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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(MARK ONE)
[x] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1996 or
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[ ] 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.
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(Exact name of registrant as specified in its charter)
Georgia 58-1455591
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
455 Jesse Jewell Parkway, Gainesville, Georgia 30501
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 287-3464
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Common stock, $1.00
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par value
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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 _____.
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the Registrant's common stock (based upon the mean
of the closing high and low sales price reported by the Nasdaq Stock Market)
held by nonaffiliates as of February 28, 1997 was approximately $121,303,000.
The Registrant had 7,767,459 shares of its common stock outstanding as of March
24, 1997.
Documents Incorporated by Reference
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Portions of the Company's 1996 Annual Report to Shareholders and Proxy Statement
for the Company's 1997 Annual Meeting of Shareholders are incorporated by
reference into Part I, Item 1, Part II, Items 5, 6, 7, and 8, Part III, Items
10, 11, 12, and 13, and Part IV, Item 14.
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Form 10-K
Index
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Page
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PART I
Item 1. BUSINESS.................................................. 3
Item 2. PROPERTIES................................................ 10
Item 3. LEGAL PROCEEDINGS......................................... 11
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS................................................... 12
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS........................... 13
Item 6. SELECTED FINANCIAL DATA................................... 13
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................................ 13
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA.................................................... 13
Item 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.................................... 13
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS
OF THE REGISTRANT....................................... 13
Item 11. EXECUTIVE COMPENSATION.................................... 14
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.......................................... 14
Item 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS.................................... 14
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K..................................... 14
SIGNATURES............................................................... 16
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PART I
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Item 1. BUSINESS
BUSINESS OF THE COMPANY
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Century South Banks, Inc. (the "Company") is a $761 million asset multibank
holding company which engages through 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") - (collectively the "Banks") in providing a full range of
banking services to customers of the Banks. The Company's executive offices are
located at 455 Jesse Jewell Parkway, Gainesville, Georgia 30501 and its
telephone number is (770) 287-3464.
The Company was incorporated as a Georgia business corporation in 1981. In the
last quarter of 1982, the Company acquired all of the issued and outstanding
common stock of BOD, Dahlonega, Georgia and on May 31, 1985, the Company
acquired all of the issued and outstanding shares of BOE, Ellijay, Georgia. The
Company acquired all of the issued and outstanding shares of common stock of The
First National Bank of Polk County ("FNBPC"), Copperhill, Tennessee, on December
16, 1988 and acquired 95.4% of the issued and outstanding shares of common stock
of GFB on September 11, 1989, bringing its ownership of the common stock of GFB
to 100%. The Company acquired all of the issued and outstanding shares of First
Union Bancorp ("FUB") and its wholly owned banking subsidiary, FNBUC, on April
30, 1990.
On May 31, 1994, the Company acquired the charter of Martin Bank, Dyersburg,
Tennessee at a cost of $31,000. In addition, with regulatory approval FNBPC
relocated its charter to Blue Ridge, Georgia. FNBPC acquired assets of
approximately $28 million and assumed deposit liabilities of approximately $43
million of the Blue Ridge, Georgia offices of NationsBank of Georgia, N.A.
("Nations") on May 31, 1994. In conjunction with these transactions, effective
May 31, 1994, Martin Bank changed its name to FBPC, Copperhill, Tennessee and
FNBPC changed its name to FCB, Blue Ridge, Georgia. In a simultaneous
transaction, FBPC acquired assets of approximately $53 million and assumed
liabilities of approximately $56 million from FNBPC.
On April 14, 1995, the Company completed the acquisitions of Gwinnett Bancorp,
Inc. ("GBI"), a bank holding company located in Duluth, Georgia, and its
subsidiary bank GNB, and First Community Bank of Dawsonville, located in
Dawsonville, Georgia. These transactions were accounted for as poolings of
interests, and accordingly, financial information preceding the dates of
acquisition were restated to include the financial position and results of
operations of GBI, and its subsidiary GNB, and FCBD.
On December 14, and December 27, 1995, the Company completed the acquisitions of
Peoples Bank, located in Lavonia, Georgia, and Bank of Danielsville, located in
Danielsville, Georgia, respectively. These transactions were accounted for as
poolings of interests, and accordingly, financial information preceding the
dates of acquisition were restated to include the financial position and results
of operations of PBL and DAN.
On March 17, 1997, the Company and Bank Corporation of Georgia ("BCG"),
headquartered in Macon, Georgia signed a statement of intent to merge the two
holding companies. Under the proposed merger, BCG shareholders will receive 1.4
shares of Century South Banks, Inc. common stock for each share of BCG common
stock. The merger is subject to the execution of a definitive agreement and the
approval of BCG shareholders and regulatory authorities. Upon consummation of
the merger, Century South Banks, Inc. will have assets of over $1 billion. The
combined operation will maintain dual headquarters in Gainesville and Macon.
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Because of its ownership of all the issued and outstanding shares of the common
stock of the Banks, the Company is a "Bank Holding Company" as that term is
defined under Federal law in the Bank Holding Company Act of 1956 (the "Act"),
as amended, and under the bank holding company laws of the State of Georgia
("Georgia Act"). As a bank holding company, the Company is subject to the
applicable provisions of the Act and the Georgia Act as well as to supervision
by the Board of Governors of the Federal Reserve System (the "Board") and the
State of Georgia Department of Banking and Finance (the "GDBF"). The Company's
primary business as a bank holding company is to manage the business affairs of
its banking subsidiaries. The Banks provide a full range of banking services to
their customers. BOD, BOE, GFB, FCBD, PBL and DAN were organized under the state
banking laws of Georgia and are not members of the Federal Reserve System. FBPC
is organized under the state banking laws of Tennessee and is not a member bank
of the Federal Reserve System. FCB, FNBUC and GNB were organized under the
Federal banking laws of the United States of America and are member banks of the
Federal Reserve System.
COMPETITION
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BOD's main office is located at 60 Main Street West, Dahlonega, Georgia 30533
and its branch offices are also located in Dahlonega, Georgia. BOD primarily
competes with Lumpkin County Bank, a commercial bank having a banking office in
Dahlonega, Georgia; United Community Banks, a subsidiary of United Community
Banks, Inc. ("United"), Blairsville, Georgia; and certain other financial
institutions located in Lumpkin County, Georgia. BOD faces strong competition in
attracting deposits and in the origination of loans. BOD's most direct
competition for deposits and loans comes from commercial banks located in its
primary market area. However, because of its proximity to Atlanta, Georgia and
Gainesville, Georgia, BOD also faces competition from banks and thrift
institutions located in those cities.
BOE's main office is located at Sand and Broad Street, Ellijay, Georgia and its
branch offices are also located in Ellijay, Georgia. BOE competes with Regions
Bank of Georgia; Gilmer County Bank; and Bank of North Georgia, all commercial
banks. BOE faces strong competition in attracting deposits and in the
origination of loans. BOE's most direct competition for deposits and loans comes
from commercial banks located in its primary market area. However, because of
its proximity to Atlanta, Georgia, BOE also faces competition from banks and
thrift institutions located in Atlanta.
FBPC's main office is located at 40 Ocoee Street, Copperhill, Tennessee and its
branch offices are located in Ducktown, Tennessee and Turtletown, Tennessee.
FBPC primarily competes with Ducktown Banking Company; Peoples Bank of Fannin
County, a subsidiary of United; and a branch of SunTrust Bank Northeast Georgia,
N.A. ("SunTrust") in Fannin County, Georgia. FBPC faces strong competition in
attracting deposits and in the origination of loans. FBPC's most direct
competition for deposits and loans comes from commercial banks located in its
primary market area.
GFB's main office is located at 455 Jesse Jewell Parkway, Gainesville, Georgia
and its branch offices are located in Gainesville, Georgia and Flowery Branch,
Georgia. GFB's primary competitors are Regions Bank of Georgia; Wachovia Bank of
Georgia; Nations; SunTrust; Lanier National Bank; and Gainesville Bank and Trust
Company, which are all commercial banks. GFB faces strong competition in
attracting deposits and originating loans from the aforementioned financial
institutions and also faces competition from banks and thrift institutions
located in the Atlanta, Georgia area.
FNBUC's main office is located at 236 Highway 515 in Blairsville, Georgia.
FNBUC's primary competition is Union County Bank, Blairsville, Georgia, a
subsidiary of United. FNBUC faces direct competition for deposits and loans from
banks located in its primary market area.
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FCB's main office is located at 480 West First Street, Blue Ridge, Georgia and
its branch office is also located in Blue Ridge, Georgia. FCB primarily competes
with Peoples Bank of Fannin County, a subsidiary of United and a branch of
SunTrust. FCB faces strong competition in attracting deposits and in the
origination of loans. FCB's most direct competition for deposits and loans comes
from commercial banks located in its primary market area.
GNB is located at 3200 Peachtree Industrial Boulevard, Duluth, Georgia and its
branch office is located in Dacula, Georgia. GNB primarily competes with Peoples
Bank of Buford; Regions Bank of Georgia; Citizens Bank of Gwinnett; The Bank of
Gwinnett County; First Capital Bank; Colonial Bank; Embry National Bank; Quantum
National Bank, which are all commercial banks; and several other financial
institutions located in Gwinnett County, Georgia. GNB faces strong competition
in attracting deposits and originating loans from the aforementioned financial
institutions and also faces competition from banks and thrift institutions
located in the Atlanta area.
FCBD is located at 136 Highway 400 South, Dawsonville, Georgia and its branch
office is also located in Dawsonville, Georgia. FCBD primarily competes with
Dawson County Bank, a commercial bank located in Dawson County. FCBD faces
strong competition in attracting deposits and in the origination of loans.
FCBD's most direct competition for deposits and loans comes from commercial
banks located in its primary market area. However, because of its proximity to
Atlanta, Georgia, FCBD also faces competition from banks and thrift institutions
located in the Atlanta area.
PBL is located at 13321 Jones Street, Lavonia, Georgia. PBL primarily competes
with Northeast Georgia Bank; First Bank & Trust; Athens First Bank & Trust; and
a branch of Tri-County Bank, which are all commercial banks. PBL faces strong
competition in attracting deposits and in the origination of loans. PBL's most
direct competition for deposits and loans comes from commercial banks located in
its primary market area.
DAN's main office is located at Courthouse Square, Danielsville, Georgia and its
branch offices are located in Colbert, Georgia and Hull, Georgia. DAN primarily
competes with Merchants & Farmers Bank, a commercial bank with branches in
Danielsville, Colbert and Hull, Georgia. DAN faces strong competition for
deposits and loans from commercial banks located in Athens, Georgia and its
primary market area.
As previously outlined, the Banks encounter competition from other commercial
banks, thrift institutions, and other financial institutions and intermediaries
in their respective market areas. Many of these competing institutions are
larger in size and have access to resources with higher lending limits.
EMPLOYEES
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As of December 31, 1996, the Company had approximately 395 employees, with
approximately 59 serving the Company directly. As of December 31, 1996, BOD had
41 employees, BOE had 48 employees, FBPC had 42 employees, GFB had 52 employees,
FNBUC had 23 employees, FCB had 30 employees, GNB had 23 employees, FCBD had 27
employees, PBL had 17 employees, and DAN had 33 employees. The Company is not a
party to any collective bargaining agreement and, in the opinion of management,
the Company enjoys satisfactory relations with its employees.
5
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SUPERVISION, REGULATION, AND OTHER FACTORS
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Bank Holding Company Regulations
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Offers and sales of the common stock of the Company are subject to the
registration requirements of the Securities Act of 1933, as amended, and the
regulations promulgated thereunder which are administered by the Securities and
Exchange Commission. Such offers and sales are also subject to the registration
requirements of various state securities acts. The Company is subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended.
The Company is a registered holding company under the Act and the Georgia Act
and is regulated under such acts by the Board and by the GDBF, respectively. As
a bank holding company, the Company is required to file with the Board an annual
report and such additional information as the Board may require pursuant to the
Act. The Board may also conduct examinations of the Company and each of its
subsidiaries. The Board possesses cease-and-desist powers over bank holding
companies if their actions represent an unsafe or unsound practice or violation
of laws.
The Act also requires every bank holding company to obtain prior approval from
the Board before acquiring direct or indirect ownership or control of more than
5% of the voting shares of any bank which is not already majority owned or
controlled by the bank holding company. The Board is prohibited, however, from
approving the acquisition by the Company of the voting shares of, or
substantially all the assets of, any bank located outside Georgia, unless such
acquisition is specifically authorized by the laws of the state in which the
bank is located. Under Georgia law, a bank holding company is authorized to
acquire ownership or control of additional banks in Georgia, Alabama, Florida,
Kentucky, Louisiana, Maryland, Mississippi, North Carolina, South Carolina,
Tennessee, Virginia, and the District of Columbia. Acquisition of any additional
state chartered banks would require prior approval from the Board, the GDBF, and
the Federal Deposit Insurance Corporation (the "FDIC"). The acquisition of a
national bank would require prior approval from the Board, the Office of the
Comptroller of the Currency (the "OCC"), the GDBF, and the FDIC.
The Act and Georgia Act further provide that the Board and the GDBF will not
approve any acquisition, merger, or consolidation (a) which would result in a
monopoly, (b) which would be in furtherance of any combination or conspiracy to
monopolize or attempt to monopolize the business of banking in any part of the
United States, (c) the effect of which may be substantially to lessen
competition or to tend to create a monopoly in any section of the country, or
(d) which in any other manner would be in restraint of trade, unless the
anticompetitive effects of the proposed transaction are clearly outweighed in
the public interest by the probable effect of the transaction in meeting the
convenience and needs of the community to be served.
In addition to having the right to acquire ownership or control of other banks,
the Company is authorized to acquire ownership or control of nonbanking
companies, provided the activities of such companies are so closely related to
banking or managing or controlling banks that the Board considers such
activities to be proper to the operation and control of banks. Regulation Y,
promulgated by the Board, sets forth those activities which are regarded as
closely related to banking or managing or controlling banks and, thus, are
permissible activities for bank holding companies, subject to approval by the
Board in individual cases.
6
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Banks' Supervision and Regulations
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BOD, BOE, FCBD, PBL, and DAN are insured state nonmember banks chartered by the
GDBF and are subject to supervision by, and are regularly examined by, the GDBF
and the FDIC.
FBPC is an insured state nonmember bank chartered by the Tennessee Department of
Financial Institutions ("TDFI") and is subject to supervision by the TDFI and
the FDIC.
FCB, FNBUC, and GNB are insured national banks chartered under the Federal
banking laws of the United States of America. All are members of the Federal
Reserve System, are subject to the supervision of the OCC and the FDIC, and are
regularly examined by the OCC.
GFB was organized under the state banking laws of Georgia on October 24, 1983 as
a de novo Georgia savings and loan association known as Georgia First Savings
and Loan Association. On November 21, 1985, the Board approved the application
of GFB for membership in the Federal Reserve System, the name was changed to
GFB, and at such time GFB became a state chartered bank. As of January 21, 1997,
GFB is no longer a member of the FRB. GFB is subject to the supervision of, and
is regularly examined by, the GDBF and the FDIC.
To the extent provided by law, deposits of the Banks are insured by the FDIC.
Subsidiary banks of a banking holding company are subject to certain
restrictions imposed by the Act on any extension of credit to the bank holding
company or any of its subsidiaries, on investment in the stock or the securities
thereof, and on the taking of such stock or securities as collateral for loans
to any borrower.
Other Factors
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Legislation has been adopted in order to assist in the resolution of the
insolvency of the Federal Savings and Loan Insurance Corporation, which insured
deposits maintained in most savings and loan associations and savings banks. The
Financial Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA")
was adopted in order to address these issues. FIRREA contains major regulatory
reforms, strong capital standards, and safeguards for the disposal of
recoverable assets.
As a result of the enactment of FIRREA, a depository institution insured by the
FDIC can be held liable for any loss incurred by, or reasonably expected to be
incurred by, the FDIC in connection with (i) the default of a commonly
controlled FDIC insured depository institution; or (ii) any assistance provided
by the FDIC to a commonly controlled FDIC insured depository institution in
danger of default. "Default" is defined generally as the appointment of a
conservator or receiver and "in danger of default" is defined generally as the
existence of certain conditions indicating that a "default" is likely to occur
in the absence of regulatory assistance. The Banks are FDIC-insured depository
institutions within the meaning of FIRREA.
Additional Legislation
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The Company is subject to capital adequacy guidelines as established by the
Board. The Board has established risk-based capital guidelines for bank holding
companies which are applied to the Company and on a bank-only basis. The Board
has announced that these capital requirements are minimum requirements for the
most highly rated banking organizations and other banking organizations are
expected to maintain capital at higher levels.
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The guidelines define Tier 1 Capital, Tier II Capital and Total Capital and
provide risk-based capital ratios calculated with reference to risk-weighted
assets which include both on and off-balance sheet exposures. Tier 1 Capital
must represent at least 50% of qualifying total capital and consists of common
and qualifying preferred shareholders' equity and minority interests in equity
accounts of consolidated subsidiaries, less goodwill. Tier II Capital consists
of allowances for loan and lease losses, perpetual preferred stock and related
surplus, hybrid capital instruments and mandatory convertible debt securities,
term subordinated debt and intermediate-term preferred stock, including related
surplus. Total Capital consists of Tier I Capital plus Tier II Capital less
investment in unconsolidated subsidiaries, reciprocal holdings of banking
organizations' capital securities, and other discretionary deductions.
The minimum required ratio for qualifying Total Capital to risk-weighted assets
(including grandfathered goodwill) as of December 31, 1996 was 8%, of which 4%
was required to be Tier 1 Capital. As of December 31, 1996, the Company's Tier
1 Capital was $69,153,000, Tier II Capital was $6,238,000 and its Total Risk-
Based Capital was $75,391,000 as determined in accordance with regulatory
requirements. Accordingly, 91.7% of the Company's qualifying Total Risk-Based
Capital was Tier 1 Capital.
Regarding regulation of the Company and the Banks, bills may be introduced in
the United States Congress and the Georgia Legislature to alter the structure,
regulation and competitive relationships of the nation's financial institutions.
As to other adopted legislation, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") was enacted to further regulate the banking
industry. The principal initial effect of FDICIA is to permit the Bank
Insurance Fund (the "BIF") to borrow up to $30 billion from the U.S. Treasury
(to be repaid through deposit insurance premiums over 15 years) and to permit
the BIF to borrow working capital from the Federal Financing Bank in an amount
up to 90% of the value of the assets the FDIC has acquired from failed banks,
which is estimated would yield approximately $40 billion in working capital.
The additional supervisory powers and regulations mandated by FDICIA include a
"prompt corrective action" program based upon five regulatory zones for banks,
in which all banks are placed, largely based on their capital positions.
Regulators are permitted to take increasingly harsh action as a bank's financial
condition declines. Regulators are also empowered to place in receivership or
require the sale of a bank to another depository institution when a bank's
capital leverage ratio reaches 2%. Better capitalized institutions are
generally subject to less onerous regulation and supervision than banks with
lesser amounts of capital under FDICIA. Other sections of FDICIA impose
substantial new audit and reporting requirements and increase the role of
independent accountants and outside directors.
Other Legislation
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On September 23, 1994, President Clinton signed into law the Riegle Community
Development and Regulatory Approvement Act of 1994 (the "CDA"). The CDA sets up
the Community Development Financial Institution Fund to provide assistance to
new and existing community lenders. The CDA also includes regulatory and
paperwork reduction provisions, and enhanced consumer protections.
On September 29, 1994, President Clinton signed into law The Riegle-Neal
Interstate Banking and Branching Act of 1994 (the "Interstate Banking Act").
The Interstate Banking Act will allow banks to acquire out of state banks after
one year, and out of state branches through interstate mergers, beginning June
1, 1997. The Interstate Banking Act also protects key provisions of state law,
establishes a mechanism for de novo branching, and includes provisions relating
to interstate branching by foreign banks.
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During the 1996 Georgia General Assembly, Senate Bill 165 ("SB165"), was passed
by both the House and Senate of Georgia and subsequently signed by Governor
Miller. SB165 permits state chartered banks to branch into any three counties
in Georgia between July 1, 1996 through July 1, 1998. If the bank is part of a
bank holding company, all affiliates are treated as one and the bank holding
company is limited to only three counties. On July 1, 1998, all branching
restrictions will be removed.
FDIC Insurance Assessments
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The FDIC adopted regulations amending the deposit insurance assessments
applicable to the Banks. The regulations provide for a risk based premium
system which requires higher assessment rates for banks which the FDIC
determines pose greater risks to the BIF.
Under the new regulations, banks pay an assessment depending upon risk
classification. Although the new regulations were adopted by the FDIC as final
regulations, the Board of the FDIC will consider whether changes in economic and
industry conditions require adjustments in the range of assessment rates to be
charged in future years.
To arrive at risk based assessments, the FDIC places each bank in one of nine
risk categories using a two step process based on capital ratios and on other
relevant information. Each bank is assigned to one of three groups (well
capitalized, adequately capitalized, or under capitalized) based on its capital
ratios. The FDIC has also assigned each bank to one of three subgroups based
upon an evaluation of the risk posed by the bank. The three subgroups include
(i) banks that are financially sound with only a few minor weaknesses, (ii)
those banks with weaknesses which, if not corrected, could result in significant
deterioration of the bank and increased risk to the BIF, and (iii) those banks
that pose a substantial probability of loss to the BIF unless corrective action
is taken. These supervisory evaluations modify premium rates within each of the
three capital groups with the result being the nine risk categories and
assessment rates based on a summary multiplier.
The Company has been informed by the FDIC that its Banks have been classified as
well capitalized and in the lowest risk category and will be assessed
accordingly for 1997.
MONETARY POLICY
---------------
The earnings of the Company are affected by domestic and foreign economic
conditions, particularly by the monetary and fiscal policies of the United
States Government and its agencies.
The Board has had, and will continue to have, an important impact on the
operating results of banks through its power to implement national monetary
policy in order, among other things, to mitigate recessionary and inflationary
pressures by regulating the national money supply. The techniques used by the
Board include setting the reserve requirements of member banks and establishing
the discount rate on member bank borrowings. The Board also conducts open market
transactions in United States Government securities.
Periodically, bills are pending before the United States Congress which contain
wide-ranging proposals for altering the structures, regulations, and competitive
relationships of the nation's financial institutions. President Clinton has
proposed such bills which have not yet been finalized. These bills may include
proposals to restructure reserve requirements of banks, to prohibit banks and
bank holding companies from conducting certain types of activities, to subject
banks to increased disclosure and reporting requirements, to eliminate on a
regional or other basis the present restriction on interstate expansion by banks
or bank holding companies, to alter the statutory separation of commercial and
investment banking, and
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to expand further the powers of thrift institutions and other competitors of
banks. It cannot be predicted whether or in what form any of these proposals
will be adopted or the extent to which the business of the Company may be
affected thereby.
SELECTED STATISTICAL INFORMATION
--------------------------------
Incorporated by reference from pages 15-30 of Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's 1996 Annual Report to Shareholders.
Item 2. PROPERTIES
The Company and the Banks own or lease all of the real property and/or buildings
on which they are located. All of such buildings are in a good state of repair
and are appropriately designed for the purposes for which they are used.
BOD's main banking office is located at 60 Main Street West, Dahlonega, Georgia
and its branch offices are also located in Dahlonega, Georgia. BOD's main
office is a three-story building containing approximately 30,000 square feet
located on approximately two acres which is owned by BOD. BOD utilizes all of
the first floor and approximately 6,200 square feet of the second floor of the
main office building while the Company leases 3,800 square feet of the second
floor and all of the third floor. BOD operates a full-service branch located at
148 Memorial Drive which consists of approximately 1,200 square feet of space.
Both the main office and the Memorial Drive branch are owned by BOD.
BOD refurbished a former warehouse building into administrative offices which is
leased to the Company for the Finance & Control department. The building has
approximately 3,600 square feet. The Company is also leasing approximately 700
square feet of space for use by the Internal Auditing department.
On January 29, 1997, BOD opened a branch located in the Wal-Mart SuperCenter in
Dahlonega, Georgia. The branch consists of approximately 540 square feet and is
being leased by BOD from Wal-Mart Stores, Inc.
The main banking office of BOE is located in an approximately 8,000 square foot
one-story building owned by BOE in downtown Ellijay, Georgia. BOE occupies the
entire building and provides parking facilities adjacent to the building. BOE
also operates a limited service branch facility in an approximately 1,000 square
foot building owned by BOE and located on leased property. BOE acquired an
annex to its main banking office on February 28, 1985 which is now leased to the
Gilmer County Tax Assessors. BOE opened a full-service branch office on March
12, 1990 which comprises approximately 14,000 square feet and also houses BOE's
operations center.
The main banking office of FBPC is located in an approximately 14,000 square
foot two-story building owned by FBPC in downtown Copperhill, Tennessee. FBPC
occupies the entire building. FBPC also owns and operates 2 full-service branch
facilities; one located in Ducktown, Tennessee in an approximately 3,000 square
foot building and one in Turtletown, Tennessee in an approximately 840 square
foot building.
The Company's executive offices are located in the main banking office of GFB.
GFB's main banking office is located at 455 Jesse Jewell Parkway, Gainesville,
Georgia. GFB occupies approximately 15,500 square feet of the 18,000 square
foot facility which includes drive-in banking and retail banking facilities.
The remaining 2,500 square feet is leased to the Company for its executive
offices. GFB operates a full-service branch facility located at the
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intersection of McEver Road and Browns Bridge Road in Gainesville, Georgia. The
facility consists of 2,300 square feet and was purchased by the Company from the
Resolution Trust Company in March 1991. The Company leased the facility to GFB
through December 1992 which at such time was purchased from the Company by GFB.
In October 1993, GFB opened a full-service branch facility located on the
Limestone Parkway, Gainesville, Georgia. The facility consists of 2,820 square
feet of leased space. In May 1996, GFB opened a full-service branch facility
located in Flowery Branch, Georgia. This facility consists of 2,400 square feet
and is owned by GFB.
