FORM 10 Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission file number 0-15945
CENTRAL AND SOUTHERN HOLDING COMPANY
(Exact name of registrant as specified in its charter)
Georgia 58-1413533
- ------------------------------- -------------------
(State or other jurisdiction of (IRS employer
incorporation or organization) identification no.)
150 West Greene St.
Milledgeville, Georgia 31061
- --------------------------------------- ---------
(address of principal executive offices) (zip code)
Registrants telephone number, including area code 912-452-5541
------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at June 30, 1996
- -------------------------- ----------------------------
Common stock, $1 par value 3,656,547
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
Part I. Page
Item 1. Consolidated condensed financial statements............3
Item 2. Management's discussion and analysis of financial
condition and results of operation.....................7
Part II.
Item 1. Legal proceedings.....................................13
Item 2. Changes in securities.................................13
Item 3. Defaults upon senior securities.......................13
Item 4. Submission of matters to a vote of security holders...13
Item 5. Other information.....................................13
Item 6. Exhibits and reports on Form 8-K......................13
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
<TABLE>
<CAPTION>
(unaudited)
Assets June 30, 1996 December 31, 1995
(dollar amounts in thousands)
<S> <C> <C>
Cash and due from banks..................... $8,030 $8,564
Federal funds sold.......................... 11,870 16,687
Interest-bearing deposits with other banks.. 646 2,400
Securities available for sale approximate
amortized cost of $73,228 and $63,607 at
June 30, 1996 and December 31, 1995........ 72,915 64,515
Loans....................................... 117,120 114,406
Less: Unearned income....................... (152) (334)
Allowance for loan losses............. (4,232) (4,190)
------- -------
Net loans............................. 112,736 109,881
Premises and equipment...................... 4,434 2,878
Other assets................................ 2,778 2,923
------- -------
Total assets $213,409 $207,849
======== ========
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Noninterest-bearing.................... $17,382 $16,669
Interest-bearing....................... 170,177 163,805
------- -------
Total deposits.................... 187,559 180,474
Short term borrowing..................... 2,100 2,350
Other liabilities........................ 1,310 2,365
------- -------
Total liabilities................ 190,969 185,189
------- -------
Shareholders' Equity:
Preferred stock, 2,000,000 shares authorized,
none issued --- ---
Common stock, $1 par value; authorized
10,000,000 shares; issued
3,777,017 shares...................... 3,777 3,777
Additional paid in capital............... 6,492 6,492
Unrealized gain (loss) on investment securities,
net of tax............................. (210) 599
Retained earnings........................ 13,487 12,339
Treasury stock, at cost (120,470 and 59,528 shares) (1,106) (547)
------- -------
Total shareholders' equity...... 22,440 22,660
------- -------
Total liabilities and shareholders' equity $213,409 $207,849
======== ========
See notes to consolidated financial statements.
</TABLE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
---------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30
(dollar amounts in thousands except per share data)
<S> <C> <C>
Interest Income 1996 1995
---- ----
Loans, including fees............................. $2,873 $2,726
Investment securities:
Tax-exempt................................ 150 162
Taxable................................... 913 870
Federal funds sold................................ 248 249
----- -----
Total interest income..................... 4,184 4,007
----- -----
Interest Expense:
Deposits.................................... 2,177 2,109
Other borrowings............................ 33 11
----- -----
Total interest expense.................... 2,210 2,120
----- -----
Net interest income....................... 1,974 1,887
Provision for loan losses................................. (260) (300)
----- -----
Net interest income after provision for loan losses....... 2,234 2,187
----- -----
Noninterest Income:
Service charges on deposit accounts.............. 178 171
Gain (loss) on sale of securities................ -- --
Other noninterest income......................... 116 120
----- -----
Total noninterest income................. 294 291
Noninterest Expense:
Salaries and employee benefits................... 885 828
Net occupancy and equipment expense.............. 194 199
Other noninterest expense........................ 484 645
----- -----
Total noninterest expense................ 1,563 1,672
----- -----
Earnings before income taxes............. 965 806
Income taxes.............................................. 183 175
----- -----
Net earnings............................. $782 $631
======== ========
Per Share Information:
Net earings...................................... $0.21 $0.17
Weighted average shares outstanding.............. 3,664,739 3,777,017
See notes to consolidated financial statements.
