<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 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: 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 JULY 31, 1996
- -------------------------------------------------------------------------
Common stock, $1.00 par value 7,761,624
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Form 10Q
INDEX
Page No.
--------
Part I. Financial Information
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets............................... 3
Consolidated Statements of Income......................... 4
Condensed Consolidated 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 4. Matters Submitted to a Vote of Security Holders........... 16
Item 6. Exhibits and Report on Form 8-K........................... 16
Signatures.............................................................. 17
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------- -------------
(amounts in thousands,
except share data)
<S> <C> <C>
Assets
- ------
Cash and due from banks....................... $ 28,155 33,020
Federal funds sold............................ 15,610 27,420
Interest-earning deposits in other banks...... 579 453
Investment securities:
Available for sale.......................... 116,677 98,756
Held to maturity............................ 44,119 52,390
Loans, net of unearned income................. 479,526 476,510
Less allowance for possible loan losses..... 7,605 7,048
-------- -------
Loans, net.............................. 471,921 469,462
-------- -------
Premises and equipment, net................... 16,537 15,869
Goodwill and other intangibles, net........... 7,077 7,442
Other assets.................................. 12,511 11,669
-------- -------
Total assets.......................... $713,186 716,481
======== =======
Liabilities and Shareholders' Equity
- ------------------------------------
Liabilities:
Deposits:
Noninterest-bearing demand deposits........ $ 74,151 69,516
Interest-bearing deposits.................. 552,942 556,790
-------- -------
Total deposits.......................... 627,093 626,306
Other short-term borrowings.................. 450 501
Federal Home Loan Bank advances.............. 7,032 8,083
Long-term debt............................... 325 3,556
Accrued expenses and other liabilities....... 6,851 8,581
-------- -------
Total liabilities...................... 641,751 647,027
-------- -------
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.......................... 36,386 33,099
Reduction for ESOP loan guarantee.......... (202) (226)
Common stock in treasury (64,734 shares),
at cost................................... (337) (337)
Net unrealized gain (loss) on investment
securities (1,018) 312
-------- -------
Total shareholders' equity............... 71,435 69,454
-------- -------
Total liabilities and shareholders'
equity............................... $713,186 716,481
======== =======
</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 Six months ended
June 30, June 30,
1996 1995 1996 1995
--------- -------- -------- -------
(amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees.............................. $13,065 12,100 25,709 23,581
Federal funds sold................................. 330 357 875 668
Interest on deposits in other banks................ 7 7 14 33
Investment securities:
Taxable........................................... 1,792 1,694 3,392 3,400
Nontaxable........................................ 647 657 1,330 1,320
------- ------ ------ ------
Total interest income............................ 15,841 14,815 31,320 29,002
------- ------ ------ ------
Interest expense:
Deposits........................................... 7,020 6,847 14,378 12,926
Federal funds purchased............................ - 16 - 28
Federal Home Loan Bank advances.................... 117 151 247 323
Long-term debt and other borrowings................ 6 123 54 277
------- ------ ------ ------
Total interest expense........................... 7,143 7,137 14,679 13,554
------- ------ ------ ------
Net interest income.............................. 8,698 7,678 16,641 15,448
Provision for possible loan losses.................. 469 345 870 666
------- ------ ------ ------
Net interest income after provision
for possible loan losses........................ 8,229 7,333 15,771 14,782
------- ------ ------ ------
Noninterest income:
Service charges on deposit accounts................ 977 913 1,913 1,725
Securities gains (losses), net..................... 179 (2) 216 (8)
Other operating income............................. 579 504 1,372 1,061
------- ------ ------ ------
Total noninterest income......................... 1,735 1,415 3,501 2,778
------- ------ ------ ------
Noninterest expense:
Salaries and employee benefits..................... 3,155 2,954 6,250 5,854
Net occupancy and equipment expense................ 787 740 1,606 1,485