The main banking office of FNBUC is located at 236 Highway 515, Blairsville,
Georgia. This office was opened in November 1996 and contains approximately
11,900 square feet of space and is owned by FNBUC.
The main banking office of FCB is located at 480 West First Street, Blue Ridge,
Georgia. The main office of FCB contains approximately 7,100 square feet of
space. FCB also operates a branch office located in the Valley Village Shopping
Center, 111 County Road 260, Blue Ridge, Georgia. This office contains
approximately 2,150 square feet of space and is owned by FCB.
GNB is located at 3200 Peachtree Industrial Boulevard, Duluth, Georgia. GNB
leases approximately 9,000 square feet of the 27,000 square foot facility. GNB
has offices on the first and second floors of the three-story building. In
December 1996, GNB opened a full-service branch facility located in Dacula,
Georgia. This office contains approximately 2,623 square feet of space and is
owned by GNB.
FCBD is located at 136 Highway 400 South, Dawsonville, Georgia. The building
contains approximately 10,668 square feet of space and is owned by FCBD. In
September 1996, FCBD opened a full-service branch facility located in downtown
Dawsonville, Georgia. This office contains approximately 2,300 square feet of
space and is owned by FCBD.
PBL is located at 13321 Jones Street, Lavonia, Georgia. The building contains
approximately 11,000 square feet of space and is owned by PBL.
The main banking office of DAN is located at Courthouse Square, Danielsville,
Georgia. The main office of DAN contains approximately 4,500 square feet of
space. DAN operates two full-service branch facilities, one located at Highway
72 in Colbert, Georgia which contains 2,400 square feet and one located at
Highway 29 North in Hull, Georgia which contains 2,400 square feet. All
facilities are owned by DAN.
Item 3. LEGAL PROCEEDINGS
The nature of the business of the Company and the Banks ordinarily results in a
certain amount of litigation. Accordingly, the Company and the Banks are
parties (both as plaintiff and defendant) to a limited number of lawsuits
incidental to their respective businesses and, in certain of such suits, claims
or counterclaims have been asserted. In the opinion of management, based in
part on the advice of counsel, the ultimate disposition of these matters will
not have a material adverse impact on the Company's consolidated financial
position or results of operations.
11
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Executive Officers of the Registrant
The following table sets forth certain information regarding the Company's
executive officers:
<TABLE>
<CAPTION>
Name Age Position
----- --- --------
<S> <C> <C>
J. Russell Ivie 61 Chairman of the Board
James A. Faulkner 52 President and Chief
Executive Officer
Gary L. Evans 47 Senior Vice President,
Assistant Secretary,
and Chief Credit Officer
Tony E. Collins 43 Senior Vice President
and Chief Operating Officer
Susan J. Anderson 48 Senior Vice President,
Secretary/Treasurer, and
Chief Financial Officer
</TABLE>
J. Russell Ivie has been Chairman of the Board of the Company since 1989. Prior
to his election as Chairman, Mr. Ivie served as President of the Company. Mr.
Ivie also served as Chief Executive Officer of the Company from 1989 to 1991.
James A. Faulkner has been President and Chief Executive Officer of the Company
since 1989 and 1991, respectively. Prior to his election as President, Mr.
Faulkner served as Executive Vice President of the Company.
Gary L. Evans has been Senior Vice President since 1996, Assistant Secretary of
the Company since 1988 and Chief Credit Officer since 1993.
Tony E. Collins has been Senior Vice President since 1996 and Chief Operations
Officer since 1993.
Susan J. Anderson has been Secretary/Treasurer since 1983, Chief Financial
Officer since 1990 and Senior Vice President since 1996.
12
<PAGE>
PART II
-------
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Incorporated by reference from page 29 of Management's Discussion and Analysis
of Financial Condition and Results of Operations included in the Company's 1996
Annual Report to Shareholders.
Item 6. SELECTED FINANCIAL DATA
Incorporated by reference from page 14 of the Company's 1996 Annual Report to
Shareholders.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated by reference from pages 15-30 of Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's 1996 Annual Report to Shareholders.
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference from pages 31-56 of Century South Banks, Inc. and
Subsidiaries Consolidated Financial Statements included in the Company's 1996
Annual Report to Shareholders and page 30 of Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's 1996 Annual Report to Shareholders.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
--------
Certain information required by Part III is omitted from this report in that the
Registrant has filed a definitive Proxy Statement pursuant to Regulation 14A
(the "Proxy Statement") and certain information included therein is incorporated
herein by reference. Only those sections of the Proxy Statement which
specifically address the items set forth herein are incorporated by reference.
Such information does not include the Compensation Committee Report or the
Performance Graph included in the Proxy Statement.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this Item is
incorporated by reference to the Company's Proxy Statement. The information
concerning the Company's executive officers required by this Item is
incorporated by reference to the section in Part 1, Item 4, entitled "Executive
Officers of the Registrant."
Incorporated by reference from pages 2-5 and pages 13-14 of the Proxy Statement
for the Company's 1997 Annual Meeting of Shareholders.
13
<PAGE>
Item 11. EXECUTIVE COMPENSATION
Incorporated by reference from pages 8-13 of the Proxy Statement for the
Company's 1997 Annual Meeting of Shareholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from pages 6-8 of the Proxy Statement for the
Company's 1997 Annual Meeting of Shareholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from pages 12-13 of the Proxy Statement for the
Company's 1997 Annual Meeting of Shareholders.
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following consolidated financial statements of the Company and its
subsidiaries, together with the independent auditors' report, appear on pages
31-56 of the Company's 1996 Annual Report to Shareholders and are specifically
incorporated herein by reference:
<TABLE>
<CAPTION>
Page Number
Consolidated Financial Statements in Section
- --------------------------------- -----------
<S> <C>
Independent Auditors' Report............................ 31
Consolidated Balance Sheets at December 31,
1996 and 1995........................................... 32
Consolidated Statements of Income for the
Years ended December 31, 1996, 1995, and 1994........... 33
Consolidated Statements of Shareholders' Equity for the
Years ended December 31, 1996, 1995, and 1994........... 34
Consolidated Statements of Cash Flows for the
Years ended December 31, 1996, 1995, and 1994........... 35
Notes to Consolidated Financial Statements-
December 31, 1996, 1995, and 1994....................... 36
</TABLE>
(2) Financial Statement Schedules
Financial statement schedules have been omitted because they are not applicable
or the required information has been incorporated in the consolidated financial
statements and related notes incorporated by reference herein.
14
<PAGE>
(3) Exhibit Index
Exhibit No. Document
- ----------- --------
3.1 Articles of Incorporation of Century South Banks, Inc. Incorporated by
reference from Registration Statement No. 33-18527 filed on Form S-8 on
March 23, 1990.
3.2 Bylaws of Century South Banks, Inc.
10.1 Employee Stock Ownership Plan of Century South Banks, Inc. Incorporated
by reference from Registration Statement No. 33-18527 filed on Form S-8
on March 23, 1990.
10.2 Dividend Reinvestment Plan of Century South Banks, Inc. Incorporated by
reference from Registration Statement No. 33-37784 filed on Form S-3 on
November 14, 1990 and as amended on June 13, 1996.
10.3 Incentive Stock Option Plan of Century South Banks, Inc. Incorporated by
reference from Registration Statement No. 33-91922 filed on Form S-8 on
May 4, 1995.
11.1 Statement re Computation of per share earnings for the years ended
December 31, 1996, 1995, and 1994.
13.1 Century South Banks, Inc. 1996 Annual Report to Shareholders for which
certain specified pages are specifically incorporated herein by
reference.
13.2 Quarterly Report to Shareholders for the quarter ended December 31, 1996.
19.1 Proxy statement for the Company's 1997 Annual Meeting of Shareholders for
which certain specified pages are specifically incorporated herein by
reference.
21.1 Subsidiaries of Century South Banks, Inc. consist of:
Bank of Dahlonega - Dahlonega, Georgia
The Bank of Ellijay - Ellijay, Georgia
First Bank of Polk County - Copperhill, Tennessee
Georgia First Bank - Gainesville, Georgia
First National Bank of Union County - Blairsville, Georgia
Fannin County Bank, N.A. - Blue Ridge, Georgia
Gwinnett National Bank - Duluth, Georgia
First Community Bank of Dawsonville - Dawsonville, Georgia
Peoples Bank - Lavonia, Georgia
Bank of Danielsville - Danielsville, Georgia
23.1 Accountants' Consent.
27.1 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K.
None.
15
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
(Registrant)
/s/ James A. Faulkner
----------------------------------------
James A. Faulkner
President, Chief Executive Officer, and Director
/s/ Susan J. Anderson
----------------------------------------
Susan J. Anderson
Senior Vice President, Secretary and Treasurer,
and Chief Financial Officer
Date: March 31, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
By: Date:
--------------------------------------- -------------------------
J. Russell Ivie, Chairman of the Board
and Director
By: /s/ James A. Faulkner Date: March 24, 1997
--------------------------------------- -------------------------
James A. Faulkner
President, Chief Executive Officer,
and Director
By: /s/ Roger W. Bennett Date: March 24, 1997
--------------------------------------- -------------------------
Roger W. Bennett, Director
By: /s/ E. H. Chambers, Jr. Date: March 24, 1997
--------------------------------------- -------------------------
E. H. Chambers, Jr., Director
16
<PAGE>
By: /s/ William L. Chandler Date: March 24, 1997
---------------------------------------- ------------------------
William L. Chandler, Director
By: /s/ Clarence B. Denard Date: March 24, 1997
---------------------------------------- ------------------------
Clarence B. Denard, Director
By: /s/ Thomas T. Folger, Jr. Date: March 24, 1997
---------------------------------------- -------------------------
Thomas T. Folger, Jr., Director
By: Date:
--------------------------------------- -------------------------
Sherman Green, Director
By: /s/ Dudley K. Owens Date: March 24, 1997
--------------------------------------- -------------------------
Dudley K. Owens, Director
By: /s/ William D. Reeves Date: March 24, 1997
--------------------------------------- -------------------------
William D. Reeves, Director
By: /s/ C. J.(Jim) Sisson Date: March 24, 1997
--------------------------------------- -------------------------
C.J. (Jim) Sisson, Director
By: /s/ E. Paul Stringer Date: March 24, 1997
--------------------------------------- -------------------------
E. Paul Stringer, Director
By: /s/ Myron B. Turner Date: March 24, 1997
--------------------------------------- -------------------------
Myron B. Turner, Director
By: /s/ Al J. Wimpy Date: March 24, 1997
--------------------------------------- -------------------------
Al J. Wimpy, Director
By: /s/ George A. Winn Date: March 24, 1997
--------------------------------------- -------------------------
George A. Winn, Director
17
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
CENTURY SOUTH BANKS, INC.
ARTICLE I
OFFICES
Section 1.1 Initial Office. The initial registered office of the
--------------
Corporation shall be 200 West Main Street, Dahlonega, Lumpkin County, Georgia
30533.
Section 1.2 Other Offices. The Corporation may also have offices
--------------
within the State of Georgia as the Board of Directors may from time to time
determine and the business of the Corporation may require or make desirable.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.1 Annual Meeting. The regular annual meeting of the shareholders
---------------
for the election of Directors and the transaction of whatever other business may
properly come before the meeting, shall be held at the Main Office of the
Corporation, 200 West Main Street, Dahlonega, Georgia, or such other place as
the Board of Directors (hereinafter referred to as the "Board") may designate,
on the third Wednesday of March of each year or on such other date as the Board
may designate. Notice of such meeting shall be mailed, postage prepaid, at least
ten (10) days prior to the date thereof, addressed to each shareholder at his
address appearing on the books of the Corporation. If, from any cause, an
election of Directors is not made on the same day, the Board shall order the
election to be held on some subsequent day, as soon thereafter as practicable,
according to the provisions of law and notice thereof shall be given in the
manner herein provided for the annual meeting. (revised 3/83)
Section 2.2 Special Meetings. Except as otherwise specifically provided
-----------------
by statute, special meetings of the shareholders may be called for any purpose
at any time by the Board or by any three (3) or more shareholders owning, in the
aggregate, not less than thirty-three and one third percent (33 l/3%) of the
stock of the Corporation. Every such special meeting, unless otherwise provided
by law, shall be called by mailing, postage prepaid, not less than ten (10) days
prior to the date fixed for such meeting, to each shareholder at his address
appearing on the books of the corporation, a notice stating the purpose of
<PAGE>
the meeting.
Section 2.3 Record Date. In order that the Corporation may determine the
------------
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than fifty (50) days and, in case of a meeting of
shareholders, not less than ten (10) days prior to the date on which the
particular action requiring such determination of shareholders is to be taken.
If no record date is fixed for the determination of shareholders entitled to
notice of and to vote at any meeting of shareholders, the record date shall be
at the close of business on the day next preceding the day on which the notice
is given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. If no record date is fixed for
other purposes, the record date shall be at the close of business on the day
next preceding the day on which the Board of Directors adopts the resolution
relating thereto. A determination of shareholders entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of Directors shall fix a new record date for the adjourned
meeting.
Section 2.4 Quorum. The holders of a majority of the stock issued and
-------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum for the transaction of business at all meetings
of the shareholders except as otherwise provided by statute, by the Articles of
Incorporation, or by these by-laws. If a quorum is not present or represented
at any meeting of the shareholders, a majority of the shareholders entitled to
vote thereat, present in person or represented by proxy, may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. If the
adjournment is for more than thirty (30) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each shareholder of record entitled to vote at the
meeting.
Section 2.5 Order of business. At the annual meeting of shareholders the
------------------
order of business shall be as follows:
1. Call meeting to order.
2. Proof of notice of meeting.
3. Reading of minutes of last previous meeting.
4. Reports of Officers.
5. Reports of Committees.
6. Election of Directors.
7. Miscellaneous business.
Section 2.6 Nominations for Director. Nominations for election to the
-------------------------
Board may be made by the Board or by any shareholder of any outstanding class of
capital stock of the Corporation entitled to
<PAGE>
vote for the election of Directors. Such nomination shall contain the following
information to the extent known to the notifying shareholder: (i) the name and
address of each proposed nominee; (ii) the principal occupation of each proposed
nominee; (iii) the total number of shares of capital stock of the Corporation
that will be voted for each proposed nominee; (iv) the name and residence
address of the notifying shareholder; and (v) the number of shares of capital
stock of the Corporation owned by the notifying shareholder. Nominations not
made in accordance herewith may, in his/her discretion, be disregarded by the
Chairperson of the meeting, and upon his/her instructions, the vote tellers may
disregard all votes cast for each such nominee.
Section 2.7 Officers of Annual Meeting. The Chairman of the Board of
---------------------------
Directors shall preside at shareholders meetings. In his absence the President
shall preside. In absence of both, the shareholders may elect a Chairperson. The
Secretary of the Corporation shall be Secretary for the meeting.
Section 2.8 Judges of Election. Every election of Directors shall be
-------------------
managed by three (3) judges, who shall be appointed from among the shareholders
by the Board. The judges of election shall hold and conduct the election at
which they are appointed to serve; and, after the election, they shall file with
the Secretary/Controller a certificate under their hand, certifying the result
thereof and the names of the Directors elected. The judges of election, at the
request of the Chairperson of the meeting, shall act as tellers of any other
vote by ballot taken at such meeting, and shall certify the result thereof.
Section 2.9 Proxies. Shareholders may vote at any meeting of the
--------
shareholders by proxies duly authorized in writing. Proxies shall be valid only
for one (1) meeting to be specified therein and any adjournments of such
meeting. Proxies shall be dated and shall be filed with the records of the
meeting, and shall be presented to the Corporate Secretary within three (3)
hours before the meeting. (revised 3/86)
Section 2.10 Voting by Shareholders. In deciding on questions at
-----------------------
meetings, except in the election of Directors, each shareholder shall be
entitled to one (1) vote for each share of stock held and the majority of votes
so cast shall prevail.
Section 2.11 Voting for Directors. In election of Directors, each
---------------------
shareholder shall have the right to vote the number of shares held for each of
the persons nominated.
<PAGE>
ARTICLE III
THE BOARD OF DIRECTORS
Section 3.1 Board of Directors. The Board shall have the power, duty and
-------------------
responsibility to manage and administer the business and affairs of the
Corporation. Except as expressly limited by law, all corporate powers of the
Corporation shall be vested in and may be exercised by the Board. The Board may
delegate such of its powers to such persons or Committees as it shall determine
but it shall not delegate any of its responsibilities in so doing.
Section 3.2 Number. The Board shall consist of not less than five (5) nor
-------
more than twenty five (25) shareholders, the precise number to be fixed by
resolution of the shareholders or the Board of Directors from time to time. Each
director, except in the case of death, resignation or retirement,
disqualification or removal, shall serve until his successor shall have been
elected and qualified. Directors shall be elected by the shareholders at the
Annual Meeting for a one (1) year term. (revised 3/89)
Section 3.3 Requirements. Each Director of the Corporation shall be a
-------------
United States citizen, and at least sixty percent (60%) of the Directors shall
reside in the State of Georgia and in the county in which the registered office
of the Corporation is located, or within forty (40) miles of any office of a
subsidiary bank authorized to offer a complete line of banking services. Each
Director shall maintain on file with the Chief Executive Officer of the
Corporation financial statements on forms prescribed by the Department of
Banking and Finance. Such Financial Statements shall be maintained in sealed
envelopes available for inspection only by State or Federal examiners. Each
director shall own in his name 500 shares of the Corporation's common stock
unhypothecated. No director may be re-elected after the age seventy (70) unless
such director is elected to the Board of the Corporation for his initial term
having then attained the age of 70. In such case, such director will serve no
more than five (5) successive one-year terms. (2/96)
Section 3.4 Organization Meeting. Upon their election and immediately
---------------------
following the Annual Meeting, the Board shall meet for the purpose of organizing
themselves, electing and fixing salaries of the Corporation's Officers,
approving Committee Appointments and acting on such other matters as may be
appropriate.
Section 3.5 Regular Meeting. The Regular Meetings of the Board shall be
----------------
held, without notice, on the second Tuesday of June and the second Tuesday of
December and at any other times as requested by at least two (2) of the Officers
of the Corporation. (revised 3/87)
Section 3.6 Special Meetings. Special meetings of the Board may be called
-----------------
by the Chairman or President of the Corporation, or at the request of three (3)
or more Directors. Each member of the Board shall be given notice stating the
time and place, by telephone, letter, or in person of each special meeting.
Section 3.7 Quorum. A majority of the Directors shall constitute a quorum
-------
of any meeting. In the event a quorum is not present for either a regular or
special meeting of the Board, that meeting shall
<PAGE>
be adjourned from time to time until a quorum is obtained. A majority of
Directors present and voting shall decide each matter brought before the Board
for action.
Section 3.8 Vacancies. When a vacancy occurs among the Directors, the
----------
remaining member of the Board, in accordance with the By-laws of this
Corporation, may appoint a Director to fill such vacancy at any regular meeting
of the Board, or at a special meeting called for that purpose.
Section 3.9 Conference Telephone Meeting. Unless the Articles of
-----------------------------
Incorporation or these By-laws otherwise provide, members of the Board of
Directors, or any committee designated by such Board, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communications equipment whereby all persons participating in the meeting can
hear each other. Participation in such a meeting shall constitute presence in
person.
Section 3.10 Consent of Directors. Unless otherwise restricted by the
---------------------
Articles of Incorporation or these By-laws, any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, setting forth the action so taken, and
the writing or writings are filed with the minutes of the proceedings of the
Board or committee. Such consent shall have the same force and effect as a
unanimous vote of the Board.
Section 3.11 Compensation of Directors. Directors shall be entitled to
--------------------------
such reasonable compensation for their services as directors or members of any
committee of the Board as shall be fixed from time to time by resolution adopted
by the Board, and shall also be entitled to reimbursement for any reasonable
expenses incurred in attending any meeting of the Board of any such committee.
Section 3.12 Directors Emeritus. There may be Directors Emeritus of the
-------------------
Board. After a director becomes seventy (70) years of age, and his then current
term as a director expires, he may be elected as a Director Emeritus. (amended
2/95)
Section 3.13 Nomination and Term of Office. Directors Emeritus shall be
------------------------------
nominated by the Board of Directors and elected by the shareholders for a term
of office concurrent with that of the Board.
Section 3.14 Responsibilities. Directors Emeritus shall be totally
-----------------
relieved of responsibilities for the management or administration of the affairs
of the Corporation and shall not be expected to attend regular or special
meetings of the Board. However, each Director Emeritus shall be encouraged, as a
matter of tradition, to attend the Organizational Meeting of the Board following
the Annual Shareholders Meeting.
<PAGE>
ARTICLE IV
COMMITTEES OF THE BOARD
Section 4.1 Executive Committee. The Board of Directors may by
--------------------
resolution adopted by a majority of the entire Board, designate an Executive
Committee of two (2) or more directors.
4.1.1 Each member of the Executive Committee shall hold office until
the first meeting of the Board of Directors after the annual meeting of
Shareholders next following his election and until his successor member of the
Executive Committee is elected, or until his death, resignation or removal, or
until he shall cease to be a directors.
4.1.2 During the intervals between the meetings of the Board of
Directors, the Executive Committee may exercise all of the powers of the Board
of Directors in the management of the business affairs of the Corporation,
including all powers herein or in the Articles of Incorporation specifically
granted to the Board of Directors, and may authorize the seal of the Corporation
to be affixed to all papers which may require it; provided, however, that the
Executive Committee shall not have the power to amend or repeal any resolution
of the Board of Directors that by its terms shall not be subject to amendment or
repeal by the Executive Committee, and the Executive Committee shall not have
the authority of the Board of Directors in reference to: (I) amending the
Articles of Incorporation or By-laws of the Corporation; (ii) adopting a plan of
merger or consolidation; (iii) the sale, lease, exchange or other disposition of
all or substantially all of the property and assets of the Corporation; or (iv)
a voluntary dissolution of the Corporation or a revocation of any such voluntary
dissolution.
4.1.3 The Executive Committee shall meet from time to time on call
of the President or of any two or more members of the Executive Committee.
Meetings of the Executive Committee may be held at such place or places, within
or without the State of Georgia, as the Executive Committee shall determine or
as may be specified or fixed in the respective notices or waivers of such
meetings. The Executive Committee may fix its own rules of procedure, including
provision for notice of its meetings. It shall keep a record of its proceedings
and shall report these proceedings to the Board of Directors at the meeting
thereof held next after they have been taken, and all such proceedings shall be
subject to revision or alteration by the Board of Directors except to the extent
that action shall have been taken pursuant to or in reliance upon such
proceedings prior to any such revision or alteration.
4.1.4 The Executive Committee shall act by majority vote of its
members.
4.1.5 The Board of Directors, by resolution adopted in accordance
with paragraph 4.1 of this Section, may designate one (1) or more directors as
alternate members of any such committee, who may act in the place and stead of
any absent member or members at any meeting of such committee.
Section 4.2 Additional Committees. The Board of Directors, by resolution
----------------------
adopted by a majority of the entire Board, may designate one (1) or more
additional committees, each committee to consist of three (3) or more of the
directors of the Corporation, which shall have such name or names and shall have
and may exercise such powers of the Board of Directors in the management of the
business and affairs of the Corporation, except the powers denied to the
Executive Committee, as may be determined
<PAGE>
from time to time by the Board of Directors.
ARTICLE V
OFFICERS OF THE CORPORATION
Section 5.1 Chief Officers. The Board shall designate certain of the
---------------
Corporation Officers to be the Chief Executive Officer, the Chief Administrative
Officer, and the Chief Operating Officer. The Chief Executive Officer shall be
the Senior General Executive Officer of the Corporation reporting to the Board.
Section 5.2 Chairman of the Board. The Board shall appoint one of its
----------------------
members to be the Chairman of the Board to serve at the pleasure of the Board.
Such person shall preside at all meetings of the Board. The Chairman shall
supervise the carrying out of the policies adopted or approved by the Board;
shall have general executive powers, as well as the specific powers conferred by
the By-laws; shall also have and may exercise such further powers and duties, as
from time to time may be conferred upon or assigned by the Board.
Section 5.3 President. The Board shall appoint one of its members to be
----------
President of the Corporation. In the absence of the Chairman, the President
shall preside at any meetings of the Board. The President shall preside at any
meetings of the Board.
The President shall have general executive powers, and shall have and may
exercise any and all other powers and duties pertaining by law regulations, or
practice, to the Office of President, or imposed by these By-laws. The
President shall also have and may exercise such further powers and duties as
from time to time may be conferred, or assigned by, the Board and shall be the
Chief Executive Officer.
Section 5.4 Vice Presidents. The Board may appoint one or more Vice
----------------
Presidents. Titles such as Executive Vice President, Senior Vice President,
Group Vice President shall be used to define the relative seniority among the
Vice Presidents. Each Vice President, who shall be the Chief Administrative
Officer of the Corporation, shall in the absence of the President, have the
power to perform all the duties of the President.
Section 5.5 Secretary and Treasurer. The Board shall appoint the
------------------------
Secretary and the Treasurer, and the Secretary (or any other officer designated
by the Board) shall serve as Secretary of the Board for the purpose of
maintaining accurate minutes of all Board meetings. The Secretary shall be
responsible for the maintenance of these By-laws; shall be responsible for the
Corporate Seal, records, documents and papers of the Corporation. As Secretary,
he shall be the Chief Operating Officer of the company in the event that a Chief
Operating Officer is not otherwise designated. The Secretary shall provide for
the maintenance and keeping of proper records of all transactions of the
Corporation; shall have and may exercise any and all other powers and duties
pertaining to law, regulation, or practice, or imposed by these By-laws; and
shall also perform other such duties as may be assigned from time to time by the
Board.