</TABLE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
---------------------------------------------
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30
(dollar amounts in thousands except per share data)
<S> <C> <C>
Interest Income 1996 1995
---- ----
Loans, including fees.............................. $5,834 $5,435
Investment securities:
Tax-exempt.................................. 300 325
Taxable..................................... 1,789 1,742
Federal funds sold................................. 499 473
----- -----
Total interest income....................... 8,423 7,975
----- -----
Interest Expense:
Deposits..................................... 4,339 4,069
Other borrowings............................. 53 62
----- -----
Total interest expense...................... 4,393 4,131
----- -----
Net interest income......................... 4,030 3,844
Provision for loan losses.................................. (560) (500)
----- -----
Net interest income after provision for loan losses........ 4,590 4,344
----- -----
Noninterest Income:
Services charges on deposit accounts.............. 346 340
Gain (loss) on sale of securities................. -- (232)
Other noninterest income.......................... 219 341
----- -----
Total noninterest income.................. 565 449
----- -----
Noninterest Expense:
Salaries and employee benefits.................... 1,797 1,558
Net occupancy and equipment expense............... 394 383
Other noninterest expense......................... 986 1,257
----- -----
Total noninterest expense................. 3,177 3,198
----- -----
Earnings before income taxes.............. 1,979 1,595
Income taxes............................................... 455 357
----- -----
Net earnings.............................. $1,524 $1,238
======== ========
Per Share Information:
Net earnings...................................... $0.41 $0.33
Weighted average shares outstanding............... 3,674,318 3,777,017
See notes to consolidated financial statements.
</TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
(dollar amounts in thousands)
<S> <C> <C>
Cash flows from operating activities
Net earnings $1,524 $1,238
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Provision for loan losses (560) (500)
Depreciation expense 188 197
Amortization and accretion, net 40 72
Loss (Gain) on sale of securities -- 232
Changes in assets and liabilities:
Decrease in other assets 120 1,264
Decrease in other liabilities (638) (581)
------ ------
Net cash provided by operating activities 674 676
------ ------
Cash flows from investing activities:
Decrease (increase) in interest earning deposits 2,400 (1,900)
Proceeds from maturities and pay-downs of investment securities 7,686 5,438
Proceeds from sales of investment securities available for sale -- 3,757
Purchases of investment securities (17,972) (6,028)
Net (increase) decrease in loans (2,295) 2,554
Additions to premises and equipment (1,744) (129)
------ ------
Net cash provided by (used in) investing activities (11,925) 3,692
------ ------
Cash flows from financing activities:
Net (decrease) increase in deposits 7,085 (334)
Net increase (decrease) in short term borrowings (250) (6,615)
Cash dividends paid (377) (311)
Purchase of treasury stock (558) --
------ ------
Net cash provided by (used in) financing activities 5,900 (7,260)
------ ------
Net decrease in cash and cash equivalents (5,351) (1,647)
Cash and cash equivalents at beginning of period 25,251 22,102
------ ------
Cash and cash equivalents at end of period $19,900 $20,455
====== =======
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest 4,549 4,314
Income taxes 300 80
See notes to consolidated financial statements.
</TABLE>
Central and Southern Holding Company
and Subsidiaries
Notes to Consolidated Condensed Financial Statements
(1) Basis of Presentation
The consolidated condensed financial statements include the accounts
of Central and Southern Holding Company (the "Company") and its wholly owned
subsidiaries, The Central and Southern Bank of Georgia and The Central
and Southern Bank of North Georgia, formerly The Central and Southern Bank
of Greensboro. All significant intercompany accounts and transactions have
been eliminated in consolidation.