Other operating expenses........................... 2,226 2,520 4,448 5,042
------- ------ ------ ------
Total noninterest expense........................ 6,168 6,214 12,304 12,381
------- ------ ------ ------
Income before income taxes....................... 3,796 2,534 6,968 5,179
Income tax expense.................................. 1,178 692 2,157 1,417
------- ------ ------ ------
Net income....................................... $ 2,618 1,842 4,811 3,762
======= ====== ====== ======
Net income per common share and common
share equivalent:
Primary $.34 .24 .62 .48
======= ====== ====== ======
Fully diluted $.34 .24 .62 .48
======= ====== ====== ======
Cash dividends declared per share $.09875 .09380 .19625 .18630
======= ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six months ended June 30,
1996 1995
----------------------------
(amounts in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
Net cash provided by operating activities $ 4,889 5,671
-------- -------
Cash flows from investing activities:
Proceeds from sales of investment securities:
Available for sale 1,190 4,384
Held to maturity - -
Principal collections and maturities of
investment securities:
Available for sale 18,402 6,819
Held to maturity 8,495 2,852
Proceeds from maturities of interest-
earning deposits 1,960 14,478
Purchases of investment securities held
to maturity (66) (6,155)
Purchases of investment securities
available for sale (39,532) (3,761)
Investment in interest-earning deposits (2,086) (12,684)
Net increase in loans (3,597) (15,545)
Proceeds from sales of real estate
acquired through foreclosure 115 859
Purchases of premises and equipment (1,432) (934)
Proceeds from sale of premises and equipment 12 -
-------- -------
Net cash used in investing activities (16,539) (9,687)
-------- -------
Cash flows from financing activities:
Net increase in deposits 788 16,604
Net decrease in federal funds purchased - (80)
Net decrease in other short-term borrowings (51) (1,849)
Proceeds from issuance of long-term debt - 11,005
Payments on long-term debt and Federal Home
Loan Bank advances (4,258) (14,918)
Dividends paid to shareholders (1,504) (999)
-------- -------
Net cash (used in) provided by financing
activities (5,025) 9,763
-------- -------
Net increase in cash and cash equivalents (16,675) 5,747
Cash and cash equivalents at beginning of period 60,440 48,566
-------- -------
Cash and cash equivalents at end of period $ 43,765 54,313
======== =======
</TABLE>
5
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Supplemental disclosure of cash paid during
the period for:
Interest $15,781 12,767
======= =======
Income taxes $ 2,236 1,889
======= =======
Supplemental schedule of noncash investing
and financing activities:
Real estate acquired through foreclosure $1,016 660
====== =====
Real estate sold and financed by the Company $ 748 175
====== =====
Net reduction in guaranteed ESOP loan recorded
in shareholders' equity $ 24 13
====== =====
Securities transferred from available for
sale to held to maturity at fair value $ - 3,773
======= =====
Securities transferred from held to maturity
to available for sale $ - 1,786
======= =====
</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 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 the Company for fiscal year ending December 31, 1996. The Company will
not adopt the fair value based method for purposes of preparing its 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 June 30, 1996, the outstanding balance is
$450,000.
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)
Six of the Company's subsidiaries have invested in Federal Home Loan Bank
stock for the purpose of establishing credit lines with the Federal Home
Loan Bank. One of these subsidiaries made payments of $1,051,000 in the
first six months of 1996 making the total advances under these lines $7.0
million. Of these advances, $2.0 million matures on April 30, 1997 and
bears interest at the rate of 7.39%, payable monthly.
Another 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
$1.0 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 six 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 certain
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 June
30, 1996, compared to December 31, 1995, and results of operations for the
three and six month periods ended June 30, 1996, compared to the three and
six month periods ended June 30, 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 six months of 1996, total assets decreased $3.3 million or
approximately 0.5%. This decrease was primarily a result of payments on
long-term borrowings of $4.3 million. Net loans grew $3.0 million or 0.6%
and investment securities increased $9.7 million or 6.4% during the first
six months of 1996 and were funded primarily by a decrease in federal funds
sold of $11.8 million.