<PAGE>
The Treasurer shall be charged with the management of the financial affairs of
the Corporation and shall have the power to recommend action concerning the
Corporation's affairs to the Board and other Officers. The offices of Secretary
and Treasurer may be held by the same person.
Section 5.6 Other Officers. The Board may appoint one (1) or more
---------------
Officers with the title of Assistant Vice President, Corporate Officer,
Assistant Corporate Officer and such other Officers as from time to time may be
required for the proper conduct of the business of the Corporation. Such
Officers shall respectively exercise such powers and perform such duties as
pertain to the several offices as may be conferred upon them by the Board, the
Chairman or the President.
Section 5.7 Tenure of Office. The President and all other Officers shall
-----------------
hold office for the current year for which the Board was elected, unless they
shall resign, become disqualified, or be removed and any vacancy occurring in
the Office of President shall be filled promptly by the Board.
ARTICLE VI
STOCK AND STOCK CERTIFICATES
Section 6.1 Transfers. Shares of stock of the Corporation shall be
----------
transferable on the books of the Corporation and transfer records shall be kept
in which all transfers of stock shall be recorded. Every person becoming a
shareholder by such transfer shall, in proportion to this shares, succeed to all
rights of the prior holder of such shares.
Section 6.2 Stock Certificates. Certificates of stock shall bear the
-------------------
signature of any two (2) of the following: The President, Vice President, or any
other Officers appointed by the Board for the purpose to be known as an
Authorized Officer. Each certificate shall recite on its face that the stock
represented thereby is transferable only upon the books of the Corporation
properly endorsed.
Section 6.3 Lost, Stolen, or Destroyed Certificates. Any person claiming
----------------------------------------
a share certificate to be lost, stolen, or destroyed shall make an affidavit or
affirmation of the fact in such manner as the Board of Directors may require and
shall, if the Board of Directors so required give the Corporation a bond of
indemnity in form and amount, and with one or more sureties satisfactory to the
Board of Directors, as the Board of Directors may require, whereupon an
appropriate new certificate may be issued in lieu of the one alleged to have
been lost, stolen or destroyed.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 7.1. Power to Indemnify. The Corporation shall have the power to
-------------------
indemnify any person
<PAGE>
who was or is a party or is threatened to be made a party to any threatened,
pending, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the Corporation as a director, officer, employee, or agent of another
Corporation, partnership, joint venture, trust, or other enterprise, against
expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
Corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
---------------
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. (revised 3/88)
Section 7.2. Standard of Conduct. The Corporation shall have the power to
--------------------
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action or suit by or in the right of
the Corporation to procure a judgment in its favor by reason of the fact that he
is or was a director, officer, employee, or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee,
or agent of another Corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Superior Court or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of the liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Superior Court or such other court shall deem proper.
Section 7.3. Mandatory Indemnification. To the extent that a director,
--------------------------
officer, employee, or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit, or proceeding referred to in
Sections 7.1 or 7.2, or in defense of any claim, issue, or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
Section 7.4. Determination of Coverage. Any indemnification under
--------------------------
Sections 7.1 and 7.2 (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee, or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections 7.1 and 7.2. Such determination shall be made (i) by the Board of
Directors by the affirmative vote of all directors not parties to such action,
suit, or proceeding, or (ii) if such affirmative vote of all directors is not
obtainable,
<PAGE>
or, even if obtainable and the disinterested director(s) so direct(s) by
independent legal counsel in a written opinion.
Section 7.5. Advance of Expenses. Expenses incurred in defending a civil
--------------------
or criminal action, suit, or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit, or proceeding upon
receipt of an undertaking by or on behalf of a director, officer, employee, or
agent to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this section or
otherwise pursuant to the laws of Georgia.
Section 7.6. Non-exclusive Right; Continuation. The indemnification and
----------------------------------
advancement of expenses provided or granted pursuant to this ARTICLE VII shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any statute,
agreement, vote of disinterested directors, or otherwise, both as to action in
an official capacity and as to action in another capacity while holding such
office. Any indemnification, whether required under this by-law or permitted by
statute or otherwise, shall continue as to a person who has ceased to be a
director, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such person.
Section 7.7. Insurance. The Corporation shall have power to purchase and
----------
maintain insurance on behalf of any person who is or was a director, officer,
employee, or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of this
article.
Section 7.8. Notice to Shareholders. If any expenses or other amounts are
-----------------------
paid by way of indemnification, otherwise than by court order or by an insurance
carrier pursuant to insurance maintained by the Corporation, not later than the
next annual meeting of shareholders, unless such meeting is held within three
(3) months from the date of such payment, and in any event, within fifteen (15)
months from the date of such payment, shall send in accordance with the manner
specified in the Official Code of Georgia Annotated Section 14-2-856 to its
shareholders of record a statement specifying the persons paid, the amounts
paid, and the nature and status at the time of such payment of the litigation or
threatened litigation.
Section 7.9. Successor Rights. For purposes of this ARTICLE VII,
-----------------
references to "the Corporation" shall include, in addition to the surviving or
new Corporation, any merging or consolidating Corporation ( including any
merging or consolidating Corporation of a merging or consolidating Corporation)
absorbed in a merger or consolidation so that any person who is or was a
director, officer, employee or agent of such merging or consolidating
Corporation, or is or was serving at the request of such merging or
consolidating Corporation as a director, officer, employee or agent of another
Corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this ARTICLE VII with respect to
the resulting or surviving Corporation as he would if he had served the
resulting or surviving Corporation in the same capacity.
<PAGE>
ARTICLE VIII
CORPORATE SEAL
Section 8.1 Seal. The President, and Vice President, Secretary, Treasurer
-----
or any other Officers thereunto designated by the Board shall have authority to
affix the corporate seal to any document requiring such seal, and to attest the
same. Such seal shall be substantially in the following form:
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.1 Fiscal Year. The Fiscal Year of the Corporation shall be the
------------
calendar year.
Section 9.2 Execution of Instruments. All agreements, indentures,
-------------------------
mortgages, deeds, conveyances, transfers, certificates, declarations, receipts,
discharges, releases, satisfactions, settlements, petitions, schedules,
accounts, affidavits, bonds, undertakings, proxies and other instruments or
documents may be signed, executed, acknowledged, verified, delivered or accepted
in behalf of the Corporation by the President, or any Vice President, the
Secretary, or the Treasurer. Any such instrument, may also be executed,
acknowledged, verified, delivered or accepted on behalf of the Corporation in
such other manner and by such other Officers as the Board may from time to time
direct. The provision of this Section 9.2 are supplementary to any other
provision of these By-laws.
Section 9.3 Voting Securities of Corporation. Unless otherwise ordered by
---------------------------------
the Board of Directors, the President shall have full power and authority on
behalf of the Corporation to attend and to act and vote at any meetings of
security holders of corporations in which the Corporation may hold securities,
and at such meetings shall possess and may exercise any and all rights and
powers incident to the ownership of such securities which the corporation might
have possessed and exercised if it had been present. The Board of Directors by
resolution from time to time may confer like powers upon any other person or
persons.
Section 9.4 Records. Articles of Incorporation, the By-laws and the
--------
proceedings of all meetings of the shareholders, the Board and standing
committees of the Board, shall be recorded in appropriate minute books provided
for the purpose. The minutes of each meeting shall be signed by the Secretary
or other officer appointed to act as Secretary of the meeting.
Section 9.5 Annual Statements. Not later than four (4) months after the
------------------
close of each fiscal year,
<PAGE>
and in any case prior to the next annual meeting of shareholders, the
Corporation shall prepare:
(i) A balance sheet showing in reasonable detail the financial condition
of the Corporation as of the close of its fiscal year;
(ii) An income and expense statement showing the results of its
operations during its fiscal year; and
(iii) Other financial statement information required by regulation or law.
Upon receipt of written request by any shareholder of record, the Corporation
shall mail to such shareholder of record a copy of the financial statements
prior to the annual meeting of shareholders.
Section 9.6 Criteria which may be used by the Board of Directors in
-------------------------------------------------------
considering an offer to purchase common stock of the Corporation. (a) The Board
- -----------------------------------------------------------------
of Directors of the Corporation may, if it deems it advisable, oppose a tender
or other offer for the Corporation's securities, whether the offer is in cash or
in the securities of a corporation or otherwise. When considering whether to
oppose an offer, the Board of Directors may, but is not legally obligated to,
consider any pertinent issues; by way of illustration, but not of limitation,
the Board of Directors may, but shall not be legally obligated to, consider all
or any of the following:
(i) whether the offer price is acceptable based on the historical and
present operating results or financial condition of the Corporation;
(ii) whether a more favorable price could be obtained for the Corporation's
securities in the future;
(iii) the impact which an acquisition of the Corporation would have on the
employees, depositors and customers of the Corporation and its subsidiaries and
the communities which they serve;
(iv) the reputation and business practices of the offeror and its
management and affiliates ;
(v) the value of the securities, if any, that the offeror is offering in
exchange for the Corporation's securities, based on an analysis of the worth of
the Corporation as compared to the offeror or any other entity whose securities
are being offered; and
(vi) any antitrust or other legal or regulatory issues that are raised by
the offer.
(b) If the Board of Directors determines that an offer should be rejected,
it may take any lawful action to accomplish its purpose including, but not
limited to, any or all of the following: (i) advising shareholders not to accept
the offer; (ii) litigation against the offeror; (iii) filing complaints with
governmental and regulatory authorities; (iv) acquiring the Corporation's
securities; (v) selling or otherwise issuing authorized but unissued securities
of the Corporation or treasury stock or granting
<PAGE>
options or rights with respect thereto; (vi) acquiring a company to create an
antitrust or other regulatory problem for the offeror; and (vii) soliciting a
more favorable offer from another individual entity. (added 3/87)
ARTICLE X
BY-LAWS
Section 10.1 Inspection. A copy of the By-laws, with all amendments
-----------
thereto, shall at all times be kept in a convenient place at the Main Office of
the Corporation, and shall be open for inspection to all shareholders during
office hours.
Section 10.2 Amendments. The Board of Directors shall have the power to
-----------
alter, amend, or repeal these By-laws or adopt new By-laws, but any By-laws
adopted by the Board of Directors may be altered amended or repealed, and the
new By-laws adopted, by the Shareholders. The Shareholders may prescribe that
any By-law or By-laws adopted by them shall not be altered, amended or repealed
by the Board of Directors. (amended 4/94)
<PAGE>
Exhibit 11.1
------------
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 share for the years ended December 31, 1996, 1995, and
1994.
(amounts in thousands, except for per share data)
<TABLE>
<CAPTION>
Primary Fully diluted
earnings earnings
per share per share
--------- -------------
<S> <C> <C>
For the year ended December 31, 1996:
Net income $9,370 9,370
====== =====
Weighted average number of common shares
and common share equivalents outstanding 7,776 7,778
====== =====
Net income per common and common share
equivalents $ 1.21 1.20
====== =====
For the year ended December 31, 1995:
Net Income $7,895 7,895
====== =====
Weighted average number of common shares
and common share equivalents outstanding 7,773 7,776
====== =====
Net income per common and common share
equivalents $ 1.02 1.02
====== =====
For the year ended December 31, 1994:
Net income $6,991 6,991
====== =====
Weighted average number of common shares
and common share equivalents outstanding 7,663 7,663
====== =====
Net income per common and common share
equivalents $ 0.91 0.91
====== =====
</TABLE>
<PAGE>
[LOGO OF CENTURYSOUTHBANKS, INC. APPEARS HERE]
1996 Annual Report
<PAGE>
Mission Statement
- --------------------------------------------------------------------------------
To provide high quality banking services to the communities of its service area
while maximizing the return of its shareholders' investment and assisting the
communities of its service area in reaching their fullest potential. The
Company accomplishes and intends to continue accomplishing this mission by
expanding its customer base in existing and new markets, and by expanding the
range of banking services offered to its existing customers.
Corporate Vision
- --------------------------------------------------------------------------------
To strengthen and expand the corporate foundation and consumer products to
better serve our shareholders, customers and communities.
Contents
- --------------------------------------------------------------------------------
2 Letter to Shareholders
5 New Services / Home Equity Loans
6 New Services / Execubanc
9 New Delivery Systems / Telebanc, Website and More
10 New Delivery Systems / New Branches, New ATM Locations, SuperCenter Banking
12 Community Involvement and Good Corporate Citizenship
14 Selected Financial Data
15 Management's Discussion
31 Independent Auditors' Report
32 Consolidated Balance Sheets
33 Consolidated Statements of Income
34 Consolidated Statements of Shareholders' Equity
35 Consolidated Statements of Cash Flows
36 Notes to Consolidated Financial Statements
57 Market Makers and Shareholder Information
58 Senior Officers and Directors of Affiliate Banks
60 Directors and Officers of Century South Banks, Inc.
<PAGE>
Corporate Profile
- --------------------------------------------------------------------------------
Century South Banks, Inc. is a multi-bank holding company headquartered
in Gainesville, Georgia, providing a full range of banking services to
individual and corporate customers in the communities of its market
areas which include the areas of northern Georgia, southeastern
Tennessee, and southwestern North Carolina. These areas are served
through the Company's banking affiliates and their branch banks.
[MAP APPEARS HERE]
<TABLE>
<CAPTION>
Date Market
Bank/Location Established Share
--------------------------------------------------------------------
<S> <C> <C>
Bank of Dahlonega (Dahlonega) 1914 61.58%
The Bank of Ellijay (Ellijay) 1914 40.44
First Bank of Polk County
(Copperhill, TN) 1908 33.52
Georgia First Bank (Gainesville) 1985 7.08
First National Bank of Union County
(Blairsville) 1981 15.88
Fannin County Bank, N.A. (Blue Ridge) 1916 31.57
Gwinnett National Bank (Duluth) 1988 0.84
First Community Bank of Dawsonville
(Dawsonville) 1989 40.99
Peoples Bank (Lavonia) 1987 16.17
Bank of Danielsville 1907 55.92
</TABLE>
<PAGE>
To Our Shareholders
- --------------------------------------------------------------------------------
1996 was a record year for Century South Banks, Inc. Your Company closed the
year with total assets of $761,095,000, which is the highest year-end closing
total assets the Company has ever experienced. Net income reached $9,370,000,
which exceeded 1995 by 18.7%. This translates to earnings of $1.21 per share, as
compared to $1.02 per share for 1995. Our performance ratios further illustrate
the year's success. The return on average assets was 1.3%, while the return on
shareholders' equity was 13.05%.
<TABLE>
<CAPTION>
=======================================================================================================================
Financial Highlights
- ------------------------------------------------------------------------------------------------------------------------
(Amounts in thousands except for per share data) 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For the Year
Net Income........................................................... $ 9,370 $ 7,895 $ 6,991
Cash dividends declared.............................................. 3,085 2,303 1,624
- ------------------------------------------------------------------------------------------------------------------------
Per Common Share
Net income........................................................... $ 1.21 $ 1.02 $ .91
Dividends declared................................................... .40 .38 .34
Market price:
High............................................................ 19.00 17.50 13.25
Low............................................................. 13.50 11.50 10.25
Close........................................................... 18.00 16.38 12.50
Book value........................................................... 9.72 8.95 7.91
- ------------------------------------------------------------------------------------------------------------------------
Ratios
Return on average assets............................................. 1.30% 1.16% 1.11%
Return on average shareholders' equity............................... 13.05 11.94 11.71
Net interest margin (taxable-equivalent basis)....................... 5.18 5.06 5.00
- ------------------------------------------------------------------------------------------------------------------------
Selected Average Balances
Total assets......................................................... $720,014 $683,407 $628,329
Earning assets....................................................... 666,834 634,700 582,109
Loans, net of unearned income........................................ 486,176 457,640 414,471
Deposits............................................................. 631,952 595,619 545,689
Shareholders' equity................................................. 71,806 66,105 59,706
Common equivalent shares - fully diluted............................. 7,778 7,776 7,663
- ------------------------------------------------------------------------------------------------------------------------
At December 31
Total assets......................................................... $761,095 $716,481 $676,753
Earning assets....................................................... 695,731 655,529 622,426
Loans, net of unearned income........................................ 509,412 476,510 442,732
Allowance for possible loan losses................................... 7,565 7,048 6,896
Deposits............................................................. 670,273 626,306 591,069
Total shareholders' equity........................................... 75,441 69,454 61,426
Outstanding common shares............................................ 7,762 7,762 7,762
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
two CenturySouthbanks
<PAGE>
[PHOTO OF JAMES A. FAULKNER APPEARS HERE]
James A. Faulkner
President and Chief Executive Officer
These end of year numbers translate into what was an all-time high closing stock
price of $18 per share. Based on the year-end closing price, your Company's
stock increased 10%, up from $16.375 at December 31, 1995. As of January 26,
1997, the stock had actually reached a new all-time high of $19 per share.
Our clear objective in 1996 was to strongly focus on the internal workings
of the Company. The desired outcome was to produce a Company more than capable
to take on the challenges and opportunities of the future. These challenges
include a dramatic increase in competition in our markets due to a change in
Georgia banking laws that allows banks to branch across county lines for the
first time ever.
By evaluating and, where necessary, strengthening our products, delivery
systems, human resources, marketing and profitability, your Company has been
positioned to meet this challenge and maximize shareholder value. Throughout
this annual report, you will see some of the results of this evaluation. They
include the introduction of key new products, the opening of five new
traditional banking offices and a Wal-Mart SuperCenter branch, the purchase of a
marketing customer information system, and much more. All are designed to meet
the changing needs of the customer base in each of our markets.
In this report, the new Century South Banks corporate logo is also
introduced to you. We feel that our new corporate logo more adequately reflects
the image of your Company. It is one that is clear, strong, decisive and more
forward looking.
Our commitment to our mission of maximizing shareholder value can also be
seen in many other places. Once again, your Company was named among "The Best In
Business" in The Atlanta Journal-Constitution Special Annual Report, The Georgia
100. We are proud to report that Century South Banks, Inc. was ranked 27th
overall, up from an overall ranking of 69th in 1995.
Analyst coverage of your Company also increased in 1996. To meet the
growing interest in the Company, Century South Senior Management traveled to
Boston and New York to present the story of your Company to interested analysts.
Among others, Sterne Agee & Leach initiated coverage on Century South Banks.
Our commitment to strengthening your Company continues as we look to the
future. We will continue to build our infrastructure, develop innovative
products and implement innovative delivery systems. The management and directors
of Century South look forward to making 1997 another record year by delivering a
good return to our shareholders, maximizing earnings, investigating
opportunities for expansion, and providing quality banking services to our
customers.
Sincerely,
/s/ James A. Faulkner
James A. Faulkner
President and Chief Executive Officer
three
<PAGE>
By clearly focusing on the internal workings of the Company, the products,
services, delivery systems, marketing and human resources of Century South Banks
have been carefully evaluated and strengthened to position the Company to reach
its full potential.
[PICTURE OF MAN LOOKING THROUGH A MICROSCOPE APPEARS HERE]
<PAGE>
New Services / Home Equity Loans
- --------------------------------------------------------------------------------
During the middle of the year, the Century Home Equity Line was introduced
throughout our affiliate banks. A high percentage of homeowners with
considerable equity throughout the Century South affiliate markets set the stage
for this product introduction. In preparation, each affiliate bank carefully
examined its market, set sales goals and targeted individuals for the Century
Home Equity Line. These steps resulted in a successful introduction.
The product provides customers with a minimum line of credit of $10,000 up
to a maximum of $300,000 depending on the customer's particular circumstances.
For customers, the Century Line allows consolidation of bills, one low monthly
payment, one low rate and considerable interest savings. Unlike other forms of
credit, with the Century Home Equity Line, the interest the customer pays may be
tax deductible. Another facet of the home equity product is tremendous
convenience. Once the customer is approved, access to funds is as simple as
writing a check. Waiting for loan approvals for future purchases is eliminated.
Watching a child graduate from college is a treasured moment. With rising
tuition costs, the Century Home Equity Line is one way customers can fund a
college education.
[PHOTO APPEARS HERE]
The Century Home Equity Line collateral materials communicate the use of equity
to achieve life's goals.
[PHOTO APPEARS HERE]
A once-in-a-lifetime vacation can be possible with a home equity loan.
[PHOTO APPEARS HERE]
Many customers utilize equity to purchase reliable transportation.
[PHOTO APPEARS HERE]
Take a tax break out of your house with a Century Home Equity Line of Credit.
five
<PAGE>
New Services / Execubanc
- --------------------------------------------------------------------------------
In today's fast paced business environment, access to account balances and
activity information is a growing concern for small and medium-sized businesses.
An increasingly competitive environment often makes it necessary for financial
managers to seek ways to take advantage of the many technological advances
available to more effectively manage cash position and maximize earnings.
In 1996, to meet this growing need, the affiliate banks of Century South
introduced Execubanc, a PC-based cash management system which allows corporate
customers to access account information, initiate transactions and more -- all
on their time schedule and in a secure environment. Balance reporting,
transaction inquiries, funds transfers, stop pay inquiries & requests,
ACH transfers, account reconciliation and electronic statement processing are at
the corporate client's fingertips.
Below: Joy Fowler discusses the many benefits of Execubanc with Jim Schwartz,
president of Southeastern Bankcard Association, Inc.
[PHOTOS APPEARS HERE]
Designed for our corporate customers, Execubanc is a PC-based cash management
system.
six CenturySouthbanks
<PAGE>
- --------------------------------------------------------------------------------
To get Century South corporate clients up and running, Execubanc
specialists provide clients with the system software and the configuration and
set-up of their PC. While Execubanc is very user-friendly, training and
technical support is provided. The result is more effective cash flow
management, greater time efficiency and superior confidence. Execubanc is just
one more way that Century South reaches to meet the needs of a growing base of
commercial customers.
With Execubanc, Richard Reeves, General Manager, and Jan Cooley, President, of
Braselton Poultry have more time to concentrate on producing a superior product.
[PHOTO APPEARS HERE]
Maximizing the productivity of your funds and allowing you to focus on growing
your business.
seven
<PAGE>
Telebank allows bank customers, like Kemie West, to access account
information any time, any place. For today's busy families, this is a necessary
convenience.
[PICTURE OF WOMAN AND CHILD APPEARS HERE]
<PAGE>
New Delivery Systems / Telebanc, Website and More
- --------------------------------------------------------------------------------
As our world grows more complex, new and more convenient delivery systems of
banking products must be developed. Our customers' needs and expectations are
rapidly changing. Often, what was convenient yesterday is no longer convenient
today. At the same time, it is becoming increasingly important to maintain the
human element in banking. It has often been said that the only difference
between banks is the people. As time goes by, technology advances, and banks
implement the latest convenience-oriented delivery system, this old adage about
people remains true.
Balancing technological expectations and the need for one-to-one service
is often a juggling act. If traditional banks do not meet this challenge,
non-traditional banks are sure to rise to the challenge. At Century South Banks,
it is our goal to be ahead of our competition, traditional and non-traditional.
While we have worked consciously to stay on the cutting edge of new delivery
systems like telephone banking and Internet access, we continue to focus on the
people-side of banking.
Telebanc collateral materials were designed to communicate ease of use and to
appeal to bank customers in the early-20s to late-30s age-range. The
introduction of this new delivery system was highly successful.
[PHOTO APPEARS HERE]
A central information center at Georgia First Bank, a Century South affiliate
bank in Gainesville, Georgia, allows bank personnel to more effectively interact
with customers.
[PHOTO APPEARS HERE]
Through the Century South Banks' web page, people throughout our market areas,
as well as the world, can access information about the holding company and
affiliate banks. The Century South web address is www.csbi.com.
[PHOTO APPEARS HERE]
Telebanc gives you
more time to do the things
you want to do.
nine
<PAGE>
New Delivery Systems / New Branches, New ATM Locations, SuperCenter Banking
- --------------------------------------------------------------------------------
As each affiliate evaluated its market, the opportunity to open several new
branches and place several new automatic teller machines became apparent.
Georgia First Bank, First Community Bank of Dawsonville, First Bank of Polk
County, Gwinnett National Bank and First National Bank of Union County all
opened new banking locations. These offices were built to meet the growing
markets in each of these areas.
Bank of Dahlonega also began the process of opening an in-store branch at
the new Wal-Mart SuperCenter in Lumpkin County. It is becoming increasingly
important to provide this type of convenience-driven delivery system, which
allows us to maintain personal contact with the customer in a convenient and
cost-effective manner. This type of branch also demands a different approach to
banking -- one that is much more sales-oriented and aggressive. The new branch
opened on January 29, 1997.
As we look to the future, it will be absolutely necessary to continue to
look for innovative ways to maintain our loyal customers, attract new ones to
our banks each day and deliver our products through non-traditional systems.
During 1997, the introduction of PC banking for personal use will be carefully
evaluated. To remain competitive, we must be able to provide convenience-driven
systems as we work to bring banking to customers where they want it and how they
want it.
Successful grand openings were held at all of our new locations. Each opening
was developed to meet the personality of the banking location's community.
[PHOTO APPEARS HERE]
New automatic teller locations were installed in the markets of Bank of
Danielsville, Georgia First Bank, First Community Bank of Dawsonville, First
Bank of Polk County and First National Bank of Union County.
[PHOTO APPEARS HERE]
Bank of Dahlonega's new Wal-Mart SuperCenter branch means delivering banking to
customers in a convenient and cost-effective manner.
[PHOTO APPEARS HERE]
Providing high quality banking services to the communities we serve.
ten CenturySouthbanks
<PAGE>
[PICTURE OF CENTURYSOUTHBANKS BILLBOARD APPEARS HERE]
<PAGE>
Community Involvement and Good Corporate Citizenship
- --------------------------------------------------------------------------------
At Century South Banks, we believe our
banks are only as strong as the
communities we serve. We encourage the
involvement of our officers and
employees in local civic clubs, chambers
[PICTURE OF MAN TALKING TO BOY of commerce, educational programs and
IN WHEELCHAIR APPEARS HERE] development authorities. Many of our
banks participate in programs like
Special Olympics, Partners-In-Education,
March of Dimes and United Way. These are
just a few of the ways we can make a
meaningful impact and improve the future
of our communities.
