<PAGE>
Securities And Exchange Commission
Washington, D.C. 20549
FORM 10-K
/X/ Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
Commission file number 0-15945
/ / Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Central and Southern Holding Company
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(Exact name of registrant as specified in its charter)
Georgia 58-1413533
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Drawer 748, Milledgeville, GA 31061
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (912) 452-5541
Securities registered pursuant to Section 12(b) of the Act: none
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 par value
-----------------------------
(Title of class)
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 by check mark if disclosure of delinquent
filers pursuant to Item 405 of Regulation S-K is not
contained herein and will not be contained, to the best
of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this
Form 10-K. X
---
Aggregate market value of the voting stock held by
non-affiliates of the Registrant as of February 20,
1996: $35,409,534 based on $9.375, the closing sale
price of the Common Stock as quoted on The Nasdaq Stock
Market. See Item 12.
At February 20, 1996, there were issued and
outstanding 3,777,017 shares of Common Stock, par value
$1.00 per share.
DOCUMENTS INCORPORATED BY REFERENCE.
Portions of the Registrant's Annual Report to Shareholders for
the fiscal year ended December 31, 1995, furnished to the
Commission pursuant to Rule 14a-3(b), are incorporated by
reference into Parts I, II and III of this Form 10-K.
Portions of the Registrant's definitive Proxy Statement
for the 1996 annual meeting of shareholders, to be filed with the
Commission, are incorporated by reference into Part III of this
Form 10-K.<PAGE>
PART I
ITEM 1. BUSINESS.
General
Central and Southern Holding Company (the "Registrant")
was organized under the laws of Georgia in 1980 and is a
registered bank holding company. All of the Registrant's
activities are conducted by its wholly-owned subsidiaries, The
Central and Southern Bank of Georgia ("Milledgeville") and The
Central and Southern Bank of Greensboro ("Greensboro")
(collectively, the "Banks"), which were organized as Georgia
banking corporations in 1874 and 1926, respectively. Greensboro
was formerly known as Bank of Greensboro until its name was
changed in 1989. In January of 1996 the Company received
regulatory approval to convert Greensboro to a federal savings
bank, which is expected to occur on April 1, 1996. Greensboro
has received regulatory approval to branch into Barrow and Hall
counties after its conversion to a federal savings bank.
Both Banks are community-oriented, with particular
emphasis on retail banking, and offer such customary banking
services as consumer and commercial checking accounts, NOW
accounts, savings accounts, certificates of deposit, lines of
credit and money transfers. The Banks finance commercial and
consumer transactions, make secured and unsecured loans, and
provide a variety of other banking services.
Effective August 1, 1994, Bankers First Savings Bank, FSB
("Bankers First") purchased all of the assets and assumed all of
the liabilities of Milledgeville's Douglas and McRae, Georgia
branches. In connection with the Purchase and Assumption
Agreement, Bankers First assumed approximately $43.4 million in
deposit liabilities of the Douglas and McRae branches, for which
it paid Milledgeville a deposit premium of $650,000. In
addition, Bankers First paid Milledgeville the book value for the
land, buildings and personal property acquired in the
transaction. Under the Purchase and Assumption Agreement,
Milledgeville agreed not to engage in certain competitive actions
with Bankers First in Coffee and Telfair Counties, Georgia,
including acquiring any depository institution, until July 30,
1995.
From March 30, 1993 through October 29, 1993, the
Registrant issued 37,969 shares of Series A Nonvoting Preferred
Stock (the "Preferred Stock"), which were convertible at any time
at the option of the holder into ten shares of Common Stock. The
holders of the Preferred Stock were entitled to receive dividends
at a rate of 7 1/2 percent per annum, payable in arrears on the
first day of January, April, July and October. The Registrant
was entitled to redeem the shares of Preferred Stock after paying
all accrued and unpaid dividends at any time after April 1, 1994
at specified redemption prices, although no redemption could be
made prior to April 1, 1996 unless the market price of the Common
Stock was above a certain level. The Registrant announced its
intention to redeem the Preferred Stock on October 21, 1994. All
holders of the Preferred Stock elected to convert their shares of
Preferred Stock into Common Stock, such that an additional
379,690 shares of Common Stock were issued and no shares of
Preferred Stock were redeemed. In connection with the conversion
of the Preferred Stock, the Registrant paid the holders of the
Preferred Stock dividends in arrears totaling $178,913.
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Certain Supervisory Matters
In 1992 the Banks entered into Cease and Desist Orders
with the Georgia Department of Banking and Finance (the "DBF")
requiring the Banks to amend certain practices and to adopt a
compliance program. In 1994, the Cease and Desist Orders were
lifted.
Markets
The Registrant conducts general banking activities through
the Banks primarily in Baldwin, Greene and surrounding counties
of Georgia. Customers of the Banks are primarily consumers and
small businesses.
Deposits
The Banks offer a full range of depository accounts and
services to both consumers and businesses. At December 31, 1995,
the Banks' deposits, totaling an aggregate of approximately
$180,474,000, consisted of approximately $16,669,000 in non-
interest-bearing demand deposits (9% of total deposits);
approximately $35,239,000 in interest-bearing demand deposits
(20% of total deposits); approximately $9,271,000 in savings
deposits (5% of total deposits); approximately $90,075,000 in
time deposits in amounts less than $100,000 (50% of total
deposits); and approximately $29,220,000 in time deposits of
$100,000 or more (16% of total deposits).
Loans
The Banks make both secured and unsecured loans to
individuals, firms and corporations, and both consumer and
commercial lending operations include various types of credit for
the Banks' customers. Secured loans include first and second
real estate mortgage loans. The Banks also make direct
installment loans to consumers on both a secured and unsecured
basis. From 1975 through 1992, Milledgeville's principal source
of loans was the purchase of sales finance contracts for new and
used motor vehicles and, to a lesser extent, mobile homes. This
portfolio grew to $89 million (including unearned interest) by
December 31, 1991. Under new management, Milledgeville
discontinued the purchase of finance contracts in April, 1993,
and by December 31, 1995 the sales finance portfolio of
Milledgeville had contracted to approximately $6,000,000. At
December 31, 1995, consumer installment, real estate and
commercial loans represented approximately 14%, 64% and 22%,
respectively, of the Banks' total loan portfolios.
Lending Policy
The current lending strategy of the Banks is to make loans
only to local customers or to national or international firms
doing business locally. Unsecured loans normally will not be
made to persons who do not reside or work in the Banks' primary
trade areas. Secured loans can be made to customers outside the
Banks' trade areas who are well established and have net worth
and collateral to support the loan. Real estate loans usually
are made only when such loans are secured by real property
located in Baldwin County, in the case of Milledgeville, or in
Greene County, in the case of Greensboro.
The Banks provide each lending officer with written
guidelines for lending activities. Lending authority is
delegated by the Board of Directors of each of the Banks to loan
officers, each of whom is limited in the amount of secured and
unsecured loans which he or she can make to a borrower.
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Employees
As of January 1, 1996, the Banks had 90 full-time
employees and 20 part-time employees. The Registrant has no
salaried employees. Neither Milledgeville nor Greensboro is a
party to any collective bargaining agreement, and the Banks
believe that their employee relations are good.
Competition
The banking business is highly competitive. The Banks
compete with other banks, many of which are substantially larger
and have greater financial resources than the Banks. In
particular, Milledgeville competes with four other banks in
Baldwin County, and Greensboro competes with two other banks in
Greene County. The Banks also compete with other financial
service organizations, including savings and loan associations
and finance companies, insurance companies, credit unions and
certain governmental agencies. To the extent that the Banks must
maintain non-interest-earning reserves against deposits, they may
be at a competitive disadvantage when compared with other
financial service organizations that are not required to maintain
reserves against substantially similar sources of funds.
Further, the deregulation of banks, savings and loan associations
and other financial institutions and the increased competition
from investment bankers and brokers and other financial service
organizations has had a significant impact on the competitive
environment in which the Banks operate.
Supervision and Regulation
General. The Registrant is a registered bank holding
company subject to regulation by the Board of Governors of the
Federal Reserve (the "Federal Reserve") under the Bank Holding
Company Act of 1956, as amended (the "Act"). The Registrant is
required to file financial information with the Federal Reserve
periodically and is subject to periodic examination by the
Federal Reserve.
The Act requires every bank holding company to obtain the
prior approval of the Federal Reserve before (i) it may acquire
direct or indirect ownership or control of more than 5% of the
voting shares of any bank that it does not already control; (ii)
it or any of its subsidiaries, other than a bank, may acquire all
or substantially all of the assets of a bank; and (iii) it may
merge or consolidate with any other bank holding company. In
addition, a bank holding company is generally prohibited from
engaging in, or acquiring, direct or indirect control of the
voting shares of any company engaged in non-banking activities.
This prohibition does not apply to activities found by the
Federal Reserve, by order or regulation, to be so closely related
to banking or managing or controlling banks as to be a proper
incident thereto. Some of the activities that the Federal
Reserve has determined by regulation or order to be closely
related to banking are: making or servicing loans and certain
types of leases; performing certain data processing services;
acting as fiduciary or investment or financial advisor; providing
discount brokerage services; underwriting bank eligible
securities; underwriting debt and equity securities on a limited
basis through separately capitalized subsidiaries; and making
investments in corporations or projects designed primarily to
promote community welfare.
The Registrant must also register with the DBF and file
periodic information with the DBF. As part of such registration,
the DBF requires information with respect to the financial
condition, operations, management and intercompany relationships
of the Registrant and the Banks and related matters. The DBF may
also require such other information as is necessary to keep
itself informed as to whether the provisions of Georgia law and
the regulations and orders issued thereunder by the DBF have been
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complied with, and the DBF may examine the Registrant and each of
the Banks.
The Registrant is an "affiliate" of the Banks under the
Federal Reserve Act, which imposes certain restrictions on (i)
loans by the Banks to the Registrant, (ii) investments in the
stock or securities of the Registrant by the Banks, (iii) the
Bank's taking the stock or securities of an "affiliate" as
collateral for loans by the Bank to a borrower and (iv) the
purchase of assets from the Registrant by the Banks. Further, a
bank holding company and its subsidiaries are prohibited from
engaging in certain tie-in arrangements in connection with any
extension of credit, lease or sale of property or furnishing of
services.
Milledgeville, as state banking association organized
under Georgia law, is subject to the supervision of, and are
regularly examined by, by DBF and the Federal Deposit Insurance
Corporation (the "FDIC"). The FDIC and the DBF must grant prior
approval of any merger, consolidation or other corporation
reorganization involving Milledgeville. A bank can be held
liable for any loss incurred by, or reasonably expected to be
incurred by, the FDIC in connection with the default of a
commonly-controlled institution.
Currently, Greensboro is also a Georgia-chartered bank
subject to regulation by the DBF and FDIC. Upon Greenboro's
conversion to a thrift, which is anticipated to occur on April 1,
1996, Greensboro will be subject to regulation and examination by
the Office of Thrift Supervision (the "OTS"). Greensboro will be
required to file reports with the OTS describing its activities
and financial conditions. In addition, because Greensboro has
FDIC-insured deposits, Greensboro will remain subject to
examination by the FDIC following its conversion to a thrift.
Payment of Dividends. The Registrant is a legal entity
separate and distinct from the Banks. Most of the revenues of
the Registrant result from dividends paid to it by the Banks.
There are statutory and regulatory requirements applicable to the
payment of dividends by the Banks, as well as by the Registrant
to its shareholders.
Milledgeville and Greensboro (prior to its conversion to a
thrift) are state chartered banks regulated by the DBF and the
FDIC. Under the regulations of the DBF, dividends may not be
declared out of the retained earnings of a state bank without
first obtaining the written permission of the DBF unless such
bank meets all the following requirements:
(a) Total classified assets as of the most recent
examination of the bank do not exceed 80% of equity
capital (as defined by regulation);
(b) The aggregate amount of dividends declared or
anticipated to be declared in the calendar year does
not exceed 50% of the net profits after taxes but
before dividends for the previous calendar year; and
(c) The ratio of equity capital to adjusted assets is
not less than 6%.
Following its conversion to a thrift, Greensboro will
be subject to regulations of the OTS concerning the payment of
dividends. The payment of dividends by the Registrant and the
Banks may also be affected or limited by other factors, such as
the requirement to maintain adequate capital above regulatory
guidelines. In addition, if, in the opinion of the applicable
regulatory authority, a bank under its jurisdiction is engaged in
or is about to engage in an unsafe or unsound practice (which,
depending upon the financial condition of the bank, could include
the payment of dividends), such authority may require, after
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notice and hearing, that such bank cease and desist from such
practice. The FDIC has issued a policy statement providing that
insured banks should generally only pay dividends out of current
operating earnings. At December 31, 1995, retained earnings
available from the Banks to pay dividends totalled approximately
$1.3 million. For 1995, the Registrant's cash dividend payout to
stockholders was 26% of net earnings.
Monetary Policy. The results of operations of the Banks
are affected by credit policies of monetary authorities,
particularly the Federal Reserve. The instruments of monetary
policy employed by the Federal Reserve include open market
operations in U.S. government securities, changes in the discount
rate on bank borrowings and changes in reserve requirements
against bank deposits. In view of changing conditions in the
national economy and in the money markets, as well as the effect
of actions by monetary and fiscal authorities, including the
Federal Reserve, no prediction can be made as to possible future
changes in interest rates, deposit levels, loan demand or the
business and earnings of the Banks.
Capital Adequacy. The Federal Reserve and the FDIC have
implemented substantially identical risk-based rules for
assessing bank and bank holding company capital adequacy. These
regulations establish minimum capital standards in relation to
assets and off-balance sheet exposures as adjusted for credit
risk. Banks and bank holding companies are required to have (1)
a minimum level of total capital (as defined) to risk-weighted
assets of eight percent (8%); (2) a minimum Tier One Capital (as
defined) to risk-weighted assets of four percent (4%); and (3) a
minimum stockholders' equity to risk-weighted assets of four
percent (4%). In addition, the Federal Reserve and the FDIC have
established a minimum three percent (3%) leverage ratio of Tier
One Capital to total assets for the most highly-rated banks and
bank holding companies. "Tier One Capital" generally consists of
common equity not including unrecognized gains and losses on
securities, minority interests in equity accounts of consolidated
subsidiaries and certain perpetual preferred stock less certain
intangibles. The Federal Reserve and the FDIC will require a
bank holding company and a bank, respectively, to maintain a
leverage ratio greater than three percent (3%) if either is
experiencing or anticipating significant growth or is operating
with less than well-diversified risks in the opinion of the
Federal Reserve. The Federal Reserve and the FDIC use the
leverage ratio in tandem with the risk-based ratio to assess the
capital adequacy of banks and bank holding companies. The FDIC,
the Office of the Comptroller of the Currency (the "OCC") and the
Federal Reserve have proposed amending the capital adequacy
standards to provide for the consideration of interest rate risk
in the overall determination of a bank's capital ratio, requiring
banks with greater interest rate risk to maintain adequate
capital for the risk. The proposed revisions are not expected to
have a significant effect on the Registrant's capital
requirements, if adopted in their current form.
Similarly, OTS' regulatory capital regulations specify
capital standards consisting of three components, a "core
capital," a "tangible capital" and a "risk-base capital"
requirement. These regulations require that thrifts maintain
core capital in an amount of not less than 3% of adjusted total
assets and tangible capital in an amount of not less than 1.5% of
adjusted total assets. Under the OTS' regulatory capital
regulations, federal savings banks are required to maintain
capital equal to 8% of risk-weighted assets. The OTS requires
assets to be weighted on the basis of risk and assigned a
weighting factor of between 0% and 100%. Approximately one-half
of risk-based capital must consist of core capital, and one-half
may consist of other preferred stock, a portion of general loan
loss reserves and other hybrid capital instruments such as
convertible and subordinated debentures.
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Effective December 19, 1992, a new Section 38 to the
Federal Deposit Insurance Act implemented the prompt corrective
action provisions that Congress enacted as a part of the Federal
Deposit Insurance Corporation Improvement Act of 1991 (the "1991
Act"). The "prompt corrective action" provisions set forth five
regulatory zones in which all banks are placed largely based on
their capital positions. Regulators are permitted to take
increasingly harsh action as a bank's financial condition
declines. Regulators are also empowered to place in receivership
or require the sale of a bank to another depository institution
when a bank's capital leverage ratio reaches two percent. Better
capitalized institutions are generally subject to less onerous
regulation and supervision than banks with lesser amounts of
capital.
The FDIC has adopted regulations implementing the prompt
corrective action provisions of the 1991 Act, which place
financial institutions in the following five categories based
upon capitalization ratios: (1) a "well capitalized" institution
has a total risk-based capital ratio of at least 10%, a Tier One
risk-based ratio of at least 6% and a leverage ratio of at least
5%; (2) an "adequately capitalized" institution has a total risk-
based capital ratio of at least 8%, a Tier One risk-based ratio
of at least 4% and a leverage ratio of at least 4%; (3) an
"undercapitalized" institution has a total risk-based capital
ratio of under 8%, a Tier One risk-based ratio of under 4% or a
leverage ratio of under 4%; (4) a "significantly
undercapitalized" institution has a total risk-based capital
ratio of under 6%, a Tier One risk-based ratio of under 3% or a
leverage ratio of under 3%; and (5) a "critically
undercapitalized" institution has a leverage ratio of 2% or less.
Institutions in any of the three undercapitalized categories
would be prohibited from declaring dividends or making capital
distributions. The FDIC regulations also establish procedures
for "downgrading" an institution to a lower capital category
based on supervisory factors other than capital. Under the
FDIC's regulations, each of the Banks were "well capitalized"
institutions at December 31, 1995.
Set forth below are pertinent capital ratios for each of
the Banks as of December 31, 1995.
