FORM 10 Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 April 20, 1996
- -------------------------- -----------------------------
Common stock, $1 par value 3,670,223
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
Part I. Page
Item 1. Consolidated condensed financial statements.................. 3
Item 2. Management's discussion and analysis of financial
condition and results of operations.......................... 7
Part II.
Item 1. Legal proceedings............................................ 12
Item 2. Changes in securities........................................ 12
Item 3. Defaults upon senior securities.............................. 12
Item 4. Submission of matters to a vote of security holders.......... 12
Item 5. Other information............................................ 12
Item 6. Exhibits and reports on Form 8-K............................. 12
2
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
<TABLE>
<CAPTION>
(unaudited)
ASSETS MARCH 31, 1996 DECEMBER 31, 1995
(dollar amounts in thousands)
<S> <C> <C>
Cash and due from banks......................... $ 7,554 $ 8,564
Federal funds sold.............................. 15,234 16,687
Interest-bearing deposits with other banks...... 400 2,400
Securities available for sale approximate
amortized cost of $67,284 and $63,607 at
March 31, 1996 and December 31, 1995........... 67,683 64,515
Loans........................................... 113,843 114,406
Less: Unearned income........................... (225) (334)
Allowance for loan losses................. (4,224) (4,190)
------- -------
Net loans................................. 109,394 109,880
Premises and equipment.......................... 3,976 2,878
Other assets.................................... 2,815 2,923
------- -------
TOTAL ASSETS $207,056 $207,849
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing..................... $ 15,340 $ 16,669
Interest-bearing........................ 165,613 163,805
------- -------
Total deposits..................... 180,953 180,474
Repurchase agreements........................... 2,100 2,350
Other liabilities............................... 1,558 2,365
------- -------
TOTAL LIABILITIES....................... 184,611 185,189
------- -------
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.................................... 265 599
Retained earnings............................... 12,895 12,339
Treasury stock, at cost (106,794 and 59,528 shares) (984) (547)
------- -------
TOTAL SHAREHOLDERS' EQUITY............. 22,445 22,660
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $207,056 $207,849
======= =======
See accompanying notes to consolidated condensed financial statements.
</TABLE>
3
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
---------------------------------------------
(unaudited)
-----------
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
---------------------------
(dollar amounts in thousands except per share data)
<S> <C> <C>
INTEREST INCOME 1996 1995
---- ----
Loans, including fees................................................ $ 2,962 $ 2,709
Investment securities:
Tax-exempt................................................... 151 163
Taxable...................................................... 876 873
Federal funds sold................................................... 250 223
------ ------
TOTAL INTEREST INCOME........................................ 4,239 3,968
------ ------
INTEREST EXPENSE:
Deposits........................................................ 2,163 1,960
Other borrowings................................................ 20 51
------ ------
TOTAL INTEREST EXPENSE....................................... 2,183 2,011
------ ------
Net interest income.......................................... 2,056 1,957
Provision for loan losses..................................................... (300) (200)
------ ------
Net interest income after provision for loan losses........................... 2,356 2,157
------ ------
NONINTEREST INCOME:
Service charges on deposit accounts.................................. 168 169
Gain (loss) on sale of securities.................................... --- (232)
Other noninterest income............................................. 103 222
------ ------
TOTAL NONINTEREST INCOME..................................... 271 159
------ ------
NONINTEREST EXPENSE:
Salaries and employee benefits....................................... 912 730
Net occupancy and equipment expense.................................. 199 184
Other noninterest expense............................................ 501 612
------ ------
TOTAL NONINTEREST EXPENSE.................................... 1,613 1,526
------ ------
Earnings before income taxes ................................ 1,014 790
Income taxes.................................................................. 272 182
------ ------
Net earnings................................................. $ 742 $ 608
====== ======
PER SHARE INFORMATION:
Net Earnings ........................................................ $ 0.20 $ .16
Weighted average shares outstanding ................................. 3,683,957 3,777,017
See accompanying notes to consolidated condensed financial statements.