<PAGE>
Financial Review
- --------------------------------------------------------------------------------
Contents
14 Selected Financial Data
15 Management's Discussion and Analysis
31 Independent Auditors' Report
32 Consolidated Balance Sheets
33 Consolidated Statements of Income
34 Consolidated Statements of Shareholders' Equity
35 Consolidated Statements of Cash Flows
36 Notes to Consolidated Financial Statements
57 Shareholder Information
58 Senior Officers and Directors of Affiliate Banks
60 Directors and Officers of Century South Banks, Inc.
thirteen
<PAGE>
Selected Financial Data
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data and percentages) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Net interest income $ 33,661 $ 31,159 $ 28,066 $ 24,023 $ 21,290
Provision for possible loan losses 1,757 1,694 943 2,165 2,444
Net income 9,370 7,895 6,991 5,748 4,574
- -----------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net income - Primary 1.21 1.02 0.91 0.77 0.61
Net income - Fully diluted 1.20 1.02 0.91 0.76 0.61
Cash dividends declared 0.40 0.38 0.34 0.28 0.22
Book value 9.72 8.95 7.91 7.61 6.89
Tangible book value 8.86 7.99 6.83 6.64 5.81
- -----------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Summary
Investments 146,770 151,146 153,828 124,991 104,694
Loans, net 501,847 469,462 435,886 381,245 357,293
Deposits 670,273 626,306 591,069 500,631 467,649
Assets 761,095 716,481 676,753 577,306 536,937
Long-term debt and other borrowings:
Federal Home Loan Bank advances 6,982 8,083 10,183 7,000 3,000
Other long-term debt 241 3,556 5,973 6,869 9,379
Other borrowings -- 501 1,850 200 --
Average shareholders' equity 71,806 66,105 59,706 52,859 48,671
Average total assets 720,014 683,407 628,329 558,044 511,063
- -----------------------------------------------------------------------------------------------------------------------------------
Financial Ratios
Net income to average assets 1.30% 1.16% 1.11% 1.03% 0.89%
Overhead ratio (a) 2.56 2.69 2.85 2.57 2.50
Net income to average shareholders' equity 13.05 11.94 11.71 10.87 9.40
Dividend payout ratio (b) 32.92 34.01 27.06 25.71 27.04
Average shareholders' equity to
average total assets 9.97 9.67 9.50 9.47 9.52
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Represents noninterest expense less noninterest income divided by average
assets.
(b) Represents dividends declared divided by net income, including pooled
subsidiaries.
fourteen CenturySouthbanks
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
Introduction
Century South Banks, Inc. (the "Company") is a multibank holding company
providing a full range of banking services to individual and corporate customers
in the communities of its market areas which include the areas of northern
Georgia, southeastern Tennessee, and southwestern North Carolina. These areas
are served through the Company's ten banking affiliates and their branch banks,
(collectively the "Banks"). The Company's executive offices are located at 455
Jesse Jewell Parkway, Gainesville, Georgia 30501 and its telephone number is
(770) 287-3464.
The Company was formed and became the Parent company of Bank of Dahlonega
located in Dahlonega, Georgia in 1982 and has grown steadily ever since.
On April 14, 1995, the Company completed the acquisitions of Gwinnett
Bancorp, Inc. ("GBI"), a bank holding company located in Duluth, Georgia, and
its subsidiary bank Gwinnett National Bank ("GNB"), and First Community Bank of
Dawsonville ("FCBD"), located in Dawsonville, Georgia. These transactions have
been accounted for as poolings of interests, and accordingly, financial
information preceding the dates of acquisition has been restated to include the
financial position and results of operations of GBI, and its subsidiary GNB, and
FCBD.
On December 14, 1995 and December 27, 1995, the Company completed the
acquisitions of Peoples Bank ("PBL"), located in Lavonia, Georgia, and Bank of
Danielsville ("DAN"), located in Danielsville, Georgia, respectively. These
transactions have been accounted for as poolings of interests, and accordingly,
financial information preceding the dates of acquisition has been restated to
include the financial position and results of operations of PBL and DAN.
Because of its ownership of all of the issued and outstanding shares of
the common stock of the Banks, the Company is a "Bank Holding Company" as that
term is defined under Federal law in the Bank Holding Company Act of 1956 (the
"Act"), as amended, and under the bank holding company laws of the State of
Georgia ("Georgia Act"). As a bank holding company, the Company is subject to
the applicable provisions of the Act and the Georgia Act as well as to
supervision by the Board of Governors of the Federal Reserve System (the
"Board") and the State of Georgia Department of Banking and Finance. The
Company's primary business as a bank holding company is to manage the business
affairs of its bank subsidiaries.
The Company's mission is to provide high quality banking services to the
communities of its service area while maximizing the return on its shareholders'
investments and assisting the communities of its service area in reaching their
fullest potential. The Company accomplishes and intends to continue
accomplishing this mission by expanding its customer base in existing and new
markets, and by expanding the range of banking services offered to its existing
customers.
The following discussion of the Company's financial condition and results
of operations should be read in conjunction with the Company's consolidated
financial statements and related notes.
Results of Operations
The Company's net income for the year ended December 31, 1996 was $9,370,000
compared to $7,895,000 for the year ended December 31, 1995, an increase of
approximately $1,475,000 or 19%. The Company's net income per share was $1.21,
an increase of $0.19 per share or 19% from net income per share for the year
ended December 31, 1995 of $1.02. The Company's emphasis on maintaining its net
interest margin resulted in an increase in net interest income of $2,502,000.
Additionally, noninterest income increased $459,000. These increases were offset
by increases in noninterest expense of $528,000 and increases in provision for
loan losses of $63,000.
fifteen
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
The following table summarizes the results of operations including
selected financial performance ratios of the Company for the three years ended
December 31, 1996:
<TABLE>
(Amounts in thousands, except per share data) 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income $62,826 $59,739 $49,032
Interest expense 29,165 28,580 20,966
----------------------------------
Net interest income 33,661 31,159 28,066
----------------------------------
Provision for possible loan losses 1,757 1,694 943
Noninterest income 6,624 6,165 4,993
Noninterest expense 25,051 24,523 22,891
Income tax expense 4,107 3,212 2,234
----------------------------------
Net income $ 9,370 $ 7,895 $ 6,991
==================================
Net income per common share and
common share equivalents:
Primary $ 1.21 $ 1.02 $ 0.91
==================================
Fully diluted $ 1.20 $ 1.02 $ 0.91
==================================
Average common shares outstanding
and common share equivalents:
Primary 7,776 7,773 7,663
==================================
Fully diluted 7,778 7,776 7,663
==================================
Cash dividends declared per share $0.3975 $0.3776 $0.3425
==================================
Return on average assets 1.30% 1.16% 1.11%
==================================
Return on average equity 13.05 11.94 11.71
==================================
Shareholders' equity to assets (average) 9.97 9.67 9.50
Shareholders' equity to assets (period-end) 9.91 9.69 9.08
Dividend payout ratio (1) 32.92 34.01 27.06
==================================
</TABLE>
(1) Determined by dividing dividends declared by net income, including pooled
subsidiaries.
Net Interest Income
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 deposits, federal funds purchased,
long-term debt, and short-term borrowings.
In 1996, net interest income was $33,661,000 representing an increase of
$2,502,000 or 8.03% as compared to 1995. The average yield earned on interest
earning assets decreased to 9.56% in 1996 from 9.57% in 1995 and the average
rate paid on interest bearing liabilities decreased to 5.10% in 1996 from 5.20%
in 1995. The Company improved its net interest margin (net interest income
divided by average interest earning assets), on a tax equivalent basis, to 5.18%
for 1996 from 5.06% for 1995.
In 1995, net interest income was $31,159,000 representing an increase of
$3,093,000 or 11.02% as compared to 1994. The average yield earned on interest
earning assets increased to 9.57% in 1995 from 8.61% in 1994 and the average
rate paid on interest bearing liabilities increased to 5.20% in 1995 from 4.15%
in 1994. The Company improved its net interest margin, on a tax equivalent
basis, to 5.06% for 1995 from 5.00% for 1994.
sixteen CenturySouthbanks
<PAGE>
Net Income Per Share
(in dollars)(fully diluted)
[BAR GRAPH APPEARS HERE]
'92 '93 '94 '95 '96
--- --- --- --- ---
.61 .76 .91 1.02 1.20
Dividends
(in dollars)
[BAR GRAPH APPEARS HERE]
'92 '93 '94 '95 '96
--- --- --- --- ---
.22 .28 .34 .38 .40
The following table presents average balance sheets, yields and interest
earned on interest earning assets, and rates and interest paid on interest
bearing liabilities of the Company for the three years ended December 31, 1996.
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------- ----------------------------- -------------------------------
(Amounts in thousands, Average Yields Average Yields Average Yields
except ratios) balances Interest /rates balances Interest /rates balances Interest /rates
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest earning assets:
Interest earning deposits $ 510 $ 33 6.47% $ 1,339 $ 51 3.81% $ 3,545 $ 149 4.20%
Federal funds sold 26,182 1,404 5.36 22,178 1,313 5.92 20,811 897 4.31
Taxable investment
securities 110,587 6,764 6.12 109,796 6,644 6.05 101,591 5,744 5.65
Nontaxable investment
securities (2) 43,379 3,407 7.85 43,747 3,523 8.05 41,691 3,471 8.33
Loans, net (1) (2) 486,176 52,131 10.72 457,640 49,195 10.75 414,471 39,832 9.61
--------------------------------------------------------------------------------------------
Total interest
earning assets 666,834 63,739 9.56 634,700 60,726 9.57 582,109 50,093 8.61
--------------------------------------------------------------------------------------------
Noninterest earning assets:
Cash and due from
banks 25,827 21,750 20,474
Premises and
equipment, net 16,892 15,824 14,956
Other assets 18,380 19,251 18,175
Allowance for possible
loan losses (7,478) (7,000) (6,575)
Unrealized losses
on investment
securities (441) (1,118) (810)
----------------------------------------------------------------------
Total noninterest
earning assets 53,180 48,707 46,220
----------------------------------------------------------------------
Total assets $720,014 $683,407 $628,329
======================================================================
Liabilities and
Shareholders' Equity
Interest bearing liabilities:
Interest bearing
demand deposits $124,228 $ 3,738 3.01% $117,769 $ 3,627 3.08% $130,077 $ 3,956 3.04%
Savings deposits 62,040 2,145 3.46 61,668 2,422 3.93 44,230 1,325 3.00
Individual retirement
accounts 46,572 2,833 6.08 41,465 2,462 5.94 38,008 1,921 5.05
Certificates of deposit 329,688 19,915 6.04 313,239 18,988 6.06 274,911 12,721 4.63
Federal funds purchased 295 15 5.08 644 40 6.21 547 13 2.38
Long-term debt and
other borrowings 8,624 519 6.02 14,491 1,041 7.18 16,841 1,030 6.12
--------------------------------------------------------------------------------------------
Total interest bearing
liabilities 571,447 29,165 5.10 549,276 28,580 5.20 504,614 20,966 4.15
--------------------------------------------------------------------------------------------
Noninterest bearing
liabilities and shareholders'
equity:
Noninterest bearing
deposits 69,424 61,478 58,463
Other liabilities 7,337 6,548 5,546
Shareholders' equity 71,806 66,105 59,706
--------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $720,014 $683,407 $628,329
============================================================================================
Interest rate differential (3) 4.46% 4.37% 4.46%
============================================================================================
Net interest income $34,574 $32,146 $29,127
============================================================================================
Net interest margin (4) 5.18% 5.06% 5.00%
============================================================================================
Average interest earning
assets to average
total assets 92.61% 92.87% 92.64%
============================================================================================
Average loans to
average deposits 76.93% 76.83% 75.95%
============================================================================================
</TABLE>
(1) Average loans are shown net of unearned income. Nonperforming and
underperforming loans are included. Interest income includes loan fees as
follows (amounts in thousands): 1996 - $2,987; 1995 - $2,837; 1994 - $2,437.
Income, if recognized, on nonaccrual loans is recorded on a cash basis.
(2) Interest income includes the effects of taxable equivalent adjustments
(reduced by the non-deductible portion of interest expense) using a federal
income tax rate of 34%.
(3) Interest rate differential is the average yield earned on interest earning
assets less the average rate paid on interest bearing liabilities.
(4) Net interest margin is net interest income divided by average interest
earning assets.
seventeen
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
The following table presents the changes in the Company's net interest
income as a result of changes in volume and rate of its interest earning assets
and interest bearing liabilities from 1995 to 1996 and from 1994 to 1995.
<TABLE>
<CAPTION>
1996 vs. 1995 1995 vs. 1994
------------------------- --------------------------
(Amounts in thousands) (1) Volume Rate Net Volume Rate Net
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Federal funds sold $ 214 $(123) $ 91 $ 59 $ 357 $ 416
Interest earning deposits in other banks (54) 36 (18) (93) (5) (98)
Taxable investment securities 64 55 119 464 436 900
Nontaxable investment securities (29) (86) (115) 171 (119) 52
Loans, net 3,061 (125) 2,936 4,149 5,214 9,363
-----------------------------------------------------
Total interest income 3,256 (243) 3,013 4,750 5,883 10,633
-----------------------------------------------------
Interest expense:
Interest bearing demand deposits 176 (66) 110 (374) 45 (329)
Savings deposits 11 (288) (277) 522 575 1,097
Individual retirement accounts 308 63 371 175 366 541
Certificates of deposit 975 (48) 927 1,774 4,493 6,267
Federal funds purchased (18) (7) (25) 2 25 27
Long-term debt and other borrowings (340) (181) (521) (144) 155 11
-----------------------------------------------------
Total interest expense 1,112 (527) 585 1,955 5,659 7,614
-----------------------------------------------------
Net interest income $2,144 $ 284 $2,428 $2,795 $ 224 $3,019
=====================================================
</TABLE>
(1) The change in interest due to rate is calculated by multiplying the previous
volume by the rate change and the change in interest due to volume is
calculated by multiplying the change in volume by the previous rate. The
change in interest due to both rate and volume has been allocated to the
volume and rate components in proportion to the relationship of the absolute
dollar amounts of the change in each.
Allowance for Possible Loan Losses
The Company provides for possible loan losses on a monthly basis based upon
information available at the end of each period. By such additions, management
maintains the allowance for possible loan losses at a level adequate to provide
for losses that reasonably can be anticipated. The level of the allowance for
possible loan losses is based on, among other things, management's periodic
loan-by-loan evaluation of potential losses, as well as its assessment of
prevailing and anticipated economic conditions in its market areas. Reviews are
conducted throughout the year by senior officers of the Company and by unrelated
third parties.
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. 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 1.49% of outstanding
loans at December 31, 1996 and 1.48% at December 31, 1995. The allowance
increased to $7,565,000 at December 31, 1996 from $7,048,000 at December 31,
1995. The increase in the provision for possible loan losses to $1,757,000 in
1996 from $1,694,000 in 1995 was primarily a result of loan growth. Net loans
charged off in 1996 were $1,240,000 or approximately 0.26% of average loans
outstanding as compared to $1,492,000 or 0.33% in 1995. These ratios compare
favorably to what others have experienced in the banking industry during 1996
and 1995.
eighteen CenturySouthbanks
<PAGE>
- --------------------------------------------------------------------------------
Closing Stock Price `92 `93 `94 `95 `96
---- ----- ----- ----- -----
(in dollars) 8.75 10.63 12.50 16.38 18.00
[BAR GRAPH APPEARS HERE]
Assets `92 `93 `94 `95 `96
---- ---- ---- ---- ----
($ millions) 537 577 677 716 761
[BAR GRAPH APPEARS HERE]
The allowance for possible loan losses approximated 1.48% of outstanding
loans at December 31, 1995 and 1.55% at December 31, 1994. The allowance
increased to $7,048,000 at December 31, 1995 from $6,846,000 at December 31,
1994. The increase in the 1995 provision for possible loan losses to $1,694,000
in 1995 from $943,000 in 1994 was primarily a result of the Company's continuing
efforts to strengthen the allowance. Net loans charged off in 1995 were
$1,492,000 or approximately 0.33% of average loans outstanding as compared to
$759,000 or 0.18% in 1994.
The following table summarizes the changes in the allowance for possible
loan losses arising from loans charged off and recoveries on loans previously
charged off by loan category, additions to the allowance which have been charged
to income in the Company's consolidated statements of income, and additions
resulting from the purchased allowance of acquired subsidiaries for the years
ended December 31:
<TABLE>
<CAPTION>
(Amounts in thousands, except ratios and percentages) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average loans outstanding, net of
unearned income $486,176 $457,640 $414,471 $372,935 $352,273
=====================================================================
Allowance for possible loan losses
at beginning of year $ 7,048 $ 6,846 $ 6,192 $ 5,300 $ 4,342
Loans charged off:
Commercial, financial and agricultural 187 393 411 466 1,035
Real estate 319 608 120 373 191
Consumer installment 1,224 758 483 713 527
---------------------------------------------------------------------
Total loans charged off 1,730 1,759 1,014 1,552 1,753
---------------------------------------------------------------------
Recoveries on loans previously charged off:
Commercial, financial, and agricultural 40 38 30 127 162
Real estate 242 51 30 39 14
Consumer installment 208 178 195 113 92
---------------------------------------------------------------------
Total loans recovered 490 267 255 279 268
---------------------------------------------------------------------
Net loans charged off 1,240 1,492 759 1,273 1,485
Additions to allowance for possible loan
losses charged to income 1,757 1,694 943 2,165 2,443
Allowance for possible loan losses of
acquired subsidiaries -- -- 470 -- --
---------------------------------------------------------------------
Allowance for possible loan losses
at end of year $ 7,565 $ 7,048 $ 6,846 $ 6,192 $ 5,300
=====================================================================
Ratio of net loans charged off to
average loans outstanding, net of
unearned income .26% .33% .18% .34% .42%
=====================================================================
Allowance for possible loan losses to
loans, net of unearned income 1.49% 1.48% 1.55% 1.60% 1.46%
=====================================================================
</TABLE>
nineteen
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
Consumer loan charge offs increased by $466,000 or 61.5% in 1996 from
1995. This is primarily due to management's identification of a certain portion
of its consumer installment loan portfolio which did not meet its underwriting
criteria. Management has taken the necessary steps to identify and recognize
losses in this segment of the portfolio. Management does not anticipate any
further increases in consumer installment charge offs in 1997.
Nonperforming Loans, Nonperforming Assets, and Underperforming Loans
Nonperforming loans include nonaccrual loans. The Company has not restructured
any loans of significance through December 31, 1996. Nonperforming assets
include nonperforming loans, real estate acquired through foreclosure, 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
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.
Nonperforming loans were $2,888,000 at December 31, 1996 compared to
$1,815,000 at December 31, 1995. Nonperforming loans represented 0.57% of total
loans at December 31, 1996 as compared to 0.38% of total loans at December 31,
1995. Nonperforming assets increased to $5,535,000 at December 31, 1996 as
compared to $4,026,000 at December 31, 1995. Nonperforming assets represented
1.08% of total loans, real estate acquired through foreclosure, and other
nonperforming assets at December 31, 1996 as compared to 0.84% at December 31,
1995. The Company's nonperforming asset levels continue to compare favorably to
others in the banking industry.
Underperforming loans, consisting of loans past due 90 days or more which
are still accruing interest, are much more volatile and tend to fluctuate more
frequently based upon the timing of payment collection, transfer to
nonperforming status, or transfer to current status. Underperforming loans
decreased to $1,572,000 at December 31, 1996 from $1,716,000 at December 31,
1995. Such loans represented 0.31% and 0.36% of total loans at December 31, 1996
and 1995, respectively.
twenty CenturySouthbanks
<PAGE>
Loans `92 `93 `94 `95 `96
---- ---- ---- ---- ----
($ millions) 357 381 436 469 502
[BAR GRAPH APPEARS HERE]
Deposits `92 `93 `94 `95 `96
---- ---- ---- ---- ----
($ millions) 468 501 591 626 670
[BAR GRAPH APPEARS HERE]
The table below provides information concerning nonperforming loans,
nonperforming assets, and underperforming loans and certain asset quality ratios
at December 31 for each of the last five fiscal years.
<TABLE>
<CAPTION>
(Amounts in thousands, except ratios and percentages) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net loans $509,412 $476,510 $442,732 $387,436 $362,593
Allowance for possible loan losses 7,565 7,048 6,846 6,192 5,300
=====================================================================
Nonperforming loans $ 2,888 $ 1,815 $ 2,961 $ 2,701 $ 2,851
Real estate acquired through foreclosure
and other nonperforming assets 2,647 2,211 2,222 2,393 2,798
---------------------------------------------------------------------
Nonperforming assets $ 5,535 $ 4,026 $ 5,183 $ 5,094 $ 5,649
=====================================================================
Underperforming loans - still accruing $ 1,572 $ 1,716 $ 1,024 $ 1,440 $ 1,204
=====================================================================
Asset quality ratios:
Nonperforming loans to total loans,
net of unearned income .57% .38% .67% .70% .79%
=====================================================================
Nonperforming assets to total loans,
net of unearned income, real estate
acquired through foreclosure, and
other nonperforming assets 1.08% .84% 1.16% 1.31% 1.55%
=====================================================================
Allowance for possible loan losses
to nonperforming loans 2.62x 3.88x 2.31x 2.29x 1.86x
=====================================================================
Underperforming loans to total loans,
net of unearned income .31% .36% .23% .37% .33%
=====================================================================
</TABLE>
Interest income on nonaccrual loans which would have been reported for the
years ended December 31, 1996, 1995, and 1994 is summarized as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest at contractual rate $515 $650 $529
Less interest recorded as income 330 152 164
---------------------------
Reduction of interest income $185 $498 $365
===========================
</TABLE>
twenty-one
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
The Company has allocated the allowance for possible loan losses according
to the amount deemed to be reasonably necessary to provide for the possibility
of losses being incurred within the categories of loans set forth in the table
below. This allocation is based on management's evaluation of the loan portfolio
under current economic conditions, past loan loss experience, adequacy and
nature of collateral, and such factors which, in the judgment of management,
deserve recognition in estimating loan losses. Regulatory agencies, as an
integral part of their examination process, periodically review the Company's
allowances for possible losses on loans and real estate acquired through
foreclosure and other nonperforming assets. Such agencies may require the
Company to recognize additions to the allowances based on their judgments about
information available to them at the time of their examination. Because the
allocation is based on estimates and subjective judgment, it is not necessarily
indicative of the specific amounts or loan categories in which charge-offs may
occur.
The amounts of such components of the allowance for possible loan losses
and the ratio of each loan category to total loans outstanding at December 31
are presented below:
<TABLE>
<CAPTION>
(Amounts in thousands) 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allocation of allowance for possible
loan losses by loan type: (1)
Commercial, financial and agricultural $2,724 $2,453 $2,383 $2,200 $1,874
Real estate 3,555 3,279 3,185 2,862 2,535
Consumer installment 1,286 1,316 1,278 1,130 891
------------------------------------------------
Total $7,565 $7,048 $6,846 $6,192 $5,300
================================================
Loan balances by type as a percentage
of total loans outstanding:
Commercial, financial and agricultural 16.2% 15.7% 17.3% 18.0% 16.4%
Real estate 68.5 67.8 66.7 66.5 68.0
Consumer installment 15.3 16.5 16.0 15.5 15.6
------------------------------------------------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
================================================
</TABLE>
- ------------------------
(1) General allowances are included in the above loan categories to which they
apply.
Noninterest Income
Noninterest income increased $459,000 or 7.4% in 1996 from 1995. Increases were
noted to service charges on deposit accounts and net securities gains (losses),
which included the recovery of the principal of two previously partially
charged-off municipal securities, of $272,000 and $187,000, respectively.
Noninterest income increased $1,172,000 or 23.5% in 1995 from 1994.
Approximately $375,000 of the increase resulted from the net gain on the sale of
the mortgage servicing portfolio in December 1995. In addition, increases were
attained in service charges on deposit accounts, net securities gains (losses)
and income associated with originating, servicing and selling mortgage loans of
$412,000, $103,000, and $180,000, respectively.
twenty-two
<PAGE>
- --------------------------------------------------------------------------------
Noninterest Expense
Noninterest expense increased $528,000 or 2.2% in 1996. Noninterest expense
represented 3.48%, 3.59% and 3.64% of average assets in 1996, 1995 and 1994,
respectively. Salaries and benefits expenses increased $951,000 in 1996,
representing growth in the number of employees. Occupancy related expenses
increased by $117,000. These increases were partially offset by lower FDIC
assessment fees in 1996.
Noninterest expense increased $1,632,000 or 7.1% in 1995. Approximately
$1,141,000 of the increase was due to salaries and benefits expenses,
representing growth in the number of employees. Occupancy related expenses
increased by $271,000 and acquisition related costs increased approximately
$259,000 (see note 2 to the Company's consolidated financial statements). These
increases were partially offset by lower FDIC assessment fees.
Income Taxes
The Company provided income tax expense of $4,107,000, $3,212,000 and $2,234,000
or approximately 30.5%, 28.9% and 24.2%, of its income before income taxes in
1996, 1995, and 1994, respectively. The Company expects its effective income tax
rate to increase in 1997 due to a decrease in tax free income as a percentage of
total income due to the unavailability of high yielding bank qualified tax free
investments.
Loan Portfolio
During 1996, average loans net of unearned income increased from $458 million to
$486 million and comprised 72.9% of average interest earning assets and 67.5% of
average total assets. During 1995, average loans net of unearned income
increased from $414 million to $458 million and comprised 72.1% of average
interest earning assets and 67.0% of average total assets. The relative level of
average loans, when compared to the level of average deposits, increased in 1996
as a result of management's emphasis on maximizing its level of investments in
loans to interest earning assets to improve the overall yield on interest
earning assets. This is evident in the ratio of average loans to average
deposits which was 76.9%, 76.8% and 76.0% in 1996, 1995, and 1994, respectively.
