<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): JUNE 23, 1997
---------------
PREMIER BANCSHARES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
GEORGIA 0-24528 58-1793778
(State or other jurisdiction of (Commission File No.) (IRS Employer Identification No.)
incorporation or organization)
</TABLE>
2180 ATLANTA PLAZA
950 EAST PACES FERRY ROAD
ATLANTA, GEORGIA 30326
(Address of principal executive offices, including zip code)
(404) 814-3090
(Registrant's telephone number, including area code)
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired
The financial statements for Central and Southern Holding Company were
included in Premier's Form S-4 Registration Statement dated May 20, 1997, file
No. 333-24537 and are contained in Exhibit 99.1 hereto.
(b) Pro Forma Financial Information
The pro forma financial information for the three months ended March
31, 1997 is contained in Exhibit 99.2 and was included in Premier's Form S-4
Registration Statement dated May 20, 1997, File No. 333-24537. The pro forma
financial information for December 31, 1996 and the six months ended June 30,
1997 is contained in Exhibit 99.3.
(c) Exhibits
--------
2.1 Agreement and Plan of Reorganization dated as of February 3, 1997, by
and between Premier and Central and Southern (incorporated by reference from
Premier's Form S-4 Registration Statement File No. 333-24537 (included as
Appendix A)).
2.2 Amendment to Agreement and Plan of Reorganization dated March 26,
1997, by and between Premier and Central and Southern (incorporated by reference
from Premier's Form S-4 Registration Statement File No. 333-24537 (included as
Appendix A)).
99.1 Financial Statements of Central and Southern Holding Company for
fiscal year ended December 31, 1996.
99.2 Pro forma financial information for three months ended March 31, 1997.
99.3 Pro forma financial information included in Premier's Form 10-Q for
the six months ended June 30, 1997.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PREMIER BANCSHARES, INC.
Date: August 27, 1997 /s/ Darrell D. Pittard
-----------------------------------------
Darrell D. Pittard,
Chairman and Chief Executive Officer
<PAGE>
EXHIBIT 99.1
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
-------------- ----------------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS
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 am-
ortized 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 autho-
rized, 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 secu-
rities, 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' equi-
ty...................................... $232,383 $225,786
============== ==============
</TABLE>
See notes to consolidated financial statements.
1
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
----------------------------
1997 1996
------------- -------------
(DOLLAR AMOUNTS IN
THOUSANDS
EXCEPT PER SHARE DATA)
<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
Dividends per share............................ .065 .05
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
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 liabilities:
(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 secu-
rities................................................... 5,500 4,054
Proceeds from sales of investment securities 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
</TABLE>
See notes to consolidated financial statements.
3
<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 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.
4
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
Central and Southern Holding Company and Subsidiaries
We have audited the accompanying consolidated balance sheets of Central and
Southern Holding Company and subsidiaries as of December 31, 1996 and 1995,
and the related statements of earnings, changes in stockholders' equity and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Central
and Southern Holding Company and subsidiaries as of December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
PORTER KEADLE MOORE, LLP
Successor to the practice of
Evans, Porter, Bryan & Co.
Atlanta, Georgia
January 23, 1997
5
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
ASSETS
Cash and due from banks, including reserve require-
ments of $569,000 and $645,000, respectively...... $ 7,906,871 8,564,294
Federal funds sold................................. 21,216,410 16,687,208
------------ -----------
Cash and cash equivalents........................ 29,123,281 25,251,502
Interest-bearing deposits with other banks......... 1,250,000 2,400,000
Investment securities available for sale........... 64,578,022 64,514,785
Loans, net......................................... 122,268,747 109,880,856
Premises and equipment, net........................ 5,930,004 2,878,118
Other assets....................................... 2,635,725 2,923,375
------------ -----------
$225,785,779 207,848,636
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand........................................... $ 18,087,985 16,668,652
Interest-bearing demand.......................... 40,982,045 35,239,329
Savings.......................................... 9,313,083 9,271,407
Time............................................. 126,781,456 119,294,850
------------ -----------
Total deposits................................. 195,164,569 180,474,238
Repurchase agreements.............................. 3,421,170 2,350,000
Note payable....................................... 1,600,000 250,000
Other liabilities.................................. 1,695,429 2,114,000
------------ -----------
Total liabilities.............................. 201,881,168 185,188,238
------------ -----------
Commitments
Stockholders' equity:
Preferred stock, 2,000,000 shares authorized, no
shares issued or outstanding.................... -- --
Common stock, $1 par value; 10,000,000 shares au-
thorized; 3,777,017 shares issued............... 3,777,017 3,777,017
Additional paid-in capital....................... 6,492,246 6,492,246
Unrealized gain on investment securities, net of
tax............................................. 278,250 599,454
Retained earnings................................ 14,490,538 12,339,119
------------ -----------
25,038,051 23,207,836
Treasury stock, at cost (123,494 and 59,528
shares) ........................................ (1,133,440) (547,438)
------------ -----------
Total stockholders' equity..................... 23,904,611 22,660,398
------------ -----------
$225,785,779 207,848,636
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans.............. $11,975,517 11,189,778 11,125,466
Interest on deposits with other banks... 46,186 54,758 297
Interest on federal funds sold.......... 951,539 828,094 776,001
Interest on investment securities:
Taxable............................... 3,625,938 3,530,802 3,956,229
Tax-exempt............................ 637,180 671,062 910,844
----------- ---------- ----------
Total interest income............... 17,236,360 16,274,494 16,768,837
----------- ---------- ----------
Interest expense:
Deposits................................ 8,814,809 8,306,689 8,576,863
Other................................... 141,656 74,771 339,494
----------- ---------- ----------
Total interest expense.............. 8,956,465 8,381,460 8,916,357
----------- ---------- ----------
Net interest income................. 8,279,895 7,893,034 7,852,480
Provision for loan losses................. (1,016,000) (1,038,000) --
----------- ---------- ----------
Net interest income after provision
for loan losses.................... 9,295,895 8,931,034 7,852,480
----------- ---------- ----------
Other operating income:
Service charges......................... 758,488 700,827 742,819
Gains (losses) on sales of investment
securities............................. -- (227,635) 240,975
Other................................... 504,387 460,867 676,270
----------- ---------- ----------
Total other operating income........ 1,262,875 934,059 1,660,064
----------- ---------- ----------
Other operating expenses:
Salaries and employee benefits.......... 3,938,270 3,550,776 3,359,226
Occupancy and equipment................. 882,248 765,752 967,647
Miscellaneous........................... 2,154,354 2,366,224 3,172,295
----------- ---------- ----------
Total other operating expenses...... 6,974,872 6,682,752 7,499,168
----------- ---------- ----------
Earnings before income taxes........ 3,583,898 3,182,341 2,013,376
Income tax expense........................ 629,875 623,346 396,000
----------- ---------- ----------
Net earnings........................ 2,954,023 2,558,995 1,617,376
Preferred dividend requirements........... -- -- (117,525)
----------- ---------- ----------
Net earnings available to common
shareholders....................... $ 2,954,023 2,558,995 1,499,851
=========== ========== ==========
Earnings per common share:
Net earnings per common share........... $ 0.81 0.68 0.44
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS) ON
ADDITIONAL INVESTMENT
PREFERRED COMMON PAID-IN SECURITIES, RETAINED TREASURY
STOCK STOCK CAPITAL NET OF TAX EARNINGS STOCK TOTAL
----------- --------- ---------- -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1993................... $ 1,708,605 3,397,327 5,163,331 -- 9,104,294 -- 19,373,557
Cash dividends declared
of $.03 per common
share.................. -- -- -- -- (101,920) -- (101,920)
Cash dividends declared
of $4.71 per preferred
share.................. -- -- -- -- (178,913) -- (178,913)
Conversion of preferred
stock into common
stock.................. (1,708,605) 379,690 1,328,915 -- -- -- --
Effect of accounting
change related to
investment securities,
net of tax............. -- -- -- 576,679 -- -- 576,679
Change in unrealized
gain (loss) on
investment securities,
net of tax............. -- -- -- (1,803,407) -- -- (1,803,407)
Net earnings............ -- -- -- -- 1,617,376 -- 1,617,376
----------- --------- --------- ---------- ---------- ---------- ----------
Balance, December 31,
1994................... -- 3,777,017 6,492,246 (1,226,728) 10,440,837 -- 19,483,372
Cash dividends declared
of $.175 per common
share.................. -- -- -- -- (660,713) -- (660,713)
Acquisition of treasury
stock.................. -- -- -- -- -- (547,438) (547,438)
Change in unrealized
gain (loss) on
investment securities,
net of tax............. -- -- -- 1,826,182 -- -- 1,826,182
Net earnings............ -- -- -- -- 2,558,995 -- 2,558,995
----------- --------- --------- ---------- ---------- ---------- ----------
Balance, December 31,
1995................... -- 3,777,017 6,492,246 599,454 12,339,119 (547,438) 22,660,398
Cash dividends declared
of $.22 per common
share.................. -- -- -- -- (802,604) -- (802,604)
Acquisition of treasury
stock.................. -- -- -- -- -- (586,002) (586,002)
Change in unrealized
gain (loss) on
investment securities,
net of tax............. -- -- -- (321,204) -- -- (321,204)
Net earnings............ -- -- -- -- 2,954,023 -- 2,954,023
----------- --------- --------- ---------- ---------- ---------- ----------
Balance, December 31,
1996................... $ -- 3,777,017 6,492,246 278,250 14,490,538 (1,133,440) 23,904,611
=========== ========= ========= ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings......................... $ 2,954,023 2,558,995 1,617,376
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Provision for loan losses.......... (1,016,000) (1,038,000) --
Depreciation, amortization and
accretion......................... 408,002 361,257 564,947
Deferred income tax provision
(benefit)......................... 129,666 106,589 174,598
Losses (gains) on sales of
investment securities............. -- 227,635 (240,975)
Gain on sale of branches........... -- -- (115,324)
Change in assets and liabilities:
Other assets..................... 228,786 796,708 1,140,048
Other liabilities................ (418,571) 689,157 900
------------ ----------- -----------
Net cash provided by operating
activities.................... 2,285,906 3,702,341 3,141,570
------------ ----------- -----------
Cash flows from investing activities:
Net change in interest-bearing
deposits............................ 1,150,000 (2,400,000) 100,000
Proceeds from maturities and calls of
investment securities available for
sale................................ 28,433,421 6,108,539 11,752,863
Proceeds from sales of investment
securities available for sale....... -- 3,761,490 --
Purchases of investment securities
available for sale.................. (29,003,787) (1,115,470) (3,499,862)
Proceeds from maturities and calls of
investment securities held to
maturity............................ -- 13,408,110 10,353,386
Proceeds from sales of investment
securities held to maturity......... -- -- 5,076,098
Purchases of investment securities
held to maturity.................... -- (12,903,593) (110,000)
Net change in loans.................. (11,277,225) (5,269,234) 14,182,183
Proceeds from sales of premises and
equipment........................... 26,673 13,830 31,616
Purchases of premises and equipment.. (3,466,104) (625,321) (413,527)
Sale of branches..................... -- -- (40,928,208)
------------ ----------- -----------
Net cash provided by (used in)
investing activities.......... (14,137,022) 978,351 (3,455,451)
------------ ----------- -----------
Cash flows from financing activities:
Net change in deposits............... 14,690,331 3,792,330 (4,567,223)
Net change in repurchase agreements.. 1,071,170 (4,365,000) 6,715,000
Borrowings under note payable........ 1,350,000 250,000 --
Cash dividends paid.................. (802,604) (660,713) (280,833)
Acquisition of treasury stock........ (586,002) (547,438) --
------------ ----------- -----------
Net cash provided by (used in)
financing activities.......... 15,722,895 (1,530,821) 1,866,944
------------ ----------- -----------
Net increase in cash and cash
equivalents........................... 3,871,779 3,149,871 1,553,063
Cash and cash equivalents at beginning
of year............................... 25,251,502 22,101,631 20,548,568
------------ ----------- -----------
Cash and cash equivalents at end of
year.................................. $ 29,123,281 25,251,502 22,101,631
============ =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Central and Southern Holding Company (the "Company") is a bank and thrift
holding company with two wholly owned subsidiaries, The Central and Southern
Bank of Georgia ("Milledgeville") and The Central and Southern Bank of North
Georgia, FSB ("North Georgia"), collectively referred to as "the bank
subsidiaries." The Company provides a full range of banking services in
central and north Georgia to individual and corporate customers through the
bank subsidiaries and branch offices. The subsidiary banks are subject to the
regulations of certain Federal and state agencies and undergo periodic
examinations by those regulatory authorities.
Basis of Presentation
The consolidated financial statements include the accounts of the Company
and the bank subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The accounting principles followed by the Company and the methods of
applying these principles conform with generally accepted accounting
principles ("GAAP") and with general practices within the banking industry. In
preparing financial statements in conformity with GAAP, management is required
to make estimates and assumptions that affect the reported amounts in the
financial statements. Actual results could differ significantly from those
estimates. Material estimates common to the banking industry that are
particularly susceptible to significant change in the near term include, but
are not limited to, the determination of the allowance for loan losses, the
valuation of real estate acquired in connection with or in lieu of foreclosure
on loans, and valuation allowances associated with deferred tax assets
recognized in anticipation of future taxable income.
Investment Securities
Effective January 1, 1994, the Company adopted the provisions of Statement
of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Under SFAS No. 115, the Company
classifies its securities in one of three categories: trading, available for
sale, or held to maturity. Trading securities are bought and held principally
for sale in the near term. Held to maturity securities are those securities
for which the Company has the ability and intent to hold until maturity. All
other securities not included in the trading or held to maturity portfolios
are classified as available for sale. The Company does not hold any trading
securities.
Available for sale securities are recorded at fair value. Held to maturity
securities are recorded at amortized cost. Unrealized holding gains and
losses, net of the related tax effect, on securities available for sale are
excluded from earnings and are reported as a separate component of
stockholders' equity. Transfers of securities between categories are recorded
at fair value at the date of transfer. Unrealized holding gains or losses
associated with transfers of securities from held to maturity to available for
sale are recorded as a separate component of stockholders' equity. The
unrealized holding gains or losses included in the separate component of
stockholders' equity for securities transferred from available for sale to
held to maturity are maintained and amortized into earnings over the remaining
life of the security as an adjustment to yield in a manner consistent with the
amortization or accretion of premium or discount on the associated security.
A decline in the market value of any available for sale or held to maturity
investment below cost that is deemed other than temporary is charged to
earnings and establishes a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related security as an adjustment to the yield. Realized gains and losses for
securities classified as available for sale and held to maturity are included
in earnings and are derived using the specific identification method for
determining the cost of securities sold.