</TABLE>
4
<PAGE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
1996 1995
---- ----
(dollar amounts in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 742 $ 608
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Provision for loan losses (300) (200)
Depreciation expense 101 97
Amortization and accretion, net 21 41
Loss (Gain) on sale of securities -- 232
Changes in assets and liabilities:
Decrease in other assets 97 579
Decrease in other liabilities (635) (681)
----- -----
Net cash provided by operating activities 26 676
----- -----
Cash flows from investing activities:
Decrease (increase) in interest earning deposits 2,000 (1,000)
Proceeds from maturities and pay-downs of investment securities 4,054 1,831
Proceeds from sales of investment securities available for sale -- 3,755
Purchases of investment securities (7,737) (1,904)
Net decrease in loans 787 329
Additions to premises and equipment (1,199) (69)
------ ------
Net cash provided by (used in) investing activities (2,095) 2,942
------ ------
Cash flows from financing activities:
Net (decrease) increase in deposits 479 (914)
Net increase in short term borrowings (250) (3,950)
Cash dividends paid (187) (151)
Purchase of treasury stock (436) --
------ ------
Net cash (used in) financing activities (394) (5,015)
------ ------
Net decrease in cash and cash equivalents (2,463) (1,397)
Cash and cash equivalents at beginning of period 25,251 22,102
------ ------
Cash and cash equivalents at end of period $ 22,788 $20,705
====== ======
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest $ 2,167 $ 1,980
Income taxes $ 150
See accompanying notes to consolidated condensed financial statements.
</TABLE>
5
<PAGE>
Central and Southern Holding Company
and Subsidiaries
Notes to Consolidated Condensed Financial Statements
(1) Basis of Presentation
The consolidated condensed financial statements include the accounts of
Central and Southern Holding Company (the "Company") and its wholly owned
subsidiaries, The Central and Southern Bank of Georgia and The Central
and Southern Bank of Greensboro. All significant intercompany accounts
and transactions have been eliminated in consolidation.
The consolidated condensed financial statements reflect all adjustments
which are, in the opinion of management, necessary to fairly present the
consolidated financial position and results of operations for the periods
covered herein and should be read in conjunction with the Annual Report
on Form 10-K. All such adjustments are of a normal recurring nature.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION
At the end of the first quarter 1996, total assets had declined $793,000
from December 31, 1995. Total loans declined $563,000 from December 31,
1995. The loan decline is the result of the sales finance portfolio
maturing rolloff of $1.5 Million during the same time period. However,
increases in commercial and real estate loans helped offset the sales
finance rolloff during the period.
Total liabilities decreased $578,000 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 down
$1.3 Million by the end of the quarter due in part to the cyclical nature
of these deposits.
The Company paid a $.05 dividend on its common stock on March 31, 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, the Company recorded net income of $742,000
as compared to $608,000 for the same period in 1995. This net increase
is due primarily to the following:
Net interest income increased $99,000.
A negative provision for loan losses increased pretax income $100,000
over the comparable periods.
Total noninterest income increased $112,000.
Total noninterest expense declined $87,000.
The reasons for these changes are discussed below.
Net Interest Income
- -------------------
Net interest income remained relatively stable in comparing the like
periods. However, average earning assets increased approximately $8
Million and interest-bearing liabilities averages increased approximately
$4 Million. These increases represent increased loan volume and
increased interest-bearing accounts, mainly certificates of deposit. The
net interest margin increased slightly over the comparable periods to
4.29% from 4.27%.
Provision for Loan Losses
- -------------------------
The Company recorded a negative provision of $300,000 for the quarter.
The Company had net recoveries during the quarter of $334,000 from prior
period charge offs, the majority of recoveries being sales finance
loans. Management anticipates the net recovery situation 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.
7
<PAGE>
Nonperforming Assets
- --------------------
CONSOLIDATED
NON PERFORMING ASSETS 3/31/96 12/31/95 12/31/94
(in thousands) ------ -------- --------
Loans past due 90 days or more $4 $12 $205
Non accrual loans 412 796 1,060
--- ----- -----
Total nonperforming loans 416 808 1,265
Other real estate 547 594 1,110
--- ----- -----
TOTAL NONPERFORMING ASSETS $963 $1,402 $2,375
=== ===== =====
Nonperforming loans/Total loans 0.37% 0.71% 1.17%
Nonperforming assets/Total 0.85% 0.67% 1.16%
Loan loss allowance/Total loans 3.72% 3.67% 4.00%
Loan loss allowance/Nonperforming 1015.38% 518.56% 340.95%
loans
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
continued improvements in the levels of nonperforming loans and
assets.
