<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10Q
[X] Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended March 31, 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: 2-75364
-------------------------------------------------------
Century South Banks, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1455591
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 Jesse Jewell Parkway, P O Box 3366, Gainesville, Georgia 30501
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(770) 287-3464
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF APRIL 30, 1996
- -------------------------------------------------------------------------------
Common stock, $1.00 par value 7,761,624
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Form 10Q
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I. Financial Information
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets.............................. 3
Consolidated Statements of Income........................ 4
Consolidated Condensed Statements of Cash Flows.......... 5
Notes to Consolidated Financial Statements............... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 9
Part II. Other Information
-----------------
Item 6. Exhibits and Report on Form 8-K.......................... 16
Signatures.............................................................. 17
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- ------------
(amounts in thousands,
except share data)
<S> <C> <C>
Assets
- ------
Cash and due from banks....................... $ 25,350 33,020
Federal funds sold............................ 39,310 27,420
Interest-earning deposits in other banks...... 368 453
Investment securities:
Available for sale.......................... 109,084 98,756
Held to maturity............................ 45,883 52,390
Loans, net of unearned income................. 473,902 476,510
Less allowance for possible loan losses..... 7,357 7,048
-------- -------
Loans, net.............................. 466,545 469,462
-------- -------
Premises and equipment, net................... 15,897 15,869
Goodwill and other intangibles, net........... 7,259 7,442
Other assets.................................. 11,921 11,669
-------- -------
Total assets.......................... $721,617 716,481
======== =======
Liabilities and Shareholders' Equity
- -------------------------------------
Liabilities:
Deposits:
Noninterest-bearing demand deposits........ $ 65,991 69,516
Interest-bearing deposits.................. 567,747 556,790
-------- -------
Total deposits.......................... 633,738 626,306
Other short-term borrowings.................. 900 501
Federal Home Loan Bank advances.............. 8,057 8,083
Long-term debt............................... 340 3,556
Accrued expenses and other liabilities....... 8,271 8,581
-------- -------
Total liabilities...................... 651,306 647,027
-------- -------
Shareholders' equity:
Common stock-$1 par value. Authorized
15,000,000 shares; issued 7,826,358
shares and outstanding 7,761,624 shares 7,826 7,826
Additional paid-in capital................. 28,780 28,780
Retained earnings.......................... 34,535 33,099
Reduction for ESOP loan guarantee.......... (214) (226)
Common stock in treasury (64,734 shares),
at cost................................... (337) (337)
Net unrealized gains (losses) on
investment securities (279) 312
-------- -------
Total shareholders' equity............... 70,311 69,454
-------- -------
Total liabilities and shareholders'
equity............................... $721,617 716,481
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended March 31,
1996 1995
------------------------------
(amounts in thousands,
except per share data)
<S> <C> <C>
Interest income:
Loans, including fees.................... $12,644 11,481
Federal funds sold....................... 545 309
Interest on deposits in other banks...... 7 26
Investment securities:
Taxable................................ 1,600 1,706
Nontaxable............................. 683 663
------- ------
Total interest income................ 15,479 14,185
------- ------
Interest expense:
Deposits................................. 7,358 6,079
Federal funds purchased.................. - 12
Federal Home Loan Bank advances.......... 130 172
Long-term debt and other borrowings...... 48 154
------- ------
Total interest expense............... 7,536 6,417
------- ------
Net interest income.................. 7,943 7,768
Provision for possible loan losses......... 401 321
------- ------
Net interest income after provision
for possible loan losses........... 7,542 7,447
------- ------
Noninterest income:
Service charges on deposit accounts...... 936 812
Securities gains (losses), net........... 37 (6)
Other operating income................... 793 556
------- ------
Total noninterest income............. 1,766 1,362
------- ------
Noninterest expense:
Salaries and employee benefits........... 3,095 2,900
Net occupancy and equipment expense...... 819 745
Other operating expenses................. 2,222 2,520
------- ------
Total noninterest expense............ 6,136 6,165
------- ------
Income before income taxes........... 3,172 2,644
Income tax expense......................... 979 724
------- ------
Net income........................... $ 2,193 1,920
======= ======
Net income per common share $.28 .25
======= ======
Cash dividends declared per share $. 0975 .0925
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Three Months ended March 31,
1996 1995
----------------------------
(amounts in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Net cash provided by operating activities $ 2,973 3,457
-------- ------
Cash flows from investing activities:
Proceeds from sales of investment securities