10
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Loans and Allowance for Loan Losses
Loans are reported at the principal amount outstanding, net of unearned
interest and the allowance for loan losses. Interest income on installment
loans made on a discount basis is recognized using a method which approximates
the level yield method. Interest income on all other loans is recognized on
the level yield method.
Effective January 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan--Income Recognition and Disclosures." A loan is
impaired when, based on current information and events, it is probable that
all amounts due according to the contractual terms of the loan will not be
collected. Impaired loans are measured based on the present value of expected
future cash flows, discounted at the loan's effective interest rate, or at the
loan's observable market price, or the fair value of the collateral if the
loan is collateral dependent. The adoption of these statements had no
significant impact on the consolidated financial statements.
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection efforts,
that the borrower's financial condition is such that collection of interest is
doubtful. When a loan is placed on nonaccrual status, previously accrued and
uncollected interest is charged to interest income on loans. Generally,
payments on nonaccrual loans are applied to principal. Interest income, if
any, on impaired loans is recognized on the cash basis.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes the collectibility of the principal is
unlikely. The allowance represents an amount which, in management's judgment,
will be adequate to absorb probable losses on existing loans that may become
uncollectible.
Management's judgment in determining the adequacy of the allowance is based
on evaluations of the collectibility of loans. These evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, current economic conditions that may affect the borrower's ability
to pay, overall portfolio quality, and review of specific problem loans.
Management believes the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Company's allowance for
loan losses. Such agencies may require the Company to recognize additions to
the allowance based on their judgments of information available to them at the
time of their examination.
Bank Premises and Equipment
Premises and equipment are carried at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of the related assets. When assets are retired or otherwise
disposed, the cost and related accumulated depreciation are removed from the
accounts, and any resulting gain or loss is reflected in income for the
period. The cost of maintenance and repairs which do not improve or extend the
useful life of the respective asset is charged to income as incurred, whereas
significant renewals and improvements are capitalized. The range of estimated
useful lives for premises and equipment are generally as follows:
<TABLE>
<S> <C>
Buildings and improvements........................................ 7-40 years
Furniture and equipment........................................... 3-10 years
</TABLE>
11
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Goodwill
The excess of the purchase price over the fair value of net assets acquired
(goodwill) is being amortized using the straight-line method over 20 years for
North Georgia. The goodwill net of accumulated amortization is included in
other assets. On an ongoing basis, management reviews the valuation and
amortization of goodwill. As part of this review, management considers the
value and future benefits of the net earnings generated by North Georgia to
determine that no impairment has occurred.
Income Taxes
The Company accounts for income taxes under the liability method which
requires the recognition of deferred tax assets and liabilities for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which the assets and
liabilities are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
tax expense in the period that includes the enactment date.
In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities result in deferred tax assets, the Company evaluates the
probability of being able to realize the future benefits indicated by such
assets. A valuation allowance is provided for the portion of the deferred tax
asset when it is more likely than not that some portion or all of the deferred
tax asset will not be realized. In assessing the realizability of the deferred
tax assets, management considers the scheduled reversals of deferred tax
liabilities, projected future taxable income, and tax planning strategies.
Net Earnings Per Common Share
The impact of outstanding stock options and preferred stock conversions has
no significant effect on net earnings per common share. Accordingly, net
earnings per common share are based on the weighted average number of common
shares outstanding during 1996, 1995 and 1994 of 3,664,604, 3,770,251 and
3,429,575, respectively.
(2) SALE OF BANK BRANCHES AND CONVERSION OF NORTH GEORGIA
Effective August 1, 1994, Milledgeville sold two of its bank branches
located in Douglas and McRae, Georgia, to an unrelated commercial bank. This
sale included approximately $43,400,000 in deposits and related accrued
interest, premises and equipment with a net book value of approximately
$1,700,000, and other assets of approximately $900,000, including unamortized
deposit premiums of approximately $535,000. Milledgeville was paid
approximately $40,700,000 in connection with the sale and recorded a gain of
approximately $115,000. The branch sale was financed through a combination of
borrowings under repurchase agreements and available cash and cash
equivalents.
Effective January 16, 1996, the Company received final regulatory approval
to convert North Georgia (formerly Central & Southern Bank of Greensboro) to a
federal savings bank charter. This conversion was completed in the first
quarter of 1996. The primary purpose of the conversion is to allow North
Georgia to branch into other markets in the north Georgia area.
12
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) CASH FLOW INFORMATION
Certain supplemental cash flow information for the years ended December 31,
1996, 1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Cash paid during the year for:
Interest.............................. $8,910,201 8,445,017 8,984,329
Income taxes.......................... $ 948,000 140,000 270,000
Noncash investing and financing
activities:
Transfer of investment securities from
held to maturity to available for
sale................................. $ -- 35,073,414 --
Real estate acquired through
foreclosure.......................... $ 92,834 160,913 833,293
Financed portion of sales of other
real estate.......................... $ 187,500 317,056 481,000
Conversion of preferred stock into
common stock......................... $ -- -- 1,708,605
Change in unrealized gain (loss) on
investment securities, net of tax.... $ (321,204) 1,826,182 (1,226,728)
</TABLE>
(4) INVESTMENT SECURITIES
Investment securities available for sale at December 31, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasuries and U.S.
government agencies......... $21,150,573 68,502 121,351 21,097,724
State and municipal.......... 9,735,184 490,448 21 10,225,611
Mortgage-backed securities... 32,625,874 222,180 238,167 32,609,887
Other investments............ 644,800 -- -- 644,800
----------- --------- ------- ----------
Total...................... $64,156,431 781,130 359,539 64,578,022
=========== ========= ======= ==========
<CAPTION>
DECEMBER 31, 1995
--------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasuries and U.S.
government agencies......... $23,996,053 148,175 84,198 24,060,030
State and municipal.......... 9,577,580 578,325 4,973 10,150,932
Mortgage-backed securities... 29,557,578 398,359 127,614 29,828,323
Other investments............ 475,500 -- -- 475,500
----------- --------- ------- ----------
Total...................... $63,606,711 1,124,859 216,785 64,514,785
=========== ========= ======= ==========
</TABLE>
13
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The amortized cost and fair value of investment securities available for
sale at December 31, 1996, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers have the
right to call or prepay certain obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
----------- ----------
<S> <C> <C>
Total securities:
Within 1 year....................................... $ 4,504,383 4,541,878
1 to 5 years........................................ 22,356,137 22,480,143
5 to 10 years....................................... 3,773,654 4,020,806
More than 10 years.................................. 251,583 280,508
Mortgage-backed securities.......................... 32,625,874 32,609,887
Other investments................................... 644,800 644,800
----------- ----------
$64,156,431 64,578,022
=========== ==========
</TABLE>
There were no sales of securities in 1996. In 1995, the Company received
proceeds of $3,761,490 from the sale of certain mortgage-backed securities and
recognized gross losses of $231,635. Additionally, one held to maturity
security was called by the issuer and the Company received a $4,000 call
premium.
In late 1995, the FASB issued an implementation guide relating to SFAS No.
115. Included in this implementation guide was a one-time opportunity to
reallocate investments between the categories without calling into question
the validity of the classifications. Accordingly, at year end, the Company
reclassified all held to maturity securities to the available for sale
category. As a result, an unrealized gain of approximately $637,000 was
recorded.
In 1994, the Company received proceeds from the sale of investments held to
maturity of $5,076,098 and recognized gross gains of $244,162 and gross losses
of $3,187. The 1994 sales occurred in connection with the sale of two of
Milledgeville's branch bank facilities which maintained approximately twenty
percent of the total deposits of the Company. The sale of the branches altered
the interest rate risk of Milledgeville's assets and liabilities and in
response the security sales were required to restructure the interest rate
risk to an acceptable level.
Securities with a carrying value of approximately $21,829,000 and
$15,801,000 at December 31, 1996 and 1995, respectively, were pledged against
U.S. government and other public deposits as required by law.
(5) LOANS
Major classifications of loans at December 31, 1996 and 1995 are summarized
as follows:
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C> <C>
Commercial, financial and agricultural.............. $ 22,259,587 25,177,880
Real estate--construction........................... 27,695,706 21,746,596
Real estate--mortgage............................... 64,145,313 51,104,156
Consumer loans...................................... 12,405,366 16,376,878
------------ -----------
Total loans....................................... 126,505,972 114,405,510
Less: Unearned interest........................... 73,043 334,347
Allowance for loan losses...................... 4,164,182 4,190,307
------------ -----------
Loans, net.......................................... $122,268,747 109,880,856
============ ===========
</TABLE>
14
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's bank subsidiaries grant loans and extensions of credit to
individuals and a variety of firms and corporations located primarily in
central and north Georgia. Although the bank subsidiaries have diversified
loan portfolios, a substantial portion of the loan portfolios is
collateralized by improved and unimproved real estate and is dependent upon
the real estate market.
Changes in the allowance for loan losses are summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year.......... $ 4,190,307 4,312,876 4,680,841
Provision for loan losses............. (1,016,000) (1,038,000) --
Loans charged off..................... (362,844) (1,236,091) (3,179,899)
Recoveries of loans previously charged
off.................................. 1,352,719 2,151,522 2,811,934
----------- ---------- ----------
Balance at end of year................ $ 4,164,182 4,190,307 4,312,876
=========== ========== ==========
</TABLE>
As a result of its ongoing evaluation of the adequacy of the bank
subsidiaries' allowance for loan losses, a decline in problem credits and
continued significant recoveries of loans previously charged off, management
decided to reduce the allowance for loan losses during 1996 and 1995.
(6) BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Land and buildings...................................... $5,765,790 3,515,996
Furniture and equipment................................. 2,798,597 1,855,406
Construction in progress................................ 293,105 74,686
---------- ---------
8,857,492 5,446,088
Less accumulated depreciation........................... 2,927,488 2,567,970
---------- ---------
$5,930,004 2,878,118
========== =========
</TABLE>
Depreciation expense was approximately $388,000, $335,000 and $506,000 in
1996, 1995 and 1994, respectively.
(7) DEPOSITS
At December 31, 1996, maturities of time deposits are as follows:
<TABLE>
<S> <C>
Maturing In:
1997.......................................................... $ 94,236,401
1998.......................................................... 16,238,027
1999.......................................................... 4,333,441
2000.......................................................... 4,844,105
2001.......................................................... 7,113,505
Thereafter.................................................... 15,977
------------
$126,781,456
============
</TABLE>
The Bank subsidiaries had deposits from related parties totaling
approximately $4,051,000 and $3,681,000 at December 31, 1996 and 1995. Time
deposits of $100,000 or more were approximately $39,200,000 and $31,759,000 at
December 31, 1996 and 1995.
15
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) NOTE PAYABLE
The Company has a note payable to a bank under which it can borrow up to
$2,500,000. The note bears interest at prime less 0.75% and interest is
payable quarterly. The note, which is collateralized by the common stock of
Milledgeville, matures in June 1997.
(9) INCOME TAXES
The components of income tax expense for the years ended December 31, 1996,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Current............................................. $500,209 516,757 221,402
Deferred............................................ 129,666 106,589 174,598
-------- ------- -------
$629,875 623,346 396,000
======== ======= =======
</TABLE>
The differences between income tax expense and the amount computed by
applying the statutory federal income tax rate to earnings before taxes are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- --------
<S> <C> <C> <C>
Pretax income at statutory rates........... $1,218,526 1,081,996 684,548
Tax-exempt interest income................. (195,837) (213,330) (311,323)
Change in beginning of year balance of the
valuation allowance for deferred tax
assets allocated to income tax expense.... (423,000) (262,000) (26,245)
Other, net................................. 30,186 16,680 49,020
---------- --------- --------
$ 629,875 623,346 396,000
========== ========= ========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
December 31, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Deferred tax assets:
Other real estate................................... $ 27,710 34,000
Pension............................................. 44,540 44,540
Postretirement benefits other than pensions......... 48,583 48,583
Alternative minimum tax credit carryforward......... 588,939 777,635
Other............................................... 206 143
--------- --------
Total gross deferred tax asset.................... 709,978 904,901
Less valuation allowance.............................. 41,000 464,000
--------- --------
668,978 440,901
--------- --------
Deferred tax liabilities:
Allowance for loan losses........................... 416,054 73,470
Unrealized gains on investment securities available
for sale........................................... 143,341 308,620
Premises and equipment.............................. 367,773 350,210
Change in accounting method......................... -- 33,892
Other............................................... 60,268 28,780
--------- --------
Total deferred tax liabilities.................... 987,436 794,972
--------- --------
Net deferred tax liability........................ $(318,458) (354,071)
========= ========
</TABLE>
The Company's Federal alternative minimum tax credits can be carried forward
indefinitely.
16
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(10) EMPLOYEE BENEFIT PLANS
The Company has a noncontributory, trusteed pension plan. Effective April
15, 1994, the plan was amended to freeze participation in the plan.
Participants as of April 15, 1994, became fully vested and no new benefits
will accrue. Pension expense recorded by the Company for 1996, 1995, and 1994
included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Interest cost on projected
benefit obligation....... $ 38,381 31,518 41,572
Return on plan assets..... (29,127) (30,313) (17,777)
Net amortization and
deferral................. (13,497) (5,463) (59,831)
-------- ------- -------
Pension benefit......... $ (4,243) (4,258) (36,036)
======== ======= =======
</TABLE>
The Company's funding policy provides that payments to the plan shall be
consistent with minimum government funding requirements plus additional
amounts which may be approved by the Company.
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheets at December 31, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of approximately $608,000 in 1996 and
$662,000 in 1995.................................... $ 611,640 666,860
========= ========
Projected benefit obligation........................... $(611,640) (666,860)
Plan assets at fair value, primarily consisting of
investments in common stock and money market funds.... 549,595 537,992
--------- --------
Plan assets less than projected benefit obligation..... (62,045) (128,868)
Unrecognized net gain.................................. (64,712) (2,132)
--------- --------
Accrued pension cost................................... $(126,757) (131,000)
========= ========
</TABLE>
A weighted average discount rate of 6.48% and 6.26% was used in 1996 and
1995, respectively. The expected long-term rate of return on assets was 8% in
1996 and 1995.
In addition to the Company's defined benefit pension plan, the Company has
sponsored a defined benefit health care plan that provides post retirement
medical benefits to retired employees. Effective January 1, 1993, the Company
discontinued the plan but will continue to provide benefits to individuals who
had retired or were eligible for retirement as of December 31, 1993.
