<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10Q
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the period ended March 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ___________________ to _________________________
Commission File Number: 2-75364
---------------------------------------------------------
Century South Banks, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1455591
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 Jesse Jewell Parkway, P O Box 3366, Gainesville, Georgia 30501
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(770) 287-3464
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF APRIL 30, 1997
- --------------------------------------------------------------------------------
Common stock, $1.00 par value 7,767,459
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Form 10Q
INDEX
Page No.
--------
Part I. Financial Information
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets........................ 3
Consolidated Statements of Income.................. 4
Condensed Consolidated Statements of Cash Flows.... 5
Notes to Consolidated Financial Statements......... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 10
Part II. Other Information
-----------------
Item 6. Exhibits and Report on Form 8-K.................... 18
Signatures............................................................ 19
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------------- ------------
(amounts in thousands, except share data)
<S> <C> <C>
Assets
- ------
Cash and due from banks .................................................. $ 32,091 34,626
Federal funds sold ....................................................... 47,730 38,730
Interest-earning deposits in other banks ................................. 602 677
Investment securities:
Available for sale ..................................................... 105,097 104,296
Held to maturity ....................................................... 41,613 42,474
Loans, net of unearned income ............................................ 510,714 509,412
Less allowance for possible loan losses ................................ 7,793 7,565
--------- ---------
Loans, net ........................................................... 502,921 501,847
--------- ---------
Premises and equipment, net .............................................. 18,561 18,311
Goodwill and other intangibles, net ...................................... 6,529 6,712
Other assets ............................................................. 13,161 13,422
--------- ---------
Total assets ....................................................... $ 768,305 761,095
========= =========
Liabilities and Shareholders' Equity
- ------------------------------------
Liabilities:
Deposits:
Noninterest-bearing demand deposits .................................... $ 81,483 75,706
Interest-bearing deposits .............................................. 595,336 594,567
--------- ---------
Total deposits ..................................................... 676,819 670,273
Other short-term borrowings ............................................. 300 1,000
Federal Home Loan Bank advances ......................................... 6,957 6,982
Long-term debt .......................................................... 220 241
Accrued expenses and other liabilities .................................. 7,709 7,158
--------- ---------
Total liabilities .................................................. 692,005 685,654
--------- ---------
Shareholders' equity:
Common stock-$1 par value. Authorized
15,000,000 shares; issued 7,826,358 shares and outstanding 7,767,459 and
7,761,624 shares at March 31, 1997 and December 31, 1996, respectively . 7,826 7,826
Additional paid-in capital ............................................... 28,854 28,780
Retained earnings ........................................................ 40,510 39,384
Reduction for ESOP loan guarantee ........................................ (124) (137)
Common stock in treasury (58,899 and 64,734 shares at March 31, 1997 and
December 31, 1996, respectively), at cost .............................. (306) (337)
Net unrealized loss on investment securities ............................. (460) (75)
--------- ---------
Total shareholders' equity ......................................... 76,300 75,441
--------- ---------
Total liabilities and shareholders' equity ......................... $ 768,305 761,095
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1997 1996
----------------------------
(amounts in thousands,
except per share data)
<S> <C> <C>
Interest income:
Loans, including fees ................. $ 13,160 12,644
Federal funds sold .................... 384 545
Interest on deposits in other banks ... 9 7
Investment securities:
Taxable ............................. 1,604 1,600
Nontaxable .......................... 611 683
-------- ------
Total interest income ............. 15,768 15,479
-------- ------
Interest expense:
Deposits .............................. 7,239 7,358
Federal funds purchased ............... 2 -
Federal Home Loan Bank advances ....... 111 130
Long-term debt and other borrowings ... 8 48
-------- ------
Total interest expense ............ 7,360 7,536
-------- ------
Net interest income ............... 8,408 7,943
Provision for loan losses ............... 557 401
-------- ------
Net interest income after provision
for loan losses ................. 7,851 7,542
-------- ------
Noninterest income:
Service charges on deposit accounts ... 1,008 936
Securities gains (losses), net ........ (1) 37
Other operating income ................ 590 793
-------- ------
Total noninterest income .......... 1,597 1,766
-------- ------
Noninterest expense:
Salaries and employee benefits ........ 3,510 3,095
Net occupancy and equipment expense ... 907 819
Other operating expenses .............. 2,309 2,222
-------- ------
Total noninterest expense ......... 6,726 6,136
-------- ------
Income before income taxes ........ 2,722 3,172
Income tax expense .................... 800 979
-------- ------
Net income ........................ $ 1,922 2,193
======== ======
Net income per common share and common
share equivalents ..................... $ 0.25 0.28
======== ======
Cash dividends declared per share ....... $ 0.1025 0.0975
======== ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1997 1996
----------------------------
(amounts in thousands)
<S> <C> <C>
Net cash provided by operating activities $ 4,135 2,973
-------- -------
Cash flows from investing activities:
Proceeds from sales of investment securities:
Available for sale 830 1,011
Principal collections and maturities of
investment securities:
Available for sale 7,129 12,074
Held to maturity 1,803 6,621
Proceeds from maturities of interest-
earning deposits 4,001 1,053
Purchases of investment securities held
to maturity (910) -
Purchases of investment securities
available for sale (9,360) (24,424)
Investment in interest-earning deposits (3,926) (968)
Net (increase) decrease in loans (1,884) 2,422
Proceeds from sales of real estate
acquired through foreclosure 316 175