available for sale 1,011 494
Principal collections and maturities of
investment securities:
Available for sale 12,074 3,225
Held to maturity 6,621 1,092
Proceeds from maturities of interest-
earning deposits 1,053 7,083
Purchases of investment securities held
to maturity - (2,294)
Purchases of investment securities
available for sale (24,424) (728)
Investment in interest-earning deposits (968) (6,733)
Net (increase) decrease in loans 2,422 (3,832)
Proceeds from sales of real estate
acquired through foreclosure 175 169
Purchases of premises and equipment (512) (534)
Proceeds from sale of premises and equipment 118 -
-------- ------
Net cash used in investing activities (2,430) (2,058)
-------- ------
Cash flows from financing activities:
Net increase in deposits 7,432 9,894
Net increase in federal funds purchased - 4,050
Net increase in other short-term borrowings 399 50
Proceeds from issuance of long-term debt - 5,850
Payments on long-term debt (3,228) (6,470)
Dividends paid to shareholders (926) (780)
-------- ------
Net cash provided by financing activities 3,677 12,594
-------- ------
Net increase in cash and cash equivalents 4,220 13,993
Cash and cash equivalents at beginning of period 60,440 48,566
-------- ------
Cash and cash equivalents at end of period $ 64,660 62,559
======== ======
</TABLE>
5
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited)
<TABLE>
<CAPTION>
Supplemental disclosure of cash paid during
the period for:
<S> <C> <C>
Interest $ 7,962 6,044
======= =======
Income taxes $ 495 587
======= =======
<CAPTION>
Supplemental schedule of noncash investing
and financing activities:
<S> <C> <C>
Real estate acquired through foreclosure $ $133 325
======= =======
Real estate sold and financed by the Company $ 39 95
======= =======
Net reduction in guaranteed ESOP loan recorded
in shareholders' equity $ 12 7
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
---------------------
The unaudited consolidated financial statements include the accounts of
Century South Banks, Inc. ("the Company") and its wholly owned subsidiaries,
Bank of Dahlonega ("BOD"), The Bank of Ellijay ("BOE"), First Bank of Polk
County ("FBPC"), Georgia First Bank ("GFB"), First National Bank of Union County
("FNBUC"), Fannin County Bank, N.A. ("FCB"), Gwinnett National Bank ("GNB"),
First Community Bank of Dawsonville ("FCBD"), Peoples Bank ("PBL") and Bank of
Danielsville ("DAN").
These accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do not
include all information and notes necessary for a fair presentation of financial
position, results of operations, and cash flows in conformity with generally
accepted accounting principles. All adjustments consisting of normal recurring
accruals which, in the opinion of management, are necessary for a fair
presentation of the financial position and results of operations for the periods
covered by this report have been included.
(2) Statement No. 123 "Accounting for Stock-Based Compensation"
-----------------------------------------------------------
In October 1995, the Financial Accounting Standards Board ("FASB") issued
Statement No. 123 "Accounting for Stock-Based Compensation". Statement No. 123
establishes a new method of accounting for stock-based compensation
arrangements. The new method is a fair value based method rather than the
intrinsic value based method. However, Statement No. 123 does not require an
entity to adopt the new fair value based method for purposes of preparing its
basic financial statements. Companies that do not follow the new fair value
based method are required to provide expanded disclosures in the footnotes to
the financial statements. Statement No. 123 is effective for fiscal years ended
December 31, 1996. The Company will not adopt the fair value based method
for purposes of preparing basic financial statements, but will provide the
information required by Statement No. 123 in expanded disclosures in the
footnotes to the financial statements.
(3) Long-Term Debt and Short-Term Borrowings
----------------------------------------
On January 29, 1996, the Company received a $1,500,000 unsecured revolving
line of credit with a bank which is payable on demand and matures on January 28,
1997. Interest is due on the line of credit quarterly. The revolving line of
credit accrues interest at the Prime Lending Rate minus one percent (1%) as
defined in the agreement. The line of credit is secured by 100% of the
outstanding common stock of one of the Company's affiliates (GNB). As of March
31, 1996, the outstanding balance is $400,000.
On March 31, 1996, the Company's $400,000 unsecured revolving line of
credit with a bank which was payable on demand and accrued interest at the Prime
Lending Rate as defined in the agreement expired and is not to be renewed.
7
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On May 27, 1994, the Company received an advance of $5.0 million on a new
line of credit at Columbus Bank and Trust Company. This advance matures on May
26, 2003 and accrues interest at the Prime Lending Rate as defined in the
agreement. The advance requires interest only payments for the first year, then
converts to an eight year amortization. Principal and interest payments are due
quarterly. The advance is secured by 100% of the outstanding common stock of
three of the Company's affiliates (BOD, GFB, and FCB). On May 31, 1995 the
Company made a principal payment of $1.8 million, which was primarily funded by
dividends received from two subsidiaries. On February 7, 1996, February 12,
1996, and March 6, 1996 the Company made principal payments of $1.2 million,
$1.0 million and $1.0 million, respectively. These payments were primarily
funded by dividends received from subsidiaries.