The following table presents the health care plan's funded status reconciled
with amounts recognized in the Company's consolidated balance sheets at
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Accumulated post retirement benefit obligation
("APBO").............................................. $372,508 397,190
Unrecognized net gain from experience different than
assumed............................................... (208,699) (254,298)
-------- --------
Accrued post retirement benefit cost included in
other liabilities................................... $163,809 142,892
======== ========
</TABLE>
17
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net periodic post retirement benefit cost for the years ended December 31,
1996, 1995 and 1994 includes the following:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Amortization of unrecognized net gain................... $15,468 14,068 15,468
Interest cost........................................... 26,346 27,916 29,740
------- ------ ------
Net periodic post retirement benefit cost............. $41,814 41,984 45,208
======= ====== ======
</TABLE>
For measurement purposes, a 9% annual rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate) was assumed for
1996. A 13% annual rate of increase was assumed for 1995. The rate was assumed
to decrease gradually to 5% by the year 2004 and remain at that level
thereafter. A one percent increase in the medical trend rate assumed at
December 31, 1996, would have resulted in an increase to the APBO at December
31, 1996, of $29,221 and would have increased 1996 post retirement benefit
cost by $2,119. The weighted average discount rate used in determining the
accumulated post retirement benefit obligation was 7.5% and 7.25% at December
31, 1996 and 1995, respectively.
The Company has a contributory profit sharing plan covering substantially
all employees who have one year of service. Participating employees may
contribute up to 15% of their salary to the plan. The Company makes certain
matching contributions to the plan and may make discretionary contributions to
the plan. The Company's contributions were approximately $85,000, $79,000 and
$52,000 in 1996, 1995 and 1994, respectively.
The Company has entered into an employment agreement with its chief
executive officer which provides for a full year's payment of compensation
upon a change in control of the Company and termination of employment, as
defined in the agreement. The terms of the agreement automatically extend the
agreement for a rolling two-year period unless the Company elects to cease the
automatic extension provision, which will cause the agreement to terminate two
years from the date of election.
18
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) STOCK OPTIONS
In August 1993, the Company adopted the Key Employee Stock Option Plan. This
plan provides for the issuance of stock options on up to 170,000 shares of the
Company's common stock. Options are granted at the discretion of the Company's
Board of Directors. Options granted under the plan are at an option price not
less than the fair value of the Company's common stock at the date of grant,
are exercisable any time after 90 days from the date of grant, and expire ten
years from the date of grant. The Board of Directors establishes vesting
periods at its discretion within the guidelines of the plan document.
Historically, vesting has ranged from 90 days to three years.
SFAS No. 123, "Accounting for Stock-Based Compensation," became effective
for the Company January 1, 1996. This statement encourages, but does not
require, entities to compute the fair value of options at the date of grant
and to recognize such costs as compensation expense immediately if there is no
vesting period or ratably over the vesting period of the options. The Company
has chosen not to adopt the cost recognition principles of this statement. No
compensation expense has been recognized in 1996, 1995 or 1994 related to the
stock option plan. Had compensation cost been determined based upon the fair
value of the options at the grant dates consistent with the method of the new
statement, the Company's net earnings and net earnings per share would have
been reduced to the proforma amounts indicated below.
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Net earnings
As reported........................................... $2,954,023 2,558,995
Proforma.............................................. $2,928,356 2,551,469
Earnings per share
As reported........................................... $ 0.81 0.68
Proforma.............................................. $ 0.80 0.68
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options-pricing model with the following weighted average
assumptions used for grants in 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Dividend yield................................................... 2.5% 2.0%
Expected volatility.............................................. 37.5% 35.3%
Risk free interest rate.......................................... 5.0% 5.0%
Expected life (in years)......................................... 10 10
</TABLE>
A summary of activity in the Company's stock option plan is presented below.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTION OPTION PRICE
SHARES PER SHARE
------- ------------
<S> <C> <C>
Options outstanding at December 31, 1993................ 75,000 $4.25
Options granted in 1994................................. 23,500 $6.25
-------
Options outstanding at December 31, 1994................ 98,500 $4.73
Options granted in 1995................................. 22,000 $7.50
-------
Options outstanding at December 31, 1995................ 120,500 $5.23
Options granted in 1996................................. 32,500 $8.76
-------
Options outstanding at December 31, 1996................ 153,000 $5.98
=======
</TABLE>
19
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Options on 105,832, 92,625 and 67,750 shares were exercisable at December
31, 1996, 1995 and 1994, respectively. The weighted average grant-date fair
value of options granted in 1996 and 1995 was $3.49 and $3.11, respectively.
Options outstanding at December 31, 1996 are exercisable at option prices
ranging from $4.25 to $9.25 as presented in the table above. Such options have
a weighted average remaining contractual life of approximately 8 years.
(12) STOCKHOLDERS' EQUITY
On December 1, 1994, the Company converted the 37,969 shares of Series A
nonvoting preferred stock into 379,690 shares of its $1 par value common
stock. The preferred stock, which was issued in 1993 and had a stated
liquidation value of $45 per share, entitled the holders to cumulative annual
dividends at 7 1/2%. Prior to effecting the conversion, cumulative dividends
totaling $178,913 since the date of issuance were paid.
Dividends paid by the bank subsidiaries are the primary source of funds
available to the Company for payment of dividends to its shareholders and
other needs. Applicable Federal and state statutes and regulations impose
restrictions on the amount of dividends that may be declared by the bank
subsidiaries. In addition to the formal statutes and regulations, regulatory
authorities also consider the adequacy of each bank subsidiary's total capital
in relation to its assets, deposits and other such items. Capital adequacy
considerations could further limit the availability of dividends from the bank
subsidiaries. At December 31, 1996, the bank subsidiaries could pay
approximately $2,000,000 in dividends to the Parent without regulatory
approval.
During 1995, the Company's Board of Directors approved a stock repurchase
program that allows the purchase of up to 100,000 shares of the Company's
common stock. During 1996 the Board of Directors raised this amount to 170,000
shares. At December 31, 1996, the Company has repurchased 123,494 shares of
its common stock.
(13) RELATED PARTY TRANSACTIONS
The bank subsidiaries conduct transactions with directors and officers,
including companies in which they have beneficial interest, in the normal
course of business. It is the policy of the bank subsidiaries that loan
transactions with directors and officers be made on substantially the same
terms as those prevailing at the time made for comparable loans to other
persons. The following is a summary of activity for related party loans for
1996:
<TABLE>
<S> <C>
Beginning balance................................................ $1,983,000
New loans........................................................ 965,000
Repayments....................................................... (793,000)
----------
Ending balance................................................... $2,155,000
==========
</TABLE>
(14) SUPPLEMENTARY STATEMENT OF EARNINGS INFORMATION
Components of miscellaneous operating expenses in excess of 1% of total
income for the respective years are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Deposit insurance................................... $210,048 240,183 540,434
Legal fees.......................................... $108,669 128,173 233,962
Other professional services......................... $119,246 143,822 243,174
Other real estate................................... $ 34,732 165,263 299,127
Data processing..................................... $262,524 224,527 149,265
</TABLE>
20
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(15) COMMITMENTS
The bank subsidiaries are parties to financial instruments with off-balance-
sheet risk in the normal course of business to meet the financing needs of
their customers. These financial instruments include commitments to extend
credit, standby letters of credit and financial guarantees. These instruments
involve, to varying degrees, elements of credit risk in excess of the amount
recognized in the balance sheets. The contract amounts of these instruments
reflect the extent of involvement the bank subsidiaries have in particular
classes of financial instruments.
The exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit and financial guarantees written is represented by the
contractual amount of these instruments. The bank subsidiaries use the same
credit policies in making commitments and conditional obligations as for on-
balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments may expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The bank subsidiaries evaluate each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary, upon extension of credit is based on
management's credit evaluation. Collateral held varies, but may include
unimproved and improved real estate, certificates of deposit, personal
property or other acceptable collateral. At December 31, 1996 and 1995, the
bank subsidiaries had commitments to extend credit of approximately
$21,530,000 and $13,295,000, respectively.
Standby letters of credit and financial guarantees written are conditional
commitments issued by the bank subsidiaries to guarantee the performance of a
customer to a third party. Those guarantees are primarily issued to local
businesses. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. At December 31, 1996 and 1995, the bank subsidiaries had standby
letters of credit of approximately $164,000 and $10,000.
21
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(16) CONDENSED FINANCIAL INFORMATION OF CENTRAL AND SOUTHERN HOLDING COMPANY
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Cash.................................................. $ 8,536 28,158
Interest-earning deposits with bank subsidiary........ 21,251 39,252
Investment in bank subsidiaries....................... 23,838,045 22,830,597
Building, net......................................... 1,102,316 --
Other assets.......................................... 582,436 66,477
----------- ----------
$25,552,584 22,964,484
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable.......................................... $ 1,600,000 250,000
Other liabilities..................................... 47,973 54,086
----------- ----------
1,647,973 304,086
Stockholders' equity.................................. 23,904,611 22,660,398
----------- ----------
$25,552,584 22,964,484
=========== ==========
</TABLE>
CONDENSED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Income:
Dividends from bank subsidiaries.......... $1,408,000 860,000 --
Other..................................... 93,238 15,377 11,796
---------- --------- ---------
Total income............................ 1,501,238 875,377 11,796
---------- --------- ---------
Expenses:
Interest expense.......................... 65,328 1,090 --
Other expenses............................ 283,225 217,463 232,128
---------- --------- ---------
Total expenses.......................... 348,553 218,553 232,128
---------- --------- ---------
Earnings (loss) before income taxes and
equity in undistributed earnings of
bank subsidiaries...................... 1,152,685 656,824 (220,332)
Income tax benefit.......................... 312,730 115,653 93,330
Equity in undistributed earnings of bank
subsidiaries............................... 1,488,608 1,786,518 1,744,378
---------- --------- ---------
Net earnings............................ $2,954,023 2,558,995 1,617,376
========== ========= =========
</TABLE>
22
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings........................ $ 2,954,023 2,558,995 1,617,376
Adjustments to reconcile net
earnings to net cash provided by
(used in) operating activities:
Depreciation...................... 10,200 -- --
Equity in undistributed earnings
of bank subsidiaries............. (1,488,608) (1,786,518) (1,744,378)
Change in other assets............ (356,003) (36,472) 112,470
Change in other liabilities....... (6,113) (114,562) (28,248)
----------- ---------- ----------
Net cash provided by (used in)
operating activities........... 1,113,499 621,443 (42,780)
----------- ---------- ----------
Cash flows from investing activities:
Net change in interest-bearing
deposits........................... 18,001 232,632 130,658
Purchase of building................ (1,112,516) -- --
----------- ---------- ----------
Net cash provided by (used in)
investing activities........... (1,094,515) 232,632 130,658
----------- ---------- ----------
Cash flows from financing activities:
Borrowings under note payable....... 1,350,000 250,000 --
Purchase of treasury stock.......... (586,002) (547,438) --
Cash dividends paid................. (802,604) (660,713) (280,833)
----------- ---------- ----------
Net cash used in financing
activities..................... (38,606) (958,151) (280,833)
----------- ---------- ----------
Net change in cash.............. (19,622) (104,076) (192,955)
Cash at beginning of year............. 28,158 132,234 325,189
----------- ---------- ----------
Cash at end of year................... $ 8,536 28,158 132,234
=========== ========== ==========
Noncash investing and financing
activities:
Conversion of preferred stock into
common stock....................... $ -- -- 1,708,605
Change in unrealized gain (loss) on
investment securities of
subsidiaries....................... $ (321,204) 1,826,182 (1,226,728)
</TABLE>
(17) FAIR VALUE OF FINANCIAL INSTRUMENTS
The assumptions used in the estimation of the fair value of the Company's
financial instruments are detailed below. Where quoted prices are not
available, fair values are based on estimates using discounted cash flows and
other valuation techniques. The use of discounted cash flows can be
significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. The following disclosures should not be
considered a surrogate of the liquidation value of the Company or its bank
subsidiaries, but rather a good faith estimate of the increase or decrease in
value of financial instruments held by the Company since purchase,
origination, or issuance.
Cash and Short-Term Investments
For cash, due from banks, federal funds sold and interest-bearing deposits
with other banks, the carrying amount is a reasonable estimate of fair value.
23
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Investment Securities
Fair values for investment securities are based on quoted market prices.
Loans
The fair value of fixed rate loans is estimated by discounting the future
cash flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings. For variable rate loans, the carrying
amount is a reasonable estimate of fair value.
Deposits
The fair value of demand deposits, savings, and certain money market
deposits is the amount payable on demand at the reporting date. The fair value
of fixed maturity certificates of deposit is estimated by discounting the
future cash flows using the rates currently offered for deposits of similar
remaining maturities.
Repurchase Agreements
The fair value of repurchase agreements is approximately equal to the
carrying value as a result of their short remaining lives and their market
interest rates.
Note Payable
Since the note payable bears a variable, market rate of interest, its
carrying value approximates fair value.
Commitments to Extend Credit and Standby Letters of Credit
Because commitments to extend credit and standby letters of credit are made
using variable rates, the contract value is a reasonable estimate of fair
value.
Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of
the Company's financial instruments, fair value estimates are based on many
judgments. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not
considered financial instruments. Significant assets and liabilities that are
not considered financial instruments include the deferred income taxes,
premises and equipment, and goodwill. In addition, the tax ramifications
related to the realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in the
estimates.
24
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The carrying amount and estimated fair values of the Company's financial
instruments at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------ -------------------
ESTIMATED
CARRYING FAIR CARRYING ESTIMATED
AMOUNT VALUE AMOUNT FAIR VALUE
-------- --------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and short-term investments... $ 30,373 30,373 27,652 27,652
Investment securities available
for sale......................... $ 64,578 64,578 64,515 64,515
Loans............................. $122,269 121,493 109,881 109,366
Liabilities:
Deposits.......................... $195,165 195,504 180,474 180,789
Repurchase agreements............. $ 3,421 3,421 2,350 2,350
Note payable...................... $ 1,600 1,600 250 250
Unrecognized financial instruments:
Commitments to extend credit...... $ 21,530 21,530 13,295 13,295
Standby letters of credit......... $ 164 164 10 10
</TABLE>
(18) REGULATORY MATTERS
The Company is subject to various regulatory capital requirements
administered by state and federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory--and possibly additional
discretionary--actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the
Company must meet specific capital guidelines that involve quantitative
measures of the Company's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Company's
capital amounts and classification are also subject to qualitative judgments
by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Additionally, under regulations from the Office
of Thrift Supervision, North Georgia must maintain a minimum ratio of tangible
capital (as defined) to tangible assets (as defined). Management believes, as
of December 31, 1996, that the Company meets all capital adequacy requirements
to which it is subject.
As of December 31, 1996 the most recent notification from the various
regulators categorized the Company and the bank subsidiaries as well
capitalized under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Company and the bank subsidiaries must
maintain minimum total risk-based, Tier I risk-based, Tier I leverage ratios
as set forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's category.