<TABLE>
<CAPTION>
Minimum Capital
Requirement Milledgeville Greensboro
--------------- ------------- -----------
<S> <C> <C>
Tier One Capital to 17.44% 12.62%
Risk-based
Assets 4.00%(1)
Total Capital to 18.69% 13.87%
Risk-based
Assets 8.00%(2)
Leverage Ratio (Tier One 10.69% 8.30%
Capital to Total
Assets): 3.00% (3)
</TABLE>
___________________________
(1) Minimum required ratio for "well capitalized" banks is 6%
(2) Minimum required ratio for "well capitalized" banks is 10%
(3) Minimum required ratio for "well capitalized" banks is 5%
REGULATIONS APPLICABLE TO FEDERAL SAVINGS BANKS. OTS
regulations use the Qualified Thrift Lender ("QTL") test to
determine a thrift's eligibility for Federal Home Loan Bank
advances and for certain other purposes. Unless an institution
qualifies as a QTL, its borrowing privileges from a Federal Home
Loan Bank may be restricted, and it may be subject to other
operating limitations. To meet the QTL test, an institution must
maintain at least 65% of its assets in "Qualified Thrift
Investments," which under the regulations consists of (i) loans
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made to purchase, refinance, construct, improve or repair
domestic, residential or manufactured housing, (ii) home equity
loans, (iii) securities backed by or presenting an interest in
mortgages on domestic, residential or manufactured housing, and
(iv) obligations issued by federal deposit insurance agencies.
Subject to a limitation of 15% of assets, Qualified Thrift
Investments may also include consumer loans, investments in
certain subsidiaries, loans for construction of schools,
churches, nursing homes and hospitals and 200% of investments in
loans for low-to-moderate-income housing and certain other
community oriented investments. Although Greensboro expects to
qualify as a QTL under applicable regulations, there can be no
assurance that it will do so.
As a thrift, Greensboro will be required to maintain
average daily balances of liquid assets (consisting of cash,
certain time deposits, banker's acceptances, highly-rated
corporate debt and commercial paper, securities of certain mutual
funds and specific U.S. government, state of federal agency
obligations) of not less than 5% of the total amount of its net
withdrawable savings deposits plus short-term borrowings and to
maintain average daily balances of short-term liquid assets of
not less than 1% of such total amount.
RECENT LEGISLATIVE AND REGULATORY ACTION. On April 19,
1995, the four federal bank regulatory agencies adopted revisions
to the regulations promulgated pursuant to the Community
Reinvestment Act (the "CRA"), which are intended to set distinct
assessment standards for financial institutions. The revised
regulation contains three evaluation tests: (i) a lending test,
which will compare an institution's market share of loans in low-
and moderate-income areas to its market share of loans in its
entire service area and the percentage of a bank's outstanding
loans to low- and moderate-income areas or individuals, (ii) a
services test, which will evaluate the provisions of services
that promote the availability of credit to low- and moderate-
income areas, and (iii) an investment test, which will evaluate
an institution's record of investments in organizations designed
to foster community development, small- and minority-owned
businesses and affordable housing lending, including state and
local government housing or revenue bonds. The regulations are
designed to reduce some paperwork requirements of the current
regulations and provide regulators, institutions and community
groups with a more objective and predictable manner with which to
evaluate the CRA performance of financial institutions. The rule
became effective on January 1, 1996, at which time evaluation
under streamlined procedures began for institutions with assets
of less than $250 million that are owned by a holding company
with total assets of less than $1 billion. It is not expected
that these regulations will have any appreciable impact upon the
Registrant and the Banks.
Congress and various federal agencies (including, in
addition to the bank regulatory agencies, the Department of
Housing and Urban Development, the Federal Trade Commission and
the Department of Justice) (collectively the "Federal Agencies")
responsible for implementing the nation's fair lending laws have
been increasingly concerned that prospective home buyers and
other borrowers are experiencing discrimination in their efforts
to obtain loans. In recent years, the Department of Justice has
filed suit against financial institutions which it determined had
discriminated, seeking fines and restitution for borrowers who
allegedly suffered from discriminatory practices. Most, if not
all, of these suits have been settled (some for substantial sums)
without a full adjudication on the merits.
On March 8, 1994 the Federal Agencies, in an effort to
clarify what constitutes lending discrimination and specify the
factors the agencies will consider in determining if lending
discrimination exists, announced a joint policy statement
detailing specific discriminatory practices prohibited under the
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Equal Opportunity Act and the Fair Housing Act. In the policy
statement, three methods of proving lending discrimination were
identified: (1) overt evidence of discrimination, when a lender
blatantly discriminates on a prohibited basis, (2) evidence of
disparate treatment, when a lender treats applicants differently
based on a prohibited factor even where there is no showing that
the treatment was motivated by prejudice or a conscious intention
to discriminate against a person, and (3) evidence of disparate
impact, when a lender applies a practice uniformly to all
applicants, but the practice has a discriminatory effect, even
where such practices are neutral on their face and are applied
equally, unless the practice can be justified on the basis of
business necessity.
On September 23, 1994, President Clinton signed the Reigle
Community Development and Regulatory Improvement Act of 1994 (the
"Regulatory Improvement Act"). The Regulatory Improvement Act
contains funding for community development projects through banks
and community development financial institutions and also
numerous regulatory relief provisions designed to eliminate
certain duplicative regulations and paperwork requirements.
On September 29, 1994, President Clinton signed the
Reigle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Federal Interstate Bill") which amends federal law to
permit bank holding companies to acquire existing banks in any
state effective September 29, 1995, and any interstate bank
holding company is permitted to merge its various bank
subsidiaries into a single bank with interstate branches after
May 31, 1997. States have the authority to authorize interstate
branching prior to June 1, 1997, or alternatively, to opt out of
interstate branching prior to that date. The Georgia Financial
Institutions Code was amended in 1994 to permit the acquisition
of a Georgia bank or bank holding company by out-of-state bank
holding companies beginning July 1, 1995. On September 29, 1995,
the interstate banking provisions of the Georgia Financial
Institutions Code were superseded by the Federal Interstate Bill.
On January 26, 1996, the Georgia legislature adopted a
bill (the "Georgia Intrastate Bill") to permit, effective July 1,
1996, any Georgia bank or group of affiliated banks under one
holding company to establish new or additional branch banks in up
to three counties within the State of Georgia in which it does
not currently have operations. After July 1, 1998, all
restrictions on state-wide branching would be removed. Prior to
adoption of the Georgia Intrastate Bill, Georgia only permitted
branching within a county, via merger or consolidation with an
existing bank or in certain other limited circumstances.
Although Governor Miller has not yet signed the Georgia
Intrastate Bill into law, he is expected to do so.
FDIC INSURANCE ASSESSMENTS FOR THE BANK SUBSIDIARIES. The
Banks are subject to FDIC deposit insurance assessments for the
Bank Insurance Fund (the "BIF"). In the first six months of
1995, the Banks were assessed $.23 per $100 of deposits based
upon a risk-based system whereby banks are assessed on a sliding
scale depending upon their placement in nine separate supervisory
categories, from $.23 per $100 of deposits for the healthiest
banks (those with the highest capital, best management and best
overall condition) to as much as $.31 per $100 of deposits for
the less-healthy institutions, for an average $.259 per $100 of
deposits.
On August 8, 1995, the FDIC lowered the BIF premium for
healthy banks by 83% from $.23 per $100 in deposits to $.04 per
$100 in deposits, while retaining the $.31 level for the riskiest
banks. The average assessment rate was therefore reduced from
$.232 to $.044 per $100 of deposits. The new rate took effect on
September 29, 1995. On September 15, 1995, the FDIC refunded
$114,000 to the Banks for premium overpayments in the second and
third quarter of 1995. On November 14, 1995, the FDIC again
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lowered the BIF premium for healthy banks from $.04 per $100 of
deposits to zero for the highest rated institutions (92% of the
industry). As a result, Greensboro will pay only the legally
required annual minimum payment of $2,000 per year for insurance
beginning in January 1996. Milledgeville will pay an additional
estimated $60,000 in premiums with respect to certain OAKAR
deposits acquired from the Resolution Trust Corporation which are
assessed at $.23 per $100 of deposits. Had the current rates
been in effect for all of 1994 and 1995, the annual FDIC
insurance premiums paid by the Banks would have been reduced by
$475,000 and $300,000, respectively.
Executive Officers of the Registrant
Executive officers are elected by the Board of Directors
annually in January and hold office until the following January
unless they sooner resign or are removed from office by the Board
of Directors.
The executive officers of the Registrant, and their ages,
positions with the Registrant and terms of office, as of January
1, 1996, are as follows:
Officer of the
Name (Age) Principal Position Registrant Since
--------- ------------------ ----------------
Robert C. Oliver President, Chief 1992
(47) Executive Officer
and Director of
the Registrant and
Milledgeville;
Director of
Greensboro
Michael E. Senior Vice 1993
Ricketson (46) President and
Chief Financial
Officer of the
Registrant and
Milledgeville
John H. Ferguson Director and 1987
(52) Secretary of the
Registrant;
Director of
Milledgeville
Mr. Oliver has been President of Milledgeville since October
1992 and President of the Registrant since January 1993. He
became a director of Milledgeville in October 1992, a director of
Greensboro in January 1993 and a director of the Registrant in
January 1993. He was Senior Vice President and Regional
Executive of Wachovia Bank of Georgia prior to September 1992.
Mr. Ricketson has been Senior Vice President of the
Registrant and Milledgeville since October 1993. He was formerly
First Vice President and Financial Officer of First National
Bancorp from 1990 through April 1992. Prior to 1990 he was
controller of the First National Bank of Gainesville.
Dr. Ferguson has been a director of Milledgeville and the
Registrant since 1977 and 1980, respectively. He became
secretary of the Registrant in 1987. He is an orthodontist.
-10-
<PAGE>
ITEM 2. PROPERTIES.
The executive offices of the Registrant and the main banking
office of Milledgeville are located in a 22,800 square-foot
facility at 150 West Greene Street, Milledgeville, Georgia. Both
the building and the land for this facility, which includes
parking and a five lane drive-in teller operation, are owned by
Milledgeville. Milledgeville has a full-service branch located
on North Columbia Street in Milledgeville, which includes drive-
in facilities and an automated teller machine linked to the HONOR
and CIRRUS networks of automated teller machines. The land and
building for the branch are owned by Milledgeville.
Greensboro owns the land and a 9,000 square-foot building,
including drive-in teller lanes, for its banking facility located
at 201 South Main Street, Greensboro, Georgia, approximately 35
miles from Milledgeville.
None of the real properties owned by Milledgeville or
Greensboro is subject to any encumbrances.
ITEM 3. LEGAL PROCEEDINGS.
The Registrant is not aware of any material pending legal
proceedings to which the Registrant or any of its subsidiaries is
a party or to which any of their property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of
the Registrant during the fourth quarter of its fiscal year.
PART II
ITEM 5. REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
Stock. Since 1987, the Registrant's Common Stock has been
traded on a limited basis in the over-the-counter market and is
included in The Nasdaq Stock Market ("Nasdaq") under the symbol
"CSBC." Prior to 1987, there was no established public trading
market for the Common Stock. The following table sets forth
quarterly high and low sales prices per share of Common Stock as
reported by IDD Information Services, Tradeline.
Sales
Prices
High Low
---- ----
Year ended December 31, 1994
First Quarter $7 1/4 4 1/4
Second Quarter 7 1/4 6
Third Quarter 7 1/4 6 1/2
Fourth Quarter 7 6
Year ended December 31, 1995
First Quarter $7 1/4 6
Second Quarter 7 3/4 6 1/2
Third Quarter 9 1/8 7
Fourth Quarter 9 1/4 8 3/8
Year ended December 31, 1996
First Quarter (through
January 30, 1996) 9 1/4 8
-11-
<PAGE>
As of February 20, 1996, the Registrant had 733
shareholders of record.
Dividends. During fiscal 1995, the Registrant paid four
cash dividends totaling $.175 per share of Common Stock. The
Registrant paid cash dividends of $0.03 per share of Common Stock
during fiscal 1994. The Registrant has also paid stock dividends
from time to time. The primary source of funds available to the
Registrant is the receipt of dividends from the Banks and
management fees for managerial and administrative services
provided to the Banks. The amount and frequency of dividends
will be determined by the Registrant in light of the earnings,
capital requirements and financial condition of the Registrant,
and no assurances can be given that dividends will be declared in
the future.
ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data for each of the five years ended
December 31, 1995 is included under the caption "Financial
Review" on page 2 of the Registrant's 1995 Annual Report to
Shareholders and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.
Management's discussion and analysis of financial
condition and results of operation appears under the caption
"Financial Review" on pages 3 through 15 of the Registrant's 1995
Annual Report to Shareholders and is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The report of independent certified public accountants,
the consolidated financial statements and notes to the
consolidated financial statements on pages 16 through 36 of the
Registrant's 1995 Annual Report to Shareholders are incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
The Registrant changed accountants for the 1994 fiscal
year in April, 1994. Disclosure concerning this change has
previously been reported by the Registrant in a Current Report on
Form 8-K, as amended.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information contained under the heading "Information
About Nominees For Director" in the definitive Proxy Statement
used in connection with the solicitation of proxies for the
Registrant's annual meeting of shareholders to be held on April
25, 1996, previously filed with the Commission, is incorporated
herein by reference. Pursuant to Instruction 3 to paragraph (b)
of Item 401 of Regulation S-K, information relating to the
executive officers of the Registrant is included in Item 1 of
this Report.
-12-
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The information contained under the heading "Executive
Compensation" in the definitive Proxy Statement used in
connection with the solicitation of proxies for the Registrant's
annual meeting of shareholders to be held on April 25, 1996,
previously filed with the Commission, is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The information contained under the heading "Voting
Securities and Principal Holders" in the definitive Proxy
Statement used in connection with the solicitation of proxies for
the Registrant's annual meeting of shareholders to be held on
April 25, 1996, previously filed with the Commission, is
incorporated herein by reference. For purposes of determining
the aggregate market value of the Registrant's voting stock held
by nonaffiliates, shares held by all directors and executive
officers of the Registrant have been excluded. The exclusion of
such shares is not intended to, and shall not, constitute a
determination as to which persons or entities may be "affiliates"
of the Registrant as defined by the Securities and Exchange
Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained under the heading "Related
Transactions" and under the heading "Compensation Committee
Interlocks and Insider Participation in Compensation Decisions"
in the definitive Proxy Statement used in connection with the
solicitation of proxies for the Registrant's annual meeting of
shareholders to be held on April 25, 1996, previously filed with
the Commission, is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K.
(a) The following documents are incorporated herein by
reference in Item 8 to this Report:
1. Consolidated Financial Statements of Central and
Southern Holding Company:
Report of Independent Certified Public Accountants;
Consolidated Balance Sheets as of December 31, 1995 and
1994;
Consolidated Statements of Operations for the years
ended December 31, 1995, 1994 and 1993;
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1995, 1994 and 1993;
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993;
Notes to Consolidated Financial Statements for the
years ended December 31, 1995, 1994 and 1993.
2. Financial Statement Schedules:
No Financial Statement Schedules are required to be
filed as part of this Annual Report.
-13-
<PAGE>
3. Exhibits:
The exhibits filed as a part of this Registration
Statement are as follows:
Exhibit No. Description of Exhibit
- ---------- ----------------------
3.1 and 4.1 Articles of Incorporation of Central and Southern
Holding Company, as amended (included as Exhibit 3.1
and 4.1 to the Registrant's annual report on Form 10-K
for the year ended December 31, 1993, previously filed
with the Commission and incorporated herein by
reference).
3.2 and 4.2 By-Laws of Central and Southern Holding Company,
as amended (included as Exhibit 3.2 to the Registrant's
annual report on Form 10-K for the year ended December
31, 1990, previously filed with the Commission and
incorporated herein by reference).
10.1 Purchase and Assumption Agreement by and between
Central and Southern Bank of Georgia and Bankers First
Savings Bank, FSB dated April 14, 1994 (included as
Exhibit 10.1 to the Registrant's annual report on Form
10-K for the year ended December 31, 1994, previously
filed with the Commission and incorporated herein by
reference).
10.2 Central and Southern Holding Company Key Employee Stock
Option Plan, dated August 19, 1993 (included as Exhibit
4(a) to Amendment No. 1 to the Registrant's Form S-8,
Commission File No. 33-82518, previously filed with the
Commission and incorporated herein by reference).*
10.3 Agreement, dated August 31, 1993 by and between Robert
C. Oliver and Central and Southern Holding Company
(included as Exhibit 10.7 to the Registrant's annual
report on Form 10-K for the year ended December 31,
1993, previously filed with the Commission and
incorporated herein by reference).*
10.4 Loan Agreement between The Citizens and Southern
National Bank and Central and Southern Holding Company
dated August 27, 1991 in the principal amount of
$500,000, and related promissory note (included as
Exhibit 10.9 to the Registrant's annual report on Form
10-K for the year ended December 31, 1991, previously
filed with the Commission and incorporated herein by
reference).
10.5 First Amendment to Loan Agreement, dated February 1,
1993, between Central and Southern Holding Company and
NationsBank of Georgia, N.A. (formerly known as The
Citizens & Southern National Bank), and related
promissory note (included as Exhibit 10.6 to the
Registrant's annual report on Form 10-K for the year
ended December 31, 1992, previously filed with the
Commission and incorporated herein by reference).
13 Central and Southern Holding Company Annual Report to
Shareholders for the fiscal year ended December 31,
1995. With the exception of information expressly
incorporated herein, the 1995 Annual Report to
Shareholders is not deemed to be filed as a part of
this Report on Form 10-K.
21 List of Subsidiaries of Central and Southern Holding
Company (included as Exhibit 22 to the Registrant's
annual report on Form 10-K for the year ended December
31, 1989, previously filed with the Commission and
incorporated herein by reference).
-14-
<PAGE>
23 Consent of Evans, Porter, Bryan & Company
99 Proxy Statement dated March 27, 1996 relating to the
1996 Annual Meeting of Shareholders.
_____________________________
* Management contract or compensatory plan or arrangement
required to be filed as an Exhibit to this Annual Report on
Form 10-K pursuant to Item 14(c) of Form 10-K.
(b) The Registrant filed no current reports on Form 8-K during
the fourth quarter of the 1995 fiscal year.