The following table presents the composition of the Company's loan
portfolio by type at December 31 for each of the last five years.
<TABLE>
<CAPTION>
(Amounts in thousands) 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial, and agricultural $ 82,461 $ 74,697 $ 76,509 $ 69,948 $ 59,419
Real estate - construction 58,333 46,538 37,234 19,370 9,563
Real estate - mortgage 291,202 276,802 257,184 234,256 236,296
Consumer installment 78,087 79,124 71,138 60,301 56,618
Mortgage loans held for sale -- -- 1,164 4,107 1,220
-----------------------------------------------------
Total loans 510,083 477,161 443,229 387,982 363,116
Less:
Unearned income 671 651 497 546 523
Allowance for possible loan losses 7,565 7,048 6,846 6,192 5,300
-----------------------------------------------------
Loans, net $ 501,847 $469,462 $435,886 $381,244 $357,293
=====================================================
</TABLE>
twenty-three
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
The following table shows the maturity of selected loan categories as of
December 31, 1996. Also provided are the amounts due after one year classified
according to the sensitivity in interest rates.
<TABLE>
<CAPTION>
Maturing
after one but within
(Amounts in thousands) Within one year five years After five years
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial, financial and agricultural $25,067 $ 56,057 $ 1,337
Real estate - construction 31,782 26,148 403
Real estate - mortgage 56,700 214,177 20,325
=======================================================
Due after one year
- ----------------------------------------------------------------------------------------------------
Summary of above loans due after one year:
Total fixed rate due after one year $220,404
Total adjustable rate due after one year 98,043
--------
Total loans due after one year $318,447
========
</TABLE>
Actual repayments of loans may differ from the contractual maturities
reflected above because borrowers have the right to prepay obligations with and
without prepayment penalties. Additionally, the refinancing of such loans or the
potential delinquency of such loans could also cause differences between the
contractual maturities reflected above and the actual repayment of such loans.
Investment Securities
The Company's investment securities portfolio serves several essential
functions, such as providing a vehicle for the investment of available funds,
furnishing liquidity, and supplying securities to pledge as required for certain
deposits. As a result, the Company has segmented its investment securities
portfolio to identify those securities that could possibly be used in future
asset/liability restructuring (securities available for sale). Average
investment securities, which includes securities held to maturity and securities
available for sale, increased $423,000 or 0.3% in 1996 compared to an increase
of $10,261,000 or 7.2% in 1995. During 1996 and 1995, average investment
securities comprised 23.1% and 24.2%, respectively, of average interest earning
assets and 21.4% and 22.5%, respectively, of average total assets.
At December 31, 1996, investment securities with fair value of
approximately $104 million were identified as securities available for sale.
These securities are carried at fair value with net unrealized gains reflected
as a component of shareholders' equity.
CenturySouthbanks
twenty-four
<PAGE>
The tables below present the carrying values and the relative composition
of investment securities, included in the available for sale and held to
maturity portfolios, at December 31, 1996, 1995, and 1994.
<TABLE>
<CAPTION>
1996
---------------------------------------------
Available for Sale Held to Maturity
(Amounts in thousands, Carrying % of total Carrying % of total
except percentages) value securities value securities
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and
U.S. Government agencies $ 55,856 38.1% $10,024 6.8%
State, county and municipal securities 14,724 10.0 28,122 19.1
Mortgage-backed securities 25,696 17.5 2,023 1.4
Other debt securities 4,859 3.3 2,305 1.6
Equity securities 3,161 2.2 -- --
---------------------------------------------
Total investment securities $104,296 71.1% $42,474 28.9%
=============================================
1995
---------------------------------------------
Available for Sale Held to Maturity
(Amounts in thousands, Carrying % of total Carrying % of total
except percentages) value securities value securities
- ---------------------------------------------------------------------------------------------------
U.S. Treasury and
U.S. Government agencies $48,550 32.1% $15,759 10.4%
State, county and municipal securities 15,838 10.5 30,269 20.0
Mortgage-backed securities 26,404 17.5 3,169 2.1
Other debt securities 5,007 3.3 3,193 2.1
Equity securities 2,957 2.0 -- --
---------------------------------------------
Total investment securities $98,756 65.4% $52,390 34.6%
=============================================
1994
---------------------------------------------
Available for Sale Held to Maturity
(Amounts in thousands, Carrying % of total Carrying % of total
except percentages) value securities value securities
- ---------------------------------------------------------------------------------------------------
U.S. Treasury and
U.S. Government agencies $58,976 38.3% $14,795 9.6%
State, county and municipal securities 14,818 9.6 29,396 19.1
Mortgage-backed securities 21,336 13.9 4,010 2.6
Other debt securities 6,319 4.1 1,917 1.3
Equity securities 2,261 1.5 -- --
---------------------------------------------
Total investment securities $103,710 67.4% $50,118 32.6%
=============================================
</TABLE>
twenty-five
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
The Company and the Banks did not have investments with a single issuer in
the aggregate exceeding 10% of the Company's shareholders' equity at December
31, 1996, 1995 and 1994, except for the U.S. Treasury and U.S. Government
agencies securities as shown in the table above.
The following depicts contractual maturities and yields of the debt
securities included in the Company's held to maturity investment securities
portfolio at December 31, 1996. Expected maturities may differ from contractual
maturities because issuers may have the right to call or prepay obligations with
and without call or prepayment penalties.
<TABLE>
<CAPTION>
Maturing
----------------------------------------------------------------------------
After one but After five but
Within one year within five years within ten years After ten years
----------------------------------------------------------------------------
(Amounts in thousands, Carrying Carrying Carrying Carrying
except percentages) value Yield value Yield value Yield value Yield
- ------------------------------------------------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held to Maturity (HTM):
U.S. Government agencies $1,713 5.71% $ 8,111 5.37% $ 200 9.05% $ -- --%
State, county, and municipal
securities (1) 2,069 6.87 10,405 5.26 12,679 5.40 2,969 6.61
Mortgage-backed securities -- -- 1,677 6.36 -- -- 364 6.76
Other debt securities -- -- -- -- -- -- 2,287 6.62
------ ------- ------- ------
Total debt securities-HTM $3,782 6.35% $20,193 5.39% $12,879 5.46% $5,620 8.42%
====== ======= ======= ======
</TABLE>
- --------------------
(1) Yields on state, county, and municipal securities have not been computed on
a tax equivalent basis.
Deposits
Average deposits increased $36.3 million or 6.1% to $632.0 million during 1996
from $595.6 million during 1995. This increase is a result of growth in the
Company's markets.
Average deposits by type, their relationship to total average deposits,
and the average rate paid on deposits by type for the years ended December 31,
1996, 1995, and 1994, respectively, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ---------------------- ------------------------
% of % of % of
(Amounts in thousands, total total total
except percentages) Amount deposits Rate Amount deposits Rate Amount deposits Rate
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest bearing
demand deposits $ 69,424 11.0% N/A $ 61,478 10.3% N/A $ 58,463 10.7% N/A
Interest bearing
demand deposits 124,228 19.6 3.01% 117,769 19.7 3.08% 130,077 23.8 3.04%
Savings deposits 62,040 9.8 3.46 61,668 10.4 3.93 44,230 8.1 3.00
Individual retirement
accounts 46,572 7.4 6.08 41,465 7.0 5.94 38,008 7.0 5.05
Certificates of deposit 329,688 52.2 6.04 313,239 52.6 6.06 274,911 50.4 4.63
---------------- ---------------- -----------------
Total average deposits $631,952 100.0% 4.53% $595,619 100.0% 4.62% $545,689 100.0% 3.65%
================ ================ =================
</TABLE>
twenty-six CenturySouthbanks
<PAGE>
- --------------------------------------------------------------------------------
The maturities of certificates of deposit and individual retirement
accounts of $100,000 or more as of December 31, 1996 are presented below.
<TABLE>
<S> <C>
(Amounts in thousands)
------------------------------------------------------------------
Three months or less $31,124
Over three months through six months 16,939
Over six months through twelve months 26,355
Over twelve months 23,713
-------
Total certificates of deposit and individual
retirement accounts of $100 or more $98,131
=======
</TABLE>
The Company has analyzed the composition of its certificates of deposit
and individual retirement accounts of $100,000 or more and believes that less
than 50% of such deposits should be deemed "volatile" and thereby affect the
Company's liquidity. The "volatile" deposits are with governmental bodies in the
states or in the local communities in the markets that the Company and the Banks
serve. The remainder of these certificates of deposit and individual retirement
accounts are with individuals who reside in the local areas and with whom the
Banks have had consistent deposit relations for long periods of time.
Liquidity and Interest Rate Sensitivity
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 and its interest sensitivity gap. Such proceeds amounted
to approximately $8,110,000 during 1996 and represent another source of
liquidity to the Company. Principal payments on loans also provide the Company
with a source of liquidity. 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 December 31, 1996, the Company's cash and
due from banks were $34,626,000, its interest earning deposits in other banks
were $677,000, its federal funds sold were $38,730,000 and its investment
securities designated as available for sale were $104,296,000. 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 up to
approximately $39,850,000, in addition to
twenty-seven
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
$44,000,000 which is available to the Company, subject to available collateral,
in the form of additional 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 December 31, 1996.
<TABLE>
<CAPTION>
Repricing
----------------------------------------------------------------------
0-90 days 91-365 days One to five years Over five years
(Amounts in thousands, --------- -------------------- ------------------- -------------------
except ratios) Current Current Cumulative Current Cumulative Current Cumulative
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest sensitive assets:
Loans $213,048 $127,176 $340,224 $157,581 $497,805 $12,251 $510,056
Investment securities (1) 7,771 22,656 30,427 94,703 125,130 21,782 146,912
Interest earning deposits in
other banks and federal
funds sold 38,907 500 39,407 -- 39,407 -- 39,407
----------------------------------------------------------------------
Total interest sensitive
assets 259,726 150,332 410,058 252,284 662,342 34,033 696,375
----------------------------------------------------------------------
Interest sensitive liabilities:
Interest bearing demand and
savings deposits 203,503 -- 203,503 -- 203,503 -- 203,503
Certificates of deposit and
individual retirement accounts
of $100 or more 31,124 43,294 74,418 23,713 98,131 -- 98,131
Other certificates of deposit and
individual retirement accounts 73,913 143,070 216,983 75,905 292,888 45 292,933
Federal funds purchased,
short-term borrowings and
long-term debt 5,157 2,072 7,229 951 8,180 43 8,223
----------------------------------------------------------------------
Total interest sensitive
liabilities 313,697 188,436 502,133 100,569 602,702 88 602,790
----------------------------------------------------------------------
Interest sensitivity gap $(53,971) $(38,104) $(92,075) $151,715 $ 59,640 $33,945 $ 93,585
=======================================================================
Ratio of interest sensitive assets
to interest sensitive liabilities 0.83 0.80 0.82 2.51 1.10 386.74 1.16
=======================================================================
</TABLE>
(1) Amounts exclude unrealized gains (losses) on investment securities.
twenty-eight CenturySouthbanks
<PAGE>
- --------------------------------------------------------------------------------
The Company's strategy is to maintain a ratio of interest sensitive assets
to interest sensitive liabilities in the range of .80 to 1.20 at the less than
one year time frame. At December 31, 1996, the Company has been able to meet
such objective, although over the one-year time frame a ratio of 0.82 could
result in a negative short-term impact on earnings should rates rise. The ratio
in the one-year time frame is significantly impacted by the classification of
all interest bearing demand and savings deposits as immediately rate sensitive
for purposes of this analysis. These accounts are generally less sensitive to
short-term interest rate movements. Management currently believes its interest
sensitivity position is such that short-term interest rate movements would not
materially impact its net interest income.
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.
Risk Factors
The following appears in accordance with the Securities Litigation Reform
Act: This financial report includes forward-looking statements that involve
inherent risks and uncertainties. A number of important factors could cause
actual results to differ materially from those in the forward-looking
statements. Those factors include fluctuations in interest rates, inflation,
government regulations, and economic conditions and competition in the
geographic business areas in which the Company conducts its operations.
Market and Dividend Information
The Company's common stock trades on the Nasdaq Stock Market under the symbol
"CSBI". There were 1,962 shareholders of record of the Company's common stock at
December 31, 1996.
The following table sets forth the high and low prices and the cash
dividends declared on the Company's common stock by quarter for 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
--------------------------------------------------------------------------
Price Cash dividends Price Cash dividends
---------------- -----------------
Quarter Ended High Low declared High Low declared
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
March 31 $16.75 $13.75 .09750 $13.25 $11.50 .09250
June 30 15.25 13.50 .09875 14.00 11.75 .09380
September 30 17.50 14.50 .10000 14.25 12.25 .09500
December 31 19.00 16.25 .10125 17.50 12.75 .09625
</TABLE>
The Company expects to continue its policy of paying quarterly cash
dividends although there is no assurance that such dividends will continue to be
paid in the future. The payment of dividends in the future is dependent on
future income, financial position, capital requirements and other
considerations. In addition, the payment of dividends is subject to the
restrictions described in note 15 to the Company's consolidated financial
statements.
twenty-nine
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
Summary of Quarterly Financial Data
Presented below is a summary of the unaudited consolidated quarterly
financial data for the years ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
(Amounts in thousands) Fourth Quarter Third Quarter Second Quarter First Quarter
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996:
Interest income $15,891 $15,615 $15,841 $15,479
Net interest income 8,492 8,528 8,698 7,943
Provision for possible loan losses 544 343 469 401
Income before income taxes 3,224 3,285 3,796 3,172
Net income 2,267 2,292 2,618 2,193
Net income per share:
Primary 0.29 0.30 0.34 0.28
Fully diluted 0.28 0.30 0.34 0.28
Weighted average common shares
outstanding and common share
equivalents 7,780 7,776 7,774 7,775
1995:
Interest income 15,519 15,220 14,815 14,185
Net interest income 7,942 7,771 7,678 7,768
Provision for possible loan losses 656 372 345 321
Income before income taxes 2,874 3,055 2,534 2,644
Net income 1,895 2,238 1,842 1,920
Net income per share:
Primary 0.24 0.29 0.24 0.25
Fully diluted 0.24 0.29 0.24 0.25
Weighted average common shares
outstanding and common share
equivalents 7,774 7,773 7,773 7,772
</TABLE>
thirty
<PAGE>
Independent Auditors' Report
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
The Board of Directors and Shareholders
Century South Banks, Inc.:
We have audited the accompanying consolidated balance sheets of
Century South Banks, Inc. and subsidiaries ("the Company") as of
December 31, 1996 and 1995, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the years in
the three-year period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Century South Banks, Inc. and subsidiaries at December 31,
1996 and 1995, and the results of their operations and their cash flows
for each of the years in the three-year period ended December 31, 1996,
in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Atlanta, Georgia
January 24, 1997
thirty-one
<PAGE>
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
<TABLE>
<CAPTION>
December 31,
-----------------------------
(Amounts in thousands, except share and per share data) 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks (notes 3 and 13) $ 34,626 $ 33,020
Federal funds sold (note 13) 38,730 27,420
Interest earning deposits in other banks (note 13) 677 453
Investment securities (notes 4 and 13):
Available for sale 104,296 98,756
Held to maturity (fair value: 1996 - $43,214
and 1995 - $53,853) 42,474 52,390
Loans, net of unearned income (notes 5 and 13) 509,412 476,510
Less allowance for possible loan losses 7,565 7,048
-----------------------------
Loans, net 501,847 469,462
-----------------------------
Premises and equipment, net (note 6) 18,311 15,869
Goodwill and other intangibles, net (note 13) 6,712 7,442
Other assets (notes 7 and 10) 13,422 11,669
-----------------------------
Total assets $761,095 $716,481
=============================
Liabilities
Deposits (note 13):
Noninterest bearing demand deposits $ 75,706 $ 69,516
Interest bearing deposits (note 8) 594,567 556,790
-----------------------------
Total deposits 670,273 626,306
Federal funds purchased (note 13) 1,000 --
Other short-term borrowings (notes 9 and 13) -- 501
Long-term debt (notes 9 and 13) 7,223 11,639
Accrued expenses and other liabilities (note 11) 7,158 8,581
-----------------------------
Total liabilities 685,654 647,027
-----------------------------
Shareholders' equity (notes 9, 15 and 16):
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 39,384 33,099
Reduction for ESOP loan guarantee (137) (226)
Common stock in treasury (64,734 shares), at cost (337) (337)
Net unrealized gains (losses) on investment securities (75) 312
-----------------------------
Total shareholders' equity 75,441 69,454
-----------------------------
Commitments and contingencies (notes 5 and 12)
Total liabilities and shareholders' equity $761,095 $716,481
=============================
</TABLE>
See accompanying notes to consolidated financial statements.
thirty-two CenturySouthbanks
<PAGE>
Consolidated Statements of Income
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
<TABLE>
Years ended December 31,
-------------------------------------
(Amounts in thousands, except per share data) 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans, including fees $52,014 $49,049 $39,725
Federal funds sold 1,404 1,313 897
Interest on deposits in other banks 33 51 149
Investment securities:
Taxable 6,764 6,644 5,744
Nontaxable 2,611 2,682 2,517
-------------------------------------
Total interest income 62,826 59,739 49,032
-------------------------------------
Interest expense:
Deposits (note 8) 28,631 27,499 19,923
Federal funds purchased 15 40 13
Long-term debt and other borrowings 519 1,041 1,030
-------------------------------------
Total interest expense 29,165 28,580 20,966
-------------------------------------
Net interest income 33,661 31,159 28,066
Provision for possible loan losses (note 5) 1,757 1,694 943
-------------------------------------
Net interest income after provision for
possible loan losses 31,904 29,465 27,123
-------------------------------------
Noninterest income:
Service charges on deposit accounts 3,842 3,570 3,158
Securities gains (losses), net (note 4) 216 29 (74)
Other operating income (note 14) 2,566 2,566 1,909
-------------------------------------
Total noninterest income 6,624 6,165 4,993
-------------------------------------
Noninterest expense:
Salaries and employee benefits (note 11) 12,706 11,755 10,614
Occupancy and equipment expense, net 3,283 3,166 2,895
Other operating expenses (note 14) 9,062 9,602 9,382
-------------------------------------
Total noninterest expense 25,051 24,523 22,891
-------------------------------------
Income before income taxes 13,477 11,107 9,225
Income tax expense (note 10) 4,107 3,212 2,234
-------------------------------------
Net income $ 9,370 $ 7,895 $ 6,991
=====================================
Net income per common share and common share
equivalents:
Primary $ 1.21 $ 1.02 $ 0.91
=====================================
Fully diluted $ 1.20 $ 1.02 $ 0.91
=====================================
Weighted average common shares outstanding and common
share equivalents:
Primary 7,776 7,773 7,663
=====================================
Fully diluted 7,778 7,776 7,663
=====================================
</TABLE>
See accompanying notes to consolidated financial statements.
thirty-three
<PAGE>
Consolidated Statements of Shareholders' Equity
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
Years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Net
Reduction unrealized
Additional for ESOP gains (losses)
(Amounts in thousands, Common paid-in Retained loan Treasury on investment
except per share data) stock (1) capital earnings guarantee stock (2) securities Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1993 $7,521 $25,880 $22,790 $(310) $(337) $ 1,202 $56,746
Cash dividends declared -
$0.3425 per share -- -- (1,624) -- -- -- (1,624)
Net income -- -- 6,991 -- -- -- 6,991
Net unrealized losses on
investment securities -- -- -- -- -- (3,673) (3,673)
Conversion of 9%
convertible subordinated
debentures (note 9) 305 2,900 -- -- -- -- 3,205
Principal payments on
ESOP loan (note 11) -- -- -- 49 -- -- 49
Cash dividends of
pooled subsidiaries
prior to acquisition -- -- (268) -- -- -- (268)
------------------------------------------------------------------------------------------
Balance at
December 31, 1994 $7,826 $28,780 $27,889 $(261) $(337) $(2,471) $61,426
Cash dividends declared -
$0.3776 per share -- -- (2,303) -- -- -- (2,303)
Net income -- -- 7,895 -- -- -- 7,895
Net unrealized gains on
investment securities -- -- -- -- -- 2,783 2,783
Principal payments, net
of proceeds, on ESOP
loan (note 11) -- -- -- 35 -- -- 35
Cash dividends of
pooled subsidiaries
prior to acquisition -- -- (382) -- -- -- (382)
------------------------------------------------------------------------------------------
Balance at
December 31, 1995 $7,826 $28,780 $33,099 $(226) $(337) $ 312 $69,454
Cash dividends declared -
$0.3975 per share -- -- (3,085) -- -- -- (3,085)
Net income -- -- 9,370 -- -- -- 9,370
Net unrealized losses on
investment securities -- -- -- -- -- (387) (387)
Principal payments on
ESOP loan (note 11) -- -- -- 89 -- -- 89
------------------------------------------------------------------------------------------
Balance at
December 31, 1996 $7,826 $28,780 $39,384 $(137) $(337) $ (75) $75,441
==========================================================================================
</TABLE>
(1) Common shares issued: 7,826 shares at December 31, 1996, 1995 and 1994, and
7,521 shares at December 31, 1993.
(2) Common stock held in treasury - 65 shares.
See accompanying notes to consolidated financial statements.
thirty-four CenturySouthbanks
<PAGE>
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Years ended December 31,
------------------------------------
(Amounts in thousands) 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 9,370 $ 7,895 $ 6,991
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 1,757 1,694 943
Write-downs and other losses on sale of other real estate 82 254 451
Depreciation 1,569 1,528 1,384
Amortization and accretion, net 775 838 893
Securities (gains) losses, net (216) (29) 74
Gain on sale of mortgage servicing rights (224) (375) --
Deferred income tax expense (benefit) (266) 22 (299)
Decrease in mortgage loans held for sale -- 1,164 2,307
Increase in other assets (742) (1,272) (1,126)
Increase (decrease) in accrued expenses and
other liabilities (1,346) 2,031 31
------------------------------------
Net cash provided by operating activities 10,759 13,750 11,649
------------------------------------
Cash flows from investing activities:
Proceeds from sales of investment securities
available for sale 8,110 9,524 8,852
Principal collections and maturities of investment
securities available for sale 28,924 20,811 20,602
Principal collections and maturities of investment
securities held to maturity 11,516 11,856 4,477
Proceeds from maturities of interest earning
deposits with banks 2,235 16,333 13,945
Purchases of investment securities held to maturity (1,618) (11,820) (11,882)
Purchases of investment securities available for sale (43,020) (23,237) (56,807)
Investment in interest earning deposits with banks (2,459) (14,405) (12,456)
Proceeds from sales of other real estate 380 1,356 829
Net increase in loans (35,101) (38,039) (32,814)
Purchase of premises and equipment (4,116) (2,310) (1,491)
Proceeds from sales of premises and equipment 105 512 6
Proceeds from sale of mortgage servicing rights 108 652 --
Net cash received from acquisition -- -- 14,773
------------------------------------
Net cash used in investing activities (34,936) (28,767) (51,966)
------------------------------------
Cash flows from financing activities:
Net increase in deposits 43,967 35,237 46,455
Net increase (decrease) in federal funds purchased 1,000 (80) 80
Proceeds from issuance of long-term debt and
other borrowings 5,414 6,542 10,750
Payments on long-term debt and other borrowings (10,242) (12,373) (3,676)
Dividends paid to shareholders (3,046) (2,435) (1,821)
------------------------------------
Net cash provided by financing activities 37,093 26,891 51,788
------------------------------------
Net increase in cash and cash equivalents 12,916 11,874 11,471
Cash and cash equivalents at beginning of year 60,440 48,566 37,095
------------------------------------
Cash and cash equivalents at end of year $73,356 $60,440 $48,566
====================================
Supplemental disclosures of cash paid during the year for:
Interest $29,871 $26,422 $20,707
====================================
Income taxes $ 4,853 $ 3,261 $ 2,281
====================================
Supplemental schedule of noncash investing and
financing activities:
Real estate acquired through foreclosure $ 2,667 $ 2,453 $ 2,069
====================================
Real estate sold and financed by the Company $ 1,708 $ 848 $ 988
====================================
Securities transferred from available for sale to
held to maturity at fair value $ -- $ 3,864 $11,149
====================================
Securities transferred from held to maturity to
available for sale $ -- $ 1,786 $ --
====================================
Conversion of convertible subordinated debentures $ -- $ -- $ 3,205
====================================
Acquisition of equipment through capital leases $ -- $ -- $ 117
====================================
Net reduction in guaranteed ESOP loan recorded
in shareholders' equity $ 89 $ 35 $ 49
====================================
</TABLE>
See accompanying notes to consolidated financial statements.
thirty-five
<PAGE>
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
December 31, 1996, 1995 and 1994
Note 1. Summary of Significant Accounting Policies
The accounting and reporting policies of Century South Banks, Inc. and
subsidiaries ("the Company") conform to generally accepted accounting principles
and to general practices within the banking industry. The following is a
description of the more significant of those policies.
Business
The Company provides a full range of banking services to individual and
corporate customers through its banking subsidiaries in northern Georgia and
southeastern Tennessee. The Company is subject to competition from other
financial institutions, is subject to the regulations of certain Federal and
state agencies, and undergoes periodic examinations by those regulatory
agencies.
Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of Century South
Banks, Inc. ("Parent company") and its wholly owned bank subsidiaries. The
Company has ten wholly owned bank subsidiaries predominantly involved in
commercial banking activities.
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the allowance for possible loan
losses and the valuation of real estate acquired in connection with foreclosures
or in satisfaction of loans. In connection with the determination of the
allowances for possible losses on loans and real estate acquired through
foreclosure, management obtains independent appraisals and reviews available
market data such as comparable sales and recent market trends through
discussions with local real estate professionals.