25
<PAGE>
CENTRAL AND SOUTHERN HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's actual capital amounts and ratios are also presented in the
following table:
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------- ------------------------------ ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ---------- -------- ---------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996
Total Capital (to Risk Weighted Assets): (greater than (greater than
Consolidated........ $24,923 16% or equal to) 12,095 or equal to) 8% N/A N/A
(greater than (greater than (greater than (greater than
Milledgeville....... $19,064 20% or equal to) 7,805 or equal to) 8% or equal to) 9,757 or equal to) 10%
(greater than (greater than (greater than (greater than
North Georgia....... $ 5,810 12% or equal to) 3,946 or equal to) 8% or equal to) 4,933 or equal to) 10%
Tier I Capital (to Risk Weighted Assets): (greater than (greater than
Consolidated........ $23,005 15% or equal to) 6,047 or equal to) 4% N/A N/A
(greater than (greater than (greater than (greater than
Milledgeville....... $17,822 18% or equal to) 3,903 or equal to) 4% or equal to) 5,854 or equal to) 6%
(greater than (greater than (greater than (greater than
North Georgia....... $ 5,187 11% or equal to) 1,973 or equal to) 4% or equal to) 2,960 or equal to) 6%
Tier I Capital (to Average Assets): (greater than (greater than
Consolidated........ $23,005 11% or equal to) 8,673 or equal to) 4% N/A N/A
(greater than (greater than (greater than (greater than
Milledgeville....... $17,822 12% or equal to) 6,004 or equal to) 4% or equal to) 7,505 or equal to) 5%
Tangible Capital (to Tangible Assets): (greater than (greater than
North Georgia....... $ 5,187 7% or equal to) 1,070 or equal to) 1.5% N/A N/A
As of December 31, 1995
Total Capital (to Risk Weighted Assets): (greater than (greater than
Consolidated........ $24,183 18% or equal to) 10,514 or equal to) 8% N/A N/A
(greater than (greater than (greater than (greater than
Milledgeville....... $17,793 19% or equal to) 7,617 or equal to) 8% or equal to) 9,521 or equal to) 10%
(greater than (greater than (greater than (greater than
North Georgia....... $ 5,056 14% or equal to) 2,916 or equal to) 8% or equal to) 3,645 or equal to) 10%
Tier I Capital (to Risk Weighted Assets): (greater than (greater than
Consolidated........ $22,540 17% or equal to) 5,257 or equal to) 4% N/A N/A
(greater than (greater than (greater than (greater than
Milledgeville....... $16,603 17% or equal to) 3,808 or equal to) 4% or equal to) 5,713 or equal to) 6%
(greater than (greater than (greater than (greater than
North Georgia....... $ 4,600 13% or equal to) 1,458 or equal to) 4% or equal to) 2,187 or equal to) 6%
Tier I Capital (to Average Assets): (greater than (greater than
Consolidated........ $22,540 11% or equal to) 8,014 or equal to) 4% N/A N/A
(greater than (greater than (greater than (greater than
Milledgeville....... $16,603 11% or equal to) 6,127 or equal to) 4% or equal to) 7,658 or equal to) 5%
(greater than (greater than (greater than (greater than
North Georgia....... $ 4,600 9% or equal to) 2,007 or equal to) 4% or equal to) 2,508 or equal to) 5%
</TABLE>
(19) PROPOSED MERGER
On February 3, 1997, the Company executed a definitive agreement of
reorganization and plan of merger with First Alliance/Premier Bancshares, Inc.
("Premier"), a Marietta, Georgia-based bank holding company. This transaction
will be subject to regulatory and shareholder approval. Premier will be the
surviving corporation. In the transaction each of the Company's outstanding
common shares will be converted into one share of Premier common stock.
26
<PAGE>
EXHIBIT 99.2
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
GENERAL
The following unaudited pro forma condensed combined financial statements
are presented assuming the Merger will be accounted for as a pooling of
interests and reflect the combination of the historical consolidated financial
statements of Premier and Central and Southern. The pro forma condensed
combined balance sheet has been prepared as if the acquisition had been
consummated on March 31, 1997. The pro forma condensed combined statements of
income have been prepared as if the acquisition had been consummated on
January 1, 1994. In addition, the following financial statements do not
reflect any anticipated cost savings which may be realized by Premier after
consummation of the Merger.
The pro forma information does not purport to represent what Premier's and
Central and Southern's combined results of operations actually would have been
if the Merger had occurred on January 1, 1996.
PRO FORMA CONDENSED COMBINED BALANCE SHEET
MARCH 31, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CENTRAL AND
PREMIER SOUTHERN PRO FORMA
BANCSHARES HOLDING ADJUSTMENTS PRO FORMA
INC. COMPANY DEBIT (CREDIT) COMBINED
---------- ----------- -------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks....... $ 11,839 $ 9,501 $ $ 21,340
Interest-bearing deposits in
banks........................ 1,157 1,157
Federal funds sold............ 16,240 12,396 28,636
Securities available-for-
sale......................... 46,543 67,344 113,887
Loans held for sale........... 29,575 29,575
Loans......................... 193,227 137,949 331,176
Less allowance for loan loss-
es........................... 2,666 4,169 6,835
-------- -------- ---- --------
Loans, net.................. 190,561 133,780 0 324,341
-------- -------- ---- --------
Premises and equipment........ 6,790 5,926 12,716
Goodwill and other intangi-
bles......................... 2,227 2,227
Other assets.................. 6,854 3,436 10,290
-------- -------- ---- --------
Total assets.............. $311,786 $232,383 $ 0 $544,169
======== ======== ==== ========
DEPOSITS
Noninterest-bearing........... $ 33,997 $ 18,974 $ $ 52,971
Interest-bearing.............. 221,047 181,179 402,226
-------- -------- ---- --------
Total deposits............ 255,044 200,153 455,197
Securities sold under repur-
chase agreements............. 8,943 8,943
Other borrowings.............. 20,406 5,917 26,323
Other liabilities............. 3,154 2,254 (432)(3) 5,840
-------- -------- ---- --------
Total liabilities......... 287,547 208,324 (432) 496,303
-------- -------- ---- --------
Minority interest in subsidi-
ary.......................... 5 5
-------- -------- ---- --------
Common stock.................. 4,249 3,777 8,026
Capital surplus............... 18,549 6,492 25,041
Retained earnings............. 1,792 14,966 432 (3) 16,326
Unrealized gains (losses) on
securities available-for-
sale, net of tax............. (356) (43) (399)
-------- -------- ---- --------
24,234 25,192 432 48,994
Less treasury stock, at cost.. -- (1,133) (1,133)
-------- -------- ---- --------
24,234 24,059 432 47,861
-------- -------- ---- --------
Total liabilities and
stockholders' equity..... $311,786 $232,383 $ 0 $544,169
======== ======== ==== ========
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements.
1
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CENTRAL AND
PREMIER SOUTHERN PRO FORMA
BANCSHARES, HOLDING ADJUSTMENTS PRO FORMA
INC. COMPANY DEBIT (CREDIT) COMBINED
----------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
Interest income.......... $ 6,424 $ 4,530 $ $ 10,954
Interest expense......... 3,224 2,279 5,503
---------- ---------- --- ----------
Net interest income.... 3,200 2,251 0 5,451
Provision for loan loss-
es...................... 177 (205) (28)
---------- ---------- --- ----------
Net interest income after
provision for loan loss-
es...................... 3,023 2,456 0 5,479
---------- ---------- --- ----------
Other income:
Service charges on
deposit accounts...... 236 199 435
Other service charges,
commissions and fees.. 461 461
Mortgage loan income... 2,519 2,519
Security transactions,
net................... (25) (10) (35)
Other.................. 208 116 324
---------- ---------- --- ----------
3,399 305 3,704
---------- ---------- --- ----------
Other expenses:
Salaries and employee
benefits.............. 3,281 958 4,239
Occupancy and equipment
expenses.............. 634 272 906
Other operating
expenses.............. 1,242 559 1,801
---------- ---------- --- ----------
5,157 1,789 0 6,946
---------- ---------- --- ----------
Income before income tax-
es...................... 1,265 972 0 2,237
Income tax expense....... 111 259 370
---------- ---------- --- ----------
Income before minority
interest in net income
of subsidiary........... 1,154 713 0 1,867
---------- ---------- --- ----------
Minority interest in net
income of subsidiary.... 3 3
---------- ---------- --- ----------
Net income............... $ 1,151 $ 713 0 $ 1,864
---------- ---------- --- ----------
Net income per share of
common stock............ $ 0.27 $ 0.20 $ 0.23
========== ========== ==========
Average shares outstand-
ing..................... 4,330,309 3,653,523 8,116,500
========== ========== ==========
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements.
2
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CENTRAL AND
PREMIER SOUTHERN PRO FORMA
BANCSHARES, HOLDING ADJUSTMENTS PRO FORMA
INC. COMPANY DEBIT (CREDIT) COMBINED
----------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
Interest income........... $ 5,693 $ 4,239 $ $ 9,932
Interest expense.......... 2,705 2,183 4,888
---------- ---------- --- ----------
Net interest income..... 2,988 2,056 0 5,044
Provision for loan loss-
es....................... 129 (300) (171)
---------- ---------- --- ----------
Net interest income after
provision for loan loss-
es....................... 2,859 2,356 0 5,215
---------- ---------- --- ----------
Other income:
Service charges on
deposit accounts....... 234 168 402
Other service charges,
commissions and fees... 269 269
Mortgage loan income.... 1,886 1,886
Security transactions,
net.................... 143 143
Other................... 25 103 128
---------- ---------- --- ----------
2,557 271 2,828
---------- ---------- --- ----------
Other expenses:
Salaries and employee
benefits............... 2,644 912 3,556
Occupancy and equipment
expenses............... 536 200 736
Other operating
expenses............... 1,145 501 1,646
---------- ---------- --- ----------
4,325 1,613 0 5,938
---------- ---------- --- ----------
Income before income tax-
es....................... 1,091 1,014 0 2,105
Income tax expense........ 325 272 597
---------- ---------- --- ----------
Income before minority
interest in net income of
subsidiary............... 766 742 0 1,508
---------- ---------- --- ----------
Minority interest in net
income of subsidiary..... 3 3
---------- ---------- --- ----------
Net income................ $ 763 $ 742 0 $ 1,505
========== ========== === ==========
Net income per share of
common stock............. $ 0.18 $ 0.20 $ 0.19
========== ========== ==========
Average shares outstand-
ing...................... 4,245,339 3,683,957 8,036,102
========== ========== ==========
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements.
3
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CENTRAL AND
PREMIER SOUTHERN PRO FORMA
BANCSHARES HOLDING ADJUSTMENTS PRO FORMA
INC. COMPANY DEBIT (CREDIT) COMBINED
---------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
Interest income............ $ 23,015 $ 17,236 $ $ 40,251
Interest expense........... 11,281 8,956 20,237
---------- ---------- --- ----------
Net interest income...... 11,734 8,280 0 20,014
Provision for loan losses.. 598 (1,016) (418)
---------- ---------- --- ----------
Net interest income after
provision for loan loss-
es........................ 11,136 9,296 0 20,432
---------- ---------- --- ----------
Other income:
Service charges on
deposit accounts........ 960 758 1,718
Other service charges,
commissions and fees.... 1,376 -- 1,376
Gain on sale of loans.... 4,720 -- 4,720
Security transactions,
net..................... 279 -- 279
Mortgage loan origination
fees.................... 135 -- 135
Gain on sale of other
real estate............. 4,182 -- 4,182
Other.................... 203 504 707
---------- ---------- --- ----------
11,855 1,262 13,117
---------- ---------- --- ----------
Other expenses:
Salaries and employee
benefits................ 11,870 3,938 15,808
Occupancy and equipment
expense................. 2,408 882 3,290
Other operating
expenses................ 5,093 2,154 7,247
---------- ---------- --- ----------
19,371 6,974 0 26,345
---------- ---------- --- ----------
Income before income tax-
es........................ 3,620 3,584 0 7,204
Income tax expense......... 1,069 630 1,699
---------- ---------- --- ----------
Income before minority
interest in net income of
subsidiary................ 2,551 2,954 0 5,505
---------- ---------- --- ----------
Minority interest in net
income of subsidiary...... 11 -- 11
---------- ---------- --- ----------
Net income................. $ 2,540 $ 2,954 0 $ 5,494
---------- ---------- --- ----------
Net income per share of
common stock.............. $ .59 $ 0.81 $ 0.68
========== ========== ==========
Average shares outstand-
ing....................... 4,306,835 3,664,604 8,026,665
========== ========== ==========
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements.
4
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CENTRAL AND
PREMIER SOUTHERN PRO FORMA
BANCSHARES HOLDING ADJUSTMENTS PRO FORMA
INC. COMPANY DEBIT (CREDIT) COMBINED
---------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
Interest income............ $ 17,301 $ 16,274 $ $ 33,575
Interest expense........... 8,281 8,381 16,662
---------- ---------- --- ----------
Net interest income...... 9,020 7,893 0 16,913
Provision for loan losses.. 338 (1,038) (700)
---------- ---------- --- ----------
Net interest income after
provision for loan loss-
es........................ 8,682 8,931 0 17,613
---------- ---------- --- ----------
Other income:
Service charges on
deposit accounts........ 877 701 1,578
Other service charges,
commissions and fees.... 893 -- 893
Gain on sale of mortgage
loans held for sale..... 2,328 -- 2,328
Gain on sale of loans.... -- 0
Security transactions,
net..................... 22 (228) (206)
Mortgage loan fees....... 3,639 -- 3,639
Other.................... 394 461 855
---------- ---------- --- ----------
8,153 934 9,087
---------- ---------- --- ----------
Other expenses:
Salaries and employee
benefits................ 8,183 3,551 11,734
Occupancy and equipment
expenses................ 1,640 766 2,406
Other operating
expenses................ 3,873 2,366 6,239
---------- ---------- --- ----------
13,696 6,683 0 20,379
---------- ---------- --- ----------
Income before income tax-
es........................ 3,139 3,182 0 6,321
Income tax expense......... 1,137 623 1,760
---------- ---------- --- ----------
Income before minority
interest in net income of
subsidiary................ 2,002 2,559 0 4,561
---------- ---------- --- ----------
Minority interest in net
income of subsidiary...... 13 -- 13
---------- ---------- --- ----------
Net income................. $ 1,989 $ 2,559 $ 0 $ 4,548
---------- ---------- --- ----------
Net income per share of
common stock.............. $ .48 $ 0.68 $ 0.57
========== ========== ==========
Average shares outstand-
ing....................... 4,136,260 3,770,251 7,931,381
========== ========== ==========
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements.