Six of the Company's bank subsidiaries have invested in Federal Home Loan
Bank Board stock for the purpose of establishing credit lines with the Federal
Home Loan Bank. One of these subsidiaries made payments of $26,000 in the first
three months of 1996 making the total advances under these lines $8.1 million.
Of these advances, $2.0 million matures on April 30, 1997 and bears interest at
the rate of 7.39%, payable monthly and $1.0 million matures on July 24, 1999 and
bears interest at the rate of 6.46%, payable monthly.
One bank subsidiary has drawn $4.0 million with $2 million maturing on
December 28, 1998 and $2 million maturing on January 13, 1999 with interest,
payable monthly, based on the current LIBOR rate. The remaining $1.1 million
matures on September 1, 2006 and bears interest at the rate of 7.74% with
principal and interest due monthly. The purpose of these advances was to
replace short-term deposits with longer term funds. In addition to these
advances, the five subsidiaries have additional credit available on their credit
lines with the Federal Home Loan Bank. All lines with the Federal Home Loan
Bank are secured by a blanket lien on the real estate loans of each of the
respective subsidiaries.
8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
-------
The following is a discussion of the Company's financial condition at March 31,
1996, compared to December 31, 1995, and results of operations for the three
month period ended March 31, 1996, compared to the three month period ended
March 31, 1995. This discussion should be read in conjunction with the
Company's unaudited consolidated financial statements and accompanying notes
appearing elsewhere in this report.
FINANCIAL CONDITION
-------------------
During the first three months of 1996, total assets increased $5.1 million or
approximately 0.7%. Such growth was funded primarily by deposit growth of $7.4
million or 1.2%. Net loans decreased $2.9 million in the first three months of
1996, or 0.6%.
The amortized cost, gross unrealized gains and losses, and estimated fair value
of available for sale and held to maturity securities by type at March 31, 1996
were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
(amounts in thousands) cost gains losses fair value
- ------------------------------------------------------------------------------
Available for sale:
<S> <C> <C> <C> <C>
U.S. Treasury and U.S.
Government agencies $ 55,766 179 (417) 55,528
State, county and
municipal securities 14,469 544 (59) 14,954
Mortgage-backed securities 30,154 161 (274) 30,041
Other debt securities 5,675 23 (68) 5,630
Equity securities 2,980 30 (79) 2,931
------------------------------------------------
$109,044 937 (897) 109,084
------------------------------------------------
Held to maturity:
U.S. Government agencies $ 10,491 179 (117) 10,553
State, county and
municipal securities 29,426 857 (147) 30,136
Mortgage-backed securities 2,969 56 (8) 3,017
Other debt securities 2,997 74 - 3,071
------------------------------------------------
$ 45,883 1,166 (272) 46,777
------------------------------------------------
</TABLE>
Balances within the major deposit categories as of March 31, 1996 and December
31, 1995 are shown below:
(amounts in millions)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------------ ------------------
<S> <C> <C>
Noninterest bearing demand deposits $ 66.0 69.5
Interest bearing demand deposits 102.1 99.6
Money market accounts 26.6 25.5
Savings deposits 63.3 60.7
Certificates of deposit and
individual retirement accounts
of $100,000 or more 87.5 85.6
Other individual retirement accounts 39.8 38.0
Other certificates of deposit 248.4 247.4
------ -----
$633.7 626.3
====== =====
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND INTEREST RATE SENSITIVITY
---------------------------------------
The primary functions of asset/liability management are to assure adequate
liquidity and maintain an appropriate balance between interest earning assets
and interest-bearing liabilities. Liquidity management involves the matching of
the cash flow requirements of customers, either depositors withdrawing funds or
borrowers needing loans, and the ability of the Company to meet those
requirements. Management monitors and maintains appropriate levels of assets
and liabilities so that maturities of assets are such that adequate funds are
provided to meet estimated customer withdrawals and loan requests.
The Company's liquidity position depends primarily upon the liquidity of its
assets relative to its need to respond to short-term demand for funds caused by
withdrawals from deposit accounts and loan funding commitments. Primary sources
of liquidity are scheduled payments on the Company's loans and interest on and
maturities of its investments. Occasionally, the Company will sell investment
securities available for sale in connection with the management of its income
tax position, its liquidity position, and its interest sensitivity gap. The
Company may also utilize its cash and due from banks, interest-earning deposits
in other banks, and federal funds sold to meet liquidity requirements as needed.
