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, 1997
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 identification no.)
incorporation or organization)
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 March 31, 1997
-------------------------- -----------------------------
Common stock, $1 par value 3,653,523
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.....................................11
Item 2. Changes in securities.................................11
Item 3. Defaults upon senior securities.......................11
Item 4. Submission of matters to a vote of security holders...11
Item 5. Other information.....................................11
Item 6. Exhibits and reports on Form 8-K ....................11
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED CONDENSED BALANCE SHEETS
-------------------------------------
<TABLE>
<CAPTION>
(unaudited)
Assets March 31, 1997 December 31, 1996
(dollar amounts in thousands)
<S> <C> <C>
Cash and due from banks $9,501 $7,907
Federal funds sold 12,396 21,216
Interest-bearing deposits with other banks 0 1,250
Securities available for sale approximate
amortized cost of $67,404 and $64,156 at
March 31, 1997 and December 31, 1996 67,344 64,578
Loans 137,997 126,506
Less: Unearned income (48) (73)
Allowance for loan losses (4,169) (4,164)
------- -------
Net loans 133,780 122,269
Premises and equipment 5,926 5,930
Other assets 3,436 2,636
----- -----
Total assets $232,383 $225,786
======== ========
Liabilities and Shareholders' Equity
Liabilities:
Deposits:
Noninterest-bearing $18,974 $18,088
Interest-bearing 181,179 177,077
------- -------
Total deposits 200,153 195,165
Short Term Borrowings 5,917 5,021
Other liabilities 2,254 1,695
----- -----
Total liabilities 208,324 201,881
------- -------
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 (43) 278
Retained earnings 14,966 14,491
Treasury stock, at cost (123,494 and 123,494 shares) (1,133) (1,133)
------- -------
Total shareholders' equity 24,059 23,905
------ ------
Total liabilities and shareholders' equity $232,383 $225,786
======== ========
See notes to consolidated financial statements.
</TABLE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
-----------------------------------------------------
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
<TABLE> ---------------------------------------------
<CAPTION>
(unaudited)
-----------
Three Months Ended March 31
---------------------------
(dollar amounts in thousands except per share data)
---------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
Interest Income
Loans, including fees $3,250 $2,962
Investment securities:
Tax-exempt 140 151
Taxable 919 876
Federal funds sold 221 250
--- ---
Total interest income 4,530 4,239
----- -----
Interest Expense:
Deposits 2,214 2,163
Other borrowings 65 20
----- -----
Total interest expense 2,279 2,183
----- -----
Net interest income 2,251 2,056
Provision for loan losses (205) (300)
------ ------
Net interest income after provision for loan losses 2,456 2,356
----- -----
Noninterest Income:
Service charges on deposit accounts 199 168
Gain (loss) on sale of securities (10) --
Other noninterest income 116 103
----- -----
Total noninterest income 305 271
----- -----
Noninterest Expense:
Salaries and employee benefits 958 912
Net occupancy and equipment expense 272 200
Other noninterest expense 559 501
----- -----
Total noninterest expense 1,789 1,613
----- -----
Earnings before income taxes 972 1,014
Income taxes 259 272
----- -----
Net earnings $713 $742
===== =====
Per Share Information:
Net Earnings $0.20 $0.20
Weighted average shares outstanding 3,653,523 3,683,957
See notes to consolidated financial statements.
</TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1997 and 1996
(unaudited)
<TABLE>
<CAPTION>
1997 1996
---- ----
(dollar amounts in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net earnings $713 $742
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Provision for loan losses (205) (300)
Depreciation expense 113 101
Amortization and accretion, net 10 21
Loss (gain) on sale of securities 9 ---
Changes in assets and liabilites:
(Increase) decrease in other assets (813) 97
Increase (decrease) in other liabilities 724 (635)
----- -----
Net cash provided by operating activities 551 26
----- -----
Cash flows from investing activities:
Decrease in interest earning deposits 1,250 2,000
Proceeds from maturities and pay-downs of investment securities 5,500 4,054
Proceeds from sales of investment securites available for sale 1,496 --
Purchases of investment securities (10,252) (7,737)
Net decrease (increase) in loans (11,307) 787
Additions to premises and equipment (110) (1,199)
-------- -------
Net cash used in investing activities (13,423) (2,095)
-------- -------
Cash flows from financing activities:
Net increase in deposits 4,988 479
Net increase (decrease)in short term borrowings 896 (250)
Cash dividends paid (238) (187)
Purchase of treasury stock -- (436)
------- -------
Net cash provided by(used in)financing activities 5,646 (394)
------- -------
Net decrease in cash and cash equivalents (7,226) (2,463)
Cash and cash equivalents at beginning of period 29,123 25,251
------- -------
Cash and cash equivalents at end of period $21,897 $22,788
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period:
Interest 2,235 2,167
Income taxes -- 150
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.
(2) Recent Accounting Pronouncements
During 1997, the Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128).
SFAS 128 supersedes APB Opinion 15. SFAS 128 simplifies current standards by
eliminating the presentation of primary earnings per share (EPS) and
requiring the presentation of basic EPS, which includes no potential common
shares and thus no dilution. The Statement also requires entities with
complex capital structures to present basic and diluted EPS on the face of
the income statement and also eliminates the modified treasury stock method
of computing potential common shares. The Statement is effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods. Early application is not permitted. On adoption,
restatement of all prior-period EPS data presented is required. Based upon
the current capital structure of the Company, this Statement should have no
effect on the present EPS calculation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Financial Condition
At the end of the first quarter 1997, total assets had increased $6,597,000
from December 31, 1996. Total loans, increased $11,491,000 from December 31,
1996. 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 of 1996 and the Barrow County operation has
been a major contributor to the overall growth of the balance sheet. Another
branch was opened in November 1996 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 not as restrictive as branching
commercial banks in the State of Georgia. The branching will allow the
Company to expand into growth markets within the state.
Total liabilities increased $6,443,000 from year-end 1996. Noninterest-bearing
deposits were up $886,000 by the end of the quarter due in part to the
cyclical nature of these deposits. Interest-bearing deposits were up
$4,102,000 due to the new markets being opened by the Company.
The Company paid a $.065 dividend on its common stock on March 31, 1997. 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 March 31, the Company recorded net income of
$713,000 as compared to $742,000 for the same period in 1996. This net
decrease is due primarily to the following:
Net interest income increased $195,000.
Negative provision for loan losses decreased $95,000.
Total noninterest income increased $34,000.
Total noninterest expense increased $177,000.
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 $16 million
and average interest-bearing liabilities increased approximately $15 million.
Yields on earning assets declined by eleven (11) basis points and costs of
interest-bearing liabilities decreased by twenty three (23) basis points. The
net interest margin increased from the comparable period to 4.37% from 4.29%.
Provision for Loan Losses
- -------------------------
The Company recorded a negative provision of $205,000 for the first quarter
1997. The Company had net recoveries during the quarter of $209,000 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.
<TABLE>
<CAPTION>
ASSET QUALITY (in thousands) 3/31/97 12/31/96 Change Percent
<S> <C> <C> <C> <C>
Loans past due 90 days of more $77 $0 77 N/A
Nonaccrual loans 378 201 177 88.1%
--- --- ---
Total nonperforming loans 455 201 254 126.4%
Other real estate owned 307 346 (39) -11.3%
--- --- ---- ------
Total nonperforming assets $762 $547 215 39.3%
==== ==== ===
Nonperforming loans/Total loans 0.33% 0.16%
Nonperforming assets/Total assets 0.33% 0.24%
</TABLE>
Nonperforming Assets
- --------------------
The table above illustrates the changes in the level of nonperforming from
year end 1996. The level of nonperforming assets has increased but remain
less than .50%. 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 due to increased
numbers of accounts.