5
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
CENTRAL AND
PREMIER SOUTHERN PRO FORMA
BANCSHARES HOLDING ADJUSTMENTS PRO FORMA
INC. COMPANY DEBIT (CREDIT) COMBINED
---------- ----------- -------------- ----------
<S> <C> <C> <C> <C>
Interest income............. $ 10,954 $ 16,769 $ $ 27,723
Interest expense............ 4,111 8,916 13,027
---------- ---------- --- ----------
Net interest income....... 6,843 7,853 0 14,696
Provision for loan losses... 285 285
---------- ---------- --- ----------
Net interest income after
provision for loan losses.. 6,558 7,853 0 14,411
---------- ---------- --- ----------
Other income:
Service charges on deposit
accounts................. 910 742 1,652
Other service charges,
commissions and fees..... 451 -- 451
Gain on sale of mortgage
loans held for sale...... 100 -- 100
Gain on sale of loans..... -- 0
Security transactions,
net...................... (29) 241 212
Mortgage loan fees........ 1,184 -- 1,184
Other..................... 346 676 1,022
---------- ---------- --- ----------
2,962 1,659 4,621
---------- ---------- --- ----------
Other expenses:
Salaries and employee
benefits................. 4,985 3,359 8,344
Occupancy and equipment
expenses................. 1,177 968 2,145
Other operating expenses.. 2,498 3,172 5,670
---------- ---------- --- ----------
8,660 7,499 0 16,159
---------- ---------- --- ----------
Income before income taxes.. 860 2,013 0 2,873
Income tax expense.......... 569 396 965
---------- ---------- --- ----------
Income before minority
interest in net income of
subsidiary................. 291 1,617 0 1,908
---------- ---------- --- ----------
Minority interest in net in-
come of subsidiary......... -- 0
---------- ---------- --- ----------
Net income.................. $ 291 $ 1,617 $ 0 $ 1,908
---------- ---------- --- ----------
Net income per share of com-
mon stock.................. $ 0.08 $ 0.44 $ 0.25
========== ========== ==========
Average shares outstanding.. 3,570,450 3,429,575 7,038,255
========== ========== ==========
</TABLE>
See Notes to Pro Forma Condensed Combined Financial Statements.
6
<PAGE>
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(1) The unaudited pro forma condensed combined balance sheet as of March 31,
1997 and condensed combined statements of income for the three months
ended March 31, 1997 and 1996 and for the years ended December 31, 1996,
1995 and 1994 have been prepared based upon the historical consolidated
balance sheets and statements of income, which give effect to the merger
of Premier with Central and Southern accounted for as a pooling-of-
interests, based on the exchange of one share of Premier for each
outstanding common share of Central and Southern. The pro forma financial
statements include all adjustments necessary to reflect the acquisition on
a pooling-of-interests basis. The pro forma condensed combined financial
statements should be read in conjunction with the accompanying historical
consolidated financial statements of Premier and Central and Southern and
notes thereto included elsewhere in this Joint Proxy Statement/Prospectus.
(2) Provided below is the pro forma adjustment necessary to reflect the
business combination of Premier and Central and Southern accounted for as
a pooling-of-interests. Each outstanding share of Central and Southern
common stock will be exchanged for one share of Premier common stock.
<TABLE>
<S> <C>
Issuance of Premier shares (3,777,017 at $1.00 par value) $ 3,777,017
Retirement of Central and Southern shares (3,777,017 at
$1.00 par value) (3,777,017)
-----------
Net effect on common stock 0
===========
</TABLE>
(3) The pro forma condensed combined statements of income do not include the
estimated direct costs associated with the acquisition. The estimated
merger expenses of Premier and Central and Southern are $425,000 and
$125,000, respectively. As of March 31, 1997, $432,000 of the estimated
expenses remained to be paid.
(4) Net income per common and common equivalent share was computed by dividing
net income by the weighted average number of shares of common stock and
common stock equivalents outstanding during each period, restated for the
Premier stock split. Common stock equivalents include stock options.
7
<PAGE>
EXHIBIT 99.3
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarter period ended June 30, 1997
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ____________________ to _______________________
Commission file Number 0-24528
PREMIER BANCSHARES, INC.
------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1793778
(State of other jurisdiction of (I.R.S. Employer
incorporation organization) Identification No.)
2180 Atlanta Plaza
950 East Paces Ferry Road
Atlanta, Georgia 30326
(Address, including ZIP Code
of registrant's principal executive offices)
(404) 814-3090
(Issuer's Telephone Number,
including area code)
(Former Name, Former Address and Former Fiscal Year,
if changed from last report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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.
x Yes ? No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
7,923,298 SHARES OF COMMON STOCK, $1.00 PAR VALUE AS OF AUGUST 14, 1997.
<PAGE>
PREMIER BANCSHARES, INC.
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended June 30, 1997
<TABLE>
<CAPTION>
Index Page No.
----- --------
<S> <C>
PART I. Financial Information
Item 1. Consolidated Financial Statements
(a) Consolidated Balance Sheets (unaudited) at June 30, 1997 and
December 31, 1996 3
(b) Consolidated Statements of Income (unaudited for the three
and six months ended June 30, 1997 and 1996 4
(c) Consolidated Statements of Cash Flows (unaudited) for the six
months ended June 30, 1997 and 1996 6
(d) Notes to Consolidated Financial Statements (unaudited) 7
Item 2. Management's Discussion and Analysis of Financial Condition and 8 - 15
Results of Operations
PART II. Other Information 16
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Securities Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16 - 18
(Signatures on Page 19)
</TABLE>
<PAGE>
PREMIER BANCSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
(Unaudited)
================================================================================
<TABLE>
<CAPTION>
1997 1996
-------------------------------------
(In thousands)
Assets
------
<S> <C> <C>
Cash and due from banks $ 21,806 $ 19,541
Interest-bearing deposits in banks 8,870 2,697
Federal funds sold 20,138 42,896
Securities available-for-sale 99,706 99,732
Loans held for sale 40,333 24,408
Loans 378,342 313,289
Less allowance for loan losses 6,973 6,568
------------------ ------------------
Loans, net 371,369 306,721
Premises and equipment 12,986 12,565
Goodwill and other intangibles 2,699 2,827
Other assets 9,517 8,557
------------------ ------------------
Total assets $ 587,424 $ 519,944
================== ==================
Liabilities and Stockholders' Equity
------------------------------------
Deposits
Noninterest-bearing demand $ 58,586 $ 48,272
Interest-bearing 413,770 383,626
------------------ ------------------
Total deposits 472,356 431,898
Securities sold under repurchase agreements 25,005 11,864
Federal Home Loan Bank advances 14,625 4,625
Other borrowings 19,458 18,752
Other liabilities 5,625 6,611
------------------ ------------------
Total liabilities 537,069 472,750
------------------ ------------------
Minority interest in subsidiary - 14
------------------ ------------------
Commitments and contingent liabilities
Stockholders' equity
Common stock, par value $1;20,000,000 shares authorized:
7,917,298 and 8,026,765 issued 7,917 8,027
Capital surplus 23,886 26,046
Retained earnings 18,348 15,131
Unrealized gains on securities available-for-sale,
net of tax 203 108
------------------ ------------------
50,355 48,313
Treasury stock at cost (123,494 shares) - (1,133)
------------------ ------------------
Total stockholders' equity 50,355 47,180
------------------ ------------------
Total liabilities and stockholders' equity $ 587,424 $ 519,944
================== ==================
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PREMIER BANCSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED JUNE 30, 1997 AND 1996
AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
<TABLE>
<CAPTION>
=================================================================================================================================
Three Months Ended June 30, Six Months Ended June 30,
------------------------------ ---------------------------
1997 1996 1997 1996
(In thousands except per share data)
<S> <C> <C> <C> <C>
Interest Income
Loans $ 10,062 $ 7,823 $ 18,735 $ 15,627
Taxable securities 1,562 1,437 3,071 2,999
Nontaxable securities 139 152 281 306
Deposits in banks 48 114 82 205
Other short-term investments 280 445 876 787
---------- ---------- ---------- ----------
Total interest income 12,091 9,971 23,045 19,904
---------- ---------- ---------- ----------
Interest expense
Deposits 5,136 4,275 10,092 8,367
Federal Home Loan Bank advances 172 79 260 243
Other borrowings 568 523 1,027 1,156
---------- ---------- ---------- ----------
Total interest expense 5,876 4,877 11,379 9,766
---------- ---------- ---------- ----------
Net interest income 6,215 5,094 11,666 10,138
Recovery of provisions for loan losses (102) (58) (130) (229)
---------- ---------- ---------- ----------
Net interest income after recovery of provisions
for loan losses 6,317 5,152 11,796 10,367
---------- ---------- ---------- ----------
Other income
Service charges on deposit accounts 463 438 898 840
Security transactions, net (6) (8) (41) 135
Mortgage income 2,857 2,040 5,376 3,926
Gain on sale of subsidiary 757 - 757 -
Other operating income 746 586 1,530 983
---------- ---------- ---------- ----------
Total other income 4,817 3,056 8,520 5,884
---------- ---------- ---------- ----------
Other expense
Salaries and employee benefits $ 4,785 $ 3,981 $ 9,024 $ 7,537
Occupancy and equipment expenses, net 970 754 1,876 1,489
Merger related expenses 348 39 394 234
Deposit insurance 34 41 46 64
Goodwill amortization 73 76 122 117
Other operating expenses 1,496 1,448 3,188 2,836
---------- ---------- ---------- ----------
7,704 6,339 14,649 12,277
---------- ---------- ---------- ----------
Income before income taxes and
minority interest in net income
of subsidiary 3,430 1,869 5,667 3,974
Income tax expense 1,201 412 1,571 1,009
---------- ---------- ---------- ----------
Net income before minority interest
in net income of subsidiary 2,229 1,457 4,096 2,965
Minority interest in net income of subsidiary 5 3 8 6
---------- ---------- ---------- ----------
Net income $ 2,224 $ 1,454 $ 4,088 $ 2,958
========== ========== ========== ==========
Per share of common stock
Net income $ .27 $ .18 $ .51 $ .37
========== ========== ========== ==========
Dividends $ .08 $ .02 $ .11 $ .16
========== ========== ========== ==========
Weighted average shares outstanding 8,095,829 7,963,351 8,062,259 7,970,193
========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
PREMIER BANCSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1997 1997
---------- ----------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income before minority interest
in income of subsidiary $ 4,096 $ 2,965
Adjustments to reconcile net income to net
cash (used in) operating activities:
Depreciation 768 557
Amortization of intangibles 122 117
Provision for loan losses (130) (229)
Net increases in loans held
for sale (15,925) (4,667)
Net realized (gains) losses on securities
available-for-sale 41 (135)
Gain on sale of subsidiary (757) -
Other operating activities (1,010) (1,507)
---------- ----------
Net cash used in operating activities (12,795) (2,899)
---------- ----------
INVESTING ACTIVITIES
Purchases of securities available-for-sale (26,155) (20,678)
Proceeds from sales of securities
available-for-sale 15,053 12,978
Proceeds from maturities of securities
available for sale 11,224 8,921
Net decrease in Federal funds sold 22,758 4,147
Net (increase) decrease in interest-bearing
deposits in banks (6,173) 3,796
Net increase in loans (67,134) (36,775)
Purchase of premises and equipment (1,408) (2,498)
Net cash from sale of subsidiary 472 -
---------- ----------
Net cash used in investing activities (51,363) (30,109)
---------- ----------
FINANCING ACTIVITIES
Net increase in deposits 40,458 27,497
Net increase in repurchase agreements 13,141 1,306
Net increase in other borrowings 3,843 6,202
Net (increase) decrease in Federal Home
Loan Bank advances 10,000 (1,500)
Dividends paid (875) (1,322)
Dividends paid to minority shareholder (12) (15)
Proceeds from exercise of stock options 215 -
Purchase of treasury stock (348) (558)
---------- ----------
Net cash provided by financing activities 66,423 31,610
---------- ----------
</TABLE>
<PAGE>
PREMIER BANCSHARES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
- --------------------------------------------------------------------------------
1997 1996
-------- --------
(in thousands)
Net increase (decrease) in cash and due
from banks $ 2,265 $(1,398)
Cash and due from banks at beginning of year 19,541 18,110
------- -------
Cash and due from banks at end of year $21,806 $16,712
======= =======
SUPPLEMENTAL DISCLOSURES
Cash paid for:
Interest $10,974 $10,006
Income taxes $ 1,085 $ 1,054
PREMIER BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1. BASIS OF PRESENTATION
The consolidated financial information included herein is unaudited; however,
such information reflects all adjustments (consisting solely of normal recurring
adjustments) which are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
The results of operations for the three-month and six-month periods ended June
30, 1997 are not necessarily indicative of the results to be expected for the
full year.
Note 2. BUSINESS COMBINATIONS
On June 23, 1997, Premier Bancshares, Inc. merged with Central and Southern
Holding Company ("Central and Southern") of Milledgeville, Georgia. Each share
of Central and Southern's common stock issued and outstanding was converted into
and exchanged for the one share of Premier Bancshares, Inc.'s common stock. The
merger was accounted for as a pooling of interests. All financial information
has been restated to reflect the combined operations of Premier and Central and
Southern.
On August 31, 1996, First Alliance Bancorp, Inc. merged with Premier Bancshares,
Inc. The merger was accounted for as a pooling of interests. All financial
information has been restated to reflect the combined operations of First
Alliance Bancorp, Inc. and Premier Bancshares, Inc.
Note 3. COMMON STOCK SPLIT
On February 24, 1997, Premier Bancshares, Inc. declared a 1.8055 stock split for
shares of record as of March 6, 1997. The number of shares to effect he stock
split times the par value of $1 was transferred from capital surplus to common
stock on March 20, 1997. All prior financial information has been restated to
reflect the stock split.
Note 4. CURRENT ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board has issued SFAS No. 128, "Earnings Per
Share." SFAS No. 128 establishes standards for computing and presenting
earnings per share (EPS) and applies to entities with publicly held common stock
or potential common stock. This statement simplifies the standards for
computing earnings per share previously found in APB Opinion No. 15, Earnings
per Share, and makes them comparable to international EPS standards. It
replaces the presentation of primary EPS with a presentation of basic EPS. It
also requires dual presentation of basic and diluted EPS on the face of the
statement of income for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
The effective date of this Statement is for financial statements issued for the
periods ending after December 15, 1997. The adoption of this Statement is not
expected to have a material effect on earnings per share.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Background
Premier ("Company")was incorporated in 1988 under the laws of Georgia and is a
bank holding company registered under the regulations of the Federal Reserve,
and a registered thrift holding company under the regulations of the OTS. The
Company has two bank subsidiaries, Premier Bank and Central and Southern Bank of
Georgia. Premier Bank is a commercial bank which opened for business in 1984
known formerly as First Alliance Bank. Central and Southern Bank is a
commercial bank which opened for business in 1874. The Company has two thrift
subsidiaries, Central and Southern Bank of North Georgia and Premier Bank FSB.