The amortized cost, gross unrealized gains and losses, and estimated fair
value of available for sale and held to maturity securities by type at June
30, 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 $ 66,217 79 (964) 65,332
State, county and
municipal securities 14,838 432 (140) 15,130
Mortgage-backed securities 28,407 102 (480) 28,029
Other debt securities 5,352 9 (90) 5,271
Equity securities 2,987 30 (102) 2,915
------------------------------------------------
$117,801 652 (1,776) 116,677
------------------------------------------------
Held to maturity:
U.S. Government agencies $ 10,090 119 (120) 10,089
State, county and
municipal securities 29,025 587 (279) 29,333
Mortgage-backed securities 2,319 28 (14) 2,333
Other debt securities 2,685 69 - 2,754
------------------------------------------------
$ 44,119 803 (413) 44,509
------------------------------------------------
</TABLE>
Balances within the major deposit categories as of June 30, 1996 and
December 31, 1995 are shown below:
<TABLE>
<CAPTION>
(amounts in millions)
June 30, December 31,
1996 1995
------------------------
<S> <C> <C>
Noninterest bearing demand deposits $ 74.2 69.5
Interest bearing demand deposits 99.0 99.6
Money market accounts 23.5 25.5
Savings deposits 63.1 60.7
Certificates of deposit and
individual retirement accounts
of $100,000 or more 86.0 85.6
Other individual retirement accounts 40.5 38.0
Other certificates of deposit 240.8 247.4
------ -----
$627.1 626.3
====== =====
</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 June 30, 1996, the
Company's cash and due from banks was $28.2 million, its federal funds sold
were $15.6 million, its interest-earning deposits in other banks were $0.6
million, and its investment securities designated as available for sale
were $116.7 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 June 30, 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
------------ -------------------- -------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(amounts in thousands)
Interest-sensitive assets $230,658 151,466 382,124 242,340 624,464 34,215 658,679
Interest-sensitive liabilities 271,345 195,662 467,007 92,620 559,627 1,122 560,749
-------- ------- ------- ------- ------- ------ -------
Interest-sensitivity gap $(40,687) (44,196) (84,883) 149,720 64,837 33,093 97,930
======== ======= ======= ======= ======= ====== =======
Ratio of interest-sensitive
assets to interest-
sensitive liabilities 0.85 0.77 0.82 2.62 1.12 30.49 1.17
======== ======= ======= ======= ======= ====== =======
</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 June 30, 1996 increased
$1,020,000 or 13.28% over the same period of 1995. This increase is
partially due to the recovery of interest on a non-accrual loan of
$365,000. Exclusive of this recovery, the increase was 8.53%. For the six
months ended June 30, 1996, net interest income was $16,641,000
representing an increase of $1,193,000 or 7.72% as compared to the six
months ended June 30, 1995. The average yield earned on interest-earning
assets, on a fully tax equivalent basis, increased to 9.64% for the six
months ended June 30, 1996 from 9.46% for the six months ended June 30,
1995 and the average rate paid on interest-bearing liabilities increased to
5.18% for the six months ended June 30, 1996 from 5.00% for the six months
ended June 30, 1995. The Company's interest rate differential remained
constant at 4.46% while its net interest margin (net interest income
divided by average interest-earning assets) increased to 5.18% for the
first six months of 1996 from 5.11% 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 can be reasonably 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 1.59% of outstanding
loans at June 30, 1996 as compared to 1.48% at December 31, 1995 and 1.54%
at June 30, 1995. The allowance increased to $7,605,000 at June 30, 1996
from $7,048,000 at December 31, 1995 and $7,006,000 at June 30, 1995. The
provision for possible loan losses increased to $870,000 for the six months
ended June 30, 1996 from $666,000 for the six months ended June 30, 1995.
Net loan charge offs for the six months ended June 30, 1996 were $313,000
as compared to $404,000 for the six months ended June 30, 1995. Net loans
charged off as a percentage of average loans was 0.13% for the six months
ended June 30, 1996 as compared to 0.36% for the six months ended June 30,
1995.
Higher provisions have been made as a result of the continued growth in the
loan portfolio and to maintain the Company's ratio of allowance for
possible loan losses to outstanding loans in the range of 1.5% to 1.6%.
