<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 September 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 OCTOBER 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 6. Exhibits and Report on Form 8-K........................... 17
Signatures............................................................. 18
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------------------- --------------------
(amounts in thousands, except share data)
<S> <C> <C>
Assets
- ------
Cash and due from banks....................... $ 32,197 33,020
Federal funds sold............................ 16,350 27,420
Interest-earning deposits in other banks...... 638 453
Investment securities:
Available for sale.......................... 106,671 98,756
Held to maturity............................ 43,337 52,390
Loans, net of unearned income................. 499,660 476,510
Less allowance for possible loan losses..... 7,602 7,048
-------- -------
Loans, net............................ 492,058 469,462
-------- -------
Premises and equipment, net................... 17,689 15,869
Goodwill and other intangibles, net........... 6,894 7,442
Other assets.................................. 11,859 11,669
-------- -------
Total assets........................ $727,693 716,481
======== =======
Liabilities and Shareholders' Equity
- ------------------------------------
Liabilities:
Deposits:
Noninterest-bearing demand deposits........ $ 76,065 69,516
Interest-bearing deposits.................. 563,006 556,790
-------- -------
Total deposits........................ 639,071 626,306
Other short-term borrowings.................. 340 501
Federal Home Loan Bank advances.............. 7,007 8,083
Long-term debt............................... 300 3,556
Accrued expenses and other liabilities....... 7,697 8,581
-------- -------
Total liabilities..................... 654,415 647,027
-------- -------
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.......................... 37,902 33,099
Reduction for ESOP loan guarantee.......... (190) (226)
Common stock in treasury (64,734 shares),
at cost.................................. (337) (337)
Net unrealized gain (loss) on investment
securities (703) 312
-------- -------
Total shareholders' equity............. 73,278 69,454
-------- -------
Total liabilities and shareholders'
equity............................. $727,693 716,481
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
------- ------ ------ ------
(amounts in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees................................ $13,084 12,586 38,794 36,166
Federal funds sold................................... 148 303 1,022 970
Interest on deposits in other banks.................. 10 9 24 42
Investment securities:
Taxable............................................ 1,726 1,653 5,118 5,053
Nontaxable 647 669 1,977 1,989
------- ------ ------ ------
Total interest income............................ 15,615 15,220 46,935 44,220
------- ------ ------ ------
Interest expense:
Deposits............................................. 6,957 7,213 21,335 20,139
Federal funds purchased.............................. 12 7 12 34
Federal Home Loan Bank advances...................... 113 134 360 457
Long-term debt and other borrowings.................. 5 95 59 373
------- ------ ------ ------
Total interest expense........................... 7,087 7,449 21,766 21,003
------- ------ ------ ------
Net interest income.............................. 8,528 7,771 25,169 23,217
Provision for possible loan losses..................... 343 373 1,213 1,039
------- ------ ------ ------
Net interest income after provision
for possible loan losses........................ 8,185 7,398 23,956 22,178
------- ------ ------ ------
Noninterest income:
Service charges on deposit accounts.................. 956 928 2,869 2,653
Securities gains (losses), net....................... - 10 216 2
Other operating income............................... 563 573 1,935 1,633
------- ------ ------ ------
Total noninterest income......................... 1,519 1,511 5,020 4,288
------- ------ ------ ------
Noninterest expense:
Salaries and employee benefits....................... 3,371 2,968 9,621 8,822
Net occupancy and equipment expense.................. 816 804 2,422 2,288
Other operating expenses............................. 2,232 2,083 6,680 7,124
------- ------ ------ ------
Total noninterest expense........................ 6,419 5,855 18,723 18,234
------- ------ ------ ------
Income before income taxes....................... 3,285 3,054 10,253 8,232
Income tax expense..................................... 993 816 3,150 2,232
------- ------ ------ ------
Net income....................................... $ 2,292 2,238 7,103 6,000
======= ====== ====== ======
Net income per common share and common
share equivalent:
Primary $.30 .29 .91 .77
======= ====== ====== ======
Fully diluted $.30 .29 .91 .77
======= ====== ====== ======