The Company has one nonbank subsidiary, Premier Lending. Premier Lending
originates, processes, funds and sells residential mortgage loans, construction
loans and commercial finance loans.
<TABLE>
<CAPTION>
June 30, December 31,
----------- ------------------------------------------------------------------
Periods ended: 1997 1996 1995 1994 1993 1992
----------- ------------ ----------- ----------- ------------ ------------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C>
Interest income $23,045 $40,252 $33,575 $27,723 $31,234 $39,345
Interest expense 11,379 20,238 16,662 13,028 15,204 21,694
Net interest Income 11,666 20,014 16,913 14,695 16,030 17,651
Provision for possible loan losses (130) (418) (700) 285 3,732 12,283
Other income 8,520 13,118 9,087 4,622 6,502 7,227
Other expense 14,649 26,346 20,378 16,159 11,622 8,242
Net earnings (loss) 4,088 5,494 4,548 1,908 198 (2,829)
Per share data:
Net earnings (loss) 0.51 0.68 0.57 0.25 0.03 (0.47)
Cash dividends declared 0.11 0.24 0.09 0.07 N/A 0.04
Borrowings 59,088 35,242 34,462 21,144 4,399 300
Average total equity 47,226 46,167 43,498 37,506 35,035 33,309
Average total assets 543,548 471,340 409,992 374,707 394,999 435,715
Ratios:
Net earnings (loss) to average assets 1.52% 1.17% 1.11% 0.51% 0.05% (0.65)%
Net earnings (loss) to average equity 17.44% 11.90% 10.46% 5.09% 0.57% (8.49)%
Dividend payout ratio 21.57% 35.29% 15.79% 28.00 % N/A
Average equity to average assets 8.70% 9.79% 10.61% 10.01% 8.87% 7.64%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1996 1995 % Change
---------- ---------- --------
(in thousands except per share data)
Statement of condition:
<S> <C> <C> <C>
Assets $519,944 $445,374 16.74%
Loans held for sale 24,408 25,912 (5.80)%
Loans, net of unearned interest 313,289 246,945 26.87%
Deposits 431,898 358,927 20.33%
Stockholders' equity 47,180 46,090 2.36%
Statement of earnings:
Net interest income 20,014 16,913 18.34%
Provision for loan losses (418) (700) (40.29)%
Other income 13,118 9,087 44.36%
Other expense 26,346 20,379 29.28%
Net earnings 5,494 4,548 20.80%
Per share data
Book value 5.97 5.74 4.01%
Net earnings 0.69 0.58 19.30%
Cash dividends declared 0.24 0.09 166.67%
Performance ratios
Return on average total assets 1.17% 1.11%
Return on average total equity 11.90% 10.46%
</TABLE>
Liquidity and Capital Resources
Liquidity management involves the matching of the cash flow requirements of
customers who may be either depositors desiring to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs and the ability of the Company to meet those needs. The Company seeks to
meet liquidity requirements primarily through management of short-term
investments (principally Federal Funds sold and overnight funds), monthly
amortizing loans, repayment of single payment loans, periodic repayments of
mortgage backed securities, and draws on lines of credit. In addition, at June
30, 1997, Premier Bank and Central and Southern Bank had $14 million in
approved Federal Funds lines with correspondent banks which could provide funds
on an immediate basis if the need arose. Also, Premier Bank has access to
various Certificate of Deposit ("CD") networks which would allow it to raise
deposits from credit unions and other small banks for varying time periods at
rates comparable to the short-term U.S. Government Bond rate. These deposits are
not brokered and no fee outside of the market rate is paid.
Premier Bank and the Central and Southern Banks are members of the Federal Home
Loan Bank system. At June 30, 1997,the Company had the ability to borrow
approximately $26 million by pledging qualifying loans and securities as
collateral.
The liquidity and capital resources of the Company are monitored on a periodic
basis by federal regulatory authorities. In addition, management performs
liquidity analyses in the same manner as the federal regulatory agencies. As of
June 30, 1997, the various liquidity ratios were considered adequate by
regulatory definitions. In management's opinion, the Company maintained
liquidity that was adequate to meet its respective needs.
<PAGE>
Premier Bank and Central and Southern Banks continue to be well-capitalized by
both industry and regulatory definitions. At June 30, 1997, The Company's
consolidated capital ratios were as follows:
<TABLE>
<CAPTION>
Minimum Regulatory
Requirement to be
June 30, 1997 Well-Capitalized
-------------------- --------------------
<S> <C> <C>
Leverage Capital Ratio 8.54% 5.00%
Risk Based Capital Ratios:
Tier #1 Capital 11.33% 6.00%
Total Capital 12.58% 10.00%
</TABLE>
Management is not aware of any current recommendations of the regulatory
authorities which, if they were implemented, would have a material effect on the
Company's liquidity, capital resources or operations.
The Company regularly evaluates business combination opportunities and conducts
due diligence activities in connection with possible business combinations. As a
result, business combination discussions and, in some cases, negotiations take
place, and future business combinations involving cash, debt or equity
securities may be expected. Any future business combination or series of
business combinations that the Company might undertake may be material, in terms
of assets acquired or liabilities assumed, to the Company's financial condition.
Asset/Liability Management
At June 30, 1997, the Company, utilizing a ''static gap'' view of interest
sensitivity, was positioned in an asset-sensitive position at three months, six
months, and a slightly liability-sensitive position at one year. This ''static
gap'' view of interest rate sensitivity at a point in time looks at the volume
of assets and liabilities that will mature or reprice within varying time
periods. Such a view does not necessarily indicate the impact of general
interest rate movements on the net interest margin since the repricing of
various categories of assets and liabilities is subject to competitive pressures
and the needs of the Company's customers. It is also probable that actual
repricing may happen at different times than estimated and at different rates
than anticipated.
Interest Rate Sensitivity
<TABLE>
<CAPTION>
Static GAP June 30, 1997
3-MONTH 6-MONTH 1-YEAR
------------ ------------ ------------
(in thousands)
<S> <C> <C> <C>
Rate Sensitive Assets (RSA) $299,003 $325,963 $361,416
Rate Sensitive Liabilities (RSL) 221,128 291,613 390,193
RSA minus RSL (Gap) $77,875 $34,350 $(28,777)
======== ======== ========
Cumulative Gap Ratio (RSA/RSL) 1.35 1.12 0.93
======== ======== ========
</TABLE>
<PAGE>
At December 31, 1996, the Company, utilizing a "static gap" view of interest
sensitivity, was positioned in an asset-sensitive position at three months, six
months, and a slightly liability-sensitive position at one year.
<TABLE>
<CAPTION>
Static GAP December 31, 1996
3-MONTH 6-MONTH 1-YEAR
----------------- ------------ ------------
(in thousands)
<S> <C> <C> <C>
Rate Sensitive Assets (RSA) $260,523 $287,632 $324,100
Rate Sensitive Liabilities (RSL) 209,242 276,134 345,242
RSA minus RSL (Gap) $51,281 $11,498 $(21,142)
======== ======== ========
Cumulative Gap Ratio (RSA/RSL) 1.25 1.04 0.94
======== ======== ========
</TABLE>
CHANGES IN FINANCIAL CONDITION
CASH AND SHORT-TERM ASSETS
Total assets increased by $67,500,000 at June 30, 1997 since December 31, 1996.
Non-earning cash and due from banks increased $2,300,000 at June 30, 1997 from
December 31, 1996. This change is representative of normal daily fluctuations
in cash and check clearings. Interest-earning deposits in other banks increased
$6,200,000 from December 31, 1996 to a balance of $8,870,000 at June 30, 1997.
This balance is primarily excess funds that are held at the Federal Home Loan
Bank and accrue interest at a rate approximately equal to the Federal Funds
rate. Federal Funds sold decreased $22,800,000 from December 31, 1996 to June
30, 1997. The decrease in Federal Funds is primarily the result of an increase
in loans outstanding during the first six months of 1997 and the above noted
increase in the Federal Home Loan Bank account balance.
Total assets as of December 31, 1996 increased $74,600,000 since December 31,
1995. The majority of the growth was in loans outstanding. Loan demand in the
markets served by the Company was strong during 1996.
<PAGE>
SECURITIES PORTFOLIO
<TABLE>
<CAPTION>
June 30 December 31,
1997 1996 1995 1994
----------- ----------- ----------- ----------
( in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Gov't
agencies $42,491 $40,675 $46,373 $36,518
State and municipals 9,309 10,331 10,455 10,645
Mortgage-backed securities 44,776 46,302 51,595 54,212
Other 3,129 2,424 1,888 1,580
------- ------- -------- --------
Total $99,706 $99,732 $110,311 $102,955
======= ======= ======== ========
</TABLE>
All securities are held as available-for-sale and are reported at their fair
values.
MATURITIES
The amounts of securities in each category as of December 31, 1996 are shown in
the following table.
<TABLE>
<CAPTION>
Within One Five Years Ten Years After Ten Years
------------------ ------------------ ------------------ ------------------
Amount Yield Amount Yield Amount Yield Amount Yield
-------- ----- -------- ----- -------- ----- -------- ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S. Gov't agencies $2,410 6.24% $35,865 6.28% $2,018 6.19% $382 6.05%
State and municipal 2,294 11.13% 4,011 9.16% 3,774 9.30% 252 11.50%
Mortgage-backed securities 1,925 4.93% 13,837 6.87% 8,550 6.01% 21,990 6.14%
Other 381 7.86% --- --- 2,043 6.67%
Total $7,010 7.57% $53,713 6.65% $14,342 6.90% $24,667 6.24%
</TABLE>
(1) Includes mortgage-backed securities based on their contractual maturity
date.
(2) Yields on municipal securities have been computed on a tax equivalent
basis.
(3) Yields were computed using coupon interest, adding discount accretion, or
subtracting premium amortization, as appropriate, on a ratable basis over
the life of each security. The weighted average yield for each maturity
range was computed using the carrying value of each security in that range.
The Company's investment portfolio consists of U.S. Government and agency
securities, municipal securities, various equity securities and Government
agency sponsored mortgage-backed securities. A mortgage-backed security relies
on the underlying mortgage pools of loans to provide a cash flow of principal
and interest. The actual maturities of these securities will differ from the
contractual maturities because these borrowers may have the right to prepay
obligations with or without prepayment penalties. Decreases in interest rates
will generally cause prepayments to accelerate. In a declining interest rate
environment, the Company may not be able to reinvest the proceeds from these
prepayments in assets which have comparable yields. However, because the
<PAGE>
majority of the mortgage-backed securities have adjustable rates, the negative
effects of changes in interest rates on earnings and the carrying values of
these securities are mitigated. At June 30, 1997, the Company had $10,730,000
in collateralized mortgage obligations ("CMOs") and $34,046,000 in mortgage-
backed pass-through securities of which 49% have variable interest rates and the
majority are issued by or backed by Federal agencies.
At December 31, 1996, the Company had $14,568,000 in collateralized mortgage
obligations ("CMOs") and $36,225,000 in mortgage-backed pass-through securities.
CHANGES IN SECURITIES PORTFOLIO
Securities available-for-sale decreased $26,000 on June 30, 1997 from December
31, 1996.
Securities available-for-sale on December 31, 1996 decreased $10,579,000 from
December 31, 1995. In the first quarter of 1996, Premier Bank sold
approximately $10,000,000 in securities from the available-for-sale portfolio.
These sales represented the termination of an arbitrage transaction made up of
these assets and various floating rate deposits and borrowings. These
securities were primarily floating rate collateralized mortgage obligations and
mortgage-backed passthroughs. The proceeds from the sale of securities provided
funding for the increase in loans.
LOAN PORTFOLIO
TYPES OF LOANS
Management realizes that the Company's loan portfolio is concentrated in loans
secured by real estate. Real estate loans include real estate mortgages, real
estate construction projects, and consumer home equity lines. The amount of
loans outstanding at the indicated dates are shown in the following table
according to the type of loan. The other concentration is in commercial,
financial and agricultural loans which are made primarily to businesses in the
Atlanta, Georgia metropolitan area. The following table presents this major
category of net loans for each period, excluding the allowance for loan losses
and mortgage loans held for sale.
<TABLE>
<CAPTION>
June 30 December 31,
1997 1996 1995 1994 1993 1992
-------- --------- --------- --------- -------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural 65,151 50,859 47,360 32,378 40,407 38,881
Real estate-construction 108,176 95,128 58,734 32,789 18,589 18,422
Real estate-mortgage 180,054 137,417 109,567 87,806 82,981 95,176
Consumer installment 24,961 29,885 31,284 37,808 66,195 104,203
------- ------- ------- ------ ------ -------
378,342 313,289 246,945 190,781 208,172 256,682
</TABLE>
MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES
Of the loans maturing after one year, approximately $89,000,000 have fixed rates
and approximately $93,000,000 have variable rates. The maturity of real estate
<PAGE>
construction and commercial, financial and agricultural loans outstanding at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
Real estate Commercial, financial
construction and agricultural
------------ ---------------------
(in thousands)
<S> <C> <C>
In one year or less $91,441 $30,196
After one year but within five years 1,629 19,381
After five years 2,058 1,282
------- -------
Total $95,128 $50,859
======= =======
</TABLE>
CHANGES IN LOAN PORTFOLIO
Loans held for sale increased $15,925,000 from December 31, 1996 to June 30,
1997. These loans represent first mortgage loans which have been originated by
Premier Lending and have been sold to third party investors and are waiting for
funding from the investor. This balance fluctuates based on time of month, new
loan volume and length of investor closing periods. Other loans grew by
$65,000,000 at June 30, 1997 from December 31, 1996. The primary reason for this
continued growth in loans is due to the continued strong loan demand and
consolidation of regional and community banks in the Atlanta metropolitan area.
Loans grew by $66,300,000 at December 31, 1996 from December 31, 1995. In
addition, at December 31, 1996, construction loans increased $36,394,000, real
estate mortgage loans increased $27,850,000, commercial loans increased
$3,499,000, and consumer loans decreased $1,399,000 from December 31, 1995. The
primary reason for these increases was the addition of five experienced real
estate and commercial loan officers. Loan officers at Premier Lending generate
loans that are specifically underwritten by Premier Bank. In prior periods, the
majority of these loans were sold to third party financial institutions.
DEPOSITS
Average deposits and the rates paid on those deposits classified as to
noninterest-bearing demand, savings and interest-bearing demand, and time
deposits, for the years indicated are presented below.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Years ended December 31,
- ---------------------------------------------------------------------------------------------------------------
1996 1995 1994
Amount Rate Amount Rate Amount Rate
----------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand
deposits $ 45,88? $ 40,497 $ 39,65?