Nonperforming Loans, Nonperforming Assets, and Underperforming Loans
--------------------------------------------------------------------
Nonperforming loans include nonaccrual loans. The Company has not
restructured any loans of significance through June 30, 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 June 30, 1996 and December 31, 1995.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
June 30, December 31,
1996 1995
------------- ------------
(amounts in thousands except
ratios and percentages)
<TABLE>
<CAPTION>
<S> <C> <C>
Nonperforming loans $1,186 1,815
Real estate acquired through
foreclosure and other
repossessed assets 2,042 2,211
------ -----
Nonperforming assets $3,228 4,026
====== =====
Underperforming loans $1,275 1,716
====== =====
Asset Quality Ratios:
Nonperforming loans to total loans,
net of unearned income .25% .38%
====== =====
Nonperforming assets to total loans,
net of unearned income, real estate
acquired through foreclosure, and
other repossessed assets .67% .84%
====== =====
Allowance for possible loan losses
to nonperforming loans 6.41x 3.88x
====== =====
Underperforming loans to total loans,
net of unearned income .27% .36%
====== =====
Nonperforming loans to total assets .17% .25%
====== =====
Nonperforming assets to total assets .45% .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. A substantial portion of the allowance is general in
nature and is available for the portfolio in its entirety.
Noninterest Income
------------------
Noninterest income for the second quarter of 1996 increased $320,000 or
22.6% as compared to the same period of 1995. This increase was primarily
the result of an increase in net securities gains (losses) of $181,000,
which includes the recovery of the principal of two previously partially
charged-off municipal securities of $165,000. An increase was also
experienced in service charges on deposit accounts of $64,000. For the
first six months of 1996, noninterest income increased $723,000 or 26.0%.
This increase was primarily the result of an increase in net securities
gains (losses) of $224,000, which includes the above mentioned recovery of
$165,000, an increase in service charges on deposit accounts of $188,000,
and a net increase in mortgage activities related income of $204,000
($224,000 gain recognized on sale of servicing portfolio and a $122,000
increase in origination fees partially offset by reduced servicing fees of
$142,000).
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Noninterest Expense
-------------------
The $46,000 or 0.7% reduction in noninterest expense for the second quarter
of 1996 as compared to the second quarter of 1995 was primarily due to a
decrease in FDIC insurance premium expense of $357,000, partially offset by
increases in salary and benefit and net occupancy and equipment expenses of
$201,000 and $47,000, respectively. The first six months of 1996 as
compared to the same period of 1995 resulted in a decrease of $77,000 or
0.6%. This decrease was primarily due to a decrease in FDIC insurance
premium expense of $645,000, which was offset by increases in salary and
benefit expense, net occupancy and equipment expenses, and computer fees of
$396,000, $121,000 and $63,000, respectively.
Income Tax Expense
------------------
The second quarter 1996 income tax expense was approximately $1,178,000, or
an effective rate of 31.0%, as compared to approximately $692,000 for the
second quarter 1995, or an effective rate of 27.3%. During the first six
months of 1996 income tax expense was approximately $2,157,000, or an
effective rate of 30.96%, compared to $1,417,000, or an effective rate of
27.36%, for the same period in 1995.
Net Income
----------
The Company's second quarter 1996 net earnings were $0.34 per share or
$2,618,000 as compared to $0.24 or $1,842,000 for the second quarter of
1995, representing an increase of 42.1%. Earnings for the six months ended
June 30, 1996 were $4,811,000 up 27.9% from $3,762,000 for the comparable
period in 1995. Earnings per share for the six months ended June 30, 1996
were $0.62 per share as compared to $0.48 per share for the corresponding
period ended June 30, 1995.
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 six months
ended June 30, 1996 was 13.74% (annualized) as compared to 11.85%
(annualized) for the six months ended June 30, 1995. The Company's return
on average assets was 1.36% (annualized) and 1.12% (annualized) for the six
month periods ended June 30, 1996 and 1995, respectively. These ratios
compare favorably with other holding companies of similar size.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 9.92% and its ratio of shareholders'
equity to assets of 10.02% at June 30, 1996.