At March 31, 1996, the Company's cash and due from banks was $25.4 million, its
federal funds sold were $39.3 million, its interest-earning deposits in other
banks were $0.4 million, and its investment securities designated as available
for sale were $109.1 million. All of the above could be converted to cash on
relatively short notice.
The Company also has the ability, on a short-term basis, to purchase federal
funds from other financial institutions. Presently, the Company has made
arrangements with commercial banks for short-term unsecured advances of up to
approximately $28.4 million, in addition to credit which is available in the
form of Federal Home Loan Bank advances.
The relative interest rate sensitivity of the Company's assets and liabilities
indicates the extent to which the Company's net interest income may be affected
by interest rate movements. The Company's ability to reprice assets and
liabilities in the same dollar amounts and at the same time minimizes interest
rate risks. One method of measuring the impact of interest rate changes on net
interest income is to measure, in a number of time frames, the interest
sensitivity gap, by subtracting interest-sensitive liabilities from interest-
sensitive assets, as reflected in the following table. Such interest
sensitivity gap represents the risk, or opportunity, in repricing. If more
assets than liabilities are repriced at a given time in a rising rate
environment, net interest income improves; in a declining rate environment, net
interest income deteriorates. Conversely, if more liabilities than assets are
repriced while interest rates are rising, net interest income deteriorates; if
interest rates are falling, net interest income improves.
The Company's strategy in minimizing interest rate risk is to minimize the
impact of short term interest rate movements on its net interest income while
managing its middle and long-term interest sensitivity gap in light of overall
economic trends in interest rates. The following table illustrates the relative
sensitivity of the Company to changing interest rates as of March 31, 1996.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
0-90 days 91-365 days 1-5 years Over 5 years
Current Current Cumulative Current Cumulative Current Cumulative
----------- ------------------- ------------------- -------------------
(amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-sensitive assets $249,686 142,982 392,668 238,976 631,644 37,481 669,125
Interest-sensitive liabilities 298,669 179,226 477,895 99,025 576,920 124 577,044
-------- ------- ------- ------- ------- ------ -------
Interest-sensitivity gap $(48,983) (36,244) (85,227) 139,951 54,724 37,357 92,081
======== ======= ======= ======= ======= ====== =======
Ratio of interest-sensitive
assets to interest-
sensitive liabilities 0.84 0.80 0.82 2.41 1.09 302.27 1.16
===== ===== ===== ===== ===== ====== =====
</TABLE>
RESULTS OF OPERATIONS
---------------------
Net Interest Income
- -------------------
Net interest income is an effective measurement of how well management has
balanced the Company's interest rate sensitive assets and liabilities. The
Company's net interest income is its principal source of income. Interest-
earning assets for the Company include loans, federal funds sold, interest-
earning deposits in other banks, and investment securities. The Company's
interest-bearing liabilities include its deposits, federal funds purchased,
Federal Home Loan Bank advances, other short-term borrowings, and long-term
debt.
Net interest income for the three months ended March 31, 1996 increased $175,000
or 2.25% over the same period of 1995. The average yield earned on interest-
earning assets, on a fully tax equivalent basis, increased to 9.51% for the
three months ended March 31, 1996 from 9.36% for the three months ended March
31, 1995 and the average rate paid on interest-bearing liabilities increased to
5.29% for the three months ended March 31, 1996 from 4.80% for the three months
ended March 31, 1995. The Company's interest rate differential decreased to
4.22% from 4.56% and its net interest margin (net interest income divided by
average interest-earning assets) decreased to 4.95% during the first three
months of 1996 from 5.20% for the same period of 1995.
Allowance for Possible Loan Losses
- ----------------------------------
The Company provides for possible loan losses on a monthly basis based upon
information available at the end of each period. By such additions, management
maintains the allowance for possible loan losses at a level adequate to provide
for losses that reasonably can be anticipated. The level of the allowance for
possible loan losses is based on, among other things, management's periodic
loan-by-loan evaluation of potential losses, as well as its assessment of
prevailing and anticipated economic conditions in its market areas. Reviews are
conducted throughout the year by senior officers of the Company and by unrelated
third parties.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
A substantial portion of the Company's loan portfolio is secured by real estate
in markets in northern Georgia, southeastern Tennessee, and southwestern North
Carolina. To some extent the ultimate collectibility of a substantial portion
of the Company's loan portfolio is dependent on or susceptible to changes in
market conditions in these markets.