Savings and interest-bearing
demand deposits 107,634 3.17% 90,899 3.17% 100,697 2.91%
Time deposits 236,639 5.94% 197,134 5.83% 182,380 5.16%
-------- ----- -------- ----- -------- -----
Total average deposits $390,159 4.48% $328,530 4.37% $322,733 3.83%
======== ===== ======== ===== ======== =====
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The maturities of certificates of deposit of $100,000
or more as of December 31, 1996 are presented below:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
3 months or less $21,090
Over 3 through 6 months 24,996
Over 6 through 12 months 15,101
Over 12 months 13,117
-------
$74,304
</TABLE>
CHANGES IN DEPOSITS
Total deposits grew by $40,400,000 at June 30, 1997 from December 31, 1996 as
the Company continues to gain market share through its expansion program as well
as its quality service program.
<PAGE>
Total deposits grew $73,00,000 at December 31, 1996 from December 31, 1995.
Premier Bank aggressively marketed for deposits in several key submarkets in the
Company's market area and entered several new markets during the period.
OTHER BORROWINGS
Other borrowings grew $23,847,000 from December 31, 1996 to June 30, 1997. The
increase was primarily due to the purchase of seasoned $15,000,000 floating rate
mortgage loans and a temporary increase of $10,000,000 in mortgage loans held
for sale at the end of the second quarter. This mortgage held for sale increase
was due to increased production and timing of investor funding on several large
sales. Management expects that these temporary increases in the held for sale
balances will occur and funding sources are in place to manage.
<TABLE>
<CAPTION>
1996 1995 1994
------------ ---------------- -------------
(in thousands)
<S> <C> <C> <C>
Balance at December 31 35,242 34,462 21,144
Weighted average interest rate at December 31 6.43% 7.88% 6.83%
Maximum month end balance during year 35,242 63,331 36,314
Average amount outstanding during the year 42,411 37,373 17,371
Weighted average interest rate during the year 6.50% 6.13% 5.49%
</TABLE>
NON-PERFORMING LOANS
The following table presents nonperforming loans at June 30, 1997 and December
31, 1996, 1995, 1994, 1993 and 1992. Nonperforming loans consist solely of
loans which are contractually past due 90 days or more as to interest or
principal payments (past-due loans) and loans accounted for on a nonaccrual
basis (nonaccrual loans).
<TABLE>
<CAPTION>
COMBINED
Past-due Nonaccrual
loans loans
---------- -----------
(in thousands)
<S> <C> <C>
June 30, 1997 $22? $ 786
December 31, 1996 -- 1,425
December 31, 1995 13 1,064
December 31, 1994 205 1,664
December 31, 1993 206 3,070
December 31, 1992 684 5,771
</TABLE>
Total interest income recognized on nonperforming loans for the year ended
December 31, 1996 was $119,000. Additional interest income of $112,000 would
have been recorded in 1996 if all nonperforming loans had performed in
accordance with their original terms.
<PAGE>
NONPERFORMING ASSETS
The following table analyzes nonperforming assets for June 30, 1997 and each of
the past three years.
<TABLE>
<CAPTION>
1997 1996 1995 1994
(in thousands)
<S> <C> <C> <C> <C>
Loans past due 90 days or more $227 $ --- $13 $205
Non accrual loans 786 1,425 1,064 1,664
------ ------ ------ ------
Total nonperforming loans 1,013 1,425 1,077 1,869
Other real estate 682 949 907 1,608
------ ------ ------ ------
Total nonperforming assets $1,695 $2,374 $1,984 $3,477
====== ====== ====== ======
Nonperforming loans/Total loans, net of unearned 0.27% 0.45% 0.44% 0.98%
Nonperforming assets/Total assets 0.29% 0.46% 0.45% 0.98%
Loan loss allowance/Total loans, net of unearned 1.84% 2.10% 2.43% 2.94%
Loan loss allowance/Nonperforming loans 688.35% 460.91% 556.36% 300.37%
</TABLE>
Accrual of interest income is normally discontinued on loans when they become 90
days past due or, in the opinion of management, collection of interest becomes
doubtful. When a loan is determined to be impaired, all interest previously
accrued but not collected is reversed against current interest income. Accrual
of interest on such loans is resumed when, in management's judgment, the
collection of interest and principal becomes probable.
In the opinion of management, any loans classified by regulatory authorities as
doubtful, substandard, or special mention that have not been included in the
table above do not represent or result from trends or uncertainties which
management reasonably expects will materially impact future operating results,
liquidity, or capital resources. These classified loans do not represent (i)
material credits about which management is aware or (ii) any information which
causes management to have serious doubts as to the ability of such borrowers to
comply with the loan repayment terms. Any loans classified by regulatory
authorities as loss are charged off at the time such loans are identified.
Commitments and Lines of Credit
The Company enters into residential construction and commercial loan commitments
in advance of closing to fund loans to its customers at locked-in interest rates
in the normal course of business. These instruments, to the extent they are not
covered by investor purchase commitments, involve credit and interest rate risk
in excess of the amount recognized in the financial statements.
In the normal course of business, the Company has entered into off-balance-sheet
financial instruments which are not reflected in the financial statements.
These financial instruments include commitments to extend credit and standby
letters of credit. Such financial instruments are included in the financial
statements when funds are disbursed or the instruments become payable. These
instruments involve, to varying degrees, elements of credit risk in excess of
the amount recognized in the balance sheet.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for unfunded mortgage loan commitments,
residential construction, and commercial loans commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. A summary of the Company's commitments is as follows:
<PAGE>
<TABLE>
<CAPTION>
December 31,
(in thousands)
1996 1995
---------- ----------
<S> <C> <C>
Unfunded mortgage loan commitments 20,000 31,968
Residential construction and commercial loan commitments 27,277 18,526
Commitments to extend credit 71,518 33,682
Standby letters of credit 860 1,260
</TABLE>
Summary of Loan Loss Experience
The provision for possible loan losses is created by direct charges and credits
to operations. Losses on loans are charged against the allowance in the period
in which such loans, in management's opinion, become uncollectible. Recoveries
during the period are credited to the allowance. The factors that influence
management's judgment in determining the amount charged to operating expense are
past loan loss experience, composition of the loan portfolio, evaluation of
possible future losses, current economic conditions, and other relevant facts.
The allowance for loan losses is reviewed regularly based on management's
evaluation of current risk characteristics of the loan portfolio, as well as the
impact of prevailing and expected economic business conditions. Management
considers the allowance for loan loss adequate to cover possible loan losses on
the loans outstanding.
Premier is a bank holding company that is the result of the acquisition of six
financial institutions acquired over the last five years. Each institution
utilized various methodologies to determine loan loss allowance adequacy. The
methodologies utilized by current management are, in the opinion of management,
appropriate for the allowance adequacy determination at June 30, 1997.
Considering the primary factor that the economy in general and the Atlanta
metropolitan market in specific is performing in an outstanding manner,
management realizes and provides for any deterioration of the economy in the
future. At this time, management expects charge-offs in 1997 to be consistent
with 1996.
The allowance for loan losses could be allocated in the following manner for
June 30, 1997 and at December 31, for the following years:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
--------- --------- ---------- --------- ---------- ---------
(in housands)
<S> <C> <C> <C> <C> <C> <C>
Allowance allocation by loan category
Commercial, financial and agriculture $1,132 $1,066 $1,149 $953 $1,215 $986
Consumer installment 666 627 759 1,113 1,991 2,642
Real estate 5,175 4,875 4,084 3,549 3,055 2,881
------ ------ ------ ------ ------ ------
$6,973 $6,568 $5,992 $5,613 $6,262 $6,509
Percent of loans by category to total loans
Commercial, financial and agriculture 17% 16% 19% 17% 19% 15%
Consumer installment 7% 10% 13% 20% 32% 41%
Real estate 76% 74% 68% 63% 49% 44%
------ ------ ------ ------ ------ ------
100% 100% 100% 100% 100% 100%
</TABLE>
<PAGE>
The following table summarizes average loan balances for June 30, 1997 and for
five prior year ends, changes in the allowance for loan losses arising from
loans charged off, recoveries on loans previously charged off, additions to the
reserve which have been charged to operating expense, and the ratio of net
charge-offs during the period to average loans.
<TABLE>
<CAPTION>
June 30 Years ended December 31,
1997 1996 1995 1994 1993 1992
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Amount of loans,excluding held for sale,
net of unearned income & allowance
for loan losses $371,369 $306,721 $240,953 $185,167 $199,541 $249,600
======== ========= ======== ======== ======== ========
Average loans, including held for sale,
net of unearned income $371,168 $300,618 $242,985 $204,352 $231,781 $268,465
======== ========= ======== ======== ======== ========
Allowance for loan losses at
beginning of period $6,568 $ 5,992 $5,614 $6,262 $6,509 $3,991
Loans charged off:
Commercial, financial, and agricultural 10 68 316 1,030 1,574 1,893
Real estate loans 13 49 412 1,139 819 4,203
Consumer installment 143 398 897 1,745 3,899 5,507
-------- --------- -------- -------- -------- --------
Total loans charged off 166 515 1,625 3,914 6,292 11,603
Recoveries of loans previously charged off:
Commercial, financial, and agricultural 343 195 456 573 21 44
Real estate loans 52 200 175 242 143 111
Consumer installment 380 1,114 1,778 2,166 1,955 1,223
-------- --------- -------- -------- -------- --------
Total loans recovered 775 1,509 2,409 2,981 2,313 1,378
Net (recoveries) charge-offs (609) (994) (784) 933 3,979 10,225
Allowance acquired (disposed of) in
business combinations (74) - 294 460
Provision for loan losses (130) (418) (700) 285 3,732 12,283
Allowance for loan losses at end of period $6,973 $ 6,568 $5,992 $5,615 $6,261 $6,509
======== ========= ======== ======== ======== ========
Ratio of net charge-offs
(recoveries) to average net loans
outstanding 0.164% (0.331)% (0.32)% 0.46% 1.72% 3.81%
</TABLE>
PROVISION FOR LOAN LOSSES
Under normal circumstances, this expense is used to establish the allowance for
loan losses. Actual loan losses, net of recoveries, are charged directly to the
allowance. Expense recorded is a reflection of actual losses experienced during
the year and management's judgment as to the adequacy of the allowance to absorb
future losses.
<PAGE>
The Company did not make a provision for loan losses during 1996. Instead, the
Company made negative provisions which amounted to $418,000 for the year. The
negative provisions were based on the net recovery stream of previously charged
off loans which amounted to $994,000 for the year.
The Company did not make a provision for loan losses during 1995. Instead, the
Company made negative provisions which amounted to $700,000 for the year. The
negative provisions were based on the net recovery stream of previously charged
off loans which amounted to $784,000 for the year.
Management's analysis of the allowance for loan losses, nonperforming assets,
and net recoveries on a monthly basis concluded that the allowance was more than
adequate given the risk resident within the loan portfolio. The allowance as a
percent of total loans is 1.84%, nonperforming loans to total loans are .27%,
and net recoveries as a percent of average loans (net of unearned interest) were
.16% for the six months ended June 30, 1997.
RESULTS OF OPERATIONS
Net income for the three months ended June 30, 1997 was $2,224,000 as compared
to $1,454,000 for the three months ended June 30, 1996. On a per share basis,
net income was $.27 in the three months ended June 30, 1997 versus $.18 in the
three months ended June 30, 1996. This $.09 represents an increase of 50% in
per share income.
Net income for the first six months of 1997 was $4,088,000 as compared to
$2,959,000 for the first six months of 1996. Included in the first six months
of 1997 net income was $402,000 of utilized net operating loss carryforwards. On
a per share basis, net income was $.051 in the first six months of 1997 versus
$.37 in the first six months of 1996. This $.14 increase represents an increase
of 38% in per share earnings.
The Company reported record annual earnings of $5,494,000 for the year ended
December 31, 1996. This amount was an increase of $946,000 or 21% from the
previous year's net income. This figure included merger expenses, data
processing conversion expenses, severance expenses, as well as the special SAIF
fund recapitalization assessment.
INTEREST INCOME AND INTEREST EXPENSE
The following table sets forth the amount of the Company's average balances,
interest income (fully taxable equivalent), and interest expense for each
category of interest-earning assets and interest-bearing liabilities, average
interest rates for interest-earning assets and interest yields for interest-
bearing liabilities, net interest spread, and net yield on average interest-
earning assets.
<PAGE>
Distribution of Assets, Liabilities, and Stockholders' Equity Interest Rates and
Interest Differentials
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------- ---------------------------- --------------------------------
Yield/ Yield/ Yield/
Avg.Bal. Int. Rate Avg.Bal. Int. Rate Avg.Bal. Int. Rate
-------- ------- ------ -------- ------- ------ -------- ------- ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Loans, net of unearned interest $300,618 $31,734 10.56% $242,985 $25,077 10.32% $204,352 $19,868 9.72%
Interest-bearing deposits other
banks 9,113 427 4.69% 3,925 174 4.43% 523 18 3.44%
Investment securities:
Taxable 95,809 5,910 6.17% 100,589 6,266 6.23% 104,616 5,700 5.45%
Non-taxable 9,892 901 9.11% 9,894 1,017 10.28% 13,690 1,380 10.08%
Federal funds sold 28,144 1,543 5.49% 23,731 1,388 5.85% 28,790 1,227 4.26%
-------- ------- ------ -------- ------- ------ -------- ------- ------
Total interest earning assets $443,576 $40,516 9.13% $381,124 $33,922 8.90% $351,971 $28,193 8.01%
Allowance for loan losses (6,396) (5,982) (6,241)
Other assets 34,160 34,850 28,977
-------- -------- --------
Total assets $471,340 $409,992 $374,707
LIABILITIES AND STOCKHOLDERS'
EQUITY
Savings and interest-bearing
Demand deposits $107,634 $3,417 3.17% $ 90,898 $2,880 3.17% $100,697 $2,932 2.91%
Time deposits 236,639 14,065 5.94% 197,134 11,492 5.83% 182,380 9,418 5.16%
Other borrowings 30,448 2,756 9.05% 34,093 2,290 6.72% 12,075 678 5.61%
-------- ------- -------- ------- -------- -------
Total interest-bearing liabilities $374,721 $20,238 5.40% $322,125 $16,662 5.17% $295,152 $13,028 4.41%
Demand deposits 45,886 40,497 39,656
Other liabilities 4,566 3,872 2,393
-------- -------- --------
Total liabilities 425,173 366,494 337,201
Total stockholders' equity 46,167 43,498 37,506
-------- -------- --------
Total liabilities and
stockholders' equity $471,340 $409,992 $374,707
Net interest income $20,278 $17,260 $15,165
Net interest margin 4.57% 4.53% 4.31%
Net interest spread 3.73% 3.73% 3.60%
</TABLE>
(1) Average balances were determined using the daily average balances.