Cash and Cash Equivalents
Cash equivalents include due from banks and federal funds sold. Generally,
federal funds are sold for periods less than 90 days.
Investment Securities
The Company has classified its investment securities in two categories:
available for sale or held to maturity. Held to maturity securities are those
securities for which the Company has the ability and intent to hold the security
until maturity. All other securities are classified as available for sale. The
classification of investment securities is determined at the date of purchase.
Available for sale securities are recorded at fair value. Held to maturity
securities are recorded at cost adjusted for the amortization or accretion of
premiums or discounts. Unrealized holding gains and losses, net of the related
income tax effects, on securities available for sale are excluded from earnings
and are reported as a separate component of shareholders' equity until realized.
thirty-six CenturySouthbanks
<PAGE>
- --------------------------------------------------------------------------------
Available for sale securities transferred into the held to maturity
category are recorded at fair value at date of transfer. The related unrealized
holding gain or loss at date of transfer is reported as a component of
shareholders' equity and is amortized over the remaining life of the security as
an adjustment of yield.
Mortgage-backed securities held to maturity are stated at their unpaid
principal balances, adjusted for unamortized premiums and unaccreted discounts.
Mortgage-backed securities available for sale are stated at their estimated fair
value. Principal repayments received on mortgage-backed securities are included
in proceeds from maturities of investment securities in the consolidated
statements of cash flows for the available for sale securities and held to
maturity securities, as applicable.
A decline in the market value of any available for sale or held to
maturity security below cost that is deemed other than temporary results in a
charge to earnings and the establishment of a new cost basis for the security.
At December 31, 1996, the Company did not have any securities with other than
temporary impairment for which a new cost basis had not been established.
Premiums and discounts are amortized or accreted over the life of the
related investment security as an adjustment to yield using the effective
interest method and prepayment assumptions. Dividend and interest income are
recognized when earned. Realized gains and losses for investment securities sold
are recognized on the settlement date and are derived using the specific
identification method for determining the cost of securities sold. The financial
statement impact of settlement date accounting versus trade date accounting is
immaterial.
Loans and Interest Income
Loans are reported at principal amounts outstanding, net of unearned income and
the allowance for possible loan losses. Interest income on loans is recognized
on a level yield basis.
Loan fees, net of certain direct origination costs, are deferred and
amortized over the estimated terms of the loans using a method which
approximates a level yield.
Loans on which the accrual of interest has been discontinued are
designated as nonaccrual loans. Accrual of interest on loans is discontinued
when reasonable doubt exists as to the full 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 with the balance, if any, charged
to the allowance for possible loan losses, unless management believes that the
accrued interest is recoverable through the liquidation of collateral.
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 114 Accounting by
Creditors for Impairment of a Loan ("SFAS 114"). SFAS 114 requires impaired
loans to be measured based on the present value of expected future cash flows,
discounted at the loan's effective interest rate, or at the loan's observable
market price, or the fair value of the collateral if the loan is collateral
dependent, beginning in 1995. In October 1994, the FASB issued Statement of
Financial Accounting
thirty-seven
<PAGE>
Notes to Consolidated Financial Statements (continued)
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
Standards No. 118, Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures ("SFAS 118") which amends SFAS 114 to require
information about the recorded investment in certain impaired loans and
eliminates its provisions regarding how a creditor should report income on an
impaired loan. SFAS 118 allows creditors to use existing methods for recognizing
income on impaired loans, including methods required by certain industry
regulators. The Company adopted SFAS 114 and SFAS 118, on a prospective basis,
effective January 1, 1995. This adoption required no increase to the allowance
for loan losses and had no impact on net income in 1995.
A loan is considered impaired when it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. When the ultimate collectibility of an impaired loan's principal is
in doubt, cash receipts are applied under the contractual terms of the loan
agreement first to principal and then to interest income. Once the recorded
principal balance has been reduced to zero, future cash receipts are applied to
interest income, to the extent that interest has not been previously recognized.
Additional future cash receipts are recorded as recoveries of any amounts
previously charged off.
Mortgage Loans Held for Sale
Mortgage loans held for sale are recorded at the lower of aggregate cost or
market as determined by outstanding commitments from investors or current yield
requirements.
Gains or losses on the sale of these loans are recorded in other operating
income at the time the proceeds are received and represent the difference
between the net sales proceeds and their carrying value at the time of sale.
Allowance for Possible Loan Losses
The allowance for possible loan losses is based on management's evaluation of
the loan portfolio under current economic conditions, past loan loss experience,
adequacy of collateral, and such other factors which in management's judgment,
deserve recognition in estimating loan losses. Loans are charged to the
allowance when, in the opinion of management, such loans are deemed to be
uncollectible. Subsequent recoveries are added to the allowance.
A substantial portion of the Company's loans is secured by real estate in
markets in northern Georgia, southeastern Tennessee, and southwestern North
Carolina. In addition, a substantial portion of the Company's real estate
acquired through foreclosure is located in these same markets. Accordingly, the
ultimate collectibility of a substantial portion of the Company's loan portfolio
and the recovery of a substantial portion of the Company's real estate acquired
through foreclosure are susceptible to changes in market conditions in these
markets.
Management believes that the allowance for possible losses on loans is
adequate. While management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on changes in
economic conditions, particularly in northern Georgia, southeastern Tennessee,
and southwestern North Carolina. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Company's
allowance for possible losses on loans. Such agencies may require the Company to
recognize additions to the allowance based on their judgments about information
available to them at the time of their examination.
Premises and Equipment
Premises and equipment, including the cost of purchased computer software, are
stated at cost less accumulated depreciation and amortization which are computed
using straight-line or accelerated methods over the estimated useful lives of
the related assets.
thirty-eight CenturySouthbanks
<PAGE>
- --------------------------------------------------------------------------------
Real Estate Acquired Through Foreclosure
Real estate acquired through foreclosure is reported at the lower of cost or
fair value, adjusted for estimated selling costs. Fair value is determined on
the basis of current appraisals, comparable sales, and other estimates of value
obtained principally from independent sources. Any excess of the loan balance at
the time of foreclosure over the fair value of the real estate held as
collateral, as adjusted, is treated as a loan loss. Further deterioration in the
fair value of real estate acquired through foreclosure during the disposition
period is charged to other operating expenses.
Goodwill and Other Intangibles
Goodwill is being amortized using the straight-line method over 20 years.
Other acquired intangible assets, such as the value of mortgage servicing
rights, core deposits, and an assent, consulting, and noncompetition agreement,
are amortized over the periods benefited, ranging from seven to twelve years.
Amortization periods for intangible assets are monitored to determine if
events and circumstances require such periods to be reduced. Goodwill and core
deposit premiums are reviewed for impairment on the basis of whether these
assets are fully recoverable from expected undiscounted cash flows of the
related businesses.
Income Taxes
The Company accounts for income taxes under the asset and liability method.
Deferred income tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred income tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
income tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
Stock-Based Compensation
The Company accounts for its fixed stock option plans in accordance with the
provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees ("APB Opinion 25"), and related interpretations. As such,
compensation expense is recorded only to the extent that the market price of the
underlying stock at the date of grant exceeds the exercise price. In October
1995, Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation ("SFAS 123"), was issued. SFAS 123 allows entities to
continue to apply the provisions of APB Opinion 25 for recognizing stock-based
compensation expense in the basic financial statements. However, companies are
encouraged to adopt a new accounting method based on the estimated fair value of
stock-based compensation. Companies that do not follow the new fair value based
method are required to provide expanded disclosures in the footnotes. SFAS 123
is effective for the fiscal year ended December 31, 1996. The Company has
elected to continue to apply the provisions of APB Opinion 25 and, to the extent
material, follow the disclosure provisions of SFAS 123.
Net Income Per Share
Net income per share is based on the weighted average number of common shares
and common share equivalents outstanding during the period.
thirty-nine
<PAGE>
Notes to Consolidated Financial Statements (continued)
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
Recent Accounting Pronouncements
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on January 1,
1996. This statement requires that long-lived assets and certain identifiable
intangible assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets. Assets to be disposed
of are reported at the lower of the carrying amount or fair value less costs to
sell. Adoption of this statement did not have a material impact on the Company's
financial position, results of operations, or liquidity.
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 ("SFAS 125"). SFAS 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. SFAS 125 was amended
by Statement of Financial Accounting Standards No. 127, which defers the
effective date of certain provisions of SFAS 125 until January 1, 1998. SFAS 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. It
distinguishes transfers of financial assets that are sales from transfers that
are secured borrowings. Management of the Company does not expect the adoption
of SFAS 125 to have a material impact on the Company's financial position,
results of operations, or liquidity.
Note 2. Business Combinations
On December 27, 1995, the Company completed the acquisition of the Bank of
Danielsville ("DAN") located in Danielsville, Georgia. The Company issued
784,000 shares of its common stock in exchange for all of the issued and
outstanding shares of DAN. No cash was paid in the transaction.
On December 14, 1995, the Company completed the acquisition of Peoples
Bank ("PBL") located in Lavonia, Georgia. The Company issued 687,174 shares of
its common stock in exchange for all of the issued and outstanding shares of
PBL. No cash, except for fractional shares, was paid in the transaction.
On April 14, 1995, the Company completed the acquisition of Gwinnett
Bancorp, Inc. ("GBI"), a bank holding company located in Duluth, Georgia, and
its subsidiary bank, Gwinnett National Bank ("GNB"). The Company issued 668,217
shares of its common stock in exchange for all of the issued and outstanding
shares of GBI. No cash, except for fractional shares, was paid in the
transaction.
On April 14, 1995, the Company completed the acquisition of First
Community Bank of Dawsonville ("FCBD") located in Dawsonville, Georgia. The
Company issued 808,066 shares of its common stock in exchange for all of the
issued and outstanding shares of FCBD. No cash, except for fractional shares,
was paid in the transaction.
These transactions have been accounted for as poolings of interests and
accordingly, financial information preceding the dates of acquisition has been
restated to include the financial position and results of operations of these
acquired entities.
forty
<PAGE>
- --------------------------------------------------------------------------------
Note 3. Restricted Cash
Aggregate reserves (in the form of deposits with the Federal Reserve Bank and
vault cash) of approximately $3,802,000 and $2,920,000 were maintained to
satisfy regulatory requirements as of December 31, 1996 and 1995, respectively.
Note 4. Investment Securities
The amortized cost, gross unrealized gains and losses, and fair value of
available for sale and held to maturity securities by security type at December
31, 1996 and 1995 are as follows:
<TABLE>
1996
--------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
(Amounts in thousands) cost gains losses fair value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury and
U.S. Government agencies $ 55,980 $170 $(294) $ 55,856
State, county and municipal securities 14,427 378 (81) 14,724
Mortgage-backed securities 25,633 185 (122) 25,696
Other debt securities 4,911 17 (69) 4,859
Equity securities 3,134 100 (73) 3,161
--------------------------------------------
$104,085 $850 $(639) $104,296
============================================
Held to maturity:
U.S. Treasury and
U.S. Government agencies $ 10,024 $155 $ (37) $10,142
State, county and municipal securities 28,122 697 (162) 28,657
Mortgage-backed securities 2,023 30 (7) 2,046
Other debt securities 2,305 64 -- 2,369
--------------------------------------------
$ 42,474 $946 $(206) $43,214
============================================
<CAPTION>
1995
--------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
(Amounts in thousands) cost gains losses fair value
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury and
U.S. Government agencies $ 48,274 $ 339 $ (63) $48,550
State, county and municipal securities 15,140 719 (21) 15,838
Mortgage-backed securities 26,313 216 (125) 26,404
Other debt securities 5,032 40 (65) 5,007
Equity securities 2,927 30 -- 2,957
--------------------------------------------
$ 97,686 $1,344 $(274) $98,756
============================================
Held to maturity:
U.S. Treasury and
U.S. Government agencies $15,759 $ 306 $(101) $15,964
State, county and municipal securities 30,269 1,201 (106) 31,364
Mortgage-backed securities 3,169 86 (7) 3,248
Other debt securities 3,193 84 -- 3,277
--------------------------------------------
$52,390 $1,677 $(214) $53,853
============================================
</TABLE>
forty-one
<PAGE>
Notes to Consolidated Financial Statements (continued)
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
During 1995 and 1994, the Company transferred available for sale
securities with a fair value of $3,864,000 and $11,149,000, respectively, to the
held to maturity category. At the dates of transfer during 1995 and 1994, these
securities had unrealized losses of approximately $93,000 and $735,000,
respectively. The unamortized portion of such unrealized losses, included as a
component of amortized cost, approximated $353,000 and $576,000 at December 31,
1996 and 1995, respectively.
In April 1995, in conjunction with the acquisitions of GBI and FCBD, the
Company transferred certain acquired held to maturity securities to the
available for sale category. These transfers were made to conform to the
Company's existing interest rate risk position under its asset liability
management policy. Such transfers consisted of investment securities with an
estimated fair value of $1,754,000 and an amortized cost of $1,786,000.
The amortized cost and estimated fair values of investment securities at
December 31, 1996, by contractual maturity are shown below. Actual maturities
may differ from contractual maturities because issuers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
Amortized Estimated
(Amounts in thousands) cost fair value
- -----------------------------------------------------------------------
<S> <C> <C>
Available for sale:
Due in one year or less $ 19,080 $ 19,136
Due after one year through five years 57,691 57,673
Due after five years through ten years 8,517 8,567
Due after ten years 15,663 15,759
Equity securities 3,134 3,161
--------------------------
$104,085 $ 104,296
==========================
Held to maturity:
Due in one year or less $ 3,782 $ 3,830
Due after one year through five years 20,193 20,444
Due after five years through ten years 12,879 13,199
Due after ten years 5,620 5,741
--------------------------
$ 42,474 $ 43,214
==========================
</TABLE>
Proceeds from sales of securities available for sale during 1996, 1995 and
1994 were $8,110,000, $9,524,000 and $8,852,000 respectively. There were no
sales of held to maturity securities during 1996, 1995 and 1994. Securities
gains (losses), net for 1996, 1995 and 1994 included gross realized gains of
approximately $221,000, $40,000, and $82,000, and gross realized losses of
approximately $5,000, $11,000, and $156,000, respectively.
Securities with a carrying value of approximately $81,899,000 in 1996 and
$61,127,000 in 1995 were pledged to secure public funds on deposit and for other
purposes as required by law.
Note 5. Loans
Loans outstanding, by classification, are summarized as follows at December 31:
<TABLE>
<CAPTION>
(Amounts in thousands) 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C>
Commercial, financial, and agricultural $ 82,461 $ 74,697
Real estate-construction 58,333 46,538
Real estate-mortgage 291,202 276,802
Consumer installment 78,087 79,124
--------------------------
510,083 477,161
Less: Unearned income 671 651
Allowance for possible loan losses 7,565 7,048
--------------------------
$501,847 $469,462
==========================
</TABLE>
forty-two CenturySouthbanks
<PAGE>
- --------------------------------------------------------------------------------
At December 31, 1996 and 1995, the Company was servicing commercial loans
for others totaling $5,011,000 and $7,724,000, respectively. At December 31,
1995, the Company was servicing mortgage loans for others totaling $18,586,000.
The Company sold the servicing rights for these mortgage loans in January, 1996.
At December 31, 1996, outstanding commitments included commitments to fund
commercial, consumer, real estate-construction, and real estate-mortgage loans
of approximately $53,818,000. It is the opinion of management that such
commitments do not involve more than the normal risk of loss.
Transactions in the allowance for possible loan losses are summarized as
follows for the years ended December 31, 1996, 1995, and 1994.
<TABLE>
<CAPTION>
(Amounts in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 7,048 $ 6,846 $ 6,192
Allowance related to loans of purchased business -- -- 470
Provision charged to operating expense 1,757 1,694 943
Recoveries on loans previously charged off 490 267 255
Loans charged off (1,730) (1,759) (1,014)
----------------------------
Balance at end of year $ 7,565 $ 7,048 $ 6,846
============================
</TABLE>
Nonaccrual loans amounted to $2,888,000 at December 31, 1996 and
$1,815,000 at December 31, 1995. The approximate effect on interest income of
nonaccrual loans for the years ended December 31, 1996, 1995, and 1994 is
summarized as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest at contractual rate $515 $650 $529
Less interest recorded as income 330 152 164
-------------------------
Reduction of interest income $185 $498 $365
=========================
</TABLE>
As discussed in note 1, the Company adopted SFAS 114 and SFAS 118 on
January 1, 1995. This adoption required no increase to the allowance for loan
losses and had no impact on net income for the year ended December 31, 1995.
Impaired loans and related amounts included in the allowance for loan
losses at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------------------------
Principal Principal
(Amounts in thousands) Balance Allowance Balance Allowance
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Impaired loans, with a related allowance $1,163 $400 $1,503 $260
Impaired loans, without allowance 4,149 -- 4,705 --
------------------------------------------
Total $5,312 $400 $6,208 $260
==========================================
</TABLE>
The allowance amounts were primarily determined using the fair value of
the related collateral.
The average recorded investment in impaired loans for the year ended
December 31, 1996 was $5,560,000. The interest income recognized on impaired
loans for the year ended December 31, 1996 was approximately $457,000.
The average recorded investment in impaired loans for the year ended
December 31, 1995 was $6,894,000. The interest income recognized on impaired
loans for the year ended December 31, 1995 was approximately $353,000.
The Company has direct and indirect loans outstanding to certain executive
officers, directors, and principal holders of equity securities (including their
associates) of the Parent company through its subsidiaries. All of these loans
were made in the ordinary course of business on substantially the same terms,
including interest rate and collateral, as those prevailing
forty-three
<PAGE>
Notes to Consolidated Financial Statements (continued)
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
at the time for comparable transactions with other persons, and did not involve
more than the normal credit risk or present other unfavorable features. The
following is a summary of such loans outstanding and the activity in these loans
for 1996:
<TABLE>
<CAPTION>
(Amounts in thousands)
--------------------------------------------------------------------
<S> <C>
Balance at December 31, 1995 $24,499
Adjustment due to changes in related parties 4,440
-------
Adjusted balance at December 31, 1995 28,939
New loans 27,451
Repayments (23,831)
-------
Balance at December 31, 1996 $32,559
=======
</TABLE>
Note 6. Premises and Equipment
Premises and equipment at December 31, 1996 and 1995 are summarized as follows:
<TABLE>
(Amounts in thousands) 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 3,870 $ 3,758
Buildings and improvements 12,782 11,203
Furniture and equipment 11,988 10,207
Leasehold improvements 249 205
Construction in progress 369 342
---------------------------
29,258 25,715
Accumulated depreciation and amortization (10,947) (9,846)
---------------------------
$ 18,311 $15,869
===========================
</TABLE>
Note 7. Real Estate Acquired Through Foreclosure
Real estate acquired through foreclosure, in the net amount of $2,433,000 and
$1,893,000 at December 31, 1996 and 1995, respectively, is included in other
assets.
Note 8. Interest Bearing Deposits
A summary of interest bearing deposits at December 31, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest bearing demand deposits $117,978 $ 99,637
Money market accounts 23,687 25,422
Savings deposits 61,838 60,718
Certificates of deposit and individual retirement
accounts of $100 or more 98,131 85,575
Other individual retirement accounts 40,527 38,022
Other certificates of deposit 252,406 247,416
--------------------------
$594,567 $556,790
==========================
</TABLE>
Interest expense on certificates of deposit and individual retirement
accounts of $100,000 or more was approximately $5,466,000, $5,255,000, and
$3,488,000, for the years ended December 31, 1996, 1995, and 1994, respectively.
forty-four
<PAGE>
- --------------------------------------------------------------------------------
Note 9. Long-Term Debt and Short-Term Borrowings
Short-term borrowings at December 31, 1996 and 1995 consist of the following:
<TABLE>
<CAPTION>
(Amounts in thousands) 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Credit facility with a bank at prime with maximum borrowing of
up to $1,500; interest payable monthly; maturing January 28,
1997; secured by common stock of a subsidiary $ -- $ 1
Retail repurchase agreements -- 500
-------------------------
Total short-term borrowings $ -- $ 501
=========================
</TABLE>
A summary of long-term debt at December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Parent Company:
Promissory note at prime - maturing August 2003, secured
by common stock of three bank subsidiaries $ -- $ 3,200
Parent company guaranteed ESOP promissory notes at
prime + 1/2%, maturing January 2000, secured by
common stock held by the ESOP 137 226
Subsidiaries:
Credit facilities with Federal Home Loan Banks with maximum
borrowings of up to $51,000, secured by qualified real
estate loans:
Fixed rate ranging from 7.39% to 7.74%, with maturities of
April 30, 1997 and September 1, 2006 2,982 4,083
Variable rate based on monthly LIBOR with maturities of
December 28, 1998 and January 13, 1999 4,000 4,000
Other notes payable and capital lease obligations payable, with
a weighted average interest rate of 9.61%, maturing at
various dates, through 2000. 104 130
-------------------------
Total long-term debt $ 7,223 $11,639
=========================
</TABLE>
The provisions of the loan and security agreements associated with certain
of the promissory notes restrict, within specified limits, the Company from,
among other things, incurring borrowings and the sale or transfer of assets
without prior written consent. At December 31, 1996, the Company was in
compliance with the covenants of the aforementioned loan and security
agreements.
On April 20, 1994, the Company notified the debenture holders of its plans
to redeem the 9% Convertible Subordinated Debentures Series 1988A as of May 20,
1994 at the rate of 101% of the face amount. The debentures granted the holder
the option to convert each $5,000 into 476 shares of common stock of the Company
at a conversion price of approximately $10.50 per share. The conversion rights
expired one business day prior to the redemption date. Debentures in the amount
of $3,205,000 or 89% of the total were converted into 305,116 common shares. The
remaining $385,000 in debentures were redeemed.
Required principal payments on long-term debt for years subsequent to
December 31, 1996 are: 1997 - $2.2 million; 1998 - $2.2 million; 1999 - $2.1
million; 2000 - $0.1 million; and $0.6 million thereafter.
forty-five
<PAGE>
Notes to Consolidated Financial Statements (continued)
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
Note 10. Income Taxes
The components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $4,116 $3,107 $2,516
State 257 83 17
-------------------------------
4,373 3,190 2,533
-------------------------------
Deferred:
Federal (226) 22 (299)
State (40) -- --
-------------------------------
(266) 22 (299)
-------------------------------
$4,107 $3,212 $2,234
===============================
</TABLE>
The following is a summary of the differences between the income tax
expense as shown in the consolidated statements of income and income tax expense
that would result from applying the statutory Federal income tax rate of 35% in
1996 and 34% in 1995 and 1994 to income before income taxes.
<TABLE>
<CAPTION>
(Amounts in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense $4,717 $3,776 $3,136
Increase (decrease) resulting from:
Tax-exempt interest (888) (909) (892)
Amortization of goodwill and other intangibles 132 129 135
Acquisition costs 13 119 31
State income tax, net of federal income tax benefit 141 55 11
Changes in valuation allowance -- (44) (86)
Other, net (8) 86 (101)
-------------------------------
$4,107 $3,212 $2,234
===============================
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets and deferred income tax liabilities
at December 31, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
(Amounts in thousands) 1996 1995
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Allowance for losses on real estate acquired through foreclosure $ 13 $ 44
Deferred compensation 190 178
Allowance for possible loan losses 2,438 2,057
Unearned income 79 147
Net unrealized losses on investment securities 66 --
-------------------
Total gross deferred income tax assets 2,786 2,426
-------------------
Deferred income tax liabilities:
Net unrealized gains on investment securities -- 183
Depreciation 837 792
Intangible assets 23 161
Other, net 152 31
-------------------
Total gross deferred income tax liabilities 1,012 1,167
-------------------
Net deferred income tax assets $1,774 $1,259
===================
</TABLE>
forty-six
<PAGE>
- --------------------------------------------------------------------------------
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projections for future taxable
income over the periods in which the temporary differences resulting in the
deferred tax assets are deductible, management believes it is more likely than
not that the Company will realize the benefits of these deductible differences.
Note 11. Employee Benefits
(a) Employee Benefit Plans
The Company provides a contributory, trusteed 401(k) profit sharing and employee
stock ownership plan ("the Plan") to substantially all full-time employees. To
date, the Plan has incurred $430,000 in borrowings to purchase 55,330 shares of
the Company's common stock and has made principal payments on such loans of
$293,000, reducing the outstanding balance at December 31, 1996 to $137,000.
Annual employer contributions to the Plan are determined at the discretion of
the Board of Directors of the Company and its subsidiaries. Aggregate
contributions to the Plan were approximately $318,000, $269,000, and $243,000,
in 1996, 1995, and 1994, respectively. Interest costs related to the Plan's
loans totaled approximately $18,000, $26,000, and $21,000 for 1996, 1995, and
1994, respectively. During 1996, 1995, and 1994 dividends on ESOP shares of
approximately $12,300, $13,200, and $14,300, respectively, were available to the
Plan to service the ESOP debt.
(b) Stock Option Plans
In April 1994, the Company adopted the Century South Banks, Inc. Incentive Stock
Option Plan ("ISOP") under which the Compensation Committee of the Board of
Directors has the authority to grant stock options to key employees of the
Company. Fifty thousand shares of common stock are reserved for issuance under
the ISOP. Recipients of the options are fully vested upon grant of the options.
Options are granted with exercise prices at least equal to the fair value of a
share of stock on the grant date.
Under the ISOP and other fixed stock option plans, the Company has granted
options for 41,654 shares of common stock to officers of the Company and its
subsidiaries.