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12(g) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
CENTRAL AND SOUTHERN HOLDING COMPANY
Date: March 27, 1996. By: /s/ Robert C. Oliver
Robert C. Oliver, President
POWER OF ATTORNEY AND SIGNATURES
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Robert C. Oliver
and Michael E. Ricketson, or either of them, as attorney-in-fact,
either with power of substitution, for him in any and all
capacities, to sign any amendments to this Report on Form 10-K,
and to file the same, with exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of the
attorneys-in-fact, or his or her substitute or substitutes, may
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below on the 27th day of
March, 1996 by the following persons on behalf of the
Registrant and in the capacities indicated.
Signature and Capacity
/s/ Robert C. Oliver
Robert C. Oliver
President and Director
(Principal Executive Officer)
/s/ Michael E. Ricketson
Michael E. Ricketson
Senior Vice President and Controller
(Chief Financial and Accounting Officer)
(Signatures continued on following Page)
<PAGE>
(Signatures continued from preceding Page)
/s/ Albert F. Gandy
Albert F. Gandy
Chairman of the Board of Directors
/s/ George S. Carpenter, Jr.
George S. Carpenter, Jr.
Director
_______________________________
Alan Davis
Director
_______________________________
Don Ellis
Director
/s/ John Hopkins Ferguson
John Hopkins Ferguson
Director
/s/ Ralph A. Harrington
Ralph A. Harrington
Director
/s/ C. Steve McQuaig
C. Steve McQuaig
Director
/s/ Gay H. Morgan
Gay H. Morgan
Director
/s/ Thomas E. Owen, Jr.
Thomas E. Owen, Jr.
Director
<PAGE>
Exhibit Index
Exhibit No. Description of Exhibit
---------- ----------------------
13 Central and Southern
Holding Company Annual
Report to Shareholders for
the year ended December
31, 1995
With the exception of the
information expressly
incorporated herein, the
1995 Annual Report to
Shareholders is not deemed
to be filed as part of
this Report on Form 10-K.
23 Consent of Evans, Porter, Bryan
& Company
27 Financial Data Schedule
99 Proxy Statement dated
March 27, 1996 relating to
the 1996 Annual Meeting of
Shareholders.
<PAGE>
Exhibit 13
<TABLE>
<CAPTION>
YEARS END DECEMBER 31, 1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Interest income $16,274 $16,769 $20,938 $28,986 $28,310
Interest expense 8,381 8,916 11,307 17,766 17,346
Net interest Income 7,893 7,853 9,631 12,220 10,964
Provision for possible loan losses (1,038) ---- 2,725 11,842 3,748
Other income 934 1,660 1,110 2,237 1,113
Other expense 6,683 7,499 8,707 6,796 5,757
Net earnings (loss) 2,559 1,617 (111) (2,983) 2,006
Per share data:
Net earnings (loss) 0.68 0.44 (0.05) (0.88) 0.59
Cash dividends declared 0.175 0.03 ---- 0.10 0.40
Note payable to bank 250 ---- ---- 300 500
Average total equity 21,480 19,435 19,002 19,104 20,946
Average total assets 200,579 227,412 259,651 305,332 269,840
Ratios:
Net earnings (loss) to average 1.28% 0.71% (0.04)% (0.98)% 0.74%
assets
Net earnings (loss) to average equity 11.91% 8.32% (0.58)% (15.61)% 9.58%
Dividend payout ratio 25.82% 6.82% N/A N/A 67.73%
Average equity to average assets 10.71% 8.55% 7.32% 6.26% 7.76%
</TABLE>
<TABLE>
<CAPTION>
Percent
1995 1994 Change
---- ---- --------
(dollars in thousands except per share data)
STATEMENT OF CONDITION
<S> <C> <C> <C>
Assets $207,849 $203,997 1.9%
Loans, net of
unearned interest
Deposits 180,474 176,682 2.1%
Stockholders' equity 22,660 19,483 16.3%
STATEMENT OF OPERATIONS
Net interest income 7,893 7,853 .5%
Provision for loan losses (1,038) ---- N/A
Other income 934 1,660 (43.7)%
Other expense 6,683 7,499 (10.9)%
Net earnings 2,559 1,617 58.3%
PER SHARE DATA
Book value 6.10 5.16 18.2%
Net earnings 0.68 0.44 54.5%
Cash dividends declared 0.175 0.03 N/A
PERFORMANCE RATIOS
Return on average total assets 1.28% 0.71% N/A
1<PAGE>
Return on average total equity 11.91% 8.32% N/A
</TABLE>
AVERAGE BALANCES AND INTEREST RATES, INTEREST YIELDS/RATES
ON A FULLY TAXABLE EQUIVALENT BASIS
The following table details average balances of interest-earning
assets and interest-bearing liabilities, the fully taxable
equivalent amount of interest earned/paid, and the fully taxable
equivalent yield/rate for each of the three years in the period
ended December 31, 1995. The loan averages include nonaccrual
loans.
<TABLE>
<CAPTION>
1995 1994 1993
AVERAGE YIELD/ Average Yield/ Average Yield/
BALANCE INTEREST RATE Balance Interest Rate Balance Interest Rate
------ -------- ----- ------- -------- ------ ------- -------- ------
(dollars in thousands)
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net of unearned interest $108,273 $11,190 10.34% $113,712 $11,125 9.78% $145,016 $14,902 10.28%
Interest-bearing deposits other
banks 1,404 55 3.92% --- --- --- ---
Investment securities:
Taxable 58,906 3,531 5.99% 70,596 3,957 5.61% 71,759 4,430 6.17%
Non-taxable 9,894 1,017 10.28% 13,690 1,380 10.08% 16,893 1,847 10.93%
Federal funds sold 14,250 828 5.81% 18,813 776 4.12% 13,075 384 2.94%
------- ------ ------- ------ ------- ------
Total interest earning 192,727 16,621 8.62% 216,811 17,238 7.95% 246,743 21,563 8.74%
Allowance for loan losses (4,299) (4,732) (5,504)
Other assets 12,151 15,333 18,412
------- ------- -------
Total assets $200,579 $227,412 $259,651
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Savings and interest-bearing
demand deposits $42,627 $1,319 3.09% $53,242 $1,523 2.86% $63,252 $1,854 2.93%
Time deposits 118,398 6,988 5.90% 128,829 7,054 5.48% 158,884 9,444 5.94%
Repurchase agreements 1,379 74 5.36% 6,704 339 5.06% --- ---
Note payable to bank --- --- --- --- 150 9 6.00%
------- ------ ------- ----- ------- ------
Total interest-bearing 162,404 8,381 5.16% 188,775 8,916 4.72% 222,286 11,307 5.09%
Demand deposits 15,561 18,004 17,595
Other liabilities 1,134 1,198 768
------- ------- --------
Total liabilities 179,099 207,977 240,649
Total stockholders' equity 21,480 19,435 19,002
-------- ------- -------
Total liabilities and stockholders'
equity $200,579 $227,412 $259,651
======== ======== ========
Net interest income $8,240 $8,322 $10,256
Net interest margin 4.28% 3.84% 4.16%
Net interest spread 3.46% 3.23% 3.65%
</TABLE>
2<PAGE>
Volume - rate analysis
The following table shows a summary of the changes in interest
income and interest expense on a fully taxable equivalent basis
resulting from changes in volume and changes in rates for each
category of interest-earning assets and interest-bearing
liabilities for 1995/1994 and 1994/1993. Changes not solely
attributable to a change in rate or volume are allocated
proportionately relative to the total change of rate and volume.
<TABLE>
<CAPTION>
1995 versus 1994 1994 versus 1993
---------------- ----------------
Increase (decrease) due to change in: Increase (decrease) due to change in:
Volume Yield/ Volume Yield/
Outstanding Rate Total Outstanding Rate Total
---------- ----- ----- ----------- ------ -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest income on:
Deposits with other banks 55 --- 55
Loans (546) 611 65 ($3,091) ($686) ($3,777)
Investment securities:
Taxable (687) 261 (426) (71) (402) (473)
Non-taxable (390) 27 (363) (331) (136) (467)
Federal funds sold (217) 269 52 204 188 392
------- ----- ---- -------- ------ -------
Total interest (1,785) 1,168 (617) (3,289) (1,036) (4,325)
Interest expense on:
Saving and interest-bearing
demand deposits (321) 117 (204) (287) (44) (331)
Time deposits (594) 528 (66) (1,687) (703) (2,390)
Repurchase agreements (284) 19 (265) 339 - 339
Notes payable to bank --- - --- (9) - (9)
------- ----- ---- -------- ------ -------
Total interest (1,199) 664 ($535) ($1,644) ($747) ($2,391)
------- ----- ---- -------- ------ -------
Net interest income (586) 504 (82) ($1,645) ($289) ($1,934)
====== ====== ====== ======== ======= =======
</TABLE>
A sound credit policy and careful, consistent credit review
are vital to a successful lending program. The Banks operate
under written loan policies which attempt to maintain a
consistent lending philosophy, provide sound traditional credit
decisions, provide an adequate return and render service to the
communities in which the banks are located. Credit reviews and
loan examinations help confirm that the Banks are adhering to
these loan policies.
The Banks make both secured and unsecured loans to individuals,
firms and corporations, and both consumer and commercial lending
operations include various types of credit for the Banks'
customers. Secured loans include first and second real estate
mortgage loans. The Banks also make direct installment loans to
consumers on both a secured and unsecured basis.
3<PAGE>
From 1975 through 1992, CSB's principal source of loans was the
purchase of sales finance loans for new and used motor vehicles
and to a lesser extent, mobile homes. This portfolio grew to
$89,000,000 (including unearned interest) by December 31, 1991.
Under new management, CSB discontinued the operation in April,
1993. This has resulted in the sales finance portfolio declining
to $5,822,000 by December 31, 1995. Management has projected
another $4,500,000 of maturing sales finance loans during 1996.
LOANS
The amount of loans outstanding by loan type at the indicated
dates are shown in the following tables according to type of loan:
<TABLE>
<CAPTION>
December 31,
------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $25,178 $26,103 $32,574 $29,108 $38,607
Real estate-construction 21,747 13,271 3,263 9,291 4,611
Real estate-mortgage 51,104 41,204 36,703 48,281 53,899
Sales finance 5,822 18,233 43,952 86,398 89,058
Consumer installment 10,554 10,397 11,146 12,503 14,154
-------- -------- -------- -------- --------
114,405 109,208 127,638 185,581 200,329
Less:
Unearned income (334) (1,478) (4,886) (12,523) (14,409)
Allowance for loan losses (4,190) (4,313) (4,681) (5,106) (2,513)
-------- -------- -------- -------- --------
Loans, net $109,881 $103,417 $118,071 $167,952 $183,407
======== ======== ======== ======== ========
</TABLE>
Of the loans maturing after one year, approximately $40,000,000
have fixed rates and approximately $16,000,000 have variable rates.
The maturity of real estate construction and commercial, financial
and agricultural loans outstanding at December 31, 1995 are as follows:
LOAN MATURITIES
<TABLE>
<CAPTION>
COMMERCIAL,
REAL ESTATE FINANCIAL
CONSTRUCTION AND AGRICULTURAL
------------ ----------------
(dollars in thousands)
<S> <C> <C>
In one year or less $15,658 $14,603
After one year but within five years 6,089 10,575
After five years -- --
------- -------
Total $21,747 $25,178
======= =======
</TABLE>
All loans carry some degree of risk. The risk is reflected in the
consolidated financial statements by the allowance for loan losses,
the amount of loans charged off and the provision for loan losses
charged to operating expense. It is the Company's policy that when
a loss is identified, it is charged against the loan loss allowance
in the current period. The policy regarding recognition of losses
requires immediate recognition of a loss if significant doubt exists
as to principal repayment. In addition, consumer installment credit
is generally recognized as a loss when it becomes 90 days or more past
due, or the consumer has filed for protection under the bankruptcy laws.
A loss will not be recognized if the underlying collateral or the
customer's financial position makes a loss improbable.
4
<PAGE>
The Company's provision for loan losses is a reflection of actual
losses experienced during the year and management's judgment as to the
adequacy of the allowance for loan losses to absorb future losses. Some
of the factors considered by management in determining the amount of the
provision and resulting allowance include: (1) credit reviews of individual
loans; (2) gross and net loan charge-offs in the current year; (3) growth in
the loan portfolio; (4) the current level of the allowance in relation to
total loans and to historical loss levels, (5) past due and nonaccruing
loans; (6) collateral values of properties securing loans; (7) the
composition of the loan portfolio (types of loans); and (8) management's
estimate of future economic conditions and the resulting impact on the
Company. The Company made $1,038,000 of negative provisions to the
allowance for loan losses during the year. See "Provision for Loan Losses"
for discussion of the negative provisions.
5<PAGE>
ALLOWANCE FOR LOAN LOSSES
The following table summarizes loan balances at the end of each year,
average loans outstanding during the year and activity in the allowance
for loan losses for each of the last five years.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Amount of loans, net of unearned income (dollars in thousands)
and allowance for loan losses,
at end of year $109,881 $103,417 $118,071 $167,952 $183,407
======== ======== ======== ======== ========
Average loans, net of unearned income $108,273 $113,712 $145,016 $184,560 $172,415
======== ======== ======== ======== ========
Allowance for loan losses at
beginning of year $4,313 $4,681 $5,106 $2,513 $2,416
-------- -------- -------- ------- --------
Loans charged off:
Commercial, financial, and agricultural 167 826 838 1,544 606
Real estate loans 231 741 694 3,911 339
Consumer installment 838 1,613 3,723 5,086 3,439
-------- -------- -------- ------- --------
Total loans charged off 1,236 3,180 5,255 10,541 4,384
-------- -------- -------- ------- --------
Recoveries of loans previously charged off:
Commercial, financial, and agricultural 324 493 148 23 --
Real estate loans 92 210 115 91 4
Consumer installment 1,735 2,109 1,842 1,178 729
-------- -------- -------- ------- --------
Total loans recovered 2,151 2,812 2,105 1,292 733
-------- -------- -------- ------- --------
NET (RECOVERIES) CHARGE-OFFS (915) 368 3,150 9,249 3,651
-------- -------- -------- ------- --------
Provision for loan losses (1,038) ---- 2,725 11,842 3,748
-------- -------- -------- ------- --------
Allowance for loan losses at
end of year $4,190 $4,313 $4,681 $5,106 $2,513
======== ======== ======== ====== ======
Ratio of net charge-offs (recoveries) to
average net loans outstanding (.85)% .32% 2.17% 5.01% 2.12%
</TABLE>
A coordinated effort is undertaken to identify risks in the loan
portfolio for management purposes and to establish the loan loss provision
and resulting allowance. A regular, formal and ongoing loan review is conducted
to identify loans with unusual risks. The primary responsibility for this
review rests with the management of the individual banks. Their work is
supplemented with reviews by the Company's internal audit staff. Bank
regulatory agencies provide additional levels of review. This process
provides information which helps in assessing the quality of the portfolio,
assists in the prompt identification of problems and potential problems and
aids in deciding if a loan represents a loss which should be recorded
immediately or a risk for which an allowance should be maintained. Management
believes this continuous effort will identify the majority of potential problem
loans and recognize their impact on future earnings.
If, as a result of the Company's loan review and evaluation procedures,
it is determined that payment of interest on a commercial or real estate
loan is questionable, it is the Company's policy to reverse interest
6<PAGE>
previously accrued on the loan against interest income. Interest on such
loans is thereafter recorded on a "cash basis" and is included in
earnings only when actually received in cash and when full payment of
principal is no longer doubtful. A loan can be reinstated to full accrual
status when and if the borrower's financial condition and payment performance
can justify sustainable performance of all conditions and terms of the loan.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
The Company has allocated the allowance for loan losses according to the
amount deemed to be reasonably necessary at each year-end to provide for
losses being incurred within the categories of loans set forth in the table
below, based on the previous year's gross charge-offs in each category as
a percentage of total charge-offs. The components of the allowance for loan
losses for each of the past five years, and the percent of loans in each
category to total loans are presented below.
ALLOWANCE ALLOCATION BY LOAN CATEGORY
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial and agriculture $1,089 $ 690 $ 702 $ 510 $ 283
Consumer installment 2,125 3,062 2,247 3,116 1,500
Real estate 976 561 1,732 1,480 730
------ ------ ------ ------ ------
$4,190 $4,313 $4,681 $5,106 $2,513
====== ====== ====== ====== ======
PERCENT OF LOANS BY CATEGORY TO TOTAL LOANS
Commercial, financial and agriculture 22% 24% 26% 16% 19%
Consumer installment 14% 26% 43% 53% 52%
Real estate 64% 50% 31% 31% 29%
--- --- --- --- ---
100% 100% 100% 100% 100%
==== ==== ==== ==== ====
</TABLE>
7
<PAGE>
Although it is the Company's policy to immediately charge off
as loss all loan amounts judged to be uncollectible, historical
experience indicates that certain losses exist in the loan
portfolio which have not been specifically identified. To
anticipate and provide for these unidentifiable losses, the
allowance for loan losses is established by charging the
provision for loan losses expense against current earnings. No
portion of the resulting allowance is in any way allocated or
restricted to any individual loan or group of loans. The entire
allowance is available to absorb losses from any and all loans.
The following table presents nonperforming loans at December 31,
1995, 1994, 1993, 1992 and 1991. at December 1993, 1992, and
1991.
Nonperforming loans consist solely of loans which are
contractually past due 90 days or more as to interest or
principal payments ("past-due loans") and loans accounted
for on a nonaccrual basis ("nonaccrual loans").
NONPERFORMING LOANS
Past-due loans Nonaccrual loans
-------------- -----------------
(dollars in thousands)
December 31, 1995 $12 $796
December 31, 1994 205 1,060
December 31, 1993 99 2,761
December 31, 1992 674 2,879
December 31, 1991 2,740 163
Total interest income recognized on nonperforming loans for the
year ended December 31, 1995 was $36,000
Additional interest income of $80,000 would have been recorded in
1995 if all nonperforming loans had performed in accordance with
their original terms.
NONPERFORMING ASSETS
Nonperforming assets peaked at June 30, 1993. They have steadily
declined since that time. Nonperforming assets have declined by
$973,000, or 41% since December 31, 1994.