Cash dividends declared per share $.10000 .09500 .29625 .28130
======= ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended September 30,
1996 1995
----------------------------------
(amounts in thousands)
<S> <C> <C>
Net cash provided by operating activities $ 9,105 10,121
--------- -------
Cash flows from investing activities:
Proceeds from sales of investment securities:
Available for sale 7,840 6,224
Principal collections and maturities of
investment securities:
Available for sale 23,348 11,754
Held to maturity 10,353 6,691
Proceeds from maturities of interest-
earning deposits 2,099 15,041
Purchases of investment securities held
to maturity (1,088) (9,111)
Purchases of investment securities
available for sale (40,682) (10,857)
Investment in interest-earning deposits (2,284) (13,271)
Net increase in loans (24,028) (30,230)
Proceeds from sales of real estate
acquired through foreclosure 373 1,219
Purchases of premises and equipment (2,980) (1,337)
Proceeds from sale of premises and equipment 13 16
--------- -------
Net cash used in investing activities (27,036) (23,861)
--------- -------
Cash flows from financing activities:
Net increase in deposits 12,765 10,705
Net increase in federal funds purchased - 2,670
Net decrease in other short-term borrowings (161) (689)
Proceeds from issuance of long-term debt - 11,047
Payments on long-term debt and Federal Home
Loan Bank advances (4,296) (15,461)
Dividends paid to shareholders (2,270) (1,807)
--------- -------
Net cash provided by financing activities 6,038 6,465
--------- -------
Net decrease in cash and cash equivalents (11,893) (7,275)
Cash and cash equivalents at beginning of period 60,440 48,566
--------- -------
Cash and cash equivalents at end of period $ 48,547 41,291
========= =======
</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 $22,625 19,504
======= =======
Income taxes $ 3,074 2,613
======= =======
Supplemental schedule of noncash investing
and financing activities:
Real estate acquired through foreclosure $1,398 1,333
======= =======
Real estate sold and financed by the Company $1,177 798
======= =======
Net reduction in guaranteed ESOP loan recorded
in shareholders' equity $ 36 24
======= =======
Investment securities transferred from available
for sale to held to maturity at fair value $ - 3,864
======= =======
Investment 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 of Financial Accounting Standards 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 the 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) Statement No. 125 "Accounting for Transfers and Servicing of Financial
----------------------------------------------------------------------
Assets and Extinguishments of Liabilities"
------------------------------------------
In June 1996, the FASB issued Statement of Financial Accounting Standards
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." Statement No. 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a financial-
components approach that focuses on control. If distinguishes transfers of
financial assets that are sales from transfers that are secured borrowings.
7
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Under the financial-components approach, after a transfer of financial
assets, an entity recognizes all financial and servicing assets it controls and
liabilities it has incurred and derecognizes financial assets it no longer
controls and liabilities that have been extinguished. The financial-components
approach focuses on the assets and liabilities that exist after the transfer.
Many of these assets and liabilities are components of financial assets that
existed prior to the transfer. If a transfer does not meet the criteria for a
sale, the transfer is accounted for as a secured borrowing with pledge of
collateral.
The Company has not determined the impact of Statement No. 125 on its
financial statements. Statement No. 125 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
December 31, 1996, and is to be applied prospectively.
(4) 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
September 30, 1996, the outstanding balance is $200,000.
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 $1,076,000 in the first nine
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 $2.0 million maturing on
December 28, 1998 and $2.0 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
September 30, 1996, compared to December 31, 1995, and results of operations for
the three and nine month periods ended September 30, 1996, compared to the three
and nine month periods ended September 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 nine months of 1996, total assets increased $11.2 million
or approximately 1.6%. Such growth was funded primarily by deposit growth of
$12.8 million or 2.0%. Net loans grew $22.6 million or 4.8% during the first
nine months of 1996 and were funded primarily by a decrease in federal funds
sold of $11.1 million and the previously mentioned deposit growth.