At June 30, 1996 and December 31, 1995, the Company's regulatory capital
under existing regulatory requirements is summarized as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
--------- -------------
(amounts in thousands, except ratios)
<S> <C> <C>
Tier 1 capital:
Shareholders' equity (excludes unrealized
gains and losses on investment securities) $ 72,351 69,142
Intangible assets other than servicing rights (6,689) (7,016)
-------- -------
Total tier 1 capital 65,662 62,126
-------- -------
Tier 2 capital:
Allowable reserve for loan losses 5,777 5,867
-------- -------
Total tier 2 capital 5,777 5,867
-------- -------
Total capital 71,439 67,993
======== =======
Risk-weighted assets 460,326 468,155
======== =======
Risk-based ratios:
Tier 1 capital 14.26% 13.27%
Total capital 15.52 14.52
Tier 1 leverage ratio 9.30 9.01
</TABLE>
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 4. Matters Submitted to a Vote of Security Holders
At the Annual Meeting of Shareholders held on April 24, 1996, the
following directors were elected to hold office for the coming
year: Roger W. Bennett, E.H. Chambers, Jr., William L. Chandler,
Clarence B. Denard, James A. Faulkner, Thomas T. Folger, Jr.,
Sherman Green, J. Russell Ivie, Dudley K. Owens, William D.
Reeves, C.J. (Jim) Sisson, E. Paul Stringer, Myron B. Turner, Al
J. Wimpy, and George A. Winn. The following honorary directors
were also elected: J. Marvin Anderson, Glen W. Marshall, Rodney B.
McCombs, J.E. Owens, James H. Sanders, Sr., Forrest J. Sisk, Sr.,
and Vernon H. Smith.
Also, an amendment to the Dividend Reinvestment Plan to allow for
voluntary cash contributions was approved as was the CSBI Officer
Incentive Bonus Plan.
Item 6. Exhibits and Reports 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 June 30, 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: August 14, 1996 By: /s/ James A. Faulkner
----------------------- --------------------------
James A. Faulkner
President & CEO
DATE: August 14, 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 and six month periods ended June 30, 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 June 30, 1996:
Net income $2,618 2,618
====== =====
Weighted average number of common
shares outstanding 7,762 7,762
Common share equivalents resulting
from stock options 12 12
------ -----
Adjusted weighted average number
of common and common equivalent
shares outstanding 7,774 7,774
====== =====
Net income per common and
common equivalent share $ .34 .34
====== =====
For the three months ended June 30, 1995:
Net income $1,842 1,842
====== =====
Weighted average number of common
shares outstanding 7,762 7,762
Common share equivalents resulting
from stock options 11 11
------ -----
Adjusted weighted average number
of common and common equivalent
shares outstanding 7,773 7,773
====== =====
Net income per common and
common equivalent share $ .24 .24
====== =====
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Primary Fully Diluted
Earnings Earnings
Per Share Per Share
-------------------- -----------------------
(amounts in thousands, except per share data)
<S> <C> <C>
For the six months ended June 30, 1996:
Net income $4,811 4,811
====== =====
Weighted average number of common
shares outstanding 7,762 7,762
Common share equivalents resulting
from stock options 13 13
------ -----
Adjusted weighted average number
of common and common equivalent
shares outstanding 7,775 7,775
====== =====
Net income per common and
common equivalent share $ .62 .62
====== =====
For the six months ended June 30, 1995:
Net income $3,762 3,762
====== =====
Weighted average number of common
shares outstanding 7,762 7,762
Common share equivalents resulting
from stock options 10 10
------ -----
Adjusted weighted average number
of common and common equivalent
shares outstanding 7,772 7,772
====== =====
Net income per common and
common equivalent share $ .48 .48
====== =====
</TABLE>
2
<PAGE>
Dear Shareholder:
We are pleased to report a strong second quarter performance by Century
South Banks, Inc. Net earnings of $2,618,000 or $0.34 per share for the second
quarter of 1996 were a 42% increase over net earnings of $1,842,000 or $0.24
per share reported for the second quarter of 1995. Year-to-date earnings for
1996 were $4,811,000 or $0.62 per share as compared to $3,762,000 or $0.48 per
share for the same period of 1995. Strong second quarter and year-to-date
earnings were aided by the recovery of the principal of two previously partially
charged-off municipal securities and the recovery of interest on a non-accrual
loan. Excluding the after tax income of $350,000 generated from these
recoveries, net earnings increased 23% for the second quarter and 19% year-to-
date as compared to the same periods of 1995.
The quarterly cash dividend of $0.09875 per share paid on July 8, 1996,
represents a 5.3% increase over the amount paid in July 1995.