The allowance for possible loan losses approximated 1.55% of outstanding loans
at March 31, 1996 as compared to 1.48% at December 31, 1995 and 1.59% at March
31, 1995. The allowance increased to $7,357,000 at March 31, 1996 from
$7,048,000 at December 31, 1995 and $7,067,000 at March 31, 1995. The provision
for possible loan losses increased to $401,000 for the three months ended March
31, 1996 from $321,000 for the three months ended March 31, 1995. Net loan
charge offs for the three months ended March 31, 1996 were $92,000 as compared
to $101,000 for the three months ended March 31, 1995. Net loans charged off as
a percentage of average loans was 0.08% for the three months ended March 31,
1996 as compared to 0.09% for the three months ended March 31, 1995.
Nonperforming Loans, Nonperforming Assets, and Underperforming Loans
- --------------------------------------------------------------------
Nonperforming loans include nonaccrual loans. The Company has not restructured
any loans of significance through March 31, 1996. Nonperforming assets include
nonperforming loans, real estate acquired through foreclosure, securities which
are in default, and other repossessed assets. Underperforming loans consist of
loans which are past due with respect to principal or interest more than 90 days
and still accruing interest.
Accrual of interest on loans is discontinued when reasonable doubt exists as to
the full, timely collection of interest or principal or they become
contractually in default for 90 days or more as to either interest or principal
unless they are both well secured and in the process of collection. When a loan
is placed on nonaccrual status, previously accrued and uncollected interest for
the year in which the loan is placed on nonaccrual status is charged to interest
income on loans unless management believes the accrued interest is recoverable
through the liquidation of collateral.
Management is not aware of any loans classified for regulatory purposes as loss,
doubtful, substandard, or special mention that have not been disclosed below
which 1) represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity,
or capital resources, or 2) represent material credits about which management is
aware of any information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment terms.
The table on the following page provides information concerning nonperforming
loans, nonperforming assets, and underperforming loans and certain asset quality
ratios at March 31, 1996 and December 31, 1995.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------ -------------
(amounts in thousands except
ratios and percentages)
<S> <C> <C>
Nonperforming loans $2,354 1,815
Real estate acquired through
foreclosure and other
repossessed assets 2,140 2,211
------ -----
Nonperforming assets $4,494 4,026
====== =====
Underperforming loans $ 977 1,716
====== =====
Asset Quality Ratios:
Nonperforming loans to total loans,
net of unearned income .50% .38%
====== =====
Nonperforming assets to total loans,
net of unearned income, real estate
acquired through foreclosure, and
other repossessed assets .94% .84%
====== =====
Allowance for possible loan losses
to nonperforming loans 3.13x 3.88x
====== =====
Underperforming loans to total loans,
net of unearned income .21% .36%
====== =====
Nonperforming loans to total assets .33% .25%
====== =====
Nonperforming assets to total assets .62% .56%
====== =====
</TABLE>
The Company's management provides for possible loan losses through a charge to
earnings to bring the allowance to a level which in management's judgement is
considered adequate to absorb potential losses inherent in the loan portfolio.
The allowance is general in nature and is available for the portfolio in its
entirety.
Noninterest Income
- ------------------
The first quarter of 1996 net increase in noninterest income of $404,000 or
29.7% from the first quarter of 1995 was primarily the result of an increase in
net securities gains (losses) of $43,000, an increase in service charges on
deposit accounts of $124,000, an increase in credit card fees of $22,000, and a
net increase in mortgage activities related income of $236,000 ($224,000 gain
recognized on sale of servicing portfolio and an $83,000 increase in origination
fees partially offset by reduced servicing fees of $71,000).
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Noninterest Expense
- --------------------
The $29,000 or 0.5% reduction in noninterest expense for the first quarter of
1996 as compared to the first quarter of 1995 was primarily due to a decrease in
FDIC insurance premium expense of $288,000, partially offset by increases in
salary and benefit and net occupancy and equipment expenses of $195,000 and
$74,000, respectively.
Income Tax Expense
- ------------------
The first quarter 1996 income tax expense was approximately $979,000, or an
effective rate of 30.9% compared to approximately $724,000 for the first quarter
1995, or an effective rate of 27.4%.
Net Income
- ----------
The Company's first quarter 1996 net earnings were $0.28 per share or $2,193,000
as compared to $0.25 or $1,920,000 for the first quarter of 1995, representing
an increase of 14.2%.
Performance Ratios
- ------------------
Performance of banks is often measured by various ratio analyses. Two widely
recognized performance indicators are return on average equity and return on
average assets. The return on average equity for the three month period ended
March 31, 1996 was 12.59% (annualized) as compared to 12.37% (annualized) for
the three month period ended March 31, 1995. The Company's return on average
assets was 1.24% (annualized) and 1.16% (annualized) for the three month periods
ended March 31, 1996 and 1995, respectively. These ratios compare favorably
with other holding companies of similar size.