The amortized cost, gross unrealized gains and losses, and estimated fair
value of available for sale and held to maturity securities by type at September
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 $ 57,565 76 (666) 56,975
State, county and
municipal securities 14,566 394 (113) 14,847
Mortgage-backed securities 27,097 111 (386) 26,822
Other debt securities 5,115 10 (86) 5,039
Equity securities 2,995 100 (107) 2,988
------------------------------------------------
$107,338 691 (1,358) 106,671
------------------------------------------------
Held to maturity:
U.S. Government agencies $ 10,032 124 (78) 10,078
State, county and
municipal securities 28,678 640 (217) 29,101
Mortgage-backed securities 2,150 22 (21) 2,151
Other debt securities 2,477 66 - 2,543
------------------------------------------------
$ 43,337 852 (316) 43,873
------------------------------------------------
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Balances within the major deposit categories as of September 30, 1996 and
December 31, 1995 are shown below:
<TABLE>
<CAPTION>
(amounts in millions)
September 30, December 31,
1996 1995
-----------------------------
<S> <C> <C>
Noninterest-bearing demand deposits $ 76.1 69.5
Interest-bearing demand deposits 94.6 99.6
Money market accounts 23.0 25.5
Savings deposits 64.0 60.7
Certificates of deposit and
individual retirement accounts
of $100,000 or more 91.3 85.6
Other individual retirement accounts 40.6 38.0
Other certificates of deposit 249.5 247.4
------ -----
$639.1 626.3
====== =====
</TABLE>
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 September 30, 1996, the Company's cash and due from banks was $32.2 million,
its federal funds sold were $16.4 million, its interest-earning deposits in
other banks were $0.6 million, and its investment securities designated as
available for sale were $106.7 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.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
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 September 30, 1996.
<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 $230,720 152,872 383,592 251,685 635,277 33,104 668,381
Interest-sensitive
liabilities 267,310 202,973 470,283 99,252 569,535 1,118 570,653
-------- ------- ------- ------- ------- ------ -------
Interest-sensitivity gap $(36,590) (50,101) (86,691) 152,433 65,742 31,986 97,728
======== ======= ======= ======= ======= ====== =======
Ratio of interest-sensitive
assets to interest-
sensitive liabilities 0.86 0.75 0.82 2.54 1.12 29.61 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.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net interest income for the three months ended September 30, 1996 increased
$757,000 or 9.74% over the same period of 1995. For the nine months ended
September 30, 1996, net interest income was $25,169,000 representing an increase
of $1,952,000 or 8.41% as compared to the nine months ended September 30, 1995.
The average yield earned on interest-earning assets, on a fully tax equivalent
basis, increased to 9.61% for the nine months ended September 30, 1996 from
9.52% for the nine months ended September 30, 1995 and the average rate paid on
interest-bearing liabilities decreased to 5.13% for the nine months ended
September 30, 1996 from 5.14% for the nine months ended September 30, 1995. The
Company's interest rate differential increased to 4.48% from 4.38% and its net
interest margin (net interest income divided by average interest-earning assets)
increased to 5.22% for the first nine months of 1996 from 5.08% 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.
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 1.52% of outstanding loans
at September 30, 1996 as compared to 1.48% at December 31, 1995 and 1.51% at
September 30, 1995. The allowance increased to $7,602,000 at September 30, 1996
from $7,048,000 at December 31, 1995 and $7,111,000 at September 30, 1995. The
provision for possible loan losses increased to $1,213,000 for the nine months
ended September 30, 1996 from $1,039,000 for the nine months ended September 30,
1995. Net loan charge offs for the nine months ended September 30, 1996 were
$659,000 as compared to $775,000 for the nine months ended September 30, 1995.