A summary of the status of the Company's ISOP and other fixed stock option
plans as of December 31, 1996, 1995, and 1994 and changes during the years ended
on those dates is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed Stock Options
Outstanding at beginning of year 27,184 $7.73 27,184 $7.73 11,956 $5.91
Granted 14,470 5.68 -- 15,228 9.16
Exercised -- -- --
Cancelled -- -- --
--------------------------------------------------------------------------------
Outstanding at end of year 41,654 $7.02 27,184 $7.73 27,184 $7.73
================================================================================
Options exercisable at year-end 41,654 $7.02 27,184 $7.73 27,184 $7.73
================================================================================
</TABLE>
forty-seven
<PAGE>
Notes to Consolidated Financial Statements (continued)
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Weighted
Weighted Average
Number Outstanding Range of Average Remaining
at 12/31/96 Exercise Prices Exercise Price Contractual Life
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
41,654 $ 5.00 to 12.00 $ 7.02 3.3 years
</TABLE>
The Company expensed $13,000 in 1994 related to the compensation element
of these plans. There was no further compensation expense related to these plans
in 1996 and 1995.
As discussed in note 1, on January 1, 1996, the Company adopted SFAS 123
which requires entities to recognize as expense over the vesting period the fair
value of all stock-based awards measured at the date of grant. Alternatively,
SFAS 123 allows entities to continue to apply the provisions of APB Opinion 25
and provide pro forma net income and pro forma earnings per share disclosures
for employee stock option grants made in 1995 and later years as if the
fair-value-based method defined in SFAS 123 had been applied. The Company has
elected to continue to apply the provisions of APB Opinion 25. The pro forma and
fair value disclosures required by SFAS 123 are not provided herein due to their
immaterial effect resulting from the immaterial options granted and outstanding.
(c) Other Compensation Plans
The Company sponsors a defined benefit health care plan that provides
postretirement medical and life insurance benefits to full-time employees who
meet minimum age and service requirements. The plan is contributory, with
retiree contributions adjusted annually for the effects of inflation, and
contains other cost-sharing features such as deductibles and coinsurance. The
Company's policy is to fund the cost of medical benefits in amounts determined
at the discretion of management.
The following table presents the plan's funded status reconciled to
amounts recognized in the Company's consolidated balance sheet at December 31,
1996 and 1995.
<TABLE>
<S> <C> <C>
(Amounts in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $ 70 $ 67
Fully eligible active plan participants 32 29
-------------------
Accumulated postretirement benefit obligation 102 96
Unrecognized transition obligation (112) (118)
Unrecognized net gain 44 43
-------------------
Accrued postretirement benefit cost included in
accrued expenses and other liabilities $ 34 $ 21
===================
</TABLE>
Net periodic postretirement benefit cost for 1996, 1995 and 1994 includes
the following components:
<TABLE>
<CAPTION>
(Amounts in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 2 $ 2 $ 3
Interest cost 6 8 11
Amortization of unrecognized transition obligation 5 4 8
---------------------------------
Net periodic postretirement benefit cost $ 13 $ 14 $ 22
=================================
</TABLE>
forty-eight CenturySouthbanks
<PAGE>
- --------------------------------------------------------------------------------
For measurement purposes, the annual rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend rate) does not impact the
computations because of the Company's policy to make only fixed employer
contributions which results in the employee absorbing any increases in cost.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% and 7.0% at December 31, 1996 and
1995, respectively.
Note 12. Commitments and Contingencies
In the normal course of business, the Company's various subsidiaries have
entered into commitments to extend credit which are not reflected in the
accompanying financial statements, including approximately $2,700,000 under
standby letters of credit at December 31, 1996. It is the opinion of management
that such commitments do not involve more than the normal risk of loss.
The Company and its subsidiaries are involved in various claims and legal
actions arising in the ordinary course of business. In the opinion of
management, based in part on the advice of counsel, the ultimate disposition of
these matters will not have a material adverse impact on the Company's
consolidated financial position or results of operations.
Note 13. Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments ("SFAS 107"), requires that the Company disclose
estimated fair values for its financial instruments. Fair value estimates,
methods, and assumptions are set forth below for the Company's financial
instruments.
Cash and Cash Equivalents, Interest Earning Deposits in Other Banks, Federal
Funds Sold and Purchased, and Short-term Borrowings
The carrying amount of these instruments approximates fair value because of the
short-term maturities of these instruments.
Investment Securities
The fair value of investment securities, except certain state and municipal
securities, is estimated based on published bid prices or bid quotations
received from securities dealers. The fair value of certain state and municipal
securities is not readily available through market sources other than dealer
quotations, so fair value estimates are based on quoted market prices of similar
instruments, adjusted for differences between the quoted instruments and the
instruments being valued. In aggregate, the fair value of investment securities
was $147,510,000 and $152,609,000 at December 31, 1996 and December 31, 1995,
respectively. Refer to note 4 for further disclosure of the estimated fair
values of investment securities.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. The fair value of loans is calculated by discounting scheduled
cash flows through the estimated maturity using estimated market discount rates
that reflect the credit and interest rate risk inherent in the loan. The
estimate of maturity is based on the Company's historical experience with
repayments for each loan classification, modified, as required, by an estimate
of the effect of the current economic and lending conditions.
forty-nine
<PAGE>
Notes to Consolidated Financial Statements (continued)
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
The following table presents information on the fair value of loans:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
--------------------------------------------
Carrying Estimated Carrying Estimated
(Amounts in thousands) amount fair value amount fair value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and consumer real estate related $349,535 $348,500 $343,106 $341,814
All other loans 160,548 160,037 134,055 133,522
Unearned income (671) -- (651) --
Allowance for possible loan losses (7,565) -- (7,048) --
--------------------------------------------
$501,847 $508,537 $469,462 $475,336
============================================
</TABLE>
Deposit Liabilities
Under SFAS 107, the fair value of deposits with no stated maturity, such as
noninterest bearing demand deposits, savings accounts, NOW accounts, and money
market accounts, is equal to the amount payable on demand. The fair value of
certificates of deposit and individual retirement accounts is based on the
discounted value of contractual cash flows. The discount rate is estimated using
the rates currently offered for deposits of similar remaining maturities.
The following table presents information on the fair value of deposits:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
--------------------------------------------
Carrying Estimated Carrying Estimated
(Amounts in thousands) amount fair value amount fair value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest bearing demand deposits $ 75,706 $ 75,706 $ 69,516 $ 69,516
Savings and NOW accounts 179,816 179,816 160,355 160,355
Money market accounts 23,687 23,687 25,422 25,422
Certificates of deposit and individual
retirement accounts:
Maturing within twelve months or less 291,401 292,755 262,410 263,447
Maturing beyond one year 99,663 100,752 108,603 109,943
--------------------------------------------
$670,273 $672,716 $626,306 $628,683
============================================
</TABLE>
The fair value estimates do not include the benefit that results from the
low cost funding provided by the deposit liabilities compared to the cost of
borrowing funds in the credit markets. The table below presents at December 31,
1996 and 1995, the fair value that the Company's assets would increase if the
fair value of the deposit base intangibles was included in the accompanying
consolidated balance sheets.
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
---------------------------------------
Estimated Estimated
(Amounts in thousands) (unaudited) fair value fair value
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Core deposit intangible $24,500 $21,000
Less: Recorded amounts 1,600 1,900
---------------------------------------
Net increase in fair value $22,900 $19,100
=======================================
</TABLE>
Long-Term Debt
The fair value of the Company's long-term debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
the Company for debt of the
fifty CenturySouthbanks
<PAGE>
same remaining maturities. At December 31, 1996 and 1995, the fair value of the
long-term debt was $7,635,000 and $11,906,000, respectively.
Commitments
The fair value of commitments to extend credit to fund commercial, consumer,
real estate-construction, and real estate-mortgage loans is equal to the amount
of commitments outstanding at December 31, 1996. This is based on the fact that
the Company generally does not offer lending commitments to its customers for
long periods and, therefore, the underlying rates of the commitments approximate
market rates.
Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets that are not considered
financial instruments include deferred income tax assets, premises and
equipment, and goodwill and certain intangibles. In addition, the tax
ramifications related to the realization of the unrealized gains and losses can
have a significant effect on fair value estimates and have not been considered
in any of the estimates.
Note 14. Supplementary Income Statement Information
Components of other operating income and expenses in excess of 1% of total
income for any of the respective years are as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Income associated with originating, servicing, and
selling mortgage loans $404 $557 $ 377
Expenses:
Amortization of goodwill and other intangibles 730 839 876
Regulatory agency fees and insurance assessments 199 879 1,422
Computer services 909 796 800
Stationery and supplies 719 879 737
</TABLE>
Rental expense on computers, buildings and office equipment, including
cancelable leases, was $295,000, $355,000, and $289,000, for the years ended
December 31, 1996, 1995, and 1994, respectively.
fifty-one
<PAGE>
Notes to Consolidated Financial Statements (continued)
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
Note 15. Condensed Financial Information of Century South Banks, Inc. (Parent
Only)
<TABLE>
<CAPTION>
Condensed Balance Sheets
December 31,
---------------------------
(Amounts in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash $ 851 $ 336
Investment in consolidated bank subsidiaries, at equity 69,992 67,171
Investment securities 200 130
Premises and equipment, net 293 668
Goodwill, net 4,965 5,359
Other intangible assets, net 359 438
Other assets 291 144
---------------------------
Total assets $ 76,951 $ 74,246
===========================
Liabilities
Long-term debt (note 9) $ 137 $ 3,426
Other borrowings -- 1
Other liabilities 1,373 1,365
---------------------------
Total liabilities 1,510 4,792
---------------------------
Shareholders' equity
Common stock 7,826 7,826
Additional paid-in capital 28,780 28,780
Retained earnings 39,384 33,099
Reduction for ESOP loan guarantee (137) (226)
Common stock in treasury (337) (337)
Net unrealized gains (losses) on investment securities (75) 312
---------------------------
Total shareholders' equity 75,441 69,454
---------------------------
Total liabilities and shareholders' equity $ 76,951 $ 74,246
===========================
</TABLE>
fifty-two CenturySouthbanks
<PAGE>
<TABLE>
<CAPTION>
Condensed Statements of Income
Years ended December 31,
--------------------------------
(Amounts in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends received from bank subsidiaries $7,399 $6,721 $5,547
Interest income 4 6 6
Other income 2,576 2,226 1,800
--------------------------------
Total income 9,979 8,953 7,353
--------------------------------
Expenses:
Interest expense 56 416 451
Salaries and employee benefits 2,634 2,105 1,698
Other expenses 1,640 1,823 1,422
--------------------------------
Total expenses 4,330 4,344 3,571
--------------------------------
Income before income taxes and equity in
undistributed income of subsidiaries 5,649 4,609 3,782
Income tax benefit-allocated from
consolidated income tax return 432 428 470
--------------------------------
Income before equity in undistributed
income of subsidiaries 6,081 5,037 4,252
Equity in undistributed income of subsidiaries 3,289 2,858 2,739
--------------------------------
Net income $9,370 $7,895 $6,991
================================
</TABLE>
fifty-three
<PAGE>
Notes to Consolidated Financial Statements (continued)
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
Years ended December 31,
---------------------------------
(Amounts in thousands) 1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 9,370 $ 7,895 $ 6,991
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income of subsidiaries (3,289) (2,858) (2,739)
Depreciation 49 39 30
Amortization 473 584 623
Decrease (increase) in other assets
and other intangible assets (2) 267 (66)
Decrease in other liabilities (164) (40) (300)
---------------------------------
Net cash provided by operating activities 6,437 5,887 4,539
---------------------------------
Cash flows from investing activities:
Proceeds from maturities of interest earning deposits -- -- 199
Investment in bank subsidiary -- (301) (5,122)
Purchase of premises and equipment (94) (289) (145)
Proceeds from sale of premises and equipment 419 -- 3
---------------------------------
Net cash provided by (used in) investing activities 325 (590) (5,065)
---------------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt -- -- 5,000
Payments on long-term debt (3,200) (2,386) (2,251)
Proceeds from issuance of short-term borrowings 2,824 549 950
Payments on short-term borrowings (2,825) (798) (900)
Payments on debentures redeemed -- -- (385)
Dividends paid (3,046) (2,435) (1,821)
---------------------------------
Net cash provided by (used in) financing activities (6,247) (5,070) 593
---------------------------------
Net increase in cash 515 227 67
Cash at beginning of year 336 109 42
---------------------------------
Cash at end of year $ 851 $ 336 $ 109
=================================
Supplemental disclosures of cash paid during year for:
Interest $ 80 $ 441 $ 529
=================================
Income taxes $ 4,662 $ 2,340 $ 1,794
=================================
Supplemental schedule of noncash financing activities:
Conversion of convertible subordinated debentures $ -- $ -- $ 3,205
=================================
</TABLE>
fifty-four CenturySouthbanks
<PAGE>
- --------------------------------------------------------------------------------
Bank regulatory authorities require that banks and their holding
companies maintain a minimum ratio of primary capital, as defined, to total
assets of approximately 6%. Additionally, banks and their holding companies are
subject to certain risk-based capital requirements based on their respective
asset composition. At December 31, 1996, the Parent company and its bank
subsidiaries were in compliance with these requirements.
The amount of dividends paid to the Parent company from the subsidiary
banks is limited by various banking regulatory agencies. The amount of cash
dividends available from subsidiary banks for payment in 1997 without prior
approval from the banking regulatory agencies is approximately $9,000,000,
subject to maintenance of required capital.
As a result of these regulatory limitations, at December 31, 1996,
approximately $61,000,000 of the Parent company's investment in net assets of
subsidiary banks of $70,000,000 was restricted from transfer by subsidiary banks
to the Parent company in the form of cash dividends.
Note 16. Shareholders' Equity and Regulatory Matters
The Company is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Company's consolidated financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company on a consolidated basis, and the Parent company and
subsidiary banks individually, to maintain minimum amounts and ratios (set forth
in the table below) of total and Tier 1 capital, (as defined in the
regulations), to risk-weighted assets (as defined) and of Tier 1 capital to
average assets. Management believes, as of December 31, 1996, that the Company
meets all capital adequacy requirements to which it is subject.
fifty-five
<PAGE>
Notes to Consolidated Financial Statements (continued)
- --------------------------------------------------------------------------------
CenturySouthbanks, Inc. and Subsidiaries
The Company's actual capital amounts and ratios are presented below on a
consolidated basis and for each significant subsidiary:
<TABLE>
<CAPTION>
For Capital
Actual Adequacy Purposes
------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to Risk Weighted Assets):
Consolidated $75,391 15.1% (greater than or equal to) $39,817 (greater than or equal to) 8.0%
Bank of Dahlonega 11,626 15.0 (greater than or equal to) 6,210 (greater than or equal to) 8.0
The Bank of Ellijay 9,463 14.6 (greater than or equal to) 5,197 (greater than or equal to) 8.0
First Bank of Polk County 8,169 16.5 (greater than or equal to) 3,955 (greater than or equal to) 8.0
Georgia First Bank 11,426 11.2 (greater than or equal to) 8,152 (greater than or equal to) 8.0
Bank of Danielsville 6,890 22.1 (greater than or equal to) 2,491 (greater than or equal to) 8.0
Tier 1 Capital (to Risk Weighted Assets):
Consolidated $69,153 13.9% (greater than or equal to) $19,908 (greater than or equal to) 4.0%
Bank of Dahlonega 10,650 13.7 (greater than or equal to) 3,105 (greater than or equal to) 4.0
The Bank of Ellijay 8,645 13.3 (greater than or equal to) 2,599 (greater than or equal to) 4.0
First Bank of Polk County 7,548 15.3 (greater than or equal to) 1,977 (greater than or equal to) 4.0
Georgia First Bank 10,153 10.0 (greater than or equal to) 4,076 (greater than or equal to) 4.0
Bank of Danielsville 6,504 20.9 (greater than or equal to) 1,246 (greater than or equal to) 4.0
Tier 1 Capital (to Average Assets):
Consolidated $69,153 9.7% (greater than or equal to) $28,546 (greater than or equal to) 4.0%
Bank of Dahlonega 10,650 9.2 (greater than or equal to) 4,643 (greater than or equal to) 4.0
The Bank of Ellijay 8,645 8.9 (greater than or equal to) 3,888 (greater than or equal to) 4.0
First Bank of Polk County 7,548 10.3 (greater than or equal to) 2,930 (greater than or equal to) 4.0
Georgia First Bank 10,153 8.6 (greater than or equal to) 4,747 (greater than or equal to) 4.0
Bank of Danielsville 6,504 11.5 (greater than or equal to) 2,260 (greater than or equal to) 4.0
As of December 31, 1995:
Total Capital (to Risk Weighted Assets):
Consolidated $67,993 14.5% (greater than or equal to) $37,452 (greater than or equal to) 8.0%
Bank of Dahlonega 11,558 15.9 (greater than or equal to) 5,809 (greater than or equal to) 8.0
The Bank of Ellijay 9,063 13.9 (greater than or equal to) 5,229 (greater than or equal to) 8.0
First Bank of Polk County 7,101 14.9 (greater than or equal to) 3,823 (greater than or equal to) 8.0
Georgia First Bank 9,330 11.1 (greater than or equal to) 6,717 (greater than or equal to) 8.0
Bank of Danielsville 7,464 17.9 (greater than or equal to) 3,336 (greater than or equal to) 8.0
Tier 1 Capital (to Risk Weighted Assets):
Consolidated $62,126 13.3% (greater than or equal to) $18,726 (greater than or equal to) 4.0%
Bank of Dahlonega 10,647 14.7 (greater than or equal to) 2,904 (greater than or equal to) 4.0
The Bank of Ellijay 8,243 12.6 (greater than or equal to) 2,615 (greater than or equal to) 4.0
First Bank of Polk County 6,501 13.6 (greater than or equal to) 1,911 (greater than or equal to) 4.0
Georgia First Bank 8,278 9.9 (greater than or equal to) 3,358 (greater than or equal to) 4.0
Bank of Danielsville 7,128 17.9 (greater than or equal to) 1,668 (greater than or equal to) 4.0
Tier 1 Capital (to Average Assets):
Consolidated $62,126 9.2% (greater than or equal to) $27,046 (greater than or equal to) 4.0%
Bank of Dahlonega 10,647 9.1 (greater than or equal to) 4,683 (greater than or equal to) 4.0
The Bank of Ellijay 8,243 7.9 (greater than or equal to) 4,176 (greater than or equal to) 4.0
First Bank of Polk County 6,501 9.3 (greater than or equal to) 2,809 (greater than or equal to) 4.0
Georgia First Bank 8,278 8.2 (greater than or equal to) 4,048 (greater than or equal to) 4.0
Bank of Danielsville 7,128 14.1 (greater than or equal to) 2,025 (greater than or equal to) 4.0
<CAPTION>
To Be Well Capitalized
Under Prompt Corrective
Action Provisions
-----------------------------------------------------------------------
Amount Ratio
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
As of December 31, 1996:
Total Capital (to Risk Weighted Assets):
Consolidated (greater than or equal to) $49,771 (greater than or equal to) 10.0%
Bank of Dahlonega (greater than or equal to) 7,763 (greater than or equal to) 10.0
The Bank of Ellijay (greater than or equal to) 6,496 (greater than or equal to) 10.0
First Bank of Polk County (greater than or equal to) 4,943 (greater than or equal to) 10.0
Georgia First Bank (greater than or equal to) 10,189 (greater than or equal to) 10.0
Bank of Danielsville (greater than or equal to) 3,114 (greater than or equal to) 10.0
Tier 1 Capital (to Risk Weighted Assets):
Consolidated (greater than or equal to) $29,863 (greater than or equal to) 6.0%
Bank of Dahlonega (greater than or equal to) 4,658 (greater than or equal to) 6.0
The Bank of Ellijay (greater than or equal to) 3,898 (greater than or equal to) 6.0
First Bank of Polk County (greater than or equal to) 2,966 (greater than or equal to) 6.0
Georgia First Bank (greater than or equal to) 6,114 (greater than or equal to) 6.0
Bank of Danielsville (greater than or equal to) 1,869 (greater than or equal to) 6.0
Tier 1 Capital (to Average Assets):
Consolidated (greater than or equal to) $35,683 (greater than or equal to) 5.0%
Bank of Dahlonega (greater than or equal to) 5,803 (greater than or equal to) 5.0
The Bank of Ellijay (greater than or equal to) 4,860 (greater than or equal to) 5.0
First Bank of Polk County (greater than or equal to) 3,663 (greater than or equal to) 5.0
Georgia First Bank (greater than or equal to) 5,934 (greater than or equal to) 5.0
Bank of Danielsville (greater than or equal to) 2,825 (greater than or equal to) 5.0
As of December 31, 1995:
Total Capital (to Risk Weighted Assets):
Consolidated (greater than or equal to) $46,816 (greater than or equal to) 10.0%
Bank of Dahlonega (greater than or equal to) 7,261 (greater than or equal to) 10.0
The Bank of Ellijay (greater than or equal to) 6,537 (greater than or equal to) 10.0
First Bank of Polk County (greater than or equal to) 4,779 (greater than or equal to) 10.0
Georgia First Bank (greater than or equal to) 8,396 (greater than or equal to) 10.0
Bank of Danielsville (greater than or equal to) 4,170 (greater than or equal to) 10.0
Tier 1 Capital (to Risk Weighted Assets):
Consolidated (greater than or equal to) $28,089 (greater than or equal to) 6.0%
Bank of Dahlonega (greater than or equal to) 4,356 (greater than or equal to) 6.0
The Bank of Ellijay (greater than or equal to) 3,922 (greater than or equal to) 6.0
First Bank of Polk County (greater than or equal to) 2,867 (greater than or equal to) 6.0
Georgia First Bank (greater than or equal to) 5,037 (greater than or equal to) 6.0
Bank of Danielsville (greater than or equal to) 2,502 (greater than or equal to) 6.0
Tier 1 Capital (to Average Assets):
Consolidated (greater than or equal to) $33,808 (greater than or equal to) 5.0%
Bank of Dahlonega (greater than or equal to) 5,854 (greater than or equal to) 5.0
The Bank of Ellijay (greater than or equal to) 5,219 (greater than or equal to) 5.0
First Bank of Polk County (greater than or equal to) 3,511 (greater than or equal to) 5.0
Georgia First Bank (greater than or equal to) 5,059 (greater than or equal to) 5.0
Bank of Danielsville (greater than or equal to) 2,531 (greater than or equal to) 5.0
</TABLE>
fifty-six CenturySouthbanks
<PAGE>
Shareholder Information
- --------------------------------------------------------------------------------
Market Makers For
Century South Banks, Inc.
Common Stock
The Robinson-Humphrey Company
Allen Gudenrath, First Vice President
Macon, Georgia 1-800-926-2136
Interstate Johnson Lane
Claude Rudder, Vice President
Atlanta, Georgia 1-800-462-6355
Morgan Keegan & Company, Inc.
William M. Lellyett, Jr.
Managing Director/Branch Manager
Rod Hennek, Managing Director/Branch Manager
Atlanta, Georgia 1-800-669-3469
Sterne, Agee & Leach, Inc.
Kathryn H. Bissette, Vice President
Atlanta, Georgia 1-800-239-6921
J.C. Bradford & Company
Leonard Seawell, Investment Vice President
Ken McAfee, Investment Vice President
Atlanta, Georgia
1-800-522-1927
The common stock of Century South
Banks, Inc. is approved for purchase
on margin.
Shareholder Information
Annual Meeting
The Annual Meeting of the Shareholders of Century South Banks, Inc. will be held
at 2:00 P.M., on Wednesday, April 23, 1997 at North Georgia College, Stewart
Center for Continuing Education, Dahlonega, Georgia. There will be a reception
following the meeting. All shareholders are invited to attend.
Corporate Reports
The Annual Report, quarterly shareholder reports, quarterly Form 10-Qs, and
copies of Century South Banks, Inc.'s Annual Report to the Securities and
Exchange Commission on Form 10-K are available upon written request without
charge. For a copy, please indicate reports desired and a mailing address in the
form of a written request to:
Susan J. Anderson
Senior Vice President and Chief Financial Officer
Century South Banks, Inc.
P.O. Box 3366
Gainesville, Georgia 30503
770-287-9092
Independent Certified Public Accountants
KPMG Peat Marwick LLP
Atlanta, Georgia
Counsel
Peterson Dillard Young Asselin & Powell
Atlanta, Georgia
Transfer Agent
Century South Banks, Inc.
P.O. Box 1000
Dahlonega, Georgia 30533
706-864-1111
fifty-seven
<PAGE>
Senior Officers and Directors of Affiliate Banks
- --------------------------------------------------------------------------------
BANK OF DAHLONEGA
Senior Officers
Gary L. Evans, Chairman
John L. Lewis, President &
Chief Executive Officer
J.R. Fields, Senior Vice President
Robert Schuetze, Group
Vice President
Larry Odom, Vice President
Susan J. Anderson,
Vice President & Controller
Directors
Gary L. Evans,
Chairman
James A. Faulkner
Thomas T. Folger, Jr.
Sherman Green
J. Russell Ivie
John L. Lewis
Dudley K. Owens
J. Douglas Parks
E. Paul Stringer
Al J. Wimpy
60 Main Street West
Dahlonega, Georgia
FIRST BANK OF POLK COUNTY
Senior Officers
William P. Jabaley, Chairman
David E. Adkisson, President &
Chief Executive Officer
William J. Stuart,
Senior Vice President & Cashier
Linda W. Helton, Vice President
Gerald R. Ledford, Vice President
James R. Quintrell, Vice President
Julia S. Ramsey, Vice President
Directors
William P. Jabaley,
Chairman
David E. Adkisson
David Hopkins, Sr.