The following table analyzes nonperforming assets for each of the
past three years.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Loans past due 90 days or more $12 $205 $99
Non accrual loans 796 1,060 2,761
------ ------ -----
Total nonperforming loans 808 1,265 2,860
Other real estate 594 1,110 1,902
------ ------ ------
Total nonperforming assets $1,402 $2,375 $4,762
====== ====== ======
Nonperforming loans/Total loans, net of unearned 0.71% 1.17% 2.33%
Nonperforming assets/Total assets 0.67% 1.16% 1.94%
Loan loss allowance/Total loans, net of unearned 3.67% 4.00% 3.81%
Loan loss allowance/Nonperforming loans 518.56% 340.95% 163.67%
</TABLE>
8
<PAGE>
The allowance for loan losses as a percentage of
non-performing loans (including loans past due ninety days or
more) was 519% at December 31, 1995, compared to 341% at
December 31, 1994. Management considers the current level of the
allowance for loan losses more than adequate to absorb losses
from loans in the portfolio. Management's determination of the
adequacy of the allowance for loan losses, which is based on the
factors and risk identification procedures previously discussed,
requires the use of judgments and estimations that may change in
the future. Unfavorable changes in the factors used by management
to determine the adequacy of the allowance, or the availability
of new information, could cause the allowance for loan losses to
be increased or decreased in future periods.
Generally, the Company's market areas have not experienced
rapid increases in real estate property values or significant
overbuilding. Therefore, in management's opinion, real estate
loan collateral values in the Company's market areas should not
be as vulnerable to significant deterioration, as would other
market areas which have experienced rapidly increasing property
values and significant overbuilding. However, collateral values,
are difficult to estimate and are subject to change depending on
economic conditions, the supply of and demand for properties, and
other factors. The Company attempts to mitigate the risky nature
of real estate lending by adhering to conservative loan
underwriting standards and by diversifying the portfolio within
its market area and within industry groups.
INVESTMENT SECURITIES
The carrying values of investment securities at the indicated
dates are presented below:
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
U.S. Treasury and U.S. Gov't agencies $23,996 $25,344 $34,245
State and municipals 9,578 10,248
Mortgage-backed securities 29,558 35,179
Other 475 491 ----
------- ------- --------
Total $63,607 $71,262 $ 96,511
======= ======== ========
</TABLE>
Investment portfolio policy stresses quality and liquidity.
At December 31, 1995, the average maturity of U. S. Treasury and
government agency securities was 1.76 years and the average
maturity of obligations of states and political subdivisions was
4.96 years. Mortgage-backed securities had an average maturity
of 3.48 years. Overall, the average maturity of the portfolio
was 3.05 years using contractual maturities and slightly greater
than 2 years using expected maturities. Expected maturities
differ from contractual maturities because borrowers have the
right to call or prepay obligations with or without call or
prepayment penalties. Securities purchased during the last
several years have primarily short to intermediate term
maturities. Purchases in 1995 had maturities generally in the
two-to-five-year range due to the lower interest rate environment
and call provisions which may shorten their maturity.
9
<PAGE>
The following table shows the contractual maturities of investment securities at
December 31, 1995 and the average yields (for all obligations on a fully taxable
basis assuming a 34% tax rate) on such securities:
INVESTMENT SECURITIES MATURING
<TABLE>
<CAPTION>
After One Within After Five Within
Within One Year Five Years Ten Years After Ten Years
--------------- ---------- --------- ---------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <S> <C> <S>
U.S. Treasury and U.S. Gov't agencies $11,558 5.10% $11,438 6.55% $1,000 ---- $--- ----
State and municipal 400 5.99% 3,338 6.48% 4,825 6.26% 1,015 6.22%
Mortgage-backed securities 1,980 7.00% 25,294 6.53% 2,284 6.14% ---- ----
------- ----- ------- ----- ------- ----- =----- -----
Total $13,938 5.40% $40,070 6.53% $8,109 6.19% $1,015 6.22%
======= ======= ====== ======
</TABLE>
The estimated fair market value of the Company's investment
portfolio at December 31, 1995, was 1.4% or $908,000 above amortized
cost. Market values vary significantly as interest rates change; however,
management expects normal maturities in the portfolio to meet and exceed
liquidity requirements.
Of the tax-free securities rated by Moody's Investors Service,
Inc., 78% are rated "A" or better. Twenty-two percent of the tax-free
bond portfolio is non-rated. These non-rated securities are principally
issued by various political subdivisions within the State of Georgia.
The portfolio is carefully monitored to assure there is no unreasonable
concentration of securities in the obligations of a single debtor.
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 $14 Million. However, mortgage-backed
securities and securities with call provisions create cash flows earlier
than the contractual maturities. Estimates of prepayments on
mortgage-backed securities and call provisions on state and municipals
increase the forecasted cash flow from the investment portfolio within
one year to approximately $25 Million. Maturities in the loan portfolio
also provide a steady flow of funds. The projected repayments on the
Company's sales finance portfolio are $4.5 Million within one year. The
Company's liquidity also continues to be enhanced by a relatively stable
core deposit base. At December 31, 1995, the loan to deposit ratio was
63%.
10
<PAGE>
AVERAGE DEPOSITS
The following table summarizes average deposits and related
weighted average rates for each of the three years in the period
ended December 31, 1995.
<TABLE>
<CAPTION>
Years ended December 31,
1995 1994 1993
AMOUNT RATE Amount Rate Amount Rate
------ ---- ------- ---- ------ ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand
deposits $15,561 --- $18,004 -- $ 17,595 ---
Savings and interest-bearing
demand deposits 42,627 3.09% 53,242 2.86% 63,252 2.93%
Time deposits 118,398 5.90% 128,829 5.48% 158,884 5.94%
-------- -------- ---------
Total average deposits $176,586 4.70% $200,075 4.29% $ 239,731 4.71%
======== ======== =========
</TABLE>
The maturities of certificates of deposit of $100,000 or more as
of December 31, 1995 are presented below:
<TABLE>
<CAPTION>
(dollars in thousands)
<S> <C>
3 months or less $11,538
Over 3 through 6 months 4,810
Over 6 through 12 months 5,526
Over 12 months 7,346
-------
$29,220
=======
</TABLE>
The Company had short-term borrowings of $2,600,000 at December
31, 1995. These borrowings represented two repurchase agreements
and one line of credit.
The repurchase agreements are seven day automatic renewal
agreements with interest rates paying from 75 to 50 basis points
under the daily Federal funds rate. The weighted average
interest rate was 5.35% at December 31, 1995. The repurchase
agreements maximum amount during the year was $6,715,000 with a
weighted average interest rate of 5.34%. The line of credit of
$250,000 has a variable rate indexed to the prime rate and was at
7.75% at December 31, 1995.
The Company had short term borrowing of $6,715,000 at December
31, 1994.
STOCKHOLDERS' EQUITY
The Company maintains a ratio of stockholders' equity to
total assets that is adequate relative to industry standards.
The Company's ratio of stockholders' equity to total assets was
10.90% at December 31, 1995, compared to 9.55% at December 31,
1994 and 7.90% at December 31, 1993. The Company has initiated a
stock repurchase program that allows the purchase of up to
100,000 shares of the Company's common stock for treasury
purposes. At December 31, 1995, the Company has repurchased
59,528 shares of common stock.
11
<PAGE>
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."
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.
The following table summarizes the Company's capital ratios at
December 31, 1995 and 1994.
<TABLE>
<CAPTION>
Minimum
1995 1994 requirements
---- ---- ------------
<S> <C> <C> <C>
Tier 1 Capital leverage ratio 10.59% 9.85% 3%
====== =====
Tier 1 Risk-based capital ratio 17.15% 15.21% 4%
Tier 2 Risk-based capital ratio 1.25% 1.25%
------ ------
Total Risk-based capital ratio 18.40% 16.46% 8%
====== ======
</TABLE>
The Company's common stock has been traded on a limited basis in
the over-the-counter market and is included in the National
Association of Securities Dealers, Inc. Automated Quotation
System ("NASDAQ") under the symbol "CSBC" and is listed on the
NASDAQ National Market System.
12
<PAGE>
The following table sets forth quarterly high and low sales
prices per share of common stock as reported by NASDAQ for each
of the last three years.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
High Low High Low High Low
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
First quarter $7 1/4 $6 $7 1/4 $4 1/4 $5 1/4 $3 1/2
Second quarter 7 3/4 6 1/2 7 1/4 6 5 1/4 4
Third quarter 9 1/8 7 7 1/4 6 1/2 4 5/8 3 5/8
Fourth quarter 9 1/4 8 3/8 7 6 5 3 5/8
</TABLE>
As of January 26, 1996, the Company had approximately 733 shareholders
of record. The following table presents dividends and earnings (loss)
per share by quarter for each of the last three years.
DIVIDENDS
<TABLE>
<CAPTION>
1995 1994 1993
Dividends Earnings Dividends Earnings Dividends Earnings
<S> <C> <C> <C> <C> <C> <C>
First Quarter $.0400 $.16 $ - $.06 $ - $ 0.02
Second Quarter .0425 .17 - .10 - (0.03)
Third Quarter .0450 .18 - .17 - (0.03)
Fourth Quarter .0475 .17 .03 .11 - (0.01)
</TABLE>
The Company's board of directors had suspended the payment of
dividends in 1992 in order that the Banks increase their capital
levels and because the Georgia Department of Banking and Finance
had required that the Banks not pay dividends to the Company
without the prior consent. During 1994, all regulatory
constraints against the payment of dividends from the Banks to
the Company were lifted. The board of directors has reinstated
the Company's dividend policy of paying out a portion of earnings
to stockholders on a regular basis. It is the current intent of
the Company to increase the amount of dividends, given earnings
growth, to a level that will provide a reasonable return to the
stockholders of the Company.
RESULTS OF OPERATIONS
NET INTEREST INCOME
Tax Equivalent Basis
Net interest income on a tax equivalent basis declined for the
fourth year as the Company continued its rebuilding process. The
average balance sheet for 1995 contracted $27 Million due to
changes in lines of business and non renewals on out of market
certificates of deposit. However, average loans as a percent of
interest-earning assets increased to 56% from 52% in 1994.
Since the substantial portion of the Company's sales finance
portfolio had runoff by December 31, 1995, this percentage will
show significant gains during 1996. The net interest margin
improved by 44 basis points as the Company's cost of funds
increased slower than overall yields on earning assets.
Management anticipates increased improvement in the net interest
margin for 1996.
13
<PAGE>
The table below illustrates the changes in the net interest margin
over the past four years.
NET INTEREST MARGIN
<TABLE>
<CAPTION>
1995 1994 1993 1992
---- ---- ---- ----
% of % of % of %
Earning Earning Earning Earning
Amount Assets Amount Assets Amount Assets Amount Assets
------ ------ ------ ------ ------ ------- ------- ------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $16,274 $16,769 $20,938 $28,986
Tax-equivalent adjustment 347 469 625 674
Interest income, taxable equivalent 16,621 8.62% 17,238 7.95% 21,563 8.74% 29,660 10.28%
Interest expense 8,381 4.35% 8,916 4.11% 11,307 4.58% 16,766 5.81%
Net interest income, taxable $8,240 4.28% $8,322 3.84% $10,256 4.16% $12,894 4.47%
======== ===== ======= ===== ======= ===== ======= =====
Average earning assets $192,727 $216,811 $246,743 $288,453
======== ======== ======== ========
</TABLE>
Interest Rate Sensitivity
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. The management adjusted Gap
indicates the Company to be somewhat neutral in relation to
changes in market interest rates.
14
<PAGE>
GAP ANALYSIS
<TABLE>
<CAPTION>
Regulatory Defined
3-MONTH 6-MONTH 1-YEAR
------- ------- ------
(dollars in thousands)
-------------------------------------
<S> <C> <C> <C>
Rate Sensitive Assets (RSA) 72,708 83,215 110,372
Rate Sensitive Liabilities (RSL) 82,051 98,176 124,215
------- -------- --------
RSA minus RSL (Gap) (9,343) (14,961) (13,843)
======= ======== ========
Gap Ratio (RSA/RSL) .89 .85 .89
======= ======== ========
Management Defined
3-MONTH 6-MONTH 1-YEAR
------- ------- ------
(dollars in thousands)
-------------------------------------
Rate Sensitive Assets (RSA) 74,616 87,133 115,800
Rate Sensitive Liabilities (RSL) 59,810 80,383 110,871
------ ------ -------
RSA minus RSL (Gap) 14,806 6,750 4,929
====== ====== =======
Gap Ratio (RSA/RSL) 1.25 1.08 1.04
====== ====== =======
</TABLE>
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 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.
PROVISION FOR LOAN LOSSES
Under normal circumstances, this expense is used to establish the
allowance for loan losses. Actual loan losses, net of recoveries, are
charged directly to the allowance. Expense recorded is a reflection of
actual losses experienced during the year and management's judgment as to
the adequacy of the allowance to absorb future losses.
The Company did not make a provision for loan losses during 1995.
Instead, the Company made negative provisions which amounted to
$1,038,000 for the year. The negative provisions were based on the net
recovery stream of previously charged off loans which amounted to
$915,000 for the year.
Several years ago, the Company experienced credit problems with it's
concentration of loans in dealer sales finance paper on automobiles.
During 1990 and 1991 the chargeoff experience for the Company was in the
range of over 2% of average loans outstanding. In 1992, regulators
placed Cease and Desist Orders on the Banks (lifted in 1994) and
subsequent analysis of the loan portfolio determined that the Banks had
not recognized the risk within their portfolios. In 1992, the Company
made a provision of $11.8 Million to the allowance for loan losses and
charged off 10.5 Million in loans. Under new management, the Company
discontinued it's sales finance operation in the spring of 1993 which has
resulted in a contraction of the loan portfolio since that time. Total
sales finance loans have declined $80.5 Million since the end of 1992.
15
<PAGE>
Management's analysis of the allowance for loan losses,
nonperforming assets, and net recoveries on a monthly basis
concluded that the allowance was more than adequate given the
risk resident within the loan portfolio. The allowance as a
percent of total loans is 3.67%, nonperforming loans to total
loans are .71%, and net recoveries as a percent of average loans
(net of unearned interest) were .85% for the year.
Management does not anticipate having any provision expense for
loan losses during 1996. The Company will most likely make
negative provisions during 1996 to balance the level of the
allowance for loan losses in relation to nonperforming loans, net
charge-offs, and projected loan growth.
NONINTEREST INCOME
Total noninterest income decreased $726,000 in 1995 as compared
to 1994. The majority of the decrease was due to the sale of
approximately $4,000,000 in Collateralized Mortgage Obligations
which created a loss of $228,000 compared to a gain on the sale
of securities in 1994 of $241,000. Other income declined
$215,000 during 1995 as fees received from certain legal
proceeding were collected in 1994 and by 1995 were full paid.
Total noninterest income increased $550,000 from 1993 to 1994.
The majority of the increase was due to the sale in 1994 of
approximately $5,000,000 in municipal securities which created a
gain of $241,000. The sale was incurred as the Company
restructured the balance sheet in conjunction with the sale of
two branches of a subsidiary bank. The branch sale included
$43,000,000 in deposits, personal and real property, and some
loans of the branches. A savings bank purchased the branches and
paid the Company a $650,000 premium for the right to utilize the
deposits. This payment created a gain of $115,000 for the
Company as it wrote off a $535,000 deposit premium intangible
asset from the books of the Company related to the purchase of
the same branches several years earlier from the Resolution Trust
Corporation.
NONINTEREST EXPENSE
Total noninterest expense decreased $816,000, or 11% compared to
1994. Management does not anticipate continued reductions in
noninterest expense during 1996. Expansion into select markets
will require additional expense during 1996.
Several areas which registered significant changes for the year
were:
- -- Employee benefits increased $192,000 for the year due to the
Company recognizing certain pension plan costs related to
anticipated termination of the pension plan during 1996.
16
<PAGE>
- -- Legal fees were reduced over $106,000 as the reliance on
counsel for determinations concerning problem loans and the
their overall level has declined.
- -- Professional service fees declined $99,000 as problem assets
and their resolution have required less assistance from
professionals outside the Company.
- -- Federal Deposit Insurance Corporation premiums were down
$300,000 as risk rated premiums were reduced as well as
refunds of premiums received from the FDIC.
- -- Other real estate expense was reduced approximately $134,000
as properties were sold and levels and quality of the
properties maintained became more manageable.
Total noninterest expense for 1994 decreased $1,208,000, or 14%
compared to 1993. During 1994, the Company continued efforts to
examine and undertake cost savings in all areas of noninterest
expense. Including the sale of two branch banks in the third
quarter of 1994. Estimated annual savings on the sale are
approximately $700,000. During the fourth quarter of 1994, the
Company outsourced its data processing operations and recorded a
charge of approximately $100,000 for computer equipment that
would no longer be used.
INCOME TAX
The Company experienced pre-tax operating earnings of $3,182,000
for the year 1995 which resulted in a tax provision of $623,000.
The effective rate of 20% resulted from a reduction of a
valuation allowance against a portion of the deferred tax assets
and tax-exempt income. For more information on income taxes, see
note 7 of the consolidated financial statements.
OTHER INFORMATION
Fourth Quarter Results
The Company had a profit of $654,000 for the fourth quarter 1995.
Return on average assets was 1.28%, return on average equity was
11.75%. The net interest margin was 4.23% which compared to
fourth quarter 1994's 3.95% showed an improvement of 28 basis
points.
17
<PAGE>
INFLATION
Inflation has an impact on financial assets which can be readily
identified in a market value economy. However, the past several
years have seen inflation fall to a level which has had a nominal
effect on the banking industry.