Noninterest Expense
- -------------------
Salaries and occupancy expense are up due to the Company's hiring of
additional personnel required to open two new branches of a subsidiary bank
during 1996. Other noninterest expenses are up for the three-month period due
to the overall increasing size of the operations of the Company. Management
expects to see some slight improvement in the noninterest expenses of the
Company as the costs associated with opening new markets is overcome by loan
and deposit growth.
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.
GAP ANALYSIS (cumulative)
<TABLE>
<CAPTION>
Regulatory Defined
3-month 6-month 1-year
(dollars in thousands)
----------------------------------------
<S> <C> <C> <C>
Rate Sensitive Assets (RSA) 74,409 91,499 119,473
Rate Sensitive Liabilities(RSL) 94,942 115,710 146,838
------ ------- -------
RSA minus RSL (Gap) (20,533) (24,211) (27,365)
======== ======== ========
Gap Ratio (RSA/RSL) .78 .79 .81
Management Defined
3-month 6-month 1-year
(dollars in thousands)
---------------------------------------
Rate Sensitive Assets (RSA) 77,671 98,023 129,258
Rate Sensitive Liabilities(RSL) 72,310 97,605 133,259
------ ------ -------
RSA minus RSL (Gap) 5,361 418 (4,001)
====== ====== =======
Gap Ratio (RSA/RSL) 1.07 1.00 .97
</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 $9.8 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 $13.0 million.
Maturities in the loan portfolio also provide a steady flow of funds. The
Company's liquidity also continues to be enhanced by a relatively stable core
deposit base. At March 31, 1997, the loan-to-deposit ratio was 68%.
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 10.35% at March 31, 1997,
compared to 10.59% at December 31, 1996.
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.
<TABLE>
<CAPTION>
Capital Levels
Milledgeville North Georgia Consolidated
<S> <C> <C> <C>
Tier 1 Capital Leverage Ratio 11.53% 6.74% 10.18%
Tier 1 Risk-based Capital Ratio 18.48% 9.04% 15.23%
Tier 2 Risk-based Capital Ratio 1.25% 1.25% 1.25%
------ ----- ------
Total Risk-based Capital Ratio 19.73% 10.29% 16.48%
====== ====== ======
</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 Robert C. Oliver
---------------- ----------------
Robert C. Oliver
President & Chief Executive Officer
Date Michael E. Ricketson
---------------- --------------------
Michael E. Ricketson
Chief Accounting Officer
19
12
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000815032
<NAME> CENTRAL AND SOUTHERN HOLDING
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,501
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,396
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 67,344
<INVESTMENTS-CARRYING> 67,404
<INVESTMENTS-MARKET> 67,344
<LOANS> 137,997
<ALLOWANCE> 4,169
<TOTAL-ASSETS> 232,383
<DEPOSITS> 200,153
<SHORT-TERM> 5,917
<LIABILITIES-OTHER> 2,254
<LONG-TERM> 0
0
0
<COMMON> 3,777
<OTHER-SE> 20,282
<TOTAL-LIABILITIES-AND-EQUITY> 232,383
<INTEREST-LOAN> 3,250
<INTEREST-INVEST> 1,059
<INTEREST-OTHER> 221
<INTEREST-TOTAL> 4,530
<INTEREST-DEPOSIT> 2,214
<INTEREST-EXPENSE> 2,279
<INTEREST-INCOME-NET> 2,251
<LOAN-LOSSES> (205)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,789
<INCOME-PRETAX> 972
<INCOME-PRE-EXTRAORDINARY> 972
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 713
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
<YIELD-ACTUAL> 4.37
<LOANS-NON> 378
<LOANS-PAST> 77
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,164
<CHARGE-OFFS> 73
<RECOVERIES> 282
<ALLOWANCE-CLOSE> 4,169
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