J. Russell Ivie
Bill C. Queen
Grady Scott
C.J. (Jim) Sisson
Robert Sosebee
40 Ocoee Street
Copperhill, Tennessee
FIRST NATIONAL BANK OF UNION COUNTY
Senior Officers
Rodney B. McCombs, Chairman
D. Keith Pope, President &
Chief Executive Officer
Kenneth R. Castle,
Senior Vice President
James E. Bullard, Vice President
Joyce K. Byers,
Vice President & Cashier
Joseph T. Vignola, Vice President
Directors
Rodney B. McCombs,
Chairman
Danny L. Brown
Gary L. Evans
E. Harris Griffin
William H. Haney
D. Keith Pope
Myron B. Turner
236 Highway 515
Blairsville, Georgia
THE BANK OF ELLIJAY
Senior Officers
Charles H. Kiker, Chairman
C. Paul Nealey, President &
Chief Executive Officer
Robert A. Robinson,
Executive Vice President
David Boulware, Vice President
Sandra Key, Vice President
Patrick McVey, Vice President
Jeanette Roshau, Vice President
Jean Woodring, Vice President
Directors
Charles H. Kiker,
Chairman
James A. Faulkner
T. Edmund Miller
William S. Miller
C. Paul Nealey
Sandie Sparks
George A. Winn
Janice R. Smith
Sand and Broad Street
Ellijay, Georgia
GEORGIA FIRST BANK
Senior Officers
E.H. Chambers, Jr., Chairman
Andrew K. Walker, President &
Chief Executive Officer
Allan J. Satterfield,
Executive Vice President
Jim West, Senior Vice President
Joy Fowler, First Vice President
Jim Tankersley,
Group Vice President
Marlon Mayfield,
Group Vice President
Brian Ball, Vice President
Allen M. Jernigan, Jr., Vice President
Mark Gravitt, Vice President
Judy H. Schofield, Vice President
Robin A. Smith, Vice President
Directors
E.H. Chambers, Jr.,
Chairman
Joe Biddy
James A. Faulkner
J.W. Lancaster, Jr.
Robert W. Lawson, Jr.
John B. McKibbon, III
Andrew K. Walker
455 Jesse Jewell Parkway
Gainesville, Georgia
FANNIN COUNTY BANK, N.A.
Senior Officers
C.J. (Jim)Sisson, Chairman
Steve M. Eaton, President &
Chief Executive Officer
Harold L. Herndon, Vice President
Directors
C.J. (Jim) Sisson,
Chairman
Paul Cochran
Steve M. Eaton
Gary L. Evans
Voncel Gregory
Elden Moates
480 W. First Street
Blue Ridge, Georgia
fifty-eight CenturySouthbanks
<PAGE>
- --------------------------------------------------------------------------------
GWINNETT NATIONAL BANK
Senior Officers
William D. Reeves, Chairman
Marvin Cosgray, President &
Chief Executive Officer
E. Randy Marcus,
Executive Vice President
Dave Robertson,
Senior Vice President
Robert Bauguss, Vice President
Gail P. Davault, Vice President
Timothy D. Foreman,
Vice President
Directors
William D. Reeves,
Chairman
Jerry J. Patterson
Marvin Cosgray
J. Russell Ivie
James Little
William H. Maddox
William B. Stark, Jr.
3200 Peachtree Industrial Boulevard
Duluth, Georgia
PEOPLES BANK
Senior Officers
Phil D. Owens, Chairman
J. Douglas Cleveland,
President & Chief Executive Officer
Wendelle T. (Wendy) Foster,
Senior Vice President
Bruce Knighton, Vice President
Directors
Phil D. Owens,
Chairman
Charles W. Bennett
Roger W. Bennett
Dwight J. Eavenson
James A. Faulkner
Barron C. Harbin
C. William Kidd
R. Neal Old, Jr.
Robert L. Reed
13321 Jones Street
Lavonia, Georgia
FIRST COMMUNITY BANK OF DAWSONVILLE
Senior Officers
Clarence B. Denard, Chairman
Philip Hester, President &
Chief Executive Officer
Bob Ballengee,
Executive Vice President
Michael Bailey, Vice President
Marsha Hansard, Vice President
Debbie Stewart, Vice President
Michael Woody, Vice President
Directors
Clarence B. Denard,
Chairman
Howard Burt
Lawton Burt
Sam Dayton
Gary L. Evans
Kim Mills
Philip Hester
J.C. Irby
Larry Lemley
Don Stephens
David Wallace
Terry Smith
136 Highway 400 South
Dawsonville, Georgia
BANK OF DANIELSVILLE
Senior Officers
William L. Chandler, Chairman
L. Banister Sexton, President & Chief Executive Officer
Barry Hardeman,
Executive Vice President
Tom Lackey, Senior Vice President
Thomas Dial, Vice President
Directors
William L. Chandler,
Chairman
James A. Faulkner
Nancy K. Freeman
Felix P. Graham, Jr.
Richard P. Huff
L. Banister Sexton
Courthouse Square
Danielsville, Georgia
1996 AFFILIATE FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Net Allowance for Total Shareholder's
As of December 31 (in thousands) Deposits Loans Loan Losses Assets Equity
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bank of Dahlonega $108,629 $79,305 $1,425 $122,269 $10,690
The Bank of Ellijay 84,600 64,495 1,261 94,895 8,648
First Bank of Polk County 59,892 54,721 843 72,734 7,530
Georgia First Bank 132,627 99,616 1,273 143,490 10,135
First National Bank of Union County 46,249 36,801 496 51,290 4,283
Fannin County Bank, N.A. 59,775 44,765 603 67,615 7,384
Gwinnett National Bank 44,190 23,229 351 49,656 5,267
First Community Bank of Dawsonville 47,380 38,512 444 54,008 5,054
Peoples Bank 38,881 29,965 481 43,975 4,464
Bank of Danielsville 49,290 30,438 386 58,053 6,537
</TABLE>
fifty-nine
<PAGE>
Directors and Officers of Century South Banks, Inc.
- -------------------------------------------------------------------------------
Board of Directors
J. Russell Ivie, Chairman
Roger W. Bennett
E.H. Chambers, Jr.
William L. Chandler
Clarence B. Denard
James A. Faulkner
Thomas T. Folger, Jr.
Sherman Green
Dudley K. Owens
William D. Reeves
C.J. (Jim) Sisson
E. Paul Stringer
Myron B. Turner
Al J. Wimpy
George A. Winn
Senior Officers
J. Russell Ivie, Chairman
James A. Faulkner,
President and Chief Executive Officer
Susan J. Anderson,
Senior Vice President and
Chief Financial Officer
Tony E. Collins,
Senior Vice President and Chief Operating Officer
Gary L. Evans,
Senior Vice President and Chief Credit Officer
Charles A. Langford,
Senior Investment Officer
CenturySouthbanks
sixty
<PAGE>
[PHOTO APPEARS HERE]
Board of Directors, Century South Banks, Inc.
Left to right:
Roger W. Bennett,
E. Paul Stringer,
Sherman Green,
William L. Chandler,
James A. Faulkner,
Thomas T. Folger, Jr.,
C.J. (Jim) Sisson,
George A. Winn,
Clarence B. Denard,
Al J. Wimpy,
J. Russell Ivie,
Myron B. Turner,
E.H. Chambers, Jr. and Dudley K. Owens.
Not pictured:
William D. Reeves
- --------------------------------------------------------------------------------
[PHOTO APPEARS HERE]
Senior Officers,
Century South Banks, Inc.
Left to right:
James A. Faulkner, President and Chief Executive Officer;
Gary L. Evans, Senior
Vice President and
Chief Credit Officer;
Susan J. Anderson,
Senior Vice President
and Chief Financial Officer;
J. Russell Ivie, Chairman;
Charles A. Langford,
Senior Investment
Officer; and
Tony E. Collins, Senior
Vice President and
Chief Operating Officer.
<PAGE>
EXHIBIT 13.2
CHAIRMAN'S MESSAGE
Dear Shareholder:
We are pleased to report fourth quarter performance by Century South Banks,
Inc. Net earnings of $2,267,000 or $0.28 per share for the fourth quarter of
1996 were a 20% increase over net earnings of $1,895,000 or $0.24 per share
reported for the fourth quarter of 1995. Year-to-date earnings for 1996 were
$9,370,000 or $1.20 per share as compared to $7,895,000 or $1.02 per share for
the same period of 1995, an 18.7% 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 the recoveries, net earnings
increased 14% over the same period of 1995.
The quarterly cash dividend of $0.10125 per share paid on January 6, 1997,
represents a 5.2% increase over the amount paid in January 1996.
The Company's provision for possible loan losses for the fourth quarter of
1996 was $544,000 as compared to $656,000 for the same period in 1995. At
December 31, 1996, the Company's allowance for possible loan losses was 1.49% of
total loans outstanding as compared to 1.48% at December 31, 1995.
Total assets at December 31, 1996 were approximately $761,095,000
representing a 6% increase over the December 31, 1995 assets of $716,481,000.
The Company's nonperforming assets, which include loans placed on nonaccrual
status and foreclosed assets, at December 31, 1996 were $5,535,000 as compared
to $4,026,000 at December 31, 1995. Nonperforming assets as a percentage of
loans plus foreclosed assets were 1.08% at December 31, 1996 as compared to
0.84% at December 31, 1995. Nonperforming loans as a percentage of total loans
outstanding, net of unearned income were 0.57% at December 31, 1996, as compared
to 0.38% at December 31, 1995.
Century South edged ahead of many of its competitors during 1996 with a
return on assets of 1.30% and a return on equity of 13.05%. The new branching
laws in Georgia, along with the continued expansion of bank holding companies,
will ensure that 1997 will be a very competitive year in the banking industry.
Century South will continue to offer new products in an effort to meet our
customer's changing banking needs.
The Company recently introduced two new services, Telebanc and Execubanc.
Telebanc provides telephone banking for retail customers, allowing customers to
make account inquiries and account transfers from any touch-tone telephone.
Execubanc is our computer account information system providing on-line banking
for our corporate customers.
As always, we want to encourage you, our stockholders, business associates,
family and friends, to support the Century South bank in your community. Your
support means additional business and profits for our Company. We will continue
to follow 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>
DECEMBER 31, DECEMBER 31,
1996 1995
-----------------------------
(AMOUNTS IN THOUSANDS)
ASSETS
<S> <C> <C>
CASH AND DUE FROM BANKS $ 34,626 $ 33,020
FEDERAL FUNDS SOLD 38,730 27,420
INTEREST-EARNING DEPOSITS IN OTHER BANKS 677 453
INVESTMENT SECURITIES 146,770 151,146
LOANS, NET OF UNEARNED INCOME 509,412 476,510
ALLOWANCE FOR POSSIBLE LOAN LOSSES (7,565) (7,048)
PREMISES AND EQUIPMENT, NET 18,311 15,869
OTHER ASSETS 20,134 19,111
-----------------------------
TOTAL ASSETS $761,095 $716,481
=============================
LIABILITIES
NONINTEREST-BEARING DEPOSITS $ 75,706 $ 69,516
INTEREST-BEARING DEPOSITS 594,567 556,790
FEDERAL FUNDS PURCHASED 1,000 -
OTHER SHORT-TERM BORROWINGS - 501
FEDERAL HOME LOAN BANK ADVANCES 6,982 8,083
LONG-TERM DEBT 241 3,556
OTHER LIABILITIES 7,158 8,581
-----------------------------
TOTAL LIABILITIES 685,654 647,027
=============================
SHAREHOLDERS' EQUITY
COMMON STOCK 7,826 7,826
ADDITIONAL PAID-IN CAPITAL 28,780 28,780
RETAINED EARNINGS 39,384 33,099
REDUCTION FOR ESOP LOAN GUARANTEE (137) (226)
COMMON STOCK IN TREASURY, AT COST (337) (337)
NET UNREALIZED LOSS ON INVESTMENT SECURITIES (75) 312
-----------------------------
TOTAL SHAREHOLDERS' EQUITY 75,441 69,454
-----------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $761,095 $716,481
=============================
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1995 1996 1995
---------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
INTEREST INCOME $ 15,891 $ 15,519 $ 62,826 $ 59,739
INTEREST EXPENSE 7,399 7,577 29,165 28,580
---------------------------------------------------
NET INTEREST INCOME 8,492 7,942 33,661 31,159
PROVISION FOR LOAN LOSSES 544 656 1,757 1,694
NONINTEREST INCOME 1,604 1,877 6,624 6,165
NONINTEREST EXPENSE 6,328 6,289 25,051 24,523
INCOME TAX EXPENSE 957 979 4,107 3,212
---------------------------------------------------
NET INCOME $ 2,267 $ 1,895 $ 9,370 $ 7,895
===================================================
WEIGHTED AVERAGE SHARES OUTSTANDING 7,781 7,776 7,778 7,776
NET INCOME PER SHARE ASSUMING
FULL DILUTION $0.28 $0.24 $ 1.20 $ 1.02
DIVIDENDS DECLARED PER SHARE $0.10125 $0.09625 $0.39750 $0.37755
</TABLE>
<PAGE>
CENTURYSOUTHBANKS
- --------------------------------------------------------------------------------
INC.
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.
60 MAIN STREET WEST 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 DECEMBER 31,
1996 1995 PERCENTAGE CHANGE
-------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
LOANS, NET $501,847 $469,462 6.90%
DEPOSITS 670,273 626,306 7.02
TOTAL ASSETS 761,095 716,481 6.23
SHAREHOLDERS' EQUITY 75,441 69,454 8.62
NET INCOME 9,370 7,895 18.68
BOOK VALUE PER SHARE 9.72 8.95 8.60
NET INCOME PER SHARE ASSUMING
FULL DILUTION 1.20 1.02 17.65
WEIGHTED AVERAGE SHARES
OUTSTANDING
AND EQUIVALENTS 7,778 7,776 0.03
NONPERFORMING LOANS 2,888 1,815 59.12
OTHER REAL ESTATE AND OTHER
NONPERFORMING ASSETS 2,647 2,211 19.72
FINANCIAL RATIOS
- -----------------------------------------------------------------------
RETURN ON AVERAGE ASSETS 1.30% 1.16% 12.07%
RETURN ON AVERAGE 13.05 11.94 9.30
SHAREHOLDERS' EQUITY
NET INTEREST MARGIN (TAXABLE
EQUIVALENT) 5.18 5.06 2.37
ALLOWANCE FOR POSSIBLE LOAN
LOSSES TO LOANS 1.49 1.48 0.68
NONPERFORMING ASSETS/TOTAL
ASSETS 0.73 0.56 30.36
</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 DECEMBER 31,
1996:
<TABLE>
<S> <C>
THREE MONTH HIGH.. $19.00
THREE MONTH LOW... $16.25
CLOSING PRICE..... $18.00
</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
<PAGE>
EXHIBIT 19.1
[LOGO OF CENTURYSOUTHBANKS INC.]
March 24, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Century South Banks, Inc. ("CSBI") which will be held at 2:00 p.m., Dahlonega,
Georgia time, Wednesday, April 23, 1997, at North Georgia College, Stewart
Center for Continuing Education, Dahlonega, Georgia 30533.
The enclosed Notice of Annual Meeting and Proxy Statement contain details
regarding the business to come before the Shareholders at the Annual Meeting.
Please sign and return your proxy in the enclosed envelope at your earliest
convenience to assure that your shares will be represented and voted at the
Annual Meeting even if you cannot attend. If you do attend and wish to vote in
person, you may cancel the proxy at the meeting. It is important that you
complete and mail your proxy as soon as possible.
Matters which will be discussed at the Annual Meeting include proposals to (i)
establish the number of members of the Board of Directors at 15, (ii) elect 15
regular directors and six directors emeritus to serve for the ensuing year, and
(iii) ratify the appointment of KPMG Peat Marwick LLP as independent certified
public accountants of CSBI for calendar year 1997.
The Board of Directors at present knows of no other business to be presented at
the Annual Meeting. If other matters properly come before the Annual Meeting,
the persons named in the proxy will have discretionary authority to vote proxies
with respect to such matters in accordance with the recommendations of the Board
of Directors of CSBI. If you should have questions concerning the Annual
Meeting of CSBI, please feel free to call me.
For the Board of Directors,
/s/ Susan Anderson
Susan J. Anderson, Senior Vice President
and Chief Financial Officer
Secretary-Treasurer
<PAGE>
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 23, 1997
TO THE HOLDERS OF COMMON STOCK OF CENTURY SOUTH BANKS, INC.
The Annual Meeting of Shareholders of Century South Banks, Inc. ("CSBI") will be
held at North Georgia College, Stewart Center For Continuing Education,
Dahlonega, Georgia 30533, on Wednesday, April 23, 1997 at 2:00 p.m., Dahlonega,
Georgia time, for the following purposes:
1. To vote on a proposal to establish the number of members of the Board of
Directors at 15;
2. To vote on a proposal to elect 15 directors and six directors emeritus to
serve for the ensuing year;
3. To vote on a proposal to ratify the appointment of KPMG Peat Marwick LLP to
serve as independent certified public accountants of CSBI for the 1997
calendar year; and
4. To transact such other business as may properly come before the meeting and
any adjournments thereof.
Management at present knows of no other business to be presented at the meeting.
If other matters properly come before the meeting, the persons named in the
proxy will have discretionary authority to vote proxies with respect to such
matters in accordance with the recommendation of the Board of Directors.
Shareholders of record at the close of business on March 15, 1997 are entitled
to notice of and to vote at the meeting and any adjournment thereof.
By Order of the Board of Directors
Century South Banks, Inc.
/s/ Susan Anderson
Susan J. Anderson, Senior Vice President
and Chief Financial Officer
Secretary-Treasurer
Gainesville, Georgia
March 24, 1997
YOU ARE URGED TO VOTE AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED AS
SOON AS POSSIBLE, EVEN IF YOU DO PLAN TO ATTEND THE MEETING. IF YOU ATTEND THE
MEETING, YOU MAY, IF YOU SO DESIRE, REVOKE THE PROXY AND VOTE YOUR SHARES IN
PERSON.
<PAGE>
[LOGO CENTURYSOUTHBANKS INC.]
POST OFFICE BOX 3366
GAINESVILLE, GEORGIA 30503
PROXY STATEMENT
This Proxy Statement is furnished to the Shareholders of Century South Banks,
Inc. ("CSBI") in connection with the solicitation of proxies for the purposes
stated herein by CSBI's Board of Directors for use at the Annual Meeting of
Shareholders to be held at North Georgia College, Stewart Center for Continuing
Education, Dahlonega, Georgia 30533, on April 23, 1997 at 2:00 p.m. Dahlonega,
Georgia time, or any adjournments thereof. The approximate date of the mailing
of this Proxy Statement and the accompanying proxy to the Shareholders is March
24, 1997. The cost of this solicitation of proxies will be borne by CSBI.
The Board of Directors encourages the personal attendance of Shareholders at the
Annual Meeting, and the giving of the proxy does not preclude the right to vote
in person should the person giving the proxy so desire. The person giving the
proxy has the power to revoke the proxy at any time before the proxy is
exercised. The proxy may be revoked by attending the Annual Meeting and voting
in person, or by filing a subsequent proxy with the secretary of CSBI prior to
or at the time of the Annual Meeting.
The close of business on March 15, 1997 has been fixed as the record date for
the determination of Shareholders of CSBI entitled to vote at the Annual
Meeting. At the close of business on that date, CSBI had issued and outstanding
7,767,459 shares of common stock, $1.00 par value per share, which were held of
record by 1,955 shareholders. Each share of the common stock of CSBI is entitled
to one vote on all matters to be voted upon. The affirmative vote of a majority
of the outstanding shares of common stock shall be required as to the election
of directors. The affirmative vote of a majority of the shares represented and
entitled to vote at the Annual Meeting shall constitute the affirmative act of
the Shareholders regarding all other matters to be voted on at the Annual
Meeting as set forth in this Proxy Statement.
The following matters will be voted upon at the Annual Meeting:
ITEM NUMBER 1 - ESTABLISHING THE NUMBER OF MEMBERS OF THE BOARD OF DIRECTORS.
The By-laws of CSBI provide that the number of members of the Board of Directors
shall be not less than five nor more than 25. The Board of Directors recommends
that the number of members of the Board of Directors be established at 15. The
By-laws of CSBI allow the Board of Directors to establish the number of
directors emeritus to serve on behalf of CSBI. The Board of Directors has
established that six directors emeritus shall be elected to serve on behalf of
CSBI for the ensuing year. If a Shareholder specifies a choice on the proxy, the
shares represented by the proxy will be voted as specified. If no specification
is made, the shares represented by the proxy will be voted "FOR" approval of
Item Number 1.
THE BOARD OF DIRECTORS OF CSBI RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
APPROVAL OF ITEM NUMBER 1 IN ORDER TO ESTABLISH THE NUMBER OF MEMBERS OF THE
BOARD OF DIRECTORS AT 15.
<PAGE>
[LOGO OF CENTURYSOUTHBANK APPEARS HERE]
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON APRIL 23, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned shareholder(s) of Century South Banks, Inc. ("CSBI")
appoint(s) Susan J. Anderson, J. Marvin Anderson, and James H. Sanders, Sr.,
and each of them, as proxies with full power of substitution, acting by
majority or by any of them if only one is present and acting, to vote all
shares of common stock of CSBI which the undersigned would be entitled to vote
if personally present at the Annual Meeting of Shareholders to be held on April
23, 1997 at North Georgia College, Stewart Center for Continuing Education,
Dahlonega, Georgia 30533, at 2:00 p.m., Dahlonega, Georgia time, and at any
adjournments thereof, upon the proposals described in the accompanying Notice
of the Annual Meeting and the Proxy Statement relating to the Annual Meeting,
receipt of which is hereby acknowledged.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS YOU VOTE "FOR" THE FOLLOWING
PROPOSALS:
1. Proposal to establish the number of members of the Board of Directors at
15.
[_] FOR [_] AGAINST [_] ABSTAIN
2. Election of Directors:
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the to vote for all the nominees
contrary below) [_] listed below [_]
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. DIRECTORS EMERITUS: J.E. OWENS;
JAMES H. SANDERS, SR.; FORREST J. SISK, SR.; GLEN W. MARSHALL; RODNEY B.
MCCOMBS AND J. MARVIN ANDERSON.
Instructions: To withhold authority to vote for any individual nominee
write that nominee's name on the space provided below:
- --------------------------------------------------------------------------------
<PAGE>
3. Proposal to ratify the appointment of KPMG Peat Marwick LLP as independent
certified public accountants of CSBI for the year ending December 31, 1997.
[_] FOR [_] AGAINST [_] ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
PROXIES MUST BE RECEIVED BY CSBI PRIOR TO THE COMMENCEMENT OF THE ANNUAL
MEETING IN ORDER TO BE VOTED. THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED
IN THE MANNER DIRECTED HEREIN. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE PROPOSALS SET OUT IN 1 AND 3 ABOVE AND FOR EACH NOMINEE LISTED IN
2 ABOVE. THE PROXY MAY BE REVOKED BY ATTENDING THE ANNUAL MEETING AND VOTING IN
PERSON, OR BY FILING A SUBSEQUENT PROXY WITH THE SECRETARY OF CSBI PRIOR TO OR
AT THE TIME OF THE ANNUAL MEETING.
----------------------------------
Signature of Shareholder(s)
----------------------------------
Signature of Shareholder(s)
----------------------------------
(Please be sure to date)
IF THE STOCK IS HELD BY JOINT TENANTS, OR IN THE NAME OF MORE THAN ONE PERSON,
ALL HOLDERS SHOULD SIGN. Signatures should correspond exactly with the name(s)
appearing on the label above. If a corporation, please sign in full corporate
name by president or other authorized officer. If a partnership, please sign in
the partnership's name by authorized person(s). If signing as attorney, execu-
tor, trustee, administrator, guardian or custodian, please indicate the capac-
ity in which you are acting. PLEASE MARK, DATE AND SIGN THIS PROXY AND RETURN
IT IN THE ENCLOSED POSTAGE PAID ENVELOPE.
<PAGE>
EXHIBIT 23.1
Accountants' Consent
The Board of Directors
Century South Banks, Inc.:
We consent to incorporation by reference in the Registration Statements (No. 33-
37784) on Form S-3 and (Nos. 33-18527 and 33-91922) on Form S-8 of Century South
Banks, Inc. of our report dated January 24, 1997, relating to the consolidated
balance sheets of Century South Banks, Inc. and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1996, which report is incorporated by reference in the December 31,
1996 Annual Report on Form 10-K of Century South Banks, Inc.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
March 28, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 1996 ANNUAL
REPORT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 34,626
<INT-BEARING-DEPOSITS> 677
<FED-FUNDS-SOLD> 38,730
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 104,296
<INVESTMENTS-CARRYING> 42,474
<INVESTMENTS-MARKET> 43,214
<LOANS> 509,412
<ALLOWANCE> 7,565
<TOTAL-ASSETS> 761,095
<DEPOSITS> 670,273
<SHORT-TERM> 1,000
<LIABILITIES-OTHER> 7,158
<LONG-TERM> 7,223
0
0
<COMMON> 7,826
<OTHER-SE> 67,615
<TOTAL-LIABILITIES-AND-EQUITY> 761,095
<INTEREST-LOAN> 52,014
<INTEREST-INVEST> 9,375
<INTEREST-OTHER> 1,437
<INTEREST-TOTAL> 62,826
<INTEREST-DEPOSIT> 28,631
<INTEREST-EXPENSE> 29,165
<INTEREST-INCOME-NET> 33,661
<LOAN-LOSSES> 1,757
<SECURITIES-GAINS> 216
<EXPENSE-OTHER> 25,051
<INCOME-PRETAX> 13,477
<INCOME-PRE-EXTRAORDINARY> 13,477
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,370
<EPS-PRIMARY> 1.21
<EPS-DILUTED> 1.20
<YIELD-ACTUAL> 5.18
<LOANS-NON> 5,535
<LOANS-PAST> 1,572
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,312
<ALLOWANCE-OPEN> 7,048
<CHARGE-OFFS> 1,730
<RECOVERIES> 490
<ALLOWANCE-CLOSE> 7,565
<ALLOWANCE-DOMESTIC> 7,510
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 55
</TABLE>