The consolidated condensed financial statements reflect all adjustments
which are, in the opinion of management, necessary to fairly present the
consolidated financial position and results of operations for the periods
covered herein and should be read in conjunction with the Annual Report
on Form 10-K. All such adjustments are of a normal recurring nature.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Financial Condition
At the end of the second quarter 1996, total assets had increased $5,560,000
from December 31, 1995. Total loans, net of unearned, increased $2,897,000
from December 31, 1995. The loan increase is attributable to increase demand
for loans in the markets the Company serves. Balance sheet growth is being
enhanced by the Company's expansion program. The Central and Southern Bank
of North Georgia, formerly The Central and Southern Bank of Greensboro,
became a federally chartered savings bank April 1, 1996. The primary reason
for conversion to a saving bank was to take advantage of branching
capabilities under the savings charter which are restrictive for commercial
banks in the State of Georgia. The branching will allow the Company to expand
into growth markets within the State.
Total liabilities increased $5,780,000 from year end 1995. Short term
borrowings declined as the Company paid down $250,000 of a repurchase
agreement since year end 1995. Noninterest bearing deposits were up $713,000
by the end of the quarter due in part to the cyclical nature of these
deposits.
The Company paid a $.0525 dividend on its common stock on June 30, 1996. The
financial strength of the Company continues to improve along with the ability
to pay and possibly increase the dividend payout.
Results of Operations
For the three-month period, ended June 30,the Company recorded net income of
$782,000 as compared to $631,000 for the same period in 1995. This net
increase is due primarily to the following:
Net interest income increased $87,000.
Total noninterest expense declined $109,000.
The reasons for these changes are discussed below.
For the six-month period, ended June 30, the Company recorded net income of
$1,524,000 as compared to $1,238,000 for the same period in 1995. This net
increase is due primarily to the following:
Net interest income increased $186,000.
Total noninterest income increased $116,000.
Total noninterest expense declined $21,000.
The reasons for these changes are discussed below.
Net Interest Income
- -------------------
Net interest income remained relatively stable in comparing the three month
periods. However, average earning assets increased approximately $9 Million
and interest-bearing liabilities averages increased approximately $7 Million.
Interest earning assets increased proportionally in loans and investment
which brought the yield on earning assets down by four basis points.
Likewise, the mix of interest-bearing liabilities remained constant as did
the cost of interest-bearing liabilities which was 5.24% for both 1995 and
1996 periods. The net interest margin decreased slightly from the comparable
period to 4.09% from 4.10%.
For the six-month period, net interest income is up $186,000. The main reason
for the increase is due to average interest earning assets increasing $8.5
Million while interest bearing liabilities increasing only $5 Million. The
net interest margin declined slightly to 4.19% compared to 4.21% for the
comparable period.
Provision for Loan Losses
- -------------------------
The Company recorded a negative provision of $260,000 for the 2nd quarter
1996. The Company had net recoveries during the quarter of $267,000 from
prior period charge offs, the majority of recoveries being sales finance
loans. Management anticipates the net recovery trend will continue due to
the anticipated decline in charge offs and continued recoveries of prior
period charge offs. Management will monitor and adjust the level of the
allowance for loan losses in relation to this net recovery stream as well as
the overall level of the allowance for loan losses to loans outstanding.
The Company recorded a negative provision of $560,000 for the six-month
period ended June 30, 1996. Net recoveries for the period were $601,000.