Net loans charged off as a percentage of average loans was 0.18% for the nine
months ended September 30, 1996 as compared to 0.23% for the nine months ended
September 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%.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Nonperforming Loans, Nonperforming Assets, and Underperforming Loans
- --------------------------------------------------------------------
Nonperforming loans include nonaccrual loans. The Company has not restructured
any loans of significance through September 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 September 30, 1996 and December 31, 1995.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------------------------- -------------------------
(amounts in thousands except ratios and percentages)
<S> <C> <C>
Nonperforming loans $2,455 1,815
Real estate acquired through
foreclosure and other
repossessed assets 1,849 2,211
------ -----
Nonperforming assets $4,304 4,026
====== =====
Underperforming loans $1,171 1,716
====== =====
Asset Quality Ratios:
Nonperforming loans to total loans,
net of unearned income .49% .38%
====== =====
Nonperforming assets to total loans,
net of unearned income, real estate
acquired through foreclosure, and
other repossessed assets .86% .84%
====== =====
Allowance for possible loan losses
to nonperforming loans 3.10x 3.88x
====== =====
Underperforming loans to total loans,
net of unearned income .23% .36%
====== =====
Nonperforming loans to total assets .34% .25%
====== =====
Nonperforming assets to total assets .59% .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 third quarter of 1996 increased $8,000 or 0.5% as
compared to the same period of 1995. This increase was primarily the result of
an increase in service charges on deposit accounts of $28,000, which was offset
by a decrease in net securities gains (losses) of $10,000. For the first nine
months of 1996, noninterest income increased $732,000 or 17.1%. This increase
was primarily the result of an increase in net securities gains (losses) of
$214,000, which includes the recovery of the principal of two previously
partially charged-off municipal securities of $165,000, an increase in service
charges on deposit accounts of $216,000, and a net increase in mortgage
activities related income of $174,000 ($224,000 gain recognized on sale of
servicing portfolio and a $148,000 increase in origination fees offset by
reduced servicing fees of $198,000).
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Noninterest Expense
- -------------------
The $564,000 or 9.6% increase in noninterest expense for the third quarter of
1996 as compared to the third quarter of 1995 was primarily due to an increase
in salary and benefit expense of $403,000, an increase in net occupancy and
equipment expense of $12,000, and an increase in FDIC insurance premium expense
of $59,000. The first nine months of 1996 as compared to the same period of
1995 resulted in an increase of $489,000 or 2.7%. This increase was primarily
due to an increase in salary and benefit expense of $799,000 and an increase in
net occupancy and equipment expense of $134,000, which was partially offset by a
decrease in FDIC insurance premium expense of $586,000.
Income Tax Expense
- ------------------
The third quarter 1996 income tax expense was approximately $993,000, or an
effective rate of 30.2%, as compared to approximately $816,000 for the third
quarter 1995, or an effective rate of 26.7%. During the first nine months of
1996 income tax expense was approximately $3,150,000, or an effective rate of
30.7%, compared to $2,232,000, or an effective rate of 27.1%, for the same
period in 1995.
Net Income
- ----------
The Company's third quarter 1996 net earnings were $0.30 per share or $2,292,000
as compared to $0.29 or $2,238,000 for the third quarter of 1995, representing
an increase of 2.4%. Earnings for the nine months ended September 30, 1996 were
$7,103,000 up 18.4% from $6,000,000 for the comparable period in 1995. Earnings
per share for the nine months ended September 30, 1996 were $0.91 per share as
compared to $0.77 per share for the corresponding period ended September 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 nine months ended
September 30, 1996 was 13.36% (annualized) as compared to 12.36% (annualized)
for the nine months ended September 30, 1995. The Company's return on average
assets was 1.33% (annualized) and 1.18% (annualized) for the nine month periods
ended September 30, 1996 and 1995, respectively. These ratios compare favorably
with other holding companies of similar size.
15
<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 9.96% and its ratio of shareholders' equity to assets
of 10.07% at September 30, 1996.