QUARTERLY RESULTS
<TABLE>
<CAPTION>
1995 Quarter ended
------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $3,968 $4,007 $4,087 $4,212
Net interest income 1,957 1,887 1,990 2,059
Provision for loan losses (200) (300) (250) (288)
Earnings before income taxes 790 806 928 658
Net earnings 608 631 668 652
Net earnings per share .16 .17 .18 .17
</TABLE>
<TABLE>
<CAPTION>
1994 Quarter ended
------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income $4,373 $4,318 $4,143 $3,935
Net interest income 1,942 2,002 1,997 1,911
Provision for loan losses ----- ----- ----- -----
Earnings before income taxes 242 409 778 584
Net earnings 222 364 609 422
Net earnings per share .06 .10 .17 .11
18
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1995 and 1994
</TABLE>
<TABLE>
<CAPTION>
Assets
------
1995 1994
---- ----
<S> <C> <C>
Cash and due from banks, including reserve requirements
of $645,000 and $720,000, respectively $ 8,564,294 7,032,938
Federal funds sold 16,687,208 15,068,693
----------- -----------
Cash and cash equivalents 25,251,502 22,101,631
Interest-bearing deposits with other banks 2,400,000 -
Investment securities available for sale (note 4) 64,514,785 35,669,637
Investment securities held to maturity (note 4) - 35,591,725
Loans, net (note 5) 109,880,856 103,417,479
Premises and equipment, net (note 6) 2,878,118 2,601,265
Other assets 2,923,375 4,614,766
----------- -----------
$ 207,848,636 203,996,503
========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Deposits:
Demand $ 16,668,652 16,741,604
Interest-bearing demand 35,239,329 33,688,239
Savings 9,271,407 10,653,024
Time 119,294,850 115,599,041
----------- -----------
Total deposits 180,474,238 176,681,908
Repurchase agreements 2,350,000 6,715,000
Other liabilities 2,364,000 1,116,223
----------- -----------
Total liabilities 185,188,238 184,513,131
----------- -----------
Commitments (note 13)
Stockholders' equity (notes 9, 10 and 15):
Preferred stock, 2,000,000 shares authorized, no shares
issued or outstanding - -
Common stock, $1 par value; 10,000,000 shares authorized;
3,777,017 shares issued 3,777,017 3,777,017
Additional paid-in capital 6,492,246 6,492,246
Unrealized gain (loss) on investment securities, net of tax 599,454 (1,226,728)
Retained earnings 12,339,119 10,440,837
----------- -----------
23,207,836 19,483,372
Treasury stock, at cost (59,528 shares) (547,438) -
----------- -----------
Total stockholders' equity 22,660,398 19,483,372
----------- -----------
$ 207,848,636 203,996,503
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 11,189,778 11,125,466 14,902,108
Interest on deposits with other banks 54,758 297 1,467
Interest on federal funds sold 828,094 776,001 383,766
Interest on investment securities:
Taxable 3,530,802 3,956,229 4,429,421
Tax-exempt 671,062 910,844 1,221,435
----------- ---------- ----------
Total interest income 16,274,494 16,768,837 20,938,197
----------- ---------- ----------
Interest expense:
Deposits 8,306,689 8,576,863 11,297,530
Other 74,771 339,494 9,683
----------- ---------- ----------
Total interest expense 8,381,460 8,916,357 11,307,213
Net interest income 7,893,034 7,852,480 9,630,984
Provision for loan losses (note 5) (1,038,000) - 2,725,000
----------- ---------- ----------
Net interest income after provision for loan losses 8,931,034 7,852,480 6,905,984
----------- ---------- ----------
Other operating income:
Service charges 700,827 742,819 749,413
Gains (losses) on sales of investment securities (note 4) (227,635) 240,975 -
Other 460,867 676,270 360,609
----------- ---------- ----------
Total other operating income 934,059 1,660,064 1,110,022
----------- ---------- ----------
Other operating expenses:
Salaries and employee benefits 3,550,776 3,359,226 3,410,857
Occupancy and equipment 765,752 967,647 942,079
Miscellaneous (note 12) 2,366,224 3,172,295 4,354,335
----------- ---------- ----------
Total other operating expenses 6,682,752 7,499,168 8,707,271
----------- ---------- ----------
Earnings (loss) before income taxes and cumulative
effect of accounting change 3,182,341 2,013,376 (691,265)
Income tax (expense) benefit (note 7) (623,346) (396,000) 312,055
----------- ---------- ----------
Earnings (loss) before cumulative effect
of accounting change 2,558,995 1,617,376 (379,210)
Cumulative effect of accounting change
for income taxes on years prior to 1993 (note 1) - - 268,446
----------- ---------- ----------
Net earnings (loss) 2,558,995 1,617,376 (110,764)
Preferred dividend requirements - (117,525) (61,388)
---------- ---------- ----------
Net earnings (loss) available to
common shareholders $ 2,558,995 1,499,851 (172,152)
=========== ========== ===========
</TABLE>
20
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations, continued
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Earnings (loss) per common share:
Earnings (loss) per common share before cumulative
effect of accounting change $ .68 .44 (.13)
Cumulative effect of accounting change - - .08
----- ---- ----
Net earnings (loss) per common share $ .68 .44 (.05)
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Unrealized
Gain (Loss)
On
Additional Investment
Preferred Common Paid-In Securities, Retained Treasury
Stock Stock Capital Net of Tax Earnings Stock Total
--------- ------- --------- ----------- -------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $ - 3,397,327 5,163,331 - 9,215,058 - 17,775,716
Preferred stock issued (note 10) 1,708,605 - - - - - 1,708,605
Net loss - - - - (110,764) - (110,764)
--------- --------- --------- --------- ---------- ------- ----------
Balance, December 31, 1993 1,708,605 3,397,327 5,163,331 - 9,104,294 - 19,373,557
Cash dividend declared of $.03 per
common stock - - - - (101,920) - (101,920)
Cash dividends declared of $4.71 per
preferred share - - - - (178,913) - (178,913)
Conversion of preferred stock into
common stock (note 10) (1,708,605) 379,690 1,328,915 - - - -
Effect of accounting change related
to investment securities, net of
tax (note 1) - - - 576,679 - - 576,679
Change in unrealized gain (loss) on
investment securities, net of tax - - - (1,803,407) - - (1,803,407)
Net earnings - - - - 1,617,376 - 1,617,376
--------- --------- --------- --------- ---------- ------- ----------
Balance, December 31, 1994 - 3,777,017 6,492,246 (1,226,728) 10,440,837 - 19,483,372
Cash dividends declared of $.175 per
common stock - - - - (660,713) - (660,713)
Acquisition of treasury stock - - - - - (547,438) (547,438)
Change in unrealized gain (loss) on
investment securities, net of tax - - - 1,826,182 - - 1,826,182
Net earnings - - - - 2,558,995 - 2,558,995
--------- --------- --------- --------- ---------- -------- ----------
Balance, December 31, 1995 $ - 3,777,017 6,492,246 599,454 12,339,119 (547,438) 22,660,398
========= ========= ========= ========= ========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1995, 1994 and 1993
<TABLE>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 2,558,995 1,617,376 (110,764)
Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:
Provision for loan losses (1,038,000) - 2,725,000
Depreciation, amortization and accretion 361,257 564,947 599,880
Deferred income tax provision (benefit) 106,589 174,598 (226,055)
Losses (gains) on sales of investment securities 227,635 (240,975) -
Gain on sale of branches - (115,324) -
Cumulative effect of accounting change - - (268,446)
Change in assets and liabilities:
Other assets 796,708 1,140,048 926,834
Other liabilities 689,157 900 (756,561)
---------- --------- ---------
Net cash provided by operating activities 3,702,341 3,141,570 2,889,888
---------- --------- ---------
Cash flows from investing activities:
Net change in interest-bearing deposits (2,400,000) 100,000 (100,000)
Proceeds from maturities and calls of investment
securities available for sale 6,108,539 11,752,863 -
Proceeds from sales of investment securities available
for sale 3,761,490 - -
Purchases of investment securities available for sale (1,115,470) (3,499,862) -
Proceeds from maturities and calls of investment
securities held to maturity 13,408,110 10,353,386 42,147,484
Proceeds from sales of investment securities held
to maturity - 5,076,098 -
Purchases of investment securities held to maturity (12,903,593) (110,000) (45,791,565)
Net change in loans (5,269,234) 14,182,183 47,155,302
Proceeds from sales of premises and equipment 13,830 31,616 18,775
Purchases of premises and equipment (625,321) (413,527) (358,172)
---------- ----------- ---------
Sale of branches - (40,928,208) -
Net cash provided by (used in) investing activities 978,351 (3,455,451) 43,071,824
---------- ----------- ----------
Cash flows from financing activities:
Net change in deposits 3,792,330 (4,567,223) (38,204,004)
Net change in repurchase agreements (4,365,000) 6,715,000 -
Borrowings under note payable 250,000 - -
Repayments of note payable - - (300,000)
Proceeds from the issuance of preferred stock - - 1,708,605
Cash dividends paid (660,713) (280,833) -
Acquisition of treasury stock (547,438) - -
---------- ---------- -----------
Net cash provided by (used in) financing
activities (1,530,821) 1,866,944 (36,795,399)
---------- ---------- -----------
Net increase in cash and cash equivalents 3,149,871 1,553,063 9,166,313
Cash and cash equivalents at beginning of year 22,101,631 20,548,568 11,382,255
---------- ---------- -----------
Cash and cash equivalents at end of year $25,251,502 22,101,631 20,548,568
========== ========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
------------------------------------------
Nature of Operations
--------------------
Central and Southern Holding Company and subsidiaries (the
"Company") provide a full range of banking services in central
Georgia to individual and corporate customers through its
subsidiaries and branch offices. The subsidiary banks are subject to
the regulations of certain Federal and state agencies and undergo
periodic examinations by those regulatory authorities.
Basis of Presentation
---------------------
The consolidated financial statements include the accounts of Central
and Southern Holding Company (the "Parent") and its wholly owned
subsidiaries, The Central and Southern Bank of Georgia
("Milledgeville") and The Central and Southern Bank of Greensboro
("Greensboro"), collectively referred to as "the bank
subsidiaries." All significant intercompany accounts and transactions
have been eliminated in consolidation.
The accounting principles followed by the Company and the methods of
applying these principles conform with generally accepted accounting
principles ("GAAP") and with general practices within the banking
industry. In preparing financial statements in conformity with GAAP,
management is required to make estimates and assumptions that affect
the reported amounts in the financial statements. Actual results
could differ significantly from those estimates. Material estimates
common to the banking industry that are particularly susceptible to
significant change in the near term include, but are not limited to,
the determination of the allowance for loan losses, the valuation of
real estate acquired in connection with or in lieu of foreclosure
on loans, and valuation allowances associated with deferred tax
assets recognized in anticipation of future taxable income.
Investment Securities
---------------------
Effective January 1, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities."
Under SFAS No. 115, the Company classifies its securities in one of
three categories: trading, available for sale, or held to maturity.
Trading securities are bought and held principally for sale in the
near term. Held to maturity securities are those securities for which
the Company has the ability and intent to hold until maturity. All
other securities not included in the trading or held to maturity
portfolios are classified as available for sale. The Company does not
hold any trading securities.
Available for sale securities are recorded at fair value. Held to
maturity securities are recorded at amortized cost. Unrealized holding
gains and losses, net of the related tax effect, on securities
available for sale are excluded from earnings and are reported as a
separate component of stockholders' equity. Transfers of securities
between categories are recorded at fair value at the date of transfer.
Unrealized holdings gains or losses associated with transfers of
securities from held to maturity to available for sale are recorded as
a separate component of stockholders' equity. The unrealized holding
gains or losses included in the separate component of stockholders'
equity for securities transferred from available for sale to held
to maturity are maintained and amortized into earnings over the
remaining life of the security as an adjustment to yield in a manner
consistent with the amortization or accretion of premium or discount
on the associated security.
A decline in the market value of any available for sale or held to
maturity investment below cost that is deemed other than temporary is
charged to earnings and establishes a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to the yield. Realized gains and
losses for securities classified as available for sale and held to
maturity are included in earnings and are derived using the specific
identification method for determining the cost of securities sold.
24<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Loans and Allowance for Loan Losses
-----------------------------------
Loans are reported at the principal amount outstanding, net of
unearned interest and the allowance for loan losses. Interest income
on installment loans made on a discount basis is recognized using a
method which approximates the level yield method. Interest income on
all other loans is recognized on the level yield method.
Effective January 1, 1995, the Company adopted SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan" and SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures." A loan is impaired when, based on current
information and events, it is probable that all amounts due according
to the contractual terms of the loan will not be collected. SFAS No.
114 requires impaired loans to be measured based on the present value
of expected future cash flows, discounted at the loan's effective
interest rate, or at the loan's observable market price, or the fair
value of the collateral if the loan is collateral dependent. SFAS No.
118 amends SFAS No. 114 to require disclosure of the recorded
investment in impaired loans and eliminates provisions regarding how a
creditor should report income on an impaired loan. The adoption of
SFAS No. 114 and No. 118 had no significant impact on the consolidated
financial statements.
Accrual of interest is discontinued on a loan when management
believes, after considering economic and business conditions and
collection efforts, that the borrower's financial condition is such
that collection of interest is doubtful. When a loan is placed on
nonaccrual status, previously accrued and uncollected interest is
charged to interest income on loans. Generally, payments on nonaccrual
loans are applied to principal. Interest income, if any, on impaired
loans is recognized on the cash basis.
The allowance for loan losses is established through a provision for
loan losses charged to expense. Loans are charged against the
allowance for loan losses when management believes the collectibility
of the principal is unlikely. The allowance represents an amount
which, in management's judgment, will be adequate to absorb probable
losses on existing loans that may become uncollectible.
Management's judgment in determining the adequacy of the allowance is
based on evaluations of the collectibility of loans. These evaluations
take into consideration such factors as changes in the nature and
volume of the loan portfolio, current economic conditions that may
affect the borrower's ability to pay, overall portfolio quality, and
review of specific problem loans.
Management believes the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the
Company's allowance for loan losses. Such agencies may require the
Company to recognize additions to the allowance based on their
judgments of information available to them at the time of
their examination.
Bank Premises and Equipment
---------------------------
Premises and equipment are carried at cost less accumulated
depreciation. Depreciation is computed using the straight-line method
over the estimated useful lives of the related assets. When assets are
retired or otherwise disposed, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or
loss is reflected in income for the period. The cost of maintenance
and repairs which do not improve or extend the useful life of the
respective asset is charged to income as incurred, whereas significant
renewals and improvements are capitalized. The range of estimated
useful lives for premises and equipment are generally as follows:
Buildings and improvements 7 - 30 years
Furniture and equipment 3 - 10 years
25<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(1) Summary of Significant Accounting Policies, continued
Goodwill
--------
The excess of the purchase price over the fair value of net
assets acquired (goodwill) is being amortized using the
straight-line method over 20 years for Greensboro. The
goodwill net of accumulated amortization is included in other
assets. On an ongoing basis, management reviews the valuation
and amortization of goodwill. As part of this review,
management considers the value and future benefits of the net
earnings generated by Greensboro to determine that no
impairment has occurred.
Income Taxes
------------
Effective January 1, 1993, the Company changed its method of
accounting for income taxes to the liability method which
requires the recognition of deferred tax assets and
liabilities for the future tax consequences attributable to
differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the
years in which the assets and liabilities are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income
tax expense in the period that includes the enactment date.
In the event the future tax consequences of differences
between the financial reporting bases and the tax bases of the
Company's assets and liabilities result in deferred tax
assets, the Company evaluates the probability of being able to
realize the future benefits indicated by such asset. A
valuation allowance is provided for the portion of the
deferred tax asset when it is more likely than not that some
portion or all of the deferred tax asset will not be realized.
In assessing the realizability of the deferred tax assets,
management considers the scheduled reversals of deferred tax
liabilities, projected future taxable income, and tax planning
strategies.
Net Earnings (Loss) Per Common Share
------------------------------------
The impact of outstanding stock options and preferred stock
conversions has no significant effect on net earnings (loss)
per common share. Accordingly, net earnings (loss) per common
share are based on the weighted average number of common
shares outstanding during 1995, 1994 and 1993 of 3,770,251,
3,429,575 and 3,397,327, respectively.
Recent Accounting Pronouncements
--------------------------------
During 1995, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This new standard will become effective for the
Company January 1, 1996, and will require the Company to
disclose the fair value of employee stock options granted in
1995 and subsequent years. Since the Company will not be
required to record the options at fair value, management does
not expect this new standard to have a material impact on the
consolidated financial statements.
26
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
Notes to Consolidated FinancialStatements, continued
(2) Sale of Bank Branches
---------------------
Effective August 1, 1994, Milledgeville sold two of its bank
branches located in Douglas and McRae, Georgia, to an unrelated
commercial bank. This sale included approximately $43,400,000 in
deposits and related accrued interest, premises and equipment with
a net book value of approximately $1,700,000, and other assets of
approximately $900,000, including unamortized deposit premiums
of approximately $535,000. Milledgeville paid approximately
$40,700,000 in connection with the sale and recorded a gain of
approximately $115,000. The branch sale was financed through a
combination of borrowings under repurchase agreements and available
cash and cash equivalents.
(3) Cash Flow Information
---------------------
Certain supplemental cash flow information for the years ended
December 31, 1995, 1994 and 1993 is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash paid during the year for:
Interest $ 8,445,017 8,984,329 11,638,855
Income taxes $ 140,000 270,000 -
Noncash investing and financing activities:
Transfer of investment securities from held
to maturity to available for sale $35,073,414 - -
Real estate acquired through foreclosure $ 160,913 833,293 2,936,445
Financed portion of sales of other real estate $ 317,056 481,000 -
Conversion of preferred stock into common stock $ - 1,708,605 -
Change in unrealized gain (loss) on investment
securities, net of tax $ 1,826,182 (1,226,728) -
</TABLE>
(4) Investment Securities
---------------------
Investment securities at December 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
December 31, 1995
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Available for Sale: Cost Gains Losses Value
----------------------------- --------- ---------- ----------- -------
<S> <C> <C> <C> <C>
U.S. Treasuries and U.S. Government
agencies $23,996,053 148,175 84,198 24,060,030
State and municipal 9,577,580 578,325 4,973 10,150,932
Mortgage-backed securities 29,557,578 398,359 127,614 29,828,323
Other investments 475,500 - - 475,500
----------- --------- ------- ----------
Total $63,606,711 1,124,859 216,785 64,514,785
=========== ========= ======= ==========
December 31, 1994
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Available for Sale: Cost Gains Losses Value
----------------------------- --------- ---------- ---------- ----------
Mortgage-backed securities $37,037,516 2,767 1,861,446 35,178,837
Other investments 490,800 - - 490,800
----------- ----- --------- ----------
Total $37,528,316 2,767 1,861,446 35,669,637
=========== ===== ========= ==========
</TABLE>
27
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(4) Investment Securities, continued
--------------------------------
<TABLE>
<CAPTION>
December 31, 1994
-----------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Securities Held to Maturity: Cost Gains Losses Value
--------------------------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
U.S. Treasuries and U.S.