(2) Average taxable securities represent securities available-for-sale are
based on their fair values.
<PAGE>
Average loans include nonaccrual loans and are stated net of unearned income.
Income on nonaccrual loans is recognized on the cash basis.
Nontaxable securites income is presented on a fully taxable equivalent basis.
Net interest income increased $1,121,000 in the second quarter of 1997 compared
with the second quarter of 1996. The primary reason for the increased income
was an increase of $79,396,000 in average earning assets as compared with June
30, 1996. The net interest margin increased to 4.83% from 4.70% in comparable
periods.
Net interest income increased $1,528,000 in the first six months of 1997
compared with the first six months of 1996. The primary reason for the
increased income was an increase of $77,449,000 in average earning assets as
compared with June 30, 1996. The net interest margin increased to 4.67% from
4.50% for the comparable periods.
Net interest income increased by $3,018,000 during fiscal 1996. The following
table reflects the changes in net interest income resulting from changes in
interest rates and from asset and liability volume. The change in interest
attributable to rate has been determined by applying the change in rate between
years to average balances outstanding in the earlier year. The change in
interest due to volume has been determined by applying the rate from the earlier
year to change in average balances outstanding between years. Thus, changes
that are not solely due to rate or volume have been consistently allocated
between rate and volume.
<TABLE>
<CAPTION>
1996 versus 1995 1995 versus 1994
------------------------------------- --------------------------------------
Increase (decrease) due to change in: Increase (decrease) due to change in:
Volume Yield/ Volume Yield/
Outstanding Rate Total Outstanding Rate Total
----------- ------- --------- ------------ ----- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interestr income on:
Deposits with other banks 243 10 253 149 7 156
Loans 6,072 585 6,657 3,930 1,279 5,209
Investment securities:
Taxable (295) (61) (356) (226) 792 566
Non-taxable -- (116) (116) (390) 26 (364)
Federal funds sold 246 (90) 156 (241) 402 161
----- --- ----- ----- ----- -----
Total interest income 6,266 328 6,594 3,222 2,506 5,728
----- --- ----- ----- ----- -----
Interest expense on:
Saving and interest-bearing
demand deposits 531 6 537 (299) 247 (52)
Time deposits 2,344 229 2,573 800 1,274 2,074
Other borrowings (275) 741 466 1,455 157 1,612
----- --- ----- ----- ----- -----
Total interest expense 2,600 976 3,576 2,032 1,678 3,634
Net interest income 3,666 (648) 3,018 1,190 828 2,018
===== ==== ===== ===== ===== =====
</TABLE>
NON-INTEREST INCOME
Non-interest income increased $1,761,000 for the three months ended June 30,
1997 as compared to the same period in 1996. The increase was due to an
$817,000 increase in mortgage income and the sale of Alliance Finance, an 80%
owned non bank subsidiary with assets of approximately $3,000,000,which
resulted in a gain of $757,000.
<PAGE>
Non-interest income increased $2,636,000 for the first six months of 1997 versus
the same period in 1996. The increase was due to increases in mortgage
originations and sales of mortgages of $1,450,000 and the sale of Alliance
Finance.
Total non-interest income increased $4,031,000 in fiscal 1996 over fiscal 1995.
This was primarily due to the increase in mortgage loan activity resulting in an
increase in related income of $2,934,000
NON-INTEREST EXPENSE
Non-interest expense increased $1,365,000 in the three months ended June 30,
1997 over the same period in 1996. Salaries, commissions and employee benefits
were up $804,000. The majority of this increase was due to commissions on the
increased mortgage loan activity. Occupancy and equipment expense was up
$216,000 due to expansion of banking facilities. Merger related expenses were
up $310,000 in comparing the two quarters.
Non-interest expense increased $2,372,000 in the first six months of 1997 over
the same period in 1996. Salaries, commissions and employee benefits were up
$1,487,000 mainly due to the mortgage related activity..
Non-interest expense increased $5,968,000, or 29% in fiscal 1996 over fiscal
1995. The Company absorbed the cost of associated mergers and the opening of
several new branches during this period.
Income Taxes
Consolidated income taxes increased $789,000 in the three months ended June 30,
1997 as compared to the same period of 1996. The effective tax rate for the
Company has reached 35% as tax credits have been utilized as well as a
declining tax free securities portfolio.
Consolidated income taxes were up $562,000 in the first six months of 1997
versus the first six months of 1996. The Company has utilized the majority of
all tax credits and net operating loss carryforwards from prior periods.
Consolidated income taxes decreased in 1996 by $62,500 as compared to 1995. The
Company was able to utilize NOL carryforwards of $237,000 in Premier Bank and
Premier Lending which had been incurred and not utilized in 1994 and 1995.
<PAGE>
Return on Equity and Assets
The following rate of return information for June 30, 1997 and the years
indicated is presented below.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
1997 1996 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Return on assets(1) 1.52% 1.17% 1.11% 0.51%
Return on equity(2) 17.44% 11.90% 10.46% 5.09%
Cash dividend payout ratio(3) 21.57% 35.29% 15.79% 28.00%
Equity to assets ratio(4) 8.70% 9.79% 10.61% 10.01%
</TABLE>
________________
(1) Net income divided by average total assets.
(2) Net income divided by average equity.
(3) Cash dividends declared divided by net income.
(4) Average equity divided by average total assets.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no material legal proceedings commenced or terminated during the
second quarter of fiscal 1997.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS ON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
The annual meeting of the Company was held on June 16, 1997. At the annual
meeting, all of the incumbent directors were reelected. Such directors are
Darrell D. Pittard, J. Edward Mulkey, Jr., James E. Freeman, Billy H. Martin,
James L. Coxwell, N. Michael Anderson, William M. Evans, Jr., and Robin R.
Howell. Other matters presented to shareholders at the meeting including (i)
the proposal to adopt the Agreement and Plan of Reorganization by and between
the Company and the Central and Southern Holding Company; (ii) the proposal to
adopt the Premier Bancshares, Inc. Directors' Stock Option Plan; and (iii) the
proposal to adopt the Premier Bancshares, Inc. 1997 Stock Option Plan.
The proposal to approve the Agreement and Plan of Reorganization was approved
with 3,001,758 shares or 70.64% voting for the proposal, 6,493 or voting against
the proposal, 2,983 or .07% abstaining from the proposal. There were 49,112 or
1.16% broker non-votes in connection with this proposal.
With regard to the proposal to elect the incumbent directors, 3,050,338 or
71,78% voted for the proposal, 2,512 or .06% voted against this proposal and
7,496 or .18% abstained.
With regard to the proposal to approve the 1997 Stock Option Plan, 2,937,824 or
69.14% voted for the proposal, 65,829 or 1.55% voted against the proposal, and
7,580 or .17% abstained. There were 49,112 or 1.16% of broker non-votes in
connection with this proposal.
With regard to the proposal to approve the Directors' Stock Option Plan,
2,945,105 or 69.31% voted for the proposal, 65,571 or 1.64% voted against the
proposal, and 8,232 shares or .19% abstained. There were 37,438 or .88% broker
non-votes in connection with this proposal.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following are the Exhibits required by Item 601 of Regulation S-K:
<PAGE>
<TABLE>
Exhibit
Number Description of Exhibits
- ----------- -----------------------
<S> <C>
2.1 Agreement and Plan of Reorganization dated June 24, 1997, between Premier and
Citizens Gwinnett Bankshares, Inc.
2.2 Amendment to Agreement and Plan of Reorganization dated July 24, 1997, between
Premier and Citizens.
3.1 Articles of Incorporation of the Registrant, as amended, through February 6, 1997.
(Incorporated by reference as Exhibit 3.1 to the Registrant's Form 10-K for the
fiscal year ended December 31, 1996).
3.2 Articles of Amendment dated February 6, 1997 (Incorporated by reference as Exhibit
3.1 to the Registrant's Form 10-K for the fiscal year ended December 31, 1996.)
3.3 Bylaws of the Registrant (Incorporated by reference as Exhibit 3.2 from the
Registrant's Form 10-QSB for the quarter ended September 30, 1996).
4.1 Form of Stock Certificate (Incorporated by reference as Exhibit 4.1 to the
Registrant's Form 10-K for the fiscal year ended December 31, 1996).
10.1 Individual Director's Defined Benefit Plan Agreements, dated January 1, 1994,
between First Alliance Bank and each of its directors. (Incorporated by reference
as Exhibit 10.6 to the Registrant's Form 10-KSB for the year ended December 31,
1996).
10.2 Employment Agreement dated as of July 1, 1995 by and among Premier, First Alliance
Bank and J. Edward Mulkey, Jr. (Incorporated by reference as Exhibit 10.5 to the
Registrant's Form 10-KSB for the fiscal year ended December 31, 1995).1
10.3 First Alliance Bank 1995 Stock Option Plan, dated as of August 8, 1995 and amended
as of March 12, 1996, and related form of employee incentive stock option agreement.
(Incorporated by reference as Exhibit 10.5 to the Registrant's Form 10-KSB for the
fiscal year ended December 31, 1995).
10.4 Guaranty, dated March 25, 1996 by Premier relating to a $2,000,000 loan made by The
Bankers Bank to Interim Alliance Corporation (d/b/a Alliance Finance).
(Incorporated by reference as Exhibit 10.5 to the Registrant's Form 10-KSB for the
fiscal year ended December 31, 1995).
10.5 Employment Agreement dated as of January 1, 1997 by and between Premier Lending
Corporation and George S. Phelps. (Incorporated by reference as Exhibit 10.4 to
the Registrant's Form 10-K for the fiscal year ended December 31, 1996).
10.6 Employment Agreement dated as of January 1, 1997 by and between Premier Lending
Corporation and Michael W. Lane. (Incorporated by reference as Exhibit 10.5 to the
Registrant's Form 10-K for the fiscal year ended December 31, 1996).1
10.7 Employment Agreement dated as of January 1, 1997 by and between Premier Lending
Corporation and Brian D. Schmitt. (Incorporated by reference as Exhibit 10.6 to
the Registrant's Form 10-K for the fiscal year ended December 31, 1996).1
</TABLE>
<PAGE>
<TABLE>
Exhibit
Number Description of Exhibits
- ----------- -----------------------
<S> <C>
10.8 Amendment to Employment Agreement dated as of January 1, 1997 by and between First
Alliance/Premier Bancshares, Inc. and Darrell D. Pittard. (Incorporated by
reference as Exhibit 10.7 to the Registrant's Form 10-K for the fiscal year ended
December 31, 1996)./1/
10.9 Form of Employment Agreement by and among Premier Bancshares, Inc., Premier Lending
Corporation and Darrell D. Pittard. (Incorporated by reference as Exhibit 10.8 to
the Registrant's Form 10-K for the fiscal year ended December 31, 1996).
10.10 Amended and Restated Stock Purchase Agreement by and between Premier Bancshares,
Inc. (formerly known as First Alliance/Premier Bancshares, Inc.) and Net.B@nk, Inc.
dated December 19, 1996. (Incorporated by reference as Exhibit 10.9 to the
Registrant's Form 10-K for the fiscal year ended December 31, 1996.)
10.11 First Amendment to the Amended and Restated Stock Purchase Agreement by and between
Premier Bancshares, Inc. and Net.B@nk, Inc. dated December 19, 1996. (Incorporated
by reference as Exhibit 10.10 to the Registrant's Form 10-K for the fiscal year
ended December 31, 1996.)
10.12 Second Amendment to the Amended and Restated Stock Purchase Agreement by and between
Premier Bancshares, Inc. and Net.B@nk, Inc. dated May 31, 1997.
10.13 Purchase and Assumption Agreement by and between Premier Bank, FSB and First
Alliance Bank dated December 19, 1996. (Incorporated by reference as Exhibit 10.11
to the Registrant's Form 10-K for the fiscal year ended December 31, 1996.)
10.14 First Amendment to Purchase and Assumption Agreement by and between Premier Bank,
FSB and First Alliance Bank dated March 13, 1997. (Incorporated by reference as
Exhibit 10.12 to the Registrant's Form 10-K for the fiscal year ended December 31,
1996.)
10.15 Second Amendment to Purchase and Assumption Agreement by and between Premier Bank,
FSB and First Alliance Bank dated March 25, 1997. (Incorporated by reference as
Exhibit 10.13 to the Registrant's Form 10-K for the fiscal year ended December 31,
1996.)
10.16 Third Amendment to Purchase and Assumption Agreement by and between Premier Bank,
FSB and First Alliance Bank dated May 31, 1997.
10.17 Premier Bancshares, Inc. 1997 Stock Option Plan./1/ (Incorporated by reference from
Appendix D to the Joint Proxy Statement/Prospectus contained in Premier's Form S-4
Registration Statement No. 333-24537.)
10.18 Premier Bancshares, Inc. Directors' Stock Option Plan./1/ (Incorporated by
reference from Appendix E to the Joint Proxy Statement/Prospectus contained in
Premier's Form S-4 Registration Statement No. 333-24537.)
10.19 Agreement and Plan of Reorganization, dated February 3, 1997, between Premier and
Central and Southern Holding Company (included as Appendix A to the Joint Proxy
Statement/Prospectus contained in Premier's Form S-4 Registration Statement No.
333-24537).
</TABLE>
<PAGE>
<TABLE>
Exhibit
Number Description of Exhibits
- ----------- -----------------------
<S> <C>
10.20 Amendment to Agreement and Plan of Reorganization dated March 26, 1997, between
Premier and Central and Southern Holding Company (included as Appendix 'A' to the
Joint Proxy Statement/Prospectus contained in Premier's Form S-4 Registration
Statement No.333-24537).
10.21 Agreement for Purchase of Certain Assets and Assumption of Certain Liabilities by
and between The Central and Southern Bank of North Georgia, FSB and The Central and
Southern Bank of Georgia of Georgia dated August 11, 1997.
10.22 Agreement and Plan of Merger by and among Premier Bancshares, Inc., Premier Bank and
The Central and Southern Bank of North Georgia, FSB dated August 11, 1997.
11.1 Statement of Per Share Earnings.
27 Financial Data Schedule.
</TABLE>
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1 Registrant's plans, management contracts and compensatory
arrangements.
(b) Reports on Form 8-K
On June 26, 1997, the Company filed a Form 8-K reporting that it had closed its
merger with The Central and Southern Holding Company.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PREMIER BANCSHARES, INC.
Date: August 18, 1997
By: /s/ Darrell D. Pittard
------------------------
Darrell D. Pittard
Chairman and Chief Executive Officer (Principal Executive Officer)
Date August 18, 1997
By: /s/ Michael E. Ricketson
-------------------------
Michael E. Ricketson
Executive Vice President and Chief Financial Officer (Principal Financial
Officer and Chief Accounting Officer)