At September 30, 1996 and December 31, 1995, the Company's regulatory capital
under existing regulatory requirements is summarized as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-------------- -------------
<S> <C> <C>
(amounts in thousands, except ratios)
Tier 1 capital:
Shareholders' equity (excludes unrealized
gains and losses on investment securities) $ 73,875 69,142
Intangible assets other than servicing rights (6,549) (7,016)
-------- -------
Total tier 1 capital 67,326 62,126
-------- -------
Tier 2 capital:
Allowable reserve for loan losses 6,038 5,867
-------- -------
Total tier 2 capital 6,038 5,867
-------- -------
Total capital $ 73,364 67,993
======== =======
Risk-weighted assets $481,515 468,155
======== =======
Risk-based ratios:
Tier 1 capital 13.98% 13.27%
Total capital 15.24 14.52
Tier 1 leverage ratio 9.53 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.
16
<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 September 30, 1996.
17
<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: November 14, 1996 By: /s/ James A. Faulkner
------------------------- --------------------------
James A. Faulkner
President & CEO
DATE: November 14, 1996 By: /s/ Susan J. Anderson
------------------------- --------------------------
Susan J. Anderson
Senior Vice President, CFO,
and Secretary/Treasurer
18
<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 nine month periods ended September 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 September 30, 1996:
Net income $ 2,292 2,292
============= =============
Weighted average number of common
shares outstanding 7,762 7,762
Common share equivalents resulting
from stock options 14 14
------------- -------------
Adjusted weighted average number
of common and common equivalent
shares outstanding 7,776 7,776
============= =============
Net income per common and
common equivalent share $ .30 .30
============= =============
For the three months ended September 30, 1995:
Net income $ 2,238 2,238
============= =============
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 $ .29 .29
============= =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Primary Fully Diluted
Earnings Earnings
Per Share Per Share
--------- -------------
<S> <C> <C>
(amounts in thousands, except per share data)
For the nine months ended September 30, 1996:
Net income $ 7,103 7,103
========= =========
Weighted average number of common
shares outstanding 7,762 7,762
Common share equivalents resulting
from stock options 13 14
--------- ---------
Adjusted weighted average number
of common and common equivalent
shares outstanding 7,775 7,776
========= =========
Net income per common and
common equivalent share $ .91 .91
========= =========
For the nine months ended September 30, 1995:
Net income $ 6,000 6,000
========= =========
Weighted average number of common
shares outstanding 7,762 7,762
Common share equivalents resulting
from stock options 10 11
--------- ---------
Adjusted weighted average number
of common and common equivalent
shares outstanding 7,772 7,773
========= =========
Net income per common and
common equivalent share $ .77 .77
========= =========
</TABLE>
<PAGE>
Dear Shareholder:
We are pleased to report third quarter performance by Century South
Banks, Inc. Net earnings of $2,292,000 or $0.30 per share for the third quarter
of 1996 were a 2.4% increase over net earnings of $2,238,000 or $0.29 per share
reported for the third quarter of 1995. Year-to-date earnings for 1996 were
$7,103,000 or $0.91 per share as compared to $6,000,000 or $0.77 per share for
the same period of 1995, an 18.4% increase. 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 nonaccrual loan. Excluding the
after tax income of $350,000 generated from these recoveries, net earnings
increased 13% over the same period of 1995.
The quarterly cash dividend of $0.10 per share paid on October 8,
1996, represents a 5.3% increase over the amount paid in October 1995.
The Company's provision for possible loan losses for the third quarter
of 1996 was $343,000 as compared to $373,000 for the same period in 1995. At
September 30, 1996, the Company's allowance for possible loan losses was 1.52%
of total loans outstanding as compared to 1.51% at September 30, 1995.
Total assets at September 30, 1996 were approximately $727,693,000
representing a 5% increase over the September 30, 1995 assets of $693,056,000.