Government agencies $25,343,531 - 917,981 24,425,550
State and municipal 10,248,194 180,623 75,414 10,353,403
----------- ------- ------- ----------
Total $35,591,725 180,623 993,395 34,778,953
=========== ======= ======= ===========
</TABLE>
The amortized cost and fair value of investment securities
available for sale at December 31, 1995, by contractual maturity, are
shown below. Expected maturities will differ from contractual maturities
because borrowers have the right to call or prepay certain obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
---------- ----------
<S> <C> <C>
U.S. Treasuries and U.S. Government
agencies:
Within 1 year $11,558,108 11,473,910
1 to 5 years 11,437,768 11,582,210
5 to 10 years 1,000,177 1,003,910
More than 10 years - -
----------- ----------
$23,996,053 24,060,030
=========== ==========
State and municipal:
Within 1 year $ 400,004 402,484
1 to 5 years 3,337,960 3,484,173
5 to 10 years 4,825,425 5,180,919
More than 10 years 1,014,191 1,083,356
----------- ----------
$ 9,577,580 10,150,932
=========== ==========
Total securities:
Within 1 year $11,958,112 11,876,394
1 to 5 years 14,775,728 15,066,383
5 to 10 years 5,825,602 6,184,829
More than 10 years 1,014,191 1,083,356
Mortgage-backed securities 29,557,578 29,828,323
Other investments 475,500 475,500
----------- ----------
$63,606,711 64,514,785
=========== ==========
</TABLE>
28
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(4) Investment Securities, continued
--------------------------------
In 1995, the Company received proceeds of $3,761,490 from
the sale of certain mortgage-backed securities and
recognized gross losses of $231,635. Additionally, one held
to maturity security was called by the issuer and the
Company received a $4,000 call premium.
In late 1995, the FASB issued an implementation guide
relating to SFAS No. 115. Included in this implementation
guide was a one-time opportunity to reallocate investments
between the categories without calling into question the
validity of the classifications. Accordingly, at year end,
the Company reclassified all held to maturity securities to
the available for sale category. As a result, an unrealized
gain of approximately $637,000 was recorded. In 1994, the
Company received proceeds from the sale of investments held
to maturity of $5,076,098 and recognized gross gains
of $244,162 and gross losses of $3,187. The 1994 sales
occurred in connection with the sale of two of
Milledgeville's branch bank facilities which maintained
approximately twenty percent of the total deposits of the
Company. The sale of the branches altered the interest rate
risk of Milledgeville's assets and liabilities and in
response the security sales were required to restructure
the interest rate risk to an acceptable level.
Securities with a carrying value of approximately
$15,801,000 and $26,646,000 at December 31, 1995, and 1994,
respectively, were pledged against U.S. government and other
public deposits as required by law.
(5) Loans
-----
Major classifications of loans at December 31, 1995 and 1994
are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Commercial, financial and agricultural $ 25,177,880 26,103,443
Real estate - construction 21,746,596 13,271,418
Real estate - mortgage 51,104,156 41,204,363
Consumer loans 16,376,878 28,629,110
----------- -----------
Total loans 114,405,510 109,208,334
Less: Unearned interest 334,347 1,477,979
Allowance for loan losses 4,190,307 4,312,876
------------- -----------
Loans, net $ 109,880,856 103,417,479
============= ===========
</TABLE>
The Company's bank subsidiaries grant loans and extensions of
credit to individuals and a variety of firms and corporations
located primarily in central Georgia. Although the bank
subsidiaries have diversified loan portfolios, a substantial
portion of the loan portfolios is collateralized by improved and
unimproved real estate and is dependent upon the real estate
market.
Changes in the allowance for loan losses are summarized as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $4,312,876 4,680,841 5,106,259
Provision for loan losses (1,038,000) - 2,725,000
Loans charged off (1,236,091) (3,179,899) (5,255,101)
Recoveries of loans previously
charged off 2,151,522 2,811,934 2,104,683
---------- ---------- ----------
Balance at end of year $4,190,307 4,312,876 4,680,841
========== ========== ==========
</TABLE>
As a result of its ongoing evaluation of the adequacy of the bank
subsidiaries' allowance for loan losses, a decline in problem
credits and continued significant recoveries of loans previously
charged off, management decided to reduce the allowance for loan
losses during 1995 by a total of $1,038,000.
29<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(6) Bank Premises and Equipment
---------------------------
Bank premises and equipment at December 31, 1995 and 1994
are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Land and buildings $ 3,515,996 3,180,375
Furniture and equipment 1,855,406 3,293,608
Construction in progress 74,686 -
----------- ---------
5,446,088 6,473,983
Less accumulated depreciation 2,567,970 3,872,718
----------- ---------
$ 2,878,118 2,601,265
=========== =========
</TABLE>
Depreciation expense was $334,638, $505,926 and $421,555 in
1995, 1994 and 1993, respectively.
(7) Income Taxes
------------
The components of income tax expense (benefit) for the years
ended December 31, 1995, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current $ 516,757 221,402 (86,000)
Deferred 106,589 174,598 (226,055)
--------- ------- --------
$ 623,346 396,000 (312,055)
========= ======= ========
</TABLE>
The differences between income tax expense (benefit) and the
amount computed by applying the statutory federal income tax rate
to earnings before taxes are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Pretax income at statutory rates $ 1,081,996 684,548 (235,030)
Add (deduct):
Tax-exempt interest income (213,330) (311,323) (360,855)
Change in beginning of year balance
of the the valuation allowance for
deferred tax assets allocated to
income tax expense (262,000) (26,245) 246,118
Other, net 16,680 49,020 37,712
--------- ------- --------
$ 623,346 396,000 (312,055)
========= ======= =========
</TABLE>
30<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(7) Income Taxes, continued
-----------------------
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets
and deferred tax liabilities as of December 31, 1995 and
1994 are presented below:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ - 247,696
Unrealized losses on investment securities
available for sale - 631,951
Other real estate 34,000 11,424
Pension 44,540 -
Postretirement benefits other than pensions 48,583 21,831
Alternative minimum tax credit carryforward 777,635 895,704
Net operating loss carryforwards - 93,888
Other 143 -
--------- ---------
Total gross deferred tax asset 904,901 1,902,494
Less valuation allowance 464,000 726,000
-------- ---------
440,901 1,176,494
-------- ---------
Deferred tax liabilities:
Allowance for loan losses 73,470 -
Unrealized gains on investment securities
available for sale 308,620 -
Premises and equipment 350,210 345,222
Change in accounting method 33,892 67,783
Pension - 48,035
Other 28,780 22,365
-------- ---------
Total deferred tax liabilities 794,972 483,405
-------- ---------
Net deferred tax asset (liability) $ (354,071) 693,089
======== =========
</TABLE>
The Company's Federal alternative minimum tax credits can be
carried forward indefinitely.
31
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(8) Employee Benefit Plans
----------------------
The Company has a noncontributory, trusteed pension plan.
Effective April 15, 1994, the plan was amended to freeze
participation in the plan. Participants as of April 15,
1994 became fully vested and no new benefits will accrue.
Pension expense recorded by the Company for 1995, 1994, and
1993 included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service cost on benefits earned during the year $ - - 72,428
Interest cost on projected benefit obligation 31,518 41,572 138,300
Return on plan assets (30,313) (17,777) (116,532)
Net amortization and deferral (5,463) (59,831) (11,051)
-------- ------- --------
Pension expense (benefit) $ (4,258) (36,036) 83,145
======== ======= ========
</TABLE>
The Company's funding policy provides that payments to the plan
shall be consistent with minimum government funding requirements
plus additional amounts which may be approved by the Company.
The following table sets forth the plan's funded status and
amounts recognized in the Company's consolidated balance sheets at
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of approximately $662,000 in 1995 and
$210,000 in 1994 $ 666,860 215,315
======= =======
Projected benefit obligation for services rendered to date $ (666,860) (215,315)
Plan assets at fair value, primarily consisting of investments
in common stock and money market funds 537,992 541,611
------- -------
Plan assets in excess of (less than) projected benefit obligation (128,868) 326,296
Unrecognized net gain (2,132) (129,149)
-------- --------
Prepaid (accrued) pension cost $ (131,000) 197,147
======== =======
</TABLE>
32
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(8) Employee Benefit Plans, continued
---------------------------------
A weighted average discount rate of 6.26% and 8.5% was used
in 1995 and 1994, respectively. The decline in discount rate
from 1994 to 1995 was due to management's decision in 1995
to terminate the plan in the near term. The expected
long-term rate of return on assets was 8% in 1995 and 1994.
In addition to the Company's defined benefit pension plan,
the Company has sponsored a defined benefit health care plan
that provides postretirement medical benefits to retired
employees. Effective January 1, 1993, the Company
discontinued the plan but will continue to provide benefits
to individuals who had retired or were eligible for
retirement as of December 31, 1993.
The following table presents the health care plan's funded
status reconciled with amounts recognized in the Company's
consolidated balance sheets at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation ("APBO") $ 397,190 354,769
Unrecognized net gain from experience different
than assumed (254,298) (238,912)
-------- ---------
Accrued postretirement benefit cost included in
other liabilities $ 142,892 115,857
</TABLE>
Net periodic postretirement benefit cost for the years ended
December 31, 1995, 1994 and 1993 includes the following:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Amortization of unrecognized net gain $ 14,068 15,468 19,202
Interest cost 27,916 29,740 29,794
------ ------ ------
Net periodic postretirement benefit cost $ 41,984 45,208 48,996
====== ====== ======
</TABLE>
For measurement purposes, a 13% annual rate of increase in
the per capita cost of covered benefits (i.e., health care
cost trend rate) was assumed for 1995. A 14% annual rate of
increase was assumed for 1994. The rate was assumed to
decrease gradually to 6% by the year 2003 and remain at that
level thereafter. A one percent increase in the medical
trend rate assumed at December 31, 1995, would have resulted
in an increase to the APBO at December 31, 1995 of $34,677
and would have increased 1995 postretirement benefit cost by
$2,514. The weighted average discount rate used in
determining the accumulated postretirement benefit
obligation was 7.25% and 8.5% at December 31, 1995 and 1994,
respectively.
The Company has a contributory profit sharing plan covering
substantially all employees who have one year of service.
Participating employees may contribute up to 15% of their
salary to the plan. The Company makes certain matching
contributions to the plan and may make discretionary
contributions to the plan. The Company's contributions were
approximately $79,000, $52,000 and $31,000 in 1995, 1994 and
1993, respectively.
The Company has entered into an employment agreement with
its chief executive officer which provides for a full year's
payment of compensation upon a change in control of the
Company and termination of employment, as defined in the
agreement. The terms of the agreement automatically extend
the agreement for a rolling two- year period unless the
Company elects to cease the automatic extension provision,
which will cause the agreement to terminate two years from
the date of election.
33<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(9) Stock Options
-------------
In August 1993, the Company adopted the Key Employee
Stock Option Plan. This plan provides for the issuance
of stock options on up to 170,000 shares of the Company's
common stock. Options are granted at the discretion of the
Company's Board of Directors. Options granted under the plan
are at an option price not less than the fair value of the
Company's common stock at the date of grant, are exercisable
any time after 90 days from the date of grant, and expire
ten years from the date of grant. The following summarizes
stock option activity under this plan.
<TABLE>
<CAPTION>
Average
Option Plan
Shares Per Share
<S> <C> <C>
Options granted in 1993 and outstanding
at December 31, 1993 75,000 $ 4.25
Options granted in 1994 23,000 $ 6.25
------
Options outstanding at December 31, 1994 98,000 $ 4.72
Options granted in 1995 22,000 $ 7.50
-------
Options outstanding at December 31, 1995 120,000 $ 5.23
-------
</TABLE>
At December 31, 1995, options on 92,625 shares are exercisable.
(10) Stockholders' Equity
--------------------
On December 1, 1994, the Company converted the 37,969 shares
of Series A nonvoting preferred stock into 379,690 shares of
its $1 par value common stock. The preferred stock, which
was issued in 1993 and had a stated liquidation value of $45
per share, entitled the holders to cumulative annual
dividends at 7 1/2%. Prior to effecting the conversion,
cumulative dividends totalling $178,913 since the date of
issuance were paid.
Dividends paid by the bank subsidiaries are the primary
source of funds available to the Company for payment
of dividends to its shareholders and other needs. Applicable
Federal and State statutes and regulations
impose restrictions on the amount of dividends that may be
declared by the bank subsidiaries. In addition to
the formal statutes and regulations, regulatory authorities
also consider the adequacy of each bank
subsidiary's total capital in relation to its assets,
deposits and other such items. Capital adequacy
considerations could further limit the availability of
dividends from the bank subsidiaries. At December 31,
1995, the bank subsidiaries could pay approximately
$1,300,000 in dividends to the Parent without regulatory
approval.
During 1995, the Company's Board of Directors approved a
stock repurchase program that allows the purchase of
up to 100,000 shares of the Company's common stock. At
December 31, 1995, the Company has repurchased 59,528
shares of its common stock.
(11) Related Party Transactions
--------------------------
The bank subsidiaries conduct transactions with directors
and officers, including companies in which they have
beneficial interest, in the normal course of business. It is
the policy of the bank subsidiaries that loan transactions
with directors and officers be made on substantially the
same terms as those prevailing at the time made for
comparable loans to other persons. The following is a
summary of activity for related party loans for 1995:
Beginning balance $ 1,759,536
New loans 641,715
Repayments (418,247)
----------
Ending balance $ 1,983,004
=========
34
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(12) Supplementary Statement of Operations Information
-------------------------------------------------
Components of miscellaneous operating expenses in excess of
1% of total income for the respective years are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Deposit insurance $ 240,183 540,434 753,741
Legal fees $ 128,173 233,962 411,196
Other professional services $ 143,822 243,174 746,286
Other real estate $ 165,263 299,127 573,466
Stationery and supplies $ 161,811 177,310 264,394
Data processing $ 224,527 149,265 195,321
</TABLE>
(13) Commitments
-----------
The bank subsidiaries are parties to financial instruments
with off-balance-sheet risk in the normal course of business
to meet the financing needs of their customers. These
financial instruments include commitments to extend credit,
standby letters of credit and financial guarantees. These
instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the balance
sheets. The contract amounts of these instruments reflect
the extent of involvement the bank subsidiaries have in
particular classes of financial instruments.
The 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
and financial guarantees written is represented by the
contractual amount of these instruments. The
bank subsidiaries use the same credit policies in making
commitments and conditional obligations as for
on-balance-sheet instruments.
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. Commitments generally have
fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments may
expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash
requirements. The bank subsidiaries evaluate each customer's
creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary, upon extension of
credit is based on management's credit evaluation.
Collateral held varies, but may include unimproved and
improved real estate, certificates of deposit, personal
property or other acceptable collateral. At December 31,
1995 and 1994, the bank subsidiaries had commitments to
extend credit of approximately $13,295,000 and $8,522,000,
respectively.
Standby letters of credit and financial guarantees written
are conditional commitments issued by the bank subsidiaries
to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to local businesses.
The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan
facilities to customers. At December 31, 1995, the bank
subsidiaries had standby letters of credit of approximately
$10,000. There were no standby letters of credit at December
31, 1994.
Milledgeville has entered into an agreement to build a new
operations facility during 1996. The estimated cost to build
and furnish the new operations facility is $900,000.
(14) Greensboro Conversion
---------------------
Effective January 16, 1996, the Company received final
regulatory approval to convert Greensboro to a federal
savings bank charter. It is management's intention to effect
the conversion in the first quarter of 1996. The primary
purpose of the conversion is to allow Greensboro to branch
into other markets in the north Georgia area.
35<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(15) Condensed Financial Information of Central and Southern
Holding Company (Parent Company Only)
--------------------------------------------------------
Condensed Balance Sheets
December 31, 1995 and 1994
Assets
------
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash $ 28,158 132,234
Interest-earning deposits with bank subsidiary 39,252 271,884
Investment in bank subsidiaries 22,830,597 19,217,897
Other assets 66,477 30,005
---------- ----------
$ 22,964,484 19,652,020
========== ==========
Liabilities and Stockholders' Equity
------------------------------------
Other liabilities $ 304,086 168,648
Stockholders' equity 22,660,398 19,483,372
---------- ----------
$ 22,964,484 19,652,020
========== ==========
</TABLE>
Condensed Statements of Operations
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income:
Management fees from bank subsidiaries $ - - 71,325
Dividends from bank subsidiaries 860,000 - -
Interest income 15,377 11,796 11,463
------- ------- ------
Total income 875,377 11,796 82,788
------- ------- ------
Expenses:
Interest expense 1,090 - 9,683
Other expenses 217,463 232,128 200,035
------- ------- -------
Total expenses 218,553 232,128 209,718
Income (loss) before income taxes and equity in
undistributed earnings (loss) of subsidiaries 656,824 (220,332) (126,930)
Income tax benefit 115,653 93,330 603,704
Equity in undistributed earnings (loss) of bank
subsidiaries 1,786,518 1,744,378 (587,538)
--------- --------- --------
Net earnings (loss) $2,558,995 1,617,376 (110,764)
========= ========= ========
</TABLE>
36
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(15) Condensed Financial Information of Central and Southern Holding
Company (Parent Company Only), continued
---------------------------------------------------------------
Condensed Statements of Cash Flows
Years Ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $2,558,995 1,617,376 (110,764)
Adjustments to reconcile net earnings (loss) to net
cash provided by (used in) operating activities:
Equity in undistributed loss (earnings) of bank
subsidiaries (1,786,518) (1,744,378) 587,538
Cumulative effect of accounting change - - (350,468)
Change in other assets (36,472) 112,470 (60,717)
Change in other liabilities (114,562) (28,248) (184,106)
---------- ---------- --------
Net cash provided by (used in) operating activities 621,443 (42,780) (118,517)
---------- ---------- --------
Cash flows from investing activities:
Investments in subsidiary banks - - (650,000)
Net change in interest-bearing deposits 232,632 130,658 (352,542)
---------- ---------- ----------
Net cash provided by (used in) investing act 232,632 130,658 (1,002,542)
---------- ---------- --------
Cash flows from financing activities:
Borrowings under note payable 250,000 - -
Payment of note payable - - (300,000)
Proceeds from preferred stock offering - - 1,708,605
Purchase of treasury stock (547,438) - -
Cash dividends paid (660,713) (280,833) -
---------- ---------- ---------
Net cash provided by (used in) financing activities (958,151) (280,833) 1,408,605
---------- ---------- --------
Net increase (decrease) in cash (104,076) (192,955) 287,546
Cash at beginning of year 132,234 325,189 37,643
---------- ---------- --------
Cash at end of year $ 28,158 132,234 325,189
========= ========== ========
Noncash investing and financing activities:
Conversion of preferred stock in common stock $ - 1,708,605 -
Change in unrealized gain (loss) on investment
securities of subsidiaries $ 1,826,182 (1,226,728) -
</TABLE>
37
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(16) Fair Value of Financial Instruments
-----------------------------------
The assumptions used in the estimation of the fair value of
the Company's financial instruments are detailed below.
