-SE> 16,996
<TOTAL-LIABILITIES-AND-EQUITY> 200,152
<INTEREST-LOAN> 2,709
<INTEREST-INVEST> 1,259
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,968
<INTEREST-DEPOSIT> 1,960
<INTEREST-EXPENSE> 2,011
<INTEREST-INCOME-NET> 1,957
<LOAN-LOSSES> 200
<SECURITIES-GAINS> (232)
<EXPENSE-OTHER> 1,526
<INCOME-PRETAX> 790
<INCOME-PRE-EXTRAORDINARY> 790
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 608
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
<YIELD-ACTUAL> 4.32
<LOANS-NON> 601
<LOANS-PAST> 2
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,313
<CHARGE-OFFS> 402
<RECOVERIES> 596
<ALLOWANCE-CLOSE> 4,256
<ALLOWANCE-DOMESTIC> 4,256
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