ASSET QUALITY (in thousands) 6/30/96 12/31/95 Change Percent
Loans past due 90 days or more $0 $12 (12) -100.0%
Nonaccrual loans 187 796 (609) -76.5%
---- ---- ----
Total nonperforming loans 187 808 (621) -76.9%
Other real estate owned 301 594 (293) -49.3%
---- ---- ----
Total nonperforming assets $488 $1,402 (914) -65.2%
===== ===== =====
Nonperforming loans/Total loans 0.16% 0.71%
Nonperforming assets/Total assets 0.24% 0.67%
Nonperforming Assets
- --------------------
The table above illustrates the changes in the level of
nonperforming assets over the past quarters. Declining past due
loans and workouts of nonaccrual loans have contributed to the
improved condition. The coverage ratios have improved
dramatically over the same periods. Management anticipates
the levels of nonperforming loans and assets to remain at
relatively low levels.
Noninterest Income
- ------------------
The Company's main source of noninterest income is service
charges on deposit accounts which are up slightly in comparison
to last year.
The loss on the sale of securities of $232,000 in 1995 was the
major contributor of the overall increase for the six months
period in 1996.
Noninterest Expense
- -------------------
Salaries and occupancy expense are up due to the Company's recent
hiring of additional personnel required to open two new branches
of a subsidiary bank. Other noninterest expenses are down for
the three-month period due to the overall improved operations of
the Company. The Company has taken necessary steps to improve
its efficiencies without harming the delivery of services through
the consolidation of several administrative and clerical
functions. Management does not expect to see continued
improvement in the noninterest expenses of the Company in the
near future due to expansion of the Company's banking markets and
the additional short term costs associated with the process.
For the six-month period, ended June 30, 1996, the majority of the
$21,000, decrease in noninterest expense has been in other operating
expenses mainly FDIC insurance premium reductions. Salaries and
employee benefits are up $239,000 due to the increased staffing
necessary for the opening of a new branch banks of a subsidiary.
Interest Rate Sensitivity Management
- ------------------------------------
Interest rates play a major part in the net interest income of a
financial institution. The sensitivity to rate changes is known
as "interest rate risk." The repricing of interest-earning
assets and interest-bearing liabilities can influence the changes
in net interest income. As part of the Company's asset/liability
management program, the timing of repricing assets and
liabilities is referred to as Gap management. It is the policy
of the Company to maintain a Gap ratio in the one year time
horizon of .80 to 1.20. The table below has two measures of Gap,
regulatory and management adjusted. The regulatory Gap considers
only contractual maturities or repricings. The management
adjusted Gap considers such things as prepayments on certain
interest rate sensitive assets and the circumstances under which
core deposits are repriced. Although interest-bearing
transaction accounts are available to reprice in the three-month
window, historical experience shows these deposits to be more
stable over the course of one year. This management adjusted Gap
indicates the Company to be somewhat asset sensitive in relation
to changes in market interest rates.
<TABLE>
<CAPTION>
GAP ANALYSIS (cumulative)
Regulatory Defined
3-month 6-month 1-year
(dollars in thousands)
----------------------------------
<S> <C> <C> <C>
Rate Sensitive Assets (RSA) 65,370 84,961 104,910
Rate Sensitive Liabilities(RSL) 69,792 93,373 127,067
------ ------ ------
RSA minus RSL (Gap) (4,422) (8,412) (22,157)
====== ======= =======
Gap Ratio (RSA/RSL) .94 .91 .83
</TABLE>
<TABLE>
<CAPTION>
Management Defined
3-month 6-month 1-year
(dollars in thousands)
-------------------------------
<S> <C> <C> <C>
Rate Sensitive Assets (RSA) 69,218 93,158 117,456
Rate Sensitive Liabilities(RSL) 45,632 74,045 112,571
------ ------ ------
RSA minus RSL (Gap) 23,586 19,113 4,885
====== ======= ======
Gap Ratio (RSA/RSL) 1.52 1.26 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 a most likely interest rate scenarios allow
management to monitor and adjust interest rate sensitivity to minimize
the impact of market interest rate swings. Each month management updates
all available data concerning cash flows of assets and liabilities,
changes in market interest rates, and expectations as to new volumes
of loans.