Where quoted prices are not available, fair values are based
on estimates using discounted cash flows and other valuation
techniques. The use of discounted cash flows can be
significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. The
following disclosures should not be considered a surrogate
of the liquidation value of the Company or its bank
subsidiaries, but rather a good faith estimate of the
increase or decrease in value of financial instruments held
by the Company since purchase, origination, or issuance.
Cash and Short-Term Investments
-------------------------------
For cash, due from banks, federal funds sold and
interest-bearing deposits with other banks, the carrying
amount is a reasonable estimate of fair value.
Investment Securities
---------------------
Fair values for investment securities are based on quoted
market prices.
Loans
-----
The fair value of fixed rate loans is estimated by
discounting the future cash flows using the current rates at
which similar loans would be made to borrowers with similar
credit ratings. For variable rate loans, the carrying amount
is a reasonable estimate of fair value.
Deposits
--------
The fair value of demand deposits, savings, and certain
money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed maturity
certificates of deposit is estimated by discounting the
future cash flows using the rates currently offered for
deposits of similar remaining maturities.
Repurchase Agreements
---------------------
The fair value of repurchase agreements is approximately
equal to the carrying value as a result of their short
remaining lives and their market interest rates.
Commitments to Extend Credit and Standby Letters of Credit
----------------------------------------------------------
Because commitments to extend credit and standby letters of
credit are made using variable rates, the contract value is
a reasonable estimate of fair value.
Limitations
-----------
Fair value estimates are made at a specific point in time,
based on relevant market information and information about
the financial instrument. These estimates do not reflect any
premium or discount that could result from offering for sale
at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a
significant portion of the Company's financial instruments,
fair value estimates are based on many judgments. These
estimates are subjective in nature and involve uncertainties
and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on and
off-balance sheet financial instruments without attempting
to estimate the value of anticipated future business and the
value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities
that are not considered financial instruments include the
deferred income taxes, premises and equipment, and goodwill.
In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been
considered in the estimates.
38<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(16) Fair Value of Financial Instruments, continued
----------------------------------------------
The carrying amount and estimated fair values of the
Company's financial instruments at December 31, 1995 and
1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
----------------------- -----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Assets:
Cash and short-term investments $ 27,652 27,652 22,102 22,102
Investment securities available for sale $ 64,515 64,515 35,670 35,670
Investment securities held to maturity - - 35,592 34,779
Loans $ 109,881 109,366 103,417 101,514
Liabilities:
Deposits $ 180,474 180,789 176,682 176,716
Repurchase agreements $ 2,350 2,350 6,715 6,715
Unrecognized financial instruments:
Commitments to extend credit $ 13,295 13,295 8,522 8,522
Standby letters of credit $ 10 10 - -
</TABLE>
39
<PAGE>
[LETTERHEAD] EVANS, PORTER, BRYAN & CO.
1800 GAS LIGHT TOWER
235 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30303
404-586-0133
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Central and Southern Holding Company and Subsidiaries
We have audited the accompanying consolidated balance sheets of
Central and Southern Holding Company and subsidiaries as of
December 31, 1995 and 1994, and the related statements of
operations, changes in 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. The consolidated financial statements for the year ended
December 31, 1993 were audited by other auditors whose report
dated January 22, 1994 expressed an unqualified opinion on those
financial statements.
We conducted our audits in accordance with generally accepted
auditing standards. 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 1995 and 1994 consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Central and Southern Holding
Company and subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for the
years then ended, in conformity with generally accepted
accounting principles.
/s/ Evans, Porter, Bryan & Co.
Atlanta, Georgia
January 19, 1996
40
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 19, 1996, accompanying
the consolidated financial statements incorporated by reference
in the Annual Report of Central and Southern Holding Company on
Form 10-K for the year ended December 31, 1995. We hereby
consent to the incorporation by reference of said report in the
Registration Statement of Central and Southern Holding Company on
Form S-8 (File No. 33-82518, effective August 5, 1994 as
amended).
/s/ Evans, Porter, Bryan & Co.
Atlanta, Georgia
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000815032
<NAME> CENTRAL AND SOUTHERN HOLDING CO/GA
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 8564
<INT-BEARING-DEPOSITS> 2400
<FED-FUNDS-SOLD> 16687
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 64515
<INVESTMENTS-CARRYING> 64515
<INVESTMENTS-MARKET> 64515
<LOANS> 114406
<ALLOWANCE> 4190
<TOTAL-ASSETS> 207849
<DEPOSITS> 180474
<SHORT-TERM> 2350
<LIABILITIES-OTHER> 2364
<LONG-TERM> 0
0
0
<COMMON> 3777
<OTHER-SE> 18883
<TOTAL-LIABILITIES-AND-EQUITY> 207849
<INTEREST-LOAN> 11190
<INTEREST-INVEST> 4202
<INTEREST-OTHER> 883
<INTEREST-TOTAL> 16275
<INTEREST-DEPOSIT> 8307
<INTEREST-EXPENSE> 8381
<INTEREST-INCOME-NET> 7893
<LOAN-LOSSES> (1038)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6683
<INCOME-PRETAX> 3182
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2559
<EPS-PRIMARY> .68
<EPS-DILUTED> .68
<YIELD-ACTUAL> 4.28
<LOANS-NON> 796
<LOANS-PAST> 12
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4313
<CHARGE-OFFS> 1236
<RECOVERIES> 2151
<ALLOWANCE-CLOSE> 4190
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
EXHIBIT 99
CENTRAL AND SOUTHERN HOLDING COMPANY
P.O. Drawer 748
150 West Greene Street
Milledgeville, Georgia 31061
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held On April 25, 1996
The Annual Meeting of Shareholders of Central and Southern
Holding Company (the "Company") will be held on Thursday, April
25, 1996, at 3:00 p.m. at the Milledgeville Country Club,
Sinclair Dam Road, Milledgeville, Georgia, for the purposes of
considering and voting upon the following matters, all of which
are described in the attached Proxy Statement:
1. The election of ten directors to constitute the Board
of Directors to serve until the next Annual Meeting and until
their successors are elected and qualified; and
2. Such other matters as may properly come before the
meeting or any adjournment thereof.
Only shareholders of record at the close of business on
March 13, 1996 will be entitled to notice of and to vote at the
meeting or any adjournment thereof.
A Proxy Statement and a Proxy solicited by the Board of
Directors are enclosed herewith. Please sign, date and return
the Proxy promptly in the enclosed business reply envelope. If
you attend the meeting, you may, if you wish, withdraw your Proxy
and vote in person.
Also enclosed is a copy of the Company's 1995 Annual Report
to Shareholders.
By Order of the Board of
Directors,
Robert C. Oliver
President
March 27, 1996
PLEASE COMPLETE AND RETURN THE ENCLOSED PROXY PROMPTLY SO
THAT YOUR VOTE MAY BE RECORDED AT THE MEETING IF YOU DO NOT
ATTEND PERSONALLY.
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY
P.O. Drawer 748
150 West Greene Street
Milledgeville, Georgia 31061
PROXY STATEMENT
This Proxy Statement is furnished in connection with the
solicitation of Proxies by the Board of Directors of Central and
Southern Holding Company (the "Company") for use at the Annual
Meeting of Shareholders of the Company to be held on April 25,
1996, and any adjournment thereof, for the purposes set forth in
the accompanying notice of the meeting. The expenses of this
solicitation, including the cost of preparing and mailing this
Proxy Statement, will be paid by the Company. Copies of
solicitation materials may be furnished to banks, brokerage
houses and other custodians, nominees and fiduciaries for
forwarding to beneficial owners of shares of the Company's common
stock, par value $1.00 per share (the "Common Stock"), and normal
handling charges may be paid for such forwarding service. In
addition to solicitations by mail, directors and regular
employees of the Company may solicit Proxies in person or by
telephone. It is anticipated that this Proxy Statement and the
accompanying Proxy will first be mailed to shareholders on March
27, 1996.
The record of shareholders entitled to vote at the Annual
Meeting was taken as of the close of business on March 13, 1996.
On that date, the Company had issued and outstanding 3,777,617
shares of the Common Stock, each entitled to one vote per share.
Any Proxy given pursuant to this solicitation may be revoked
by any shareholder who attends the meeting and gives oral notice
of his or her election to vote in person, without compliance with
any other formalities. In addition, any Proxy given pursuant to
this solicitation may be revoked prior to the meeting by
delivering an instrument revoking it or a duly executed Proxy
bearing a later date to the Secretary of the Company. If the
Proxy is properly completed and returned by the shareholder and
is not revoked, it will be voted at the meeting in the manner
specified thereon. If the Proxy is returned but no choice is
specified thereon, it will be voted for all the persons named
below under the caption "Information about Nominees for
Director."
THE COMPANY WILL FURNISH WITHOUT CHARGE A COPY OF ITS ANNUAL
REPORT ON FORM 10-K FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995, INCLUDING
FINANCIAL STATEMENTS AND SCHEDULES, TO ANY RECORD OR BENEFICIAL
OWNER OF THE COMMON STOCK AS OF MARCH 13, 1996 WHO REQUESTS A
COPY OF SUCH REPORT. ANY REQUEST FOR THE FORM 10-K REPORT SHOULD
BE IN WRITING AND ADDRESSED TO:
MR. MICHAEL E. RICKETSON
CENTRAL AND SOUTHERN HOLDING COMPANY
P.O. DRAWER 748
MILLEDGEVILLE, GEORGIA 31061
IF THE PERSON REQUESTING THE REPORT WAS NOT A SHAREHOLDER OF
RECORD ON MARCH 13, 1996, THE REQUEST MUST INCLUDE A
REPRESENTATION THAT THE PERSON WAS A BENEFICIAL OWNER OF THE
COMMON STOCK ON THAT DATE. COPIES OF ANY EXHIBITS TO THE FORM
10-K WILL ALSO BE FURNISHED ON REQUEST AND UPON THE PAYMENT OF
THE COMPANY'S EXPENSE IN FURNISHING THE EXHIBITS.
-1-
<PAGE>
VOTING SECURITIES AND PRINCIPAL HOLDERS
The following table sets forth as of January 1, 1996,
beneficial ownership of the Common Stock by each "person" (as
that term is defined by the Securities and Exchange Commission)
known by the Company to be the beneficial owner of more than five
percent (5%) of the Company's voting securities, by each director
of the Company, and by all directors and executive officers of
the Company as a group.
<TABLE>
<CAPTION>
Number of Shares Percent
Name and address of Beneficial Owner Owned Beneficially of Class
- ------------------------------------ ------------------ ---------
<S> <C> <C>
Jerry M. McRee 323,025 8.55% (1)
1690 Cardinal Road
Milledgeville, GA 31061
Robert C. Oliver 76,285 1.99% (2)
Albert F. Gandy 70,301 1.85%
George S. Carpenter, Jr. 20,484 * (3)
Alan V. Davis 2,885 *
Donald N. Ellis 1,100 *
John H. Ferguson 97,871 2.60% (4)
Ralph A. Harrington 100,030 2.65% (5)
C. Steve McQuaig 20,707 *
Gay H. Morgan 19,085 * (6)
Thomas E. Owen, Jr. 24,077 * (7)
All Directors and Executive Officers as a Group (11 persons) 473,146 12.34%(8)
___________________
</TABLE>
* Less than one percent (1%).
(1) Does not include 25,325 shares owned by Mr. McRee's wife, as
to which shares he disclaims beneficial ownership. Pursuant
to an Order of Prohibition From Further Participation (the
"Order") issued by the Federal Deposit Insurance Corporation
("FDIC"), dated November 8, 1993, Mr. McRee is prohibited
from voting or granting a proxy to vote the shares owned by
him (323,025 shares) for directors, until the Order is
terminated by the FDIC. The Order does not affect the
25,325 shares owned by Mr. McRee's wife.
(2) Includes 20,972 shares owned through individual retirement
accounts, and 1,233 shares held by Mr. Oliver in a custodial
account for his children, as to which shares Mr. Oliver
exercises voting power. Includes currently exercisable
options to purchase 50,000 shares of the Common Stock
granted to Mr. Oliver by the Board of Directors.
(3) Includes 6,062 shares owned through an individual retirement
account. Does not include 1,687 shares owned by Mr.
Carpenter's wife, as to which shares he disclaims beneficial
ownership.
-2-
<PAGE>
(4) Includes 40,982 shares held by Dr. Ferguson as trustee for
the Pension Plan and Trust of John H. Ferguson, D.D.S.,
P.C., and 21,792 shares held by Dr. Ferguson as trustee for
the Profit Sharing Plan and Trust of John H. Ferguson,
D.D.S., P.C.
(5) Does not include 21,250 shares held by Mr. Harrington's
wife, as to which shares he disclaims beneficial ownership.
(6) Includes 7,750 shares held by Mrs. Morgan as custodian for
her children. Does not include 2,000 shares owned by Mrs.
Morgan's husband, as to which shares she disclaims
beneficial ownership.
(7) Includes 5,457 shares owned by Mr. Owen through an
individual retirement account, and 6,142 shares which Mr.
Owen and his wife own jointly and over which they share
voting and investment power.
(8) Does not include 24,937 shares owned by spouses of
directors, as to which such directors disclaim beneficial
ownership. Includes currently exercisable options to
purchase 57,875 shares of Common Stock that have been
granted to executive officers.
NOMINATION AND ELECTION OF DIRECTORS
(PROPOSAL 1)
The bylaws of the Company provide that the Board of
Directors will consist of not less than two nor more than twelve
directors. The number of directors is currently set at ten by
Board resolution. The number of directors may be increased or
decreased from the foregoing range from time to time by the Board
of Directors by amendment of the bylaws, but no decrease may have
the effect of shortening the term of an incumbent director. The
terms of office for directors continue until the next annual
meeting and until their successors are elected and qualified.
Each Proxy executed and returned by a shareholder will be
voted as specified thereon by the shareholder. If no
specification is made, the Proxy will be voted for the election
of the nominees named below to constitute the entire Board of
Directors. In the event that any nominee withdraws or for any
reason is not able to serve as a director, the Proxy will be
voted for such other person as may be designated by the Board of
Directors as a substitute nominee, but in no event will the Proxy
be voted for more than ten nominees. Management of the Company
has no reason to believe that any nominee will not serve if
elected. All the nominees are currently directors of the Company.
Directors are elected by a plurality of the votes cast by
the holders of the shares entitled to vote in an election at a
meeting at which a quorum is present. A quorum is present when
the holders of a majority of the shares outstanding on the record
date are present at a meeting in person or by proxy. An
abstention and a broker non-vote would be included in determining
whether a quorum is present at a meeting, but would not have an
effect on the outcome of a vote for directors.
-3-
<PAGE>
INFORMATION ABOUT NOMINEES FOR DIRECTOR
The following information as of January 1, 1996 has been
furnished by the respective nominees for director. Except as
otherwise indicated, each nominee has been or was engaged in his
present or last principal employment, in the same or a similar
position, for more than five years.
<TABLE>
<CAPTION>
Name (Age) Information About Nominee
--------- -------------------------
<S> <C>
Robert C. Oliver (47)..... President, CEO and Director of The Central
and Southern Bank of Georgia
("Milledgeville"), a wholly-owned
subsidiary of the Company, since October
1992 and President, CEO and Director of
the Company and Director of The Central
and Southern Bank of Greensboro
("Greensboro"), a wholly-owned subsidiary
of the Company, since January 1993. Prior
to September 1992, Mr. Oliver was Senior
Vice President and Regional Executive of
Wachovia Bank of Georgia.
Albert F. Gandy (62)..... Chairman of the Board of the Company since
January 1993. Mr. Gandy has been a
Director of Milledgeville since 1973 and
of the Company since 1980. From 1984
until his retirement in September 1993,
Mr. Gandy served as General Manager of the
Meadows Division of William Barnet & Son,
Inc., a manufacturer of carpet yarns, and
from 1993 through September 1995 he was a
consultant to William Barnet & Son, Inc.
George S. Carpenter, Jr. (65).. A Director of Milledgeville since 1976 and
of the Company since 1980, Mr. Carpenter
is an attorney.
Alan V. Davis (42)..... A Director of the Company since April
1995, Mr. Davis is the President and owner
of Potato Creek Co., a manufactured
housing sales company. From 1975 through
1992, Mr. Davis was employed by The Bibb
Company, a textile manufacturer, and from
1990 through 1994 Mr. Davis owned Georgia
Headwear & Apparel, a clothing
manufacturer. Mr. Davis is a Director of
The Bibb Company.