Noninterest Income
- ------------------
The Company's main source of noninterest income is service
charges on deposit accounts which are flat in comparison to last
year. Overall income is up due in large part to a loss on the
sale of securities taken during the first quarter of 1995.
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.
8
<PAGE>
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) 66,570 82,124 110,219
Rate Sensitive Liabilities (RSL) 72,655 90,085 120,967
------ ------ -------
RSA minus RSL (Gap) (6,085) (7,961) (10,748)
GAP RATIO (RSA/RSL) .92 .91 .91
</TABLE>
<TABLE>
<CAPTION>
Management Defined
3-MONTH 6-MONTH 1-YEAR
(dollars in thousands)
----------------------------------------
<S> <C> <C> <C>
Rate Sensitive Assets (RSA) 69,544 87,570 118,639
Rate Sensitive Liabilities (RSL) 49,004 71,164 106,777
------ ------ -------
RSA minus RSL (Gap) 20,540 16,406 11,862
GAP RATIO (RSA/RSL) 1.42 1.23 1.11
</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.
9
<PAGE>
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 $14.2 Million. Maturities in the loan
portfolio also provide a steady flow of funds. The projected repayments
on the Company's sales finance portfolio are $2 Million within one year.
The Company's liquidity also continues to be enhanced by a relatively
stable core deposit base. At March 31, 1996, the loan to deposit ratio
was 63%.
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 10.60% at March 31,
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."
10
<PAGE>
The Federal Reserve and the FDIC also adopted regulations which
supplement the risk-based guidelines to include a minimum leverage ratio
of 3% of Tier I capital to total assets less goodwill (the "leverage
ratio"). Depending upon the risk profile of the institution and other
factors, the regulatory agencies may require a leverage 1% to 2% higher
than the minimum 3% level.
CAPITAL LEVELS
<TABLE>
<CAPTION>
Milledgeville Greensboro Consolidated
------------- ---------- ------------
<S> <C> <C> <C>
Tier 1 Capital Leverage Ratio 10.57% 7.70% 10.23%
Tier 1 Risk-based Capital Ratio 17.41% 11.63% 16.57%
Tier 2 Risk-based Capital Ratio 1.25% 1.25% 1.25%
------- ------ ------
Total Risk-based Capital Ratio 18.66% 12.88% 17.81%
====== ====== ======
</TABLE>
11
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
(Not Applicable)
Item 2. Changes in Securities
(Not Applicable)
Item 3. Defaults Upon Senior Securities
(Not Applicable)
Item 4. Submissions of Matters to a Vote of Securities Holders
(Not Applicable)
Item 5. Other Information
(Not Applicable)
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits
Exhibit No. 27 Financial Data Schedule
(B) No reports filed on Form 8-K
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Corporation has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENTRAL AND SOUTHERN HOLDING COMPANY
- ------------------------------------
Registrant
Date 5/6/96 /s/ Robert C. Oliver
Robert C. Oliver
President & Chief Executive Officer
Date 5/6/96 /s/ Michael E. Ricketson
Michael E. Ricketson
Chief Accounting Officer
13
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000815032
<NAME> CENTRAL AND SOUTHERN HOLDING
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 7,554
<INT-BEARING-DEPOSITS> 400
<FED-FUNDS-SOLD> 15,234
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 67,683
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 113,843
<ALLOWANCE> 4,224
<TOTAL-ASSETS> 207,056
<DEPOSITS> 180,953
<SHORT-TERM> 2,100
<LIABILITIES-OTHER> 1,558
<LONG-TERM> 0
0
0
<COMMON> 3,777
<OTHER-SE> 18,668
<TOTAL-LIABILITIES-AND-EQUITY> 207,056
<INTEREST-LOAN> 2,962
<INTEREST-INVEST> 1,027
<INTEREST-OTHER> 250
<INTEREST-TOTAL> 4,329
<INTEREST-DEPOSIT> 2,163
<INTEREST-EXPENSE> 2,183
<INTEREST-INCOME-NET> 2,056
<LOAN-LOSSES> (300)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,613
<INCOME-PRETAX> 1,014
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 742
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
<YIELD-ACTUAL> 4.29
<LOANS-NON> 412
<LOANS-PAST> 4
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,190
<CHARGE-OFFS> 56
<RECOVERIES> 390
<ALLOWANCE-CLOSE> 4,224
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
