<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[ x ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 33-93304
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Eastside Holding Corporation
----------------------------
State of Georgia E.I. # 58-2161364
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2019 Scenic Highway
-------------------
Snellville, Georgia 30278
-------------------------
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. Yes [ x ]
No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 05 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 600,000 shares of common
stock outstanding
<PAGE> 2
EASTSIDE HOLDING CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company's accounting and reporting policies conform to generally
accepted accounting principles. The financial statements included herein are
unaudited but reflect all adjustments which, in the opinion of management, are
necessary to a fair presentation of the Company's financial position as of June
30, 1996 and results of operations for the 2nd quarters of 1996 and 1995. All
such adjustments are of a normal and recurring nature.
Certain information and footnoted disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to rules and regulations of the
Securities and Exchange Commission.
<PAGE> 3
PART I - FINANCIAL INFORMATION
1. FINANCIAL STATEMENTS.
Financial statements contained in Exhibit A are incorporated herein by
reference.
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
Eastside Holding Corporation ("the Company") is a one bank holding company.
Eastside Bank & Trust Company ("the Bank"), is a state chartered bank located
in Snellville, Gwinnett County, Georgia which commenced operations on January
22, 1990. On September 21, 1995, the Bank was merged into the Company as a
wholly-owned subsidiary. The Bank is the Company's sole investment and source
of income.
The following discussion and analysis sets forth the major factors which
affected the Company's financial condition and results of operations as
reflected in the accompanying financial statements. These comments should be
read in conjunction with the financial statements included in Exhibit A of this
report.
FINANCIAL CONDITION
During the first three months of 1996, the Bank saw deposits decline
approximately $1,694,000, or 3.5%, from approximately $48,735,000 at year-end
to approximately $47,041,000 at the end of the report period. This is a normal
fluctuation seen during the 1st quarter of each year. Ordinarily this trend is
reversed by the end of the month of March. In 1996 this reversal did not occur
until the latter part of May. Management has attributed this extended period
of deposit runoff to the disintermediation of deposits into mutual fund
investments. At the end of the 2nd quarter deposits had increased to
approximately $47,661,000.
LIQUIDITY
The Bank's liquidity ratio as of June 30, 1996 was 32.8%. Management knows of
no reason why the Bank would be unable to meet its future liquidity needs
through normal operations. However, should extreme circumstances occur the
bank had at quarter-end $4.3 million in Federal Funds sold, $5.8 million in
securities available for sale (expressed at fair value), and $4 million in
federal funds lines of credit.
RESULTS OF OPERATIONS
Net income for the first six months of the year was $268 thousand, producing an
ROA of 1.02%, compared to $386 thousand, an ROA of 1.53%, during the same
period in 1995 (bank only). Return on average equity for the first six months
of 1996 was 8.54% compared to 13.71% for the same period in 1995.
<PAGE> 4
While average earning assets for the first six months increased $1.8 million
compared to the same period in 1995, at the same time the net interest margin
(NIM) declined from 5.66% in 1995 to 5.24% in 1996, reducing net interest
income $12 thousand in 1996 compared to 1995. This decline in NIM is due to
two factors. First, as with the overall trends in interest rates, the average
yield on the Bank's earning assets has declined. The 1996 overall yield was
9.48% compared to 9.74% in 1995. To compound this pressure on NIM, the banking
industry experienced unprecedented disintermediation of deposits into mutual
fund investments during the first half of 1996, a period of the year in which a
large portion of the Bank's time deposits mature. This disintermediation
created a highly competitive market for bank deposits. The result was to drive
the overall rate paid on interest bearing deposits from 4.89% for the first six
months of 1995 to 5.18% in 1996.
Noninterest expense for the Company during the first six months of 1996 was
$947 thousand compared to $991 thousand in 1995, a decline of $44 thousand.
Personnel expenses have increased from $459 thousand during the first six
months of 1995 to $478 thousand during the same period of 1996, and increase of
$19 thousand, or 4%. This increase reflects normal salary increases and staff
additions due to growth in the Company. The Bank's level of personnel expenses
reflects management's determination to hold the costs down through automation
and maintaining staffing levels at lower than peer group average.
Occupancy expenses for the six month period were down $13 thousand over the
same period last year, a 10% decline. The single largest contributor to this
variance was the full depreciation of furniture purchased when the Bank was
opened.
Other Operating Expenses declined from $401 thousand in the first six months of
1995 to $351 thousand during the same period in 1996, a total decline of $50
thousand. The largest variance occurred in the area of Insurance and Tax
Assessments, which includes FDIC insurance, down $52 thousand. Data processing
expenses were down $25 thousand, due primarily to the absence of conversion
related expenses incurred in the 1st quarter of 1995. Directors fees are being
paid for the first time in 1996 and totaled $27 thousand during the first six
months of the year.