Donald N. Ellis (51)..... A Director of Greensboro since 1985,
Chairman of the Greensboro Board since
1992 and a Director of the Company since
1993. From 1970 until his retirement in
1996, Mr. Ellis was a plant manager for
Universal Rundle Corporation.
John H. Ferguson (52)..... A Director of Milledgeville since 1977 and
of the Company since 1980, Dr. Ferguson
became Secretary of the Company in 1987
and is an orthodontist.
Ralph A. Harrington (71)... A Director of Milledgeville since 1960,
Chairman of the Board of Milledgeville
since January 1993 and Director of the
Company since 1980, Mr. Harrington is
President of Harrington Milling Company,
Inc., a farm supply operation.
-4-
<PAGE>
Name (Age) Information About Nominee
---------- -------------------------
C. Steve McQuaig (46)..... A Director of Milledgeville and the
Company since 1984, Dr. McQuaig is a
physician and President of Milledgeville
Ophthalmology Associates, P.C.
Gay H. Morgan (43)..... A Director of Milledgeville and the
Company since 1990, Mrs. Morgan is owner
of Gay Morgan Interiors.
Thomas E. Owen, Jr. (65)... A Director of Milledgeville and the
Company since 1986, Mr. Owen is President
and Chief Operating Officer of Protective
Laundry and Cleaners, Inc.
</TABLE>
There are no family relationships between any director,
executive officer or nominee for director of the Company or any
of its subsidiaries.
EXECUTIVE COMPENSATION
The Company did not pay any remuneration to its executive
officers during the year ended December 31, 1995, other than
directors' fees to the executive officer who served on the Board
of Directors of the Company. The following table sets forth the
annual and other compensation paid by the Company, Milledgeville
and Greensboro to Robert C. Oliver, President and Chief Executive
Officer of the Company, the only executive officer of the Company
who was paid $100,000 or more during 1995.
<TABLE>
<CAPTION>
Summary Compensation Table
Long-Term
Annual Compensation Compensation
------------------- -------------
Awards
-------------
Securities
Underlying
Name and Principal Options/SARs All Other
Positions During 1995 Year Salary(1) Bonus Other (No. of Shares) Compensation
---- --------- ----- ----- --------------- ------------
<S> <C> <C> <C> <C> <S> <C>
Robert C. Oliver . . . . . . . . . 1995 $ 143,100 $35,351 $--(2) -- $ 5,738(4)
President, Chief Executive Officer 1994 135,100 30,000 --(2) -- 2,700
and Director of the Company; 1993 130,000 25,000 554(3) 50,000 --
President, Chief Executive Officer
and Director of Milledgeville;
Director of Greensboro
___________________________
</TABLE>
(1) Includes amounts received as directors' fees for
Milledgeville, Greensboro and the Company, as applicable.
Directors' fees for the Company were suspended in 1993 and
reinstated in May of 1994.
(2) Perquisites do not meet the Securities and Exchange
Commission threshold for disclosure.
(3) The "other annual compensation" for Mr. Oliver includes
taxes paid by the Company on Mr. Oliver's behalf with
respect to reimbursed moving expenses, but excludes
perquisites which do not meet the Securities and Exchange
Commission threshold for disclosure.
(4) All other compensation for Mr. Oliver is equal to the amount
paid by the Company to match Mr. Oliver's contributions to
the Company's profit-sharing plan.
-5-
<PAGE>
In May 1994, the Company's Board of Directors reinstated
payment of directors' fees by the Company following suspension of
the fees in February 1993 until the Company's financial condition
improved. Members of the Board currently receive $500 each month
for their services as directors.
The Company has never granted restricted stock, stock
appreciation rights or similar awards to any of its present or
past executive officers, except for the grant of stock options
under the Central and Southern Holding Company Key Individual
Stock Option Plan (the "Plan").
OPTION GRANTS. Mr. Oliver was not granted any options
during the 1995 fiscal year.
OPTION FISCAL YEAR-END VALUES. Shown below is information
with respect to unexercised options to purchase the Company's
Common Stock granted under the Plan to Mr. Oliver and held by him
at December 31, 1995.
<TABLE>
<CAPTION>
Fiscal Year-End Option Values
No. of Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Held at December 31, 1995 at December 31, 1995(1)
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Robert C. Oliver.... 50,000 -- $243,750 --
</TABLE>
(1) Based on the closing sale price of $9.125 of the Common
Stock on The NASDAQ National Market at December 28, 1995
(the last day during 1995 on which any shares of the Common
Stock were traded), less the aggregate exercise price of the
option.
PENSION PLAN. Effective April 15, 1994, the Company's
defined benefit pension plan (the "Pension Plan") was amended to
freeze future benefit accruals. As a result, after such date, an
employee's benefit accruals under the Pension Plan will not
increase.
The following table shows the estimated annual pension
benefit payable to participating employees, including officers,
under the Company's defined benefit pension plan (the "Pension
Plan"), in the earnings and years of service categories
indicated. Such annual pension benefits are calculated based on
a straight life annuity basis commencing at age 65 and reflect an
offset for social security benefits. The benefits shown are
subject to statutory limitations that may require an employee's
benefit to be reduced.
-6-
<PAGE>
RETIREMENT PLAN OF CENTRAL AND SOUTHERN HOLDING COMPANY
BENEFIT ILLUSTRATION
<TABLE>
<CAPTION>
Years of Service
------------------------------------------------------
Average 35 or more
Earnings 15 Years 20 Years 25 Years 30 Years Years
-------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C>
$ 25,000 $ 4,365 $ 5,820 $ 7,275 $ 8,730 $10,185
$ 50,000 10,914 14,552 18,190 21,828 25,466
$ 75,000 17,717 23,622 29,528 35,433 41,339
$100,000 24,519 32,692 40,865 49,038 57,211
$125,000 31,322 41,762 52,203 62,643 73,084
$150,000 38,124 50,832 63,540 76,248 88,956
$175,000 38,124 50,832 63,540 76,248 88,956
$200,000 38,124 50,832 63,540 76,248 88,956
$225,000 38,124 50,832 63,540 76,248 88,956
$250,000 38,124 50,832 63,540 76,248 88,956
$275,000 38,124 50,832 63,540 76,248 88,956
$300,000 38,124 50,832 63,540 76,248 88,956
$325,000 38,124 50,832 63,540 76,248 88,956
</TABLE>
Annual pension benefits are based upon the employee's years
of service and final average annual earnings, with an offset for
social security benefits, all determined as of April 15, 1994,
and an assumed retirement date of January 1, 1996. "Annual
Earnings" include regular basic compensation paid to an employee
for services during a calendar year (including all pre-tax
employee contributions made to the company's profit-sharing
plan), but exclude bonuses, overtime, commissions or any other
remuneration of any kind. "Final Average Annual Earnings" means
the average annual earnings of the employee during the 60
completed calendar months (or completed calendar months of
employment if less than 60) immediately preceding the earliest of
the employee's retirement, termination of employment or death,
whichever is applicable. Prior to 1993, Mr. Oliver did not
participate in the Pension Plan; therefore, he has less than
three years of credited service for purposes of determining
benefits payable under the Pension Plan.
TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL ARRANGEMENT.
On August 31, 1993, the Company and Mr. Oliver entered into an
Agreement (the "Agreement") which provides that Mr. Oliver shall
be paid a lump sum cash payment equal to his previous year's
salary, subject to certain limitations, in the event of his
voluntary or involuntary termination, as defined in the
Agreement, following or immediately preceding a change in control
of the Company, as defined in the Agreement. The Agreement
provides for a rolling term, such that each day the term renews
for a two-year period unless and until the Company provides
notice that the term of the Agreement shall cease to renew. At
such time, the term of the Agreement shall become two years from
the date of such notice.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors of the Company set the compensation
of Mr. Oliver for the 1995 fiscal year. The compensation for Mr.
Oliver and the Company's other executive officer for the 1995
fiscal year was set by Mr. Oliver and reviewed by the
compensation committee and the entire Board. Mr. Oliver did not
participate in any decisions regarding his own compensation as an
executive officer.
-7-
<PAGE>
George S. Carpenter, Jr., a director of the Company, is an
attorney in Milledgeville, Georgia who, from time to time,
handles various legal matters for Milledgeville.
JOINT REPORT ON EXECUTIVE COMPENSATION
General
The objective of the Company's compensation program is to
support the attainment of increased shareholder value by seeking
to ensure that the total compensation packages for executive
officers of the Company, Milledgeville and Greensboro, including
the President and Chief Executive Officer, are linked to business
and strategic goals and are consistent with other financial
institutions in the region that are similar in size and
performance. The Company's executive compensation programs are
designed to attract, motivate and retain qualified executives
whose performance is critical to the long-term success of the
Company. To this end, the Company provides a compensation
program for executive and key officers consisting of three
elements: a base salary, a discretionary annual bonus program,
and grants of stock options.
Salaries
In 1995, all Board members reviewed the salaries of
executive officers, including Mr. Oliver's salary. Mr. Oliver
did not participate in any deliberations regarding his own
salary. Mr. Oliver's salary has been increased to $135,000 for
1996. The salary of the other executive officer of the Company
is set by Mr. Oliver, and reviewed by the compensation committee
and the entire Board.
Factors considered by the Board and Mr. Oliver in setting
salaries include the experience of the executive officer, Mr.
Oliver's subjective assessment of the level of responsibility and
challenge of the position and the performance of the officer, as
well as the compensation offered to individuals in similar
positions at other southeastern bank holding companies with
assets of $200 million to $500 million. The Company engages
outside consultants in determining comparative compensation
information on other financial institutions. Although the
evaluation of the factors upon which a salary increase is based
is largely subjective, salaries are set according to a wage and
salary administration program prepared by outside consultants.
Salaries paid by the Company are generally less than the median
salaries paid to individuals in similar positions by southeastern
bank holding companies with assets $200 million to $500 million.
Incentive Compensation
Awards under the Company's formal incentive compensation
plan are based on the Company's attainment of growth in total
assets and earnings objectives, which are measured according to
pre-tax return on assets. Under the incentive plan, officers can
receive a cash bonus equal to from 10% to 20% of their base
salaries if the Company achieves certain financial objectives. A
matrix of growth and earnings is used to determine the percentage
of an executive's salary that the Company will pay as a bonus
under the incentive plan. During 1995, the compensation
committee met once to discuss the award of cash bonuses under the
Company's formal incentive plan for executive and key officers.
On December 21, 1995, the full Board approved an aggregate of
$174,591 in incentive payments under the plan to 15 officers,
including Mr. Oliver.
-8-
<PAGE>
Discretionary cash bonuses were also awarded to employees
not eligible under the formal incentive plan in the aggregate
amount of $20,525 in 1995. 83 employees received discretionary
bonuses. The Board anticipates the discretionary payment of
bonuses for 1996 only if financial objectives outlined under the
incentive plan are met.
Stock Option Grants Under the Plan
In 1992, the Company undertook an informal survey of the
long-term incentive practices of southeastern bank holding
companies. Based on the results of that informal survey and
because the Board believed that executive officers should hold
equity stakes in the Company, the Board determined that the award
of stock options to key officers based on salary levels was the
best mechanism for long-term incentive compensation.
Accordingly, the Board elected to make key officers of the
Company, Milledgeville and Greensboro, including Senior Vice
Presidents and above, eligible for awards of stock options
granted at the Board's discretion. Options to acquire 22,000
shares of Common Stock were awarded by the Board to officers
during fiscal 1995.
COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS
George S. Carpenter, Jr.
C. Steve McQuaig
Gay H. Morgan
CENTRAL AND SOUTHERN HOLDING COMPANY BOARD OF DIRECTORS
George S. Ralph A. Harrington
Carpenter, Jr.
Alan V. Davis C. Steve McQuaig
Donald N. Ellis Gay H. Morgan
John H. Ferguson Robert C. Oliver
Albert F. Gandy Thomas E. Owen, Jr.
SHAREHOLDER RETURN PERFORMANCE GRAPH
Set forth below is a line graph comparing the yearly
percentage change in the cumulative total shareholder return on
the Company's Common Stock against the cumulative total return on
The Nasdaq Stock Market (U.S. Companies) Index and The Nasdaq
Bank Stocks Index for the period commencing on December 31, 1990
and ending on December 31, 1995.
[GRAPH APPEARS HERE]
Company Nasdaq Stock Nasdaq Bank
Stock Market Stocks
-------- ------------ -----------
12/31/90 100 100 100
6/28/91 113.455 128.414 135.668
12/31/91 107.307 160.564 164.092
6/30/92 93.42 154.282 200.583
12/31/92 88.23 186.866 238.854
6/30/93 98.61 194.026 255.413
12/31/93 96.015 214.511 272.395
6/30/94 134.94 195.885 290.479
12/31/94 132.933 209.686 271.41
6/30/95 154.277 261.361 328.073
12/29/95 191.937 296.304 404.353
-9-
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Milledgeville and Greensboro have had, and expect to have in
the future, banking transactions in the ordinary course of
business with directors and officers of the Company and their
associates, including corporations in which such officers or
directors are shareholders, directors and/or officers, on the
same terms (including interest rates and collateral) as those
prevailing at the time for comparable transactions with other
persons. Such transactions have not involved more than the
normal risk of collectibility or presented other unfavorable
features.
George S. Carpenter, Jr., a director of the Company, is an
attorney in Milledgeville, Georgia who, from time to time,
handles various legal matters for Milledgeville.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held 15 meetings during 1995. All of
the directors attended at least seventy-five percent (75%) of the
meetings of the Board and committees of the Board on which they
sat during their tenure as directors.
The Board of Directors does not have a standing nominating
committee. It has an examining and audit committee, which during
1995 was composed of Dr. Ferguson and Messrs. Owen, Ellis and
Davis. The examining and audit committee held three meetings
during 1995. The examining and audit committee reviews financial
controls and the methods of preparation of the Company's
financial statements, evaluates audit performance and reports on
such matters to the Board. The membership of the examining and
audit committee has not changed for the current fiscal year.
The compensation committee administers the Plan. The
compensation committee, which during 1995 was composed of Mr.
Carpenter, Dr. McQuaig and Mrs. Morgan, held one meeting during
1995. The compensation committee is currently composed of the
same members as during the 1995 fiscal year.
INFORMATION CONCERNING THE COMPANY'S ACCOUNTANTS
Evans, Porter, Bryan & Company ("Evans, Porter") was the
principal independent public accountant for the Company during
the year ended December 31, 1995. Representatives of Evans,
Porter are expected to be present at the Annual Meeting and will
have the opportunity to make a statement if they desire to do so
and to respond to appropriate questions.
Evans, Porter was chosen by the Board of Directors to
replace the firm of KPMG Peat Marwick LLP ("KPMG") as auditors of
the Company on April 5, 1994 upon the recommendation of the
examining and audit committee. KPMG's report on the Company's
consolidated financial statements for the years ended December
31, 1992 and 1993 contained a description of cease and desist
orders (the "Orders") under which Milledgeville and Greensboro
operated in late 1992 and throughout 1993 and indicated that the
financial impact, if any, of regulatory sanctions that might
result from the failure of Milledgeville and Greensboro to meet
capital or other requirements of the Orders was uncertain. The
1992 and 1993 financial statements did not include any adjustment
that might result from the uncertainties.
During the two years ended December 31, 1993, there were no
disagreements with KPMG on any matters of accounting principles
or practices, financial statement disclosures or auditing scope
or procedures which, if not resolved to the satisfaction of KPMG,
would have caused KPMG to make reference to the matter in their
report.
-10-
<PAGE>
The Company has selected Evans, Porter to continue as the
accountant for the Company for the current year.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the
Company's 1997 Annual Meeting must be received by December 26,
1996, in order to be eligible for inclusion in the Company's
Proxy Statement and Proxies for that meeting.
OTHER MATTERS THAT MAY COME BEFORE THE MEETING
Management of the Company knows of no matters other than
those stated above that are to be brought before the meeting. If
any other matters should be presented for consideration and
voting, however, it is the intention of the persons named as
proxies in the enclosed Proxy to vote in accordance with their
judgment as to what is in the best interest of the Company.
By Order of the Board of
Directors,
Robert C. Oliver
President
Dated: March 27, 1996
-11-
<PAGE>
COMMON STOCK
OF CENTRAL AND SOUTHERN HOLDING COMPANY
THIS PROXY IS SOLICITED BY THE BOARD OF
DIRECTORS FOR THE 1996 ANNUAL MEETING OF SHAREHOLDERS.
The undersigned hereby appoints Robert C. Oliver and Michael
E. Ricketson, or either of them, with power of substitution to
each, the proxies of the undersigned to vote the Common Stock of
the undersigned at the Annual Meeting of Shareholders of CENTRAL
& SOUTHERN HOLDING COMPANY to be held on April 25, 1996, and any
adjournment thereof.
1. / / FOR all nominees for director listed below (except as
marked to the contrary);
Robert C. Oliver; Albert F. Gandy; George S. Carpenter, Jr.;
Donald N. Ellis; John H. Ferguson; Ralph A. Harrington; C. Steve
McQuaig; Gay H. Morgan; Thomas E. Owen, Jr.; Alan V. Davis.
(Instruction: To withhold authority to vote for any individual
nominee, write that nominee's name on the space provided below)
_______________________________________________________________
/ / WITHHOLD AUTHORITY to vote for all nominees listed
above.
2. In accordance with their best judgment with respect to any
other matters that may properly come before the meeting.
THE BOARD OF DIRECTORS FAVORS A VOTE "FOR" THE ELECTION AS
DIRECTORS OF THE PERSONS NAMED IN THE PROXY AND ACCOMPANYING
PROXY STATEMENT, AND UNLESS INSTRUCTIONS TO THE CONTRARY ARE
INDICATED IN THE SPACE PROVIDED, THIS PROXY WILL BE SO VOTED.
------------------------------------------------------
Please sign this Proxy
exactly as name appears
on the Proxy.
Note: When signing as an attorney, trustee,
administrator or guardian, please give your title as
such. In the case of joint tenants, each joint owner
must sign.
Date:_________________________________________________
-12-