Capital Resources
- -----------------
The Company continues to maintain a level of capital well in excess of
regulatory requirements and available for supporting future growth. The
Company's level of capital can be measured by its average shareholders' equity
to average assets ratio of 9.81% and its ratio of shareholders' equity to assets
of 9.74% at March 31, 1996.
At March 31, 1996, the Company's regulatory capital and the required minimum
amounts under existing regulatory requirements are summarized as follows:
<TABLE>
<CAPTION>
Actual Capital Required Capital Excess Capital
------------------- ------------------- ----------------
Ratio Ratio Ratio
as a % Amount as a % Amount as a % Amount
------ ------ ------ ------- ------ ------
(amounts in thousands, except ratios)
<S> <C> <C> <C> <C> <C> <C>
Tier 1 risk-based capital 14.03% $63,737 4.00% $18,174 10.03% $45,563
Total risk-based capital 15.28 69,437 8.00 36,348 7.28 33,089
Tier 1 leverage ratio 9.01 63,737 3.00 21,425 6.01 42,312
</TABLE>
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Inflation
- ---------
Inflation impacts the growth in total assets in the banking industry and causes
a need to increase equity capital at higher than normal rates to meet capital
adequacy requirements. The Company copes with the effects of inflation through
effectively managing its interest rate sensitivity gap position, by periodically
reviewing and adjusting its pricing of services to consider current costs, and
through managing its level of net income relative to its dividend payout policy.
The impact of inflation has been minimal to the Company in recent years.
15
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits
The following exhibits are attached:
Exhibit 11 Computation of Per Share Earnings
Exhibit 20 Shareholders' Report
Exhibit 27 Financial Data Schedule
(b) There were no reports filed on Form 8-K for the
quarter ended March 31, 1996.
16
<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.
Century South Banks, Inc.
DATE: May 15, 1996 By: /s/ James A. Faulkner
---------------------- --------------------------
James A. Faulkner
President & CEO
DATE: May 15, 1996 By: /s/ Susan J. Anderson
---------------------- --------------------------
Susan J. Anderson
Senior Vice President, CFO,
and Secretary/Treasurer
17
<PAGE>
EXHIBIT 11
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Statement re Computation of Per Share Earnings
The following computations set forth the calculations of primary and fully
diluted net income per common share and common share equivalent for the three
month periods ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
Primary Fully Diluted
Earnings Earnings
Per Share Per Share
----------- -------------
(amounts in thousands, except per share data)
<S> <C> <C>
For the three months ended March 31, 1996:
Net income $ 2,193 2,193
=========== ==========
Weighted average number of common
shares outstanding 7,761 7,761
Common share equivalents resulting
from stock options 14 14
----------- ----------
Adjusted weighted average number
of common and common equivalent
shares outstanding $ 7,775 7,775
=========== ==========
Net income per common and
common equivalent share $ .28 .28
=========== ==========
For the three months ended March 31, 1995:
Net income $ 1,920 1,920
=========== ==========
Weighted average number of common
shares outstanding 7,761 7,761
Common share equivalents resulting
from stock options 11 12
----------- ----------
Adjusted weighted average number
of common and common equivalent
shares outstanding 7,772 7,773
=========== ==========
Net income per common and
common equivalent share $ .25 .25
=========== ==========
</TABLE>
<PAGE>
EXHIBIT 20
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
SHAREHOLDERS' REPORT
<PAGE>
Dear Shareholder:
I am pleased to announce that Century South Banks, Inc. continues to
perform at a record pace. Net earnings for the first quarter of 1996 were
$2,193,000 as compared to $1,920,000 for the first quarter of 1995, a 14%
increase. Earnings per share were $0.28 for the first quarter of 1996 as
compared to $0.25 for the first quarter of 1995. Our return on average assets
increased to 1.24% for the first quarter of 1996, from 1.16% for the first
quarter of 1995.
The quarterly cash dividend of $0.0975 per share paid on April 8, 1996,
represents a 5.4% increase over the amount paid in April 1995.
Total assets at March 31, 1996 were approximately $721,617,000 representing
a 4% increase over the March 31, 1995 assets of $693,105,000. Our asset quality
ratios continue to compare favorably with others in the industry. Non-performing
assets, which include loans placed on nonaccrual status and foreclosed assets,
at March 31, 1996 were $4,494,000 as compared to $4,026,000 at December 31, 1995
and $5,050,000 at March 31, 1995. Nonperforming assets as a percentage of loans
plus foreclosed assets were 0.94% at March 31, 1996 as compared to 0.84% at
December 31, 1995 and 1.13% at March 31, 1995. Nonperforming loans as a
percentage of total loans outstanding, net of unearned income were 0.50% at
March 31, 1996, as compared to 0.38% at December 31, 1995 and 0.56% at March 31,
1995.