The Company's provision for possible loan losses for the second quarter
of 1996 was $469,000 as compared to $345,000 for the same period in 1995. At
June 30, 1996, the Company's allowance for possible loan losses was 1.59% of
total loans outstanding as compared to 1.54% at June 30, 1995. The increased
provision is primarily a result of the continued growth in the loan portfolio.
Total assets at June 30, 1996 were approximately $713,186,000
representing a 3% increase over the June 30, 1995 assets of $692,527,000. The
Company's non-performing assets, which include loans placed on nonaccrual status
and foreclosed assets, at June 30, 1996 were $3,228,000 as compared to
$4,026,000 at December 31, 1995 and $4,604,000 at June 30, 1995. Nonperforming
assets as a percentage of loans plus foreclosed assets were 0.67% at June 30,
1996 as compared to 0.84% at December 31, 1995 and 1.01% at June 30, 1995.
Nonperforming loans as a percentage of total loans outstanding, net of unearned
income were 0.25% at June 30, 1996, as compared to 0.38% at December 31, 1995
and 0.59% at June 30, 1995. The impact of the aforementioned recoveries is
evident in the improved ratios.
At our shareholders' meeting in April, Century South welcomed Al J. Wimpy
to the Board of Directors. Mr. Wimpy owns businesses in Dahlonega, Georgia and
Tallevest, Florida. Also, at the April meeting we bid farewell to one of
Century South's original directors, Marvin Anderson. Mr. Anderson will be
greatly missed for the wisdom and guidance he provided.
In this time of increased competition, Century South must not lose sight
of the goals we have set for the Company. As we strive for continued earnings
growth in the 10% range, total asset growth, and improved efficiencies, we are
ever mindful of our customers and shareholders. We want to provide the best
service possible for our customers while continuing to maximize the return on
the shareholders' investment. This is the challenge facing Century South's
officers, directors, and employees.
As always, we appreciate your support and encouragement.
Sincerely,
J. Russell Ivie
Chairman
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
June 30, June 30,
1996 1995
------------------------
(amounts in thousands)
ASSETS
<S> <C> <C>
Cash and due from banks $ 28,155 $ 32,483
Federal funds sold 15,610 21,830
Interest-earning deposits in other banks 579 587
Investment securities 160,796 153,468
Loans, net of unearned income 479,526 456,121
Allowance for possible loan losses (7,605) (7,006)
Premises and equipment, net 16,537 15,804
Other assets 19,588 19,240
----------------------
Total assets $713,186 $692,527
======================
LIABILITIES
Noninterest-bearing deposits $ 74,151 $ 66,734
Interest-bearing deposits 552,942 540,940
Short-term borrowings 450 1
Federal Home Loan Bank advances 7,032 8,133
Long-term debt 325 4,097
Other liabilities 6,851 6,163
----------------------
Total liabilities 641,751 626,068
----------------------
SHAREHOLDERS' EQUITY
Common stock 7,826 7,826
Additional paid-in capital 28,780 28,780
Retained earnings 36,386 30,496
Reduction for ESOP loan guarantee (202) (248)
Common stock in treasury, at cost (337) (337)
Net unrealized loss on investment securities (1,018) (58)
----------------------
Total shareholders' equity 71,435 66,459
----------------------
Total liabilities and shareholders' equity $713,186 $692,527
======================
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
---------------------------------------------
(amounts in thousands, except per share data)
Interest income $ 15,841 $ 14,815 $ 31,320 $ 29,002
Interest expense 7,143 7,137 14,679 13,554
---------------------------------------------
Net interest income 8,698 7,678 16,641 15,448
Provision for loan losses 469 345 870 666
Noninterest income 1,735 1,415 3,501 2,778
Noninterest expense 6,168 6,214 12,304 12,381
Income tax expense 1,178 692 2,157 1,417
---------------------------------------------
Net income $ 2,618 $ 1,842 $ 4,811 $ 3,762
=============================================
Weighted average shares outstanding 7,774 7,773 7,775 7,772
Net income per share $0.34 $0.24 $ 0.62 $ 0.48
Dividends declared per share $0.09875 $0.09380 $0.19625 $0.18630
</TABLE>
2
<PAGE>
SENIOR OFFICERS
- -------------------------------------------------------------------------------
J. Russell Ivie Chairman
James A. Faulkner President & CEO
Susan J. Anderson Senior Vice President/Sec.-Treas. & CFO
Tony E. Collins Senior Vice President & COO
Gary L. Evans Senior Vice President/Asst. Secretary & CCO
Charles A. Langford Senior Investment Officer
DIRECTORS
- -------------------------------------------------------------------------------
J. Russell Ivie, Chairman Dudley K. Owens
Roger W. Bennett William D. Reeves
E.H. Chambers, Jr. C.J. (Jim) Sisson
William L. Chandler E. Paul Stringer
Clarence B. Denard Myron B. Turner
James A. Faulkner Al. J. Wimpy
Thomas T. Folger, Jr. George A. Winn
Sherman Green
DIRECTORS EMERITUS
- -------------------------------------------------------------------------------
