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 September 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 912-457-3500
------------
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 September 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 September 30, 1996 December 31, 1995
(dollar amounts in thousands)
<S> <C> <C> <C>
Cash and due from banks............................ $7,472 $8,564
Federal funds sold................................. 15,783 16,687
Interest-bearing deposits with other banks......... 645 2,400
Securities available for sale approximate
amortized cost of $69,072 and $63,607 at
September 30, 1996 and December 31, 1995.......... 68,900 64,515
Loans.............................................. 120,869 114,406
Less: Unearned income.............................. (103) (334)
Allowance for loan losses.................... (4,190) (4,190)
------- -------
Net loans.................................... 116,576 109,882
Premises and equipment............................. 5,576 2,878
Other assets....................................... 2,884 2,923
------- -------
Total assets $217,836 $207,849
======== ========
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Noninterest-bearing......................... $18,088 $16,669
Interest-bearing............................ 171,775 163,805
------- -------
Total deposits......................... 189,863 180,474
Short term borrowings.............................. 3,038 2,350
Other liabilities.................................. 1,858 2,365
------- -------
Total liabilities.......................... 194,759 185,189
------- -------
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....................................... (114) 599
Retained earnings.................................. 14,042 12,339
Treasury stock, at cost (121,213 and 59,528 shares) (1,120) (547)
------- -------
Total shareholders' equity................... 23,077 22,660
------- -------
Total liabilities and shareholders' equity $217,836 $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 September 30
(dollar amounts in thousands except per share data)
<S> <C> <C>
Interest income 1996 1995
---- ----
Loans, including fees.................................. $3,046 $2,811
Investment securities:
Tax-exempt...................................... 147 156
Taxable......................................... 986 944
Federal funds sold..................................... 177 176
----- -----
Total interest income........................... 4,356 4,087
----- -----
Interest expense:
Deposits.......................................... 2,229 2,096
Other borrowings.................................. 35 1
----- -----
Total interest expense.......................... 2,264 2,097
----- -----
Net interest income............................. 2,092 1,990
Provision for loan losses...................................... (270) (250)
----- -----
Net interest income after provision for loan losses............ 2,362 2,240
----- -----
Noninterest income:
Service charges on deposit accounts.................... 179 170
Gain (loss) on sale of securities...................... -- --
Other noninterest income............................... 113 35
----- -----
Total noninterest income....................... 292 205
----- -----
Noninterest expense:
Salaries and employee benefits......................... 953 782
Net occupancy and equipment expense.................... 238 90
Other noninterest expense.............................. 542 645
----- -----
Total noninterest expense...................... 1,733 1,517
----- -----
Earnings before income taxes................... 921 928
Income taxes................................................... 158 260
----- -----
Net earnings................................... $762 $668
======== ========
Per Share Information:
Net earings................................................. $0.21 $0.18
Weighted average shares outstanding......................... 3,656,547 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>
Nine Months Ended September 30
(dollar amounts in thousands except per share data)
1996 1995
---- ----
<S> <C> <C>
Interest income
Loans, including fees...................................... $8,881 $8,245
Investment securities:
Tax-exempt......................................... 448 481
Taxable............................................ 2,774 2,686
Federal funds sold......................................... 676 649
----- -----
Total interest income.............................. 12,779 12,062
----- -----
Interest Expense:
Deposits.............................................. 6,568 6,166
Other borrowings...................................... 89 63
----- -----
Total interest expense.............................. 6,657 6,229
----- -----
Net interest income................................. 6,122 5,833
Provision for loan losses.......................................... (830) (750)
----- -----
Net interest income after provision for loan losses................ 6,952 6,583
----- -----
Noninterest Income:
Service charges on deposit accounts........................... 525 509
Gain (loss) on sale of securities............................. -- (228)
Other noninterest income...................................... 332 373
----- -----
Total noninterest income.............................. 857 655
----- -----
Noninterest Expense:
Salaries and employee benefits............................. 2,750 2,340
Net occupancy and equipment expense........................ 633 239
Other noninterest expense.................................. 1,527 2,137
----- -----
Total noninterest expense.......................... 4,910 4,716
----- -----
Earnings before income taxes....................... 2,899 2,522
Income taxes....................................................... 613 617
----- -----
Net earnings....................................... $2,286 $1,905
======== ========
Per Share Information:
Net earnings.............................................. $0.62 $0.51
Weighted average shares outstanding....................... 3,668,163 3,777,017
See notes to consolidated financial statements.
</TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
(dollar amounts in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $2,286 $1,905
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Provision for loan losses (830) (750)
Depreciation expense 288 283
Amortization and accretion, net 109 111
Loss (gain) on sale of securities -0- 228
Changes in assets and liabilities:
(Increase) Decrease in other assets (57) 1,330
Decrease in other liabilities (140) (255)
------ ------
Net cash provided by operating activities 1,656 2,852
------ ------
Cash flows from investing activities:
Decrease (increase) in interest earning deposits 2,400 (1,100)
Proceeds from maturities and pay-downs of investment securities 14,435 10,191
Proceeds from sales of investment securities available for sal -0- 3,757
Purchases of investment securities (20,558) (13,524)
Net increase in loans (5,865) (195)
Additions to premises and equipment (2,986) (517)
------ ------
Net cash used in investing activities (12,574) (1,388)
------ ------
Cash flows from financing activities:
Net (decrease) increase in deposits 9,389 (192)
Net increase (decrease) in short term borrowings 688 (6,615)
Cash dividends paid (582) (481)
Purchase of treasury stock (573) --
------ ------
Net cash provided by (used in) financing activities 8,922 (7,288)
------ ------
Net decrease in cash and cash equivalents (1,996) (5,824)
Cash and cash equivalents at beginning of period 25,251 22,102
------ ------
Cash and cash equivalents at end of period $23,255 $16,278
====== =======
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest 6,502 6,241
Income taxes 838 140
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 third quarter 1996, total assets had increased
$9,987,000 from December 31, 1995. Total loans, net of unearned,
increased $6,694,000 from December 31, 1995. The loan increase is
attributable to increased demand for loans in the markets the
Company serves. Balance sheet growth is being enhanced by the
Company's expansion program. The Company branched into Barrow
County, Georgia during the second quarter and the Barrow County
operation has contributed to the overall growth of the balance
sheet. Another branch will open in November in Hall County,
Georgia, to capitalize on this high growth area of the state. The
Central and Southern Bank of North Georgia, formerly The Central and
Southern Bank of Greensboro, became a federally chartered savings
bank on 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 $9,570,000 from year-end 1995.
Noninterest-bearing deposits were up $1,419,000 by the end of the
quarter due in part to the cyclical nature of these deposits.
Interest-bearing deposits were up $7,970,000 due to the new markets
being opened by the Company.
The Company paid a $.0575 dividend on its common stock on September
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 September 30,the Company recorded
net income of $762,000 as compared to $668,000 for the same period
in 1995. This net increase is due primarily to the following:
Net interest income increased $102,000.
Total noninterest income increased $87,000.
Total noninterest expense increased $216,000.
The reasons for these changes are discussed below.
For the nine-month period ended September 30, the Company recorded net
income of $2,286,000 as compared to $1,905,000 for the same period in
1995. This net increase is due primarily to the following:
Net interest income increased $289,000.
Total noninterest income increased $202,000.
Total noninterest expense increased $194,000.
The reasons for these changes are discussed below.
Net Interest Income
- -------------------
Net interest income increased moderately in comparing the three month
periods. However, average earning assets increased approximately $15
million and average interest-bearing liabilities increased approximately
$14 million. Yields on earning assets declined by ten (10) basis points
and costs of interest-bearing liabilities decreased by three (3) basis
points. The net interest margin decreased slightly from the comparable
period to 4.20% from 4.30%.
For the nine-month period, net interest income is up $289,000. The main
reason for the increase is due to average interest-earning assets
increasing $9.8 million while interest-bearing liabilities increasing only
$6.9 million. The net interest margin declined slightly to 4.21% compared
to 4.22% for the comparable period.