The Company's non-performing assets, which include loans placed on nonaccrual
status and foreclosed assets, at September 30, 1996 were $4,304,000 as compared
to $4,026,000 at December 31, 1995 and $4,605,000 at September 30, 1995.
Nonperforming assets as a percentage of loans plus foreclosed assets were 0.86%
at September 30, 1996 as compared to 0.84% at December 31, 1995 and 0.98% at
September 30, 1995. Nonperforming loans as a percentage of total loans
outstanding, net of unearned income were 0.49% at September 30, 1996, as
compared to 0.38% at December 31, 1995 and 0.65% at September 30, 1995.
In 1995, Century South had an effective tax rate of approximately 27%.
The Company's effective tax rate for 1996 increased to approximately 31%. This
increase is largely due to an increase in our state tax liability.
Through the third quarter of 1996, three of Century South's affiliate
banks opened new branches. Two branch openings occurred in May. First Bank of
Polk County opened a branch in Turtletown, Tennesee and Georgia First Bank
opened its new branch in Flowery Branch, Georgia. First Community Bank of
Dawsonville opened a branch within the city limits of Dawsonville, Georgia in
September. A fourth affiliate, Gwinnett National Bank, is scheduled to open
their Mountain Crossing branch at the intersection of Highways 324 and 124 in
Dacula during the fourth quarter. In addition to the new branch openings, First
National Bank of Union County is slotted to move into their new main office in
November.
As always, we appreciate your support and encouragement as we strive
to fulfill our corporate mission of providing high quality banking services to
the communities we serve while maximizing the return on our shareholders'
investment.
Sincerely,
J. Russell Ivie
Chairman
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
September 30, September 30,
1996 1995
---------------------------
(amounts in thousands)
<S> <C> <C>
ASSETS
Cash and due from banks $ 32,197 $ 27,411
Federal funds sold 16,350 13,880
Interest-earning deposits in other banks 638 611
Investment securities 150,008 152,965
Loans, net of unearned income 499,660 470,518
Allowance for possible loan losses (7,602) (7,111)
Premises and equipment, net 17,689 15,715
Other assets 18,753 19,067
-------- --------
Total assets $727,693 $693,056
======== ========
LIABILITIES
Noninterest-bearing deposits $ 76,065 $ 65,559
Interest-bearing deposits 563,006 536,215
Short-term borrowings 340 3,925
Federal Home Loan Bank advances 7,007 8,108
Long-term debt 300 3,596
Other liabilities 7,697 7,530
-------- --------
Total liabilities 654,415 624,933
-------- --------
SHAREHOLDERS' EQUITY
Common stock 7,826 7,826
Additional paid-in capital 28,780 28,780
Retained earnings 37,902 32,136
Reduction for ESOP loan guarantee (190) (237)
Common stock in treasury, at cost (337) (337)
Net unrealized loss on investment securities (703) (45)
-------- --------
Total shareholders' equity 73,278 68,123
-------- --------
Total liabilities and shareholders' equity $727,693 $693,056
======== ========
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
--------------------------------------------------
(amounts in thousands, except per share data)
Interest income $ 15,615 $ 15,220 $ 46,935 $ 44,220
Interest expense 7,087 7,449 21,766 21,003
-------- -------- -------- --------
Net interest income 8,528 7,771 25,169 23,217
Provision for loan losses 343 373 1,213 1,039
Noninterest income 1,519 1,511 5,020 4,288
Noninterest expense 6,419 5,855 18,723 18,234
Income tax expense 993 816 3,150 2,232
-------- -------- -------- --------
Net income $ 2,292 $ 2,238 $ 7,103 $ 6,000
======== ======== ======== ========