We believe the forthcoming changes on expanded branching will increase the
competition in our markets. Century South's management team is confident that we
have already positioned ourselves to successfully compete in this new
environment. In addition, we foresee these legislative changes as opportunities
for us to enter new targeted markets faster and more efficiently.
As always we want to encourage you, your business associates, family and
friends, to support the Century South bank in your community. With nine banks in
the state of Georgia and one bank in Tennessee, we strive to cover our area with
superior bank services.
In closing, our corporate mission is to continue to maximize the total
return on our shareholders investment and periodically increase our cash
dividend to our shareholders.
Sincerely,
/s/ Russell Ivie
Russell Ivie
Chairman
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
March 31, March 31,
1996 1995
<S> <C> <C>
-------------------------
(amounts in thousands)
ASSETS
Cash and due from banks $ 25,350 $ 25,879
Federal funds sold 39,310 36,680
Interest-earning deposits in other banks 368 2,031
Investment securities 154,967 154,188
Loans, net of unearned income 473,902 445,269
Allowance for possible loan losses (7,357) (7,067)
Premises and equipment, net 15,897 15,760
Other assets 19,180 20,365
-------------------------
Total assets $721,617 $693,105
=========================
LIABILITIES
Noninterest-bearing deposits $ 65,991 $ 63,124
Interest-bearing deposits 567,747 537,840
Short-term borrowings 900 6,030
Long-term debt 8,397 15,458
Other liabilities 8,271 6,493
-------------------------
Total liabilities 651,306 628,945
-------------------------
SHAREHOLDERS' EQUITY
Common stock 7,826 7,826
Additional paid in capital 28,780 28,780
Retained earnings 34,535 29,260
Reduction for ESOP loan guarantee (214) (254)
Common stock in treasury, at cost (337) (337)
Net unrealized losses on investment securities (279) (1,115)
-------------------------
Total shareholders' equity 70,311 64,160
-------------------------
Total liabilities and shareholders' equity $721,617 $693,105
=========================
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three months ended
March 31
1996 1995
-------------------------
(amounts in thousands,
except per share data)
<S> <C> <C>
Interest income $ 15,479 $ 14,185
Interest expense 7,536 6,417
-------------------------
Net interest income 7,943 7,768
Provision for loan losses 401 321
Noninterest income 1,766 1,362
Noninterest expense 6,136 6,165
Income tax expense 979 724
-------------------------
Net income $ 2,193 $ 1,920
=========================
Weighted average shares outstanding 7,775 7,772
Net income per share $0.28 $0.25
Dividends declared per share $ 0.0975 $0.0925
</TABLE>
<PAGE>
SENIOR OFFICERS
- --------------------------------------------------------------------------------
J. Russell Ivie Chairman
James A. Faulkner President & CEO
Susan J. Anderson Vice President/Sec.-Treas. & CFO
Tony E. Collins Vice President & COO
Gary L. Evans Vice President/Asst. Secretary & CCO
Charles A. Langford Senior Investment Officer
DIRECTORS
- --------------------------------------------------------------------------------
J. Russell Ivie, Chairman
Roger Bennett Sherman Green
J. Marvin Anderson Dudley K. Owens
E.H. Chambers, Jr. William D. Reeves
William L. Chandler C.J. (Jim) Sisson
Clarence B. Denard E. Paul Stringer
James A. Faulkner Myron B. Turner
Thomas T. Folger, Jr. George A. Winn
DIRECTORS EMERITUS
- --------------------------------------------------------------------------------
Glen W. Marshall James H. Sanders, Sr.
Rodney B. McCombs Forrest J. Sisk, Sr.
J.E. Owens Vernon H. Smith
AFFILIATES
- --------------------------------------------------------------------------------
Bank of Dahlonega Fannin County Bank, N.A.