Provision for Loan Losses
- -------------------------
The Company recorded a negative provision of $270,000 for the third
quarter 1996. The Company had net recoveries during the quarter of
$230,000 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 $830,000 for the nine-month
period ended September 30, 1996. Net recoveries for the period were
$830,000.
ASSET QUALITY (in thousands) 9/30/96 12/31/95 Change Percent
Loans past due 90 days or more $117 $12 (105) -875.0%
Nonaccrual loans 476 796 (320) -40.2%
---- ---- ----
Total nonperforming loans 593 808 (215) -26.6%
Other real estate owned 306 594 (288) -48.5%
---- --- ----
Total nonperforming assets $899 $1,402 (503) -35.9%
===== ===== =====
Nonperforming loans/Total loans 0.49% 0.71%
Nonperforming assets/Total assets 0.41% 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 $228,000 in 1995 was the major
contributor of the overall increase for the nine-month 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. Through the consolidation of several administrative and
clerical functions, the Company has taken necessary steps to improve
its efficiencies without harming the delivery of services.
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 nine-month period ended September 30, 1996, noninterest expense is
up $194,000. Salaries and employee benefits are up $410,000 due to the
increased staffing necessary for the opening of 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) 84,122 98,985 116,795
Rate Sensitive Liabilities(RSL) 80,947 103,638 137,280
------ ------ ------
RSA minus RSL (Gap) 3,175 (4,653) (20,485)
====== ======= =======
Gap Ratio (RSA/RSL) 1.04 .96 .85
</TABLE>
<TABLE>
<CAPTION>
Management Defined
3-month 6-month 1-year
(dollars in thousands)
-------------------------------
<S> <C> <C> <C>
Rate Sensitive Assets (RSA) 84,234 99,001 116,244
Rate Sensitive Liabilities(RSL) 60,473 88,063 126,604
------ ------ ------
RSA minus RSL (Gap) 23,761 10,938 (10,360)
====== ======= =======
Gap Ratio (RSA/RSL) 1.39 1.12 .92
</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
scenario allows 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 $6.2
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 $20.0
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 million within one year. The Company's
liquidity also continues to be enhanced by a relatively stable core
deposit base. At September 30, 1996, the loan-to-deposit ratio was
63.6%.
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 10.59%
at September 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 11.47% 7.90% 10.31%
Tier 1 Risk-based Capital Ratio 19.15% 10.91% 16.53%
Tier 2 Risk-based Capital Ratio 1.25% 1.25% 1.25%
----- ----- -----
Total Risk-based Capital Ratio 20.40% 12.16% 17.78%
====== ====== ======
</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 /s/ Robert C. Oliver
Robert C. Oliver
President & Chief Executive Officer
Date /s/ Michael E. Ricketson
Michael E. Ricketson
Chief Accounting Officer
1
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000815032
<NAME> CENTRAL AND SOUTHERN HOLDING
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 7,472
<INT-BEARING-DEPOSITS> 645
<FED-FUNDS-SOLD> 15,783
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 68,900
<INVESTMENTS-CARRYING> 69,072
<INVESTMENTS-MARKET> 0
<LOANS> 120,766
<ALLOWANCE> 4,190
<TOTAL-ASSETS> 217,836
<DEPOSITS> 189,863
<SHORT-TERM> 3,038
<LIABILITIES-OTHER> 1,858
<LONG-TERM> 0
0
0
<COMMON> 3,777
<OTHER-SE> 19,300
<TOTAL-LIABILITIES-AND-EQUITY> 217,836
<INTEREST-LOAN> 3,046
<INTEREST-INVEST> 1,133
<INTEREST-OTHER> 177
<INTEREST-TOTAL> 4,356
<INTEREST-DEPOSIT> 2,229
<INTEREST-EXPENSE> 2,264
<INTEREST-INCOME-NET> 2,092
<LOAN-LOSSES> (270)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,733
<INCOME-PRETAX> 921
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 762
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
<YIELD-ACTUAL> 4.21
<LOANS-NON> 476
<LOANS-PAST> 117
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,190
<CHARGE-OFFS> 105
<RECOVERIES> 334
<ALLOWANCE-CLOSE> 4,190
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