J. Marvin Anderson James H. Sanders, Sr.
Glen W. Marshall Forrest J. Sisk, Sr.
Rodney B. McCombs Vernon H. Smith
J.E. Owens
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 30553
Andrew K. Walker, President J. Douglas Cleveland, 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
3
<PAGE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
SELECTED BALANCES
- -------------------------------------------------------------------------------------------
AS OF JUNE 30,
1996 1995 PERCENTAGE CHANGE
----------------------------------------------
(amounts in thousands, except per share data)
<S> <C> <C> <C>
Loans, net $471,921 $449,115 5.08%
Deposits 627,093 607,674 3.20
Total assets 713,186 692,527 2.98
Shareholders' equity 71,435 66,459 7.49
Net income 4,811 3,762 27.88
Book value per share 9.20 8.56 7.48
Net income per share 0.62 0.48 29.17
Weighted average shares outstanding
and equivalents a 7,775 7,772 0.04
Nonperforming loans 1,186 2,669 (55.56)
Other real estate and other
repossessed collateral 2,042 1,935 5.53
FINANCIAL RATIOS
- ------------------------------------------------------------------------------------------
Return on average assets 1.36% 1.12% 21.43%
Return on average shareholders' equity 13.74 11.85 15.95
Net interest margin (Taxable equivalent) 5.18 5.11 2.37
Allowance for possible loan losses
to loans 1.59 1.54 3.25
Nonperforming assets/total assets 0.45 0.66 (31.82)
</TABLE>
4
<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 June 30, 1996:
Three month high.. $ 15.25
Three month low... $ 13.50
Closing price..... $14.375
- -------------------------------------------------------------------------------
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 Senior Vice President & CFO
(770) 287-9092 (770) 287-9092
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 28,155
<INT-BEARING-DEPOSITS> 579
<FED-FUNDS-SOLD> 15,610
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 116,677
<INVESTMENTS-CARRYING> 44,119
<INVESTMENTS-MARKET> 44,509
<LOANS> 479,526
<ALLOWANCE> 7,605
<TOTAL-ASSETS> 713,186
<DEPOSITS> 627,093
<SHORT-TERM> 450
<LIABILITIES-OTHER> 6,851
<LONG-TERM> 7,357
0
0
<COMMON> 7,826
<OTHER-SE> 63,609
<TOTAL-LIABILITIES-AND-EQUITY> 713,186
<INTEREST-LOAN> 25,709
<INTEREST-INVEST> 4,722
<INTEREST-OTHER> 889
<INTEREST-TOTAL> 31,320
<INTEREST-DEPOSIT> 14,378
<INTEREST-EXPENSE> 14,679
<INTEREST-INCOME-NET> 16,641
<LOAN-LOSSES> 870
<SECURITIES-GAINS> 216
<EXPENSE-OTHER> 12,304
<INCOME-PRETAX> 6,968
<INCOME-PRE-EXTRAORDINARY> 6,968
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,811
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
<YIELD-ACTUAL> 5.18
<LOANS-NON> 1,186
<LOANS-PAST> 1,275
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,048
<CHARGE-OFFS> 651
<RECOVERIES> 338
<ALLOWANCE-CLOSE> 7,605
<ALLOWANCE-DOMESTIC> 7,605
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 785
</TABLE>