LIQUIDITY
Liquidity is an important factor in the financial condition of
the Company and affects the Company's ability to meet the borrowing needs
and deposit withdrawal requirements of its customers. Assets, consisting
principally of loans and investment securities, are funded by customer
deposits, purchased funds and borrowed funds.
The investment portfolio is one of the Company's primary
sources of liquidity. Maturities of securities provide a constant flow
of funds which are available for cash needs. Investment securities that
contractually mature within one year total $13.2 Million. However,
mortgage-backed securities and securities with call provisions create cash
flows earlier than the contractual maturities. Estimates of prepayments
on mortgage-backs and call provisions on other securities increase the
forecasted cash flow from the investment portfolio within one year to
approximately $33.0 Million. Maturities in the loan portfolio also
provide a steady flow of funds. The projected repayments on the
Company's sales finance portfolio are $1.5 Million within one year. The
Company's liquidity also continues to be enhanced by a relatively stable
core deposit base. At June 30, 1996, the loan to deposit ratio was 62%.
SHAREHOLDERS' EQUITY
The Company maintains a ratio of shareholders' equity to total assets
that is adequate relative to industry standards. The Company's ratio of
shareholders' equity to total assets was 10.52% at June 30, 1996, compared
to 10.90% at December 31, 1995.
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.
Capital Levels
<TABLE>
<CAPTION>
Milledgeville North Georgia Consolidated
------------- ------------- ------------
<S> <C> <C> <C>
Tier 1 Capital Leverage Ratio 10.80% 7.50% 9.97%
Tier 1 Risk-based Capital Ratio 17.95% 11.55% 16.12%
Tier 2 Risk-based Capital Ratio 1.25% 1.25% 1.25%
-------- ------- ----------
Total Risk-based Capital Ratio 19.20% 12.80% 17.37%
========= ======= ==========
</TABLE>
Part II. Other Information
Item 1. Legal Proceedings
(Not Applicable)
Item 2. Changes in Securities
(Not Applicable)
Item 3. Defaults Upon Senior Securities
(Not Applicable)
Item 4. Submissions of Matters to a Vote of Securities Holders
(Not Applicable)
Item 5. Other Information
(Not Applicable)
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
Exhibit No. 27 Financial Data Schedule
(B) No reports filed on Form 8-K
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Corporation has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
CENTRAL AND SOUTHERN HOLDING COMPANY
- ------------------------------------
Registrant
Date 8/13/96 /s/ Robert C. Oliver
Robert C. Oliver
President & Chief Executive Officer
Date 8/13/96 /s/ Michael E. Ricketson
Michael E. Ricketson
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000815032
<NAME> CENTRAL AND SOUTHERN HOLDING
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 8,030
<INT-BEARING-DEPOSITS> 646
<FED-FUNDS-SOLD> 11,870
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 72,915
<INVESTMENTS-CARRYING> 73,228
<INVESTMENTS-MARKET> 0
<LOANS> 116,968
<ALLOWANCE> 4,232
<TOTAL-ASSETS> 213,409
<DEPOSITS> 187,559
<SHORT-TERM> 2,100
<LIABILITIES-OTHER> 1,310
<LONG-TERM> 0
0
0
<COMMON> 3,777
<OTHER-SE> 18,663
<TOTAL-LIABILITIES-AND-EQUITY> 213,409
<INTEREST-LOAN> 2,873
<INTEREST-INVEST> 1,063
<INTEREST-OTHER> 248
<INTEREST-TOTAL> 4,184
<INTEREST-DEPOSIT> 2,177
<INTEREST-EXPENSE> 2,210
<INTEREST-INCOME-NET> 1,974
<LOAN-LOSSES> (260)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,563
<INCOME-PRETAX> 965
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 782
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
<YIELD-ACTUAL> 4.09
<LOANS-NON> 187
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,190
<CHARGE-OFFS> 99
<RECOVERIES> 366
<ALLOWANCE-CLOSE> 4,232
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