The single greatest variance of all occurred in the expense category on income
tax accruals. The Bank did not become cumulatively profitable until June 1995,
and so was not taxable for income tax purposes during the 1st six months of
1995. Income tax accruals during the same period in 1996 have amounted to $151
thousand.
Peer group comparisons of operating expenses reflect favorably on the Bank.
Operating expenses as a percent of average assets for the six month period were
3.47%, compared to a local peer group average of 3.84%.
CONCLUSION
Management feels that the Company's Balance Sheet is in satisfactory condition.
However, efforts to improve the overall makeup of deposits continue. Though
the Company continues to
<PAGE> 5
be profitable, improvement in this area is necessary. Key to this improvement
is an increase in the Bank's net interest income, and an increase in
non-interest income through premiums from sales of SBA loans into the secondary
market. Further, management intends to maintain its tight control on
non-interest expenses.
In 1994 management established the Bank's wholly owned subsidiary Eastside
Financial Services, Inc. (EFS) to provide SBA loan assistance to community
banks in other market areas. At the time it was anticipated that the demand
for this service would be greater than has been seen thus far. While EFS has
not been a drain on the Bank's profits, it has not produced the income
anticipated. Recently, an alliance between EFS and Wachovia Bank has been
explored. This alliance would provide Wachovia, as a third party vendor, a
product to market to their other correspondent banks, and would provide EFS the
sales force of Wachovia's Correspondent Banking Division. This has been a
weakness in EFS from the outset due to the skeleton work force which has been
maintained. Both Bank management and representatives of Wachovia Bank feel EFS
offers a product which will be well received when presented in conjunction with
a major regional bank such as Wachovia. This relationship has already produced
one new customer bank. Management is convinced that EFS will become a
significant contributor to the bottom-line of the Company.
PART II - OTHER INFORMATION
1. LEGAL PROCEEDINGS. The Company is not a party in any reportable legal
proceeding.
2. CHANGES IN SECURITIES. There were no changes in securities during the
report period.
3. DEFAULTS UPON SENIOR SECURITIES. There have been no defaults in the
payment of principal, interest, a sinking or purchase fund installment, or any
other material default.
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matter was
submitted to a vote of security holders during the period covered by this
report.
<PAGE> 6
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 thereto duly authorized.
EASTSIDE HOLDING CORPORATION
Date: 07/19/96 By: /s/ Reggie D. Cox, President
- -------------- ----------------------------------------
Reggie D. Cox, President
Date: 07/19/96 By: /s/ Fredrick D. Jones, CFO
- -------------- ----------------------------------------
Fredrick D. Jones, Sr. Vice President
<PAGE> 7
EXHIBIT A
<PAGE> 8
EASTSIDE HOLDING CORPORATION
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands) 06-30-96
----------
<S> <C>
ASSETS
Cash and due from banks $ 2,610
Federal funds sold 4,260
Securities held to maturity, at cost (fair value $3,430) 3,499
Securities available for sale, at fair value 5,829
Loans 34,790
Less allowance for loan losses (460)
Loans, net of unearned income 34,330
Premises and equipment, net 2,934
Other real estate 195
Accrued interest receivable and
other assets 771
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Total Assets $ 54,428
==========
LIABILITIES AND
STOCKHOLDERS EQUITY
Deposits
Noninterest-bearing demand $ 7,923
Interest-bearing demand 9,315
Savings 2,051
Time, $100,000 and over 2,953
Other time 25,419
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Total deposits 47,661
Accrued interest payable and
other liabilities 351
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Total Liabilities 48,012
Stockholders' equity
Common stock, no par value; 5,000,000 shares
authorized; 600,000 shares issued and outstanding 6,000
Undivided profits 466
Unrealized gains/(losses) on securities available (50)
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Total Stockholders' Equity 6,416
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Total Liabilities and
Stockholders' Equity $ 54,428
==========
</TABLE>
<PAGE> 9
EASTSIDE HOLDING CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE 2ND QUARTERS OF 1996 AND 1995
SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands) 2ND QUARTER SIX MONTH PERIODS
----------- -----------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 955 $ 904 $ 1,884 $ 1,795