Weighted average shares outstanding 7,776 7,773 7,775 7,772
Net income per share $0.30 $0.29 $ 0.91 $ 0.77
Dividends declared per share $0.10000 $0.09500 $0.29625 $0.28130
</TABLE>
<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 M. 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
C. 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 E. 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
D. Keith Pope, President L. Banister Sexton, President
706-745-5571 706-795-2121
<PAGE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
<TABLE>
<CAPTION>
SELECTED BALANCES
- -------------------------------------------------------------------------------------------
AS OF SEPTEMBER 30,
1996 1995 PERCENTAGE CHANGE
-------------------------------------------------------
(amounts in thousands, except per share data)
<S> <C> <C> <C>
Loans, net $492,058 $463,407 6.18%
Deposits 639,071 601,774 6.20
Total assets 727,693 693,056 5.00
Shareholders' equity 73,278 68,123 7.57
Net income 7,103 6,000 18.38
Book value per share 9.44 8.78 7.52
Net income per share 0.91 0.77 18.18
Weighted average shares outstanding
and equivalents 7,775 7,772 0.04
Nonperforming loans 2,455 3,056 (19.67)
Other real estate and other
repossessed collateral 1,849 1,549 19.37
FINANCIAL RATIOS
- -------------------------------------------------------------------------------------------
Return on average assets 1.33% 1.18% 12.71%
Return on average shareholders' equity 13.36 12.36 8.09
Net interest margin (taxable equivalent) 5.22 5.08 2.76
Allowance for possible loan losses
to loans 1.52 1.51 0.66
Nonperforming assets/total assets 0.59 0.66 (10.61)
</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 September 30,
1996:
<TABLE>
<S> <C>
Three month high............ $17.50
Three month low............. $14.50
Closing price............... $16.75
</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
(706) 864-1111
- ------------------------------------------------------------------------------
DIVIDEND REINVESTMENT PLAN/CASH CONTRIBUTIONS
Shareholders wishing to automatically reinvest quarterly dividends into Century
South Banks, Inc. common stock or make voluntary cash contributions should
contact:
Century South Banks, Inc.
Dividend Reinvestment Plan/Cash Contributions
P.O. BOX 1000
Dahlonega, Georgia 30533
(706) 864-1111
- ------------------------------------------------------------------------------
INVESTOR RELATIONS
Shareholders, analysts, and others seeking financial information on Century
South Banks, Inc. should contact:
James A. Faulkner Susan J. Anderson
President & CEO or Senior Vice President & CFO
(770) 287-9092 (770) 287-9092
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 32,197
<INT-BEARING-DEPOSITS> 638
<FED-FUNDS-SOLD> 16,350
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 106,671
<INVESTMENTS-CARRYING> 43,337
<INVESTMENTS-MARKET> 43,873
<LOANS> 499,660
<ALLOWANCE> 7,602
<TOTAL-ASSETS> 727,693
<DEPOSITS> 639,071
<SHORT-TERM> 340
<LIABILITIES-OTHER> 7,697
<LONG-TERM> 7,307
0
0
<COMMON> 7,826
<OTHER-SE> 65,452
<TOTAL-LIABILITIES-AND-EQUITY> 727,693
<INTEREST-LOAN> 38,794
<INTEREST-INVEST> 7,095
<INTEREST-OTHER> 1,046
<INTEREST-TOTAL> 46,935
<INTEREST-DEPOSIT> 21,335
<INTEREST-EXPENSE> 21,766
<INTEREST-INCOME-NET> 25,169
<LOAN-LOSSES> 1,213
<SECURITIES-GAINS> 216
<EXPENSE-OTHER> 18,723
<INCOME-PRETAX> 10,253
<INCOME-PRE-EXTRAORDINARY> 10,253
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,103
<EPS-PRIMARY> 0.91
<EPS-DILUTED> 0.91
<YIELD-ACTUAL> 5.22
<LOANS-NON> 4,304
<LOANS-PAST> 1,171
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,048
<CHARGE-OFFS> 1,081
<RECOVERIES> 422
<ALLOWANCE-CLOSE> 7,602
<ALLOWANCE-DOMESTIC> 7,602
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