200 West Main Street 480 W. First Street
Dahlonega, GA 30533 Blue Ridge, GA 30513
John L Lewis, President Steve Eaton, President
706-864-3314 706-632-2075
The Bank of Ellijay Gwinnett National Bank
Sand and Broad Street 3200 Peachtree Industrial Boulevard
Ellijay, GA 30540 Duluth, GA 30136
Paul Nealey, President Marvin Cosgray, President
706-276-3400 770-497-9797
First Bank of Polk County First Community Bank of Dawsonville
40 Ocoee Street 136 Highway 400 South
Copperhill, TN 37317 Dawsonville, GA 30534
David Adkisson, President Philip Hester, President
423-496-3261 706-216-5050
Georgia First Bank Peoples Bank
455 Jesse Jewell Parkway 13321 Jones Street
Gainesville, GA 30501 Lavonia, GA 30533
Andy Walker, President Robert A. Robinson, Interim President
770-535-8000 706-356-8040
First National Bank of Union County Bank of Danielsville
420 Blue Ridge Highway Courthouse Square
Blairsville, GA 30512 Danielsville, GA 30633
Keith Pope, President Banister Sexton, President
706-745-5571 706-795-2121
<PAGE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
SELECTED BALANCES
- --------------------------------------------------------------------------------
MARCH 31,
1996 1995 PERCENT CHANGE
-----------------------------------------------
(amounts in thousands, except per share data)
<S> <C> <C> <C>
Loans, net $466,545 $438,202 6.47%
Deposits 633,738 600,964 5.45
Assets 721,617 693,105 4.11
Shareholders' equity 70,311 64,160 9.59
Net income 2,193 1,920 14.22
Book value per share 9.06 8.27 9.55
Net income per share
assuming full dilution 0.28 0.25 12.00
Weighted average shares outstanding
and equivalents 7,775 7,772 0.04
Nonperforming loans 1,806 2,478 (27.12)
Other real estate and
repossessed collateral 2,688 2,572 4.51
FINANCIAL RATIOS
- --------------------------------------------------------------------------------
Return on average assets 1.24% 1.16% 6.90%
Return on average shareholders' equity 12.59 12.37 1.78
Net interest margin (TE) 4.95 5.20 (4.81)
Allowance to loans 1.55 1.59 (2.52)
NPA/assets 0.62 0.73 (15.07)
</TABLE>
<PAGE>
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
STOCK INFORMATION
Century South Banks, Inc. ("CSBI") lists its stock for trading on the National
Association of Securities Dealers Automated Quotations System ("NASDAQ"). The
ticker tape symbol is "CSBI". Market price for the quarter ended March 31, 1996:
<TABLE>
<S> <C>
Three month high.. $16.75
Three month low... $13.75
Closing price..... $15.25
</TABLE>
- --------------------------------------------------------------------------------
SHAREHOLDER SERVICES
Shareholders wishing to change the name or address on their stock, to report
lost certificates or to consolidate accounts should contact:
Century South Banks, Inc.
Shareholder Relations
P.O. Box 1000
Dahlonega, Georgia 30533
- --------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN
Shareholders wishing to automatically reinvest quarterly dividends into Century
South Banks, Inc. common stock should contact:
Century South Banks, Inc.
Dividend Reinvestment Plan
P.O. Box 1000
Dahlonega, Georgia 30533
- --------------------------------------------------------------------------------
INVESTOR RELATIONS
Shareholders, analysts, and others seeking financial information on Century
South Banks, Inc. should contact:
James A. Faulkner Susan Anderson
President & CEO or Vice President & CFO
(770) 287-9092 (770) 287-9092
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 25,350
<INT-BEARING-DEPOSITS> 368
<FED-FUNDS-SOLD> 39,310
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 109,084
<INVESTMENTS-CARRYING> 45,883
<INVESTMENTS-MARKET> 46,777
<LOANS> 473,902
<ALLOWANCE> 7,357
<TOTAL-ASSETS> 721,617
<DEPOSITS> 633,738
<SHORT-TERM> 900
<LIABILITIES-OTHER> 8,271
<LONG-TERM> 8,397
0
0
<COMMON> 7,826
<OTHER-SE> 62,485
<TOTAL-LIABILITIES-AND-EQUITY> 721,617
<INTEREST-LOAN> 12,644
<INTEREST-INVEST> 2,283
<INTEREST-OTHER> 552
<INTEREST-TOTAL> 15,479
<INTEREST-DEPOSIT> 7,358
<INTEREST-EXPENSE> 7,536
<INTEREST-INCOME-NET> 7,943
<LOAN-LOSSES> 401
<SECURITIES-GAINS> 37
<EXPENSE-OTHER> 6,136
<INCOME-PRETAX> 3,172
<INCOME-PRE-EXTRAORDINARY> 3,172
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,193
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
<YIELD-ACTUAL> 5.20
<LOANS-NON> 2,354
<LOANS-PAST> 977
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,048
<CHARGE-OFFS> 180
<RECOVERIES> 88
<ALLOWANCE-CLOSE> 7,357
<ALLOWANCE-DOMESTIC> 7,357
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 654
</TABLE>