Interest on federal funds sold 38 77 83 130
Interest on investment securities 137 128 273 251
------ ------- ------- -------
Total interest income 1,130 1,109 2,240 2,176
Interest expense 503 495 1,002 924
------ ------- ------- -------
Net interest income 627 614 1,238 1,252
Provision for loan losses 30 19 38 36
------ ------- ------- -------
Net interest income after provision 597 595 1,200 1,216
Noninterest income:
Service charges 40 41 89 84
Gain on sale of SBA loans 25 9 25 65
Other income 33 0 52 12
------ ------- ------- -------
Total noninterest income 98 50 166 161
Noninterest expense:
Salaries and other personnel
expense 242 237 478 459
Occupancy expense 62 66 118 131
Other operating expense 191 181 351 401
------ ------- ------- -------
Total noninterest expense 495 484 947 991
------ ------- ------- -------
Income/(loss) before income taxes 200 161 419 386
Provision for income taxes 72 0 151 0
------ ------- ------- -------
Net income/(loss) $ 128 $ 161 $ 268 $ 386
====== ======= ======= =======
Net income/(loss) per share
(whole dollars) $ 0.21 $ 0.27 $ 0.45 $ 0.64
====== ======= ======= =======
</TABLE>
<PAGE> 10
EASTSIDE HOLDING CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income/(loss) $ 268 $ 386
Adjustments to reconcile net income/
(loss) to net cash provided by (used in)
operating activities:
Depreciation and amortization 84 87
Provision for loan losses 38 36
Gain on sale of loans (25) (65)
Proceeds from sale of loans 783 872
Increase in taxes payable (110) 0
(Increase)/decrease in interest receivable 6 (108)
Increase/(decrease) in interest payable (33) 72
Other prepaids, deferrals and accruals, net 101 (130)
----------- ----------
Total adjustments 844 764
----------- ----------
Net cash provided by/(used in)
operating activities $ 1,112 $ 1,150
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of securities available $ (1,000) $ (947)
Proceeds from maturities of securities available for sale 1,257 0
Purchase of securities held to maturity 0 0
Proceeds from maturities of securities held to maturity 500 0
(Increase)/decrease in federal funds sold, net 240 (2,200)
Increase in loans, net (962) (1,341)
Purchase of premises and equipment (36) (148)
----------- ----------
Net cash provided by/(used in)
investing activities $ (1) $ (4,636)
----------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $ (1,073) $ 3,753
Dividends paid (72) 0
----------- ----------
Net cash provided by financing
activities $ (1,145) $ 3,753
----------- ----------
Net increase in cash and due from banks $ (34) $ 267
----------- ----------
Cash and due from banks at beginning of
period 2,644 1,737
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Cash and due from banks at end of period $ 2,610 $ 2,004
=========== ==========
</TABLE>
<PAGE> 11
EASTSIDE HOLDING CORPORATION
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
<TABLE>
<CAPTION>
UNREALIZED
GAIN/(LOSS)
COMMON STOCK ON SECURITIES
-------------------- RETAINED AVAILABLE
AMOUNT EARNINGS/ FOR SALE,
(Dollars in thousands) SHARES PAID IN (DEFICIT) NET OF TAXES TOTAL
------ ------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 600 $ 6,000 $ (374) $ (154) $ 5,472
Unrealized gain on securities
available for sale 181 181
Net income 386 386
----- -------- ------- -------- --------
Balance, June 30, 1995 600 $ 6,000 $ 12 $ 27 $ 6,039
===== ======== ======= ======== ========
Balance, December 31, 1995 600 $ 6,000 $ 271 $ 25 $ 6,296
Unrealized gain on securities
available for sale (75) (75)
Dividends paid (72) (72)
Net income 267 267
----- -------- ------- -------- --------
Balance, June 30, 1996 600 $ 6,000 $ 466 $ (50) $ 6,416
===== ======== ======= ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 2,610
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,260
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,829
<INVESTMENTS-CARRYING> 3,499
<INVESTMENTS-MARKET> 3,430
<LOANS> 34,790
<ALLOWANCE> 460
<TOTAL-ASSETS> 54,428
<DEPOSITS> 47,661
<SHORT-TERM> 0
<LIABILITIES-OTHER> 351
<LONG-TERM> 0
0
0
<COMMON> 6,000
<OTHER-SE> 416
<TOTAL-LIABILITIES-AND-EQUITY> 54,428
<INTEREST-LOAN> 955
<INTEREST-INVEST> 175
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,130
<INTEREST-DEPOSIT> 503
<INTEREST-EXPENSE> 503
<INTEREST-INCOME-NET> 627
<LOAN-LOSSES> 30
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 495
<INCOME-PRETAX> 200
<INCOME-PRE-EXTRAORDINARY> 200
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 128
<EPS-PRIMARY> 0.21
<EPS-DILUTED> 0.20
<YIELD-ACTUAL> 5.20
<LOANS-NON> 168
<LOANS-PAST> 10
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 441
<CHARGE-OFFS> 15
<RECOVERIES> 4
<ALLOWANCE-CLOSE> 460
<ALLOWANCE-DOMESTIC> 21
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 439
</TABLE>