Purchases of premises and equipment (697) (512)
Proceeds from sale of premises and equipment - 118
-------- -------
Net cash used in investing activities (2,698) (2,340)
-------- -------
Cash flows from financing activities:
Net increase in deposits 6,546 7,432
Net decrease in federal funds purchased (1,000) -
Net increase in other short-term borrowings 300 399
Payments on long-term debt and Federal Home
Loan Bank advances (32) (3,228)
Dividends paid to shareholders (786) (926)
-------- -------
Net cash provided by financing activities 5,028 3,677
-------- -------
Net increase in cash and cash equivalents 6,465 4,220
Cash and cash equivalents at beginning of period 73,356 60,440
-------- -------
Cash and cash equivalents at end of period $ 79,821 64,660
======== =======
</TABLE>
5
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (continued)
(Unaudited)
<TABLE>
<S> <C> <C>
Supplemental disclosure of cash paid during
the period for:
Interest $7,563 7,962
====== =====
Income taxes $ 143 495
====== =====
Supplemental schedule of noncash investing
and financing activities:
Real estate acquired through foreclosure $ 664 133
====== =====
Real estate sold and financed by the Company $ 411 39
====== =====
Net reduction in guaranteed ESOP loan recorded
in shareholders' equity $ 13 12
====== =====
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
---------------------
The unaudited consolidated financial statements include the accounts of
Century South Banks, Inc. ("the Company") and its wholly owned subsidiaries,
Bank of Dahlonega ("BOD"), The Bank of Ellijay ("BOE"), First Bank of Polk
County ("FBPC"), Georgia First Bank ("GFB"), First National Bank of Union County
("FNBUC"), Fannin County Bank, N.A. ("FCB"), Gwinnett National Bank ("GNB"),
First Community Bank of Dawsonville ("FCBD"), Peoples Bank ("PBL") and Bank of
Danielsville ("DAN").
These accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do not
include all information and notes necessary for a fair presentation of financial
position, results of operations, and cash flows in conformity with generally
accepted accounting principles. All adjustments consisting of normal recurring
accruals which, in the opinion of management, are necessary for a fair
presentation of the financial position and results of operations for the periods
covered by this report have been included.
(2) Statement No. 125 "Accounting for Transfers and Servicing of Financial
----------------------------------------------------------------------
Assets and Extinguishments of Liabilities"
------------------------------------------
In June 1996, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities" (Statement
125). Statement No. 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial-components approach that focuses
on control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings.
Under the financial-components approach, after a transfer of financial
assets, an entity recognizes all financial and servicing assets it controls and
liabilities it has incurred and derecognizes financial assets it no longer
controls and liabilities that have been extinguished. The financial-components
approach focuses on the assets and liabilities that exist after the transfer.
Many of these assets and liabilities are components of financial assets that
existed prior to the transfer. If a transfer does not meet the criteria for a
sale, the transfer is accounted for as a secured borrowing with pledge of
collateral.
Effective January 1, 1997, the Company adopted Statement No. 125 for
reporting transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. Statement 125 did not have a
material impact on the Company's financial statements.
7
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(3) Statement No. 128 "Earnings Per Share"
--------------------------------------
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (Statement 128). Statement 128
supersedes Accounting Principles Board Opinion No. 15 "Earnings Per Share" and
specifies the computation, presentation, and disclosure requirements for
earnings per share (EPS) for entities with publicly held common stock or
potential common stock. Statement 128 replaces the presentation of primary EPS
with a presentation of basic EPS and fully diluted EPS with diluted EPS. It also
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Statement 128 is
effective for financial statements for both interim and annual periods ending
after December 15, 1997. The expected impact on the Company's financial
statements of the provisions of Statement 128 is not expected to be material.
(4) Statement No. 129 "Disclosure of Information about Capital Structure"
---------------------------------------------------------------------
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosure of Information about Capital Structure"
(Statement 129). Statement 129 is effective for financial statements for periods
ending after December 15, 1997. The Company does not expect that Statement 129
will require significant revision of prior disclosures since the statement lists
required disclosures that have been included in a number of previously existing
separate statements or opinions.
(5) Long-Term Debt and Short-Term Borrowings
----------------------------------------
On January 29, 1997, the Company renewed a $1,500,000 unsecured revolving
line of credit with a bank which is payable on demand and matures on January 28,
1998. Interest is due on the line of credit quarterly. The revolving line of
credit accrues interest at the Prime Lending Rate minus one percent (1%) as
defined in the agreement. The line of credit is secured by 100% of the
outstanding common stock of one of the Company's affiliates (GNB). As of March
31, 1997, there is no outstanding balance.
Eight of the Company's subsidiaries have invested in Federal Home Loan Bank
stock for the purpose of establishing credit lines with the Federal Home Loan
Bank. One of these subsidiaries made payments of $25,175 in the first three
months of 1997 making the total advances under these lines $7.0 million. Of
these advances, $2.0 million matures on April 30, 1997 and bears interest at the
rate of 7.39%, payable monthly.
8
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Another subsidiary has drawn $4.0 million with $2.0 million maturing on
December 28, 1998 and $2.0 million maturing on January 13, 1999 with interest,
payable monthly, based on the current LIBOR rate. The remaining $1.0 million
matures on September 1, 2006 and bears interest at the rate of 7.74% with
principal and interest due monthly. The purpose of these advances was to replace
short-term deposits with longer term funds. In addition to these advances, the
eight subsidiaries have additional credit available on their credit lines with
the Federal Home Loan Bank. All lines with the Federal Home Loan Bank are
secured by a blanket lien on certain real estate loans of each of the respective
subsidiaries.
9
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
-------
The following is a discussion of the Company's financial condition at March
31, 1997, compared to December 31, 1996, and results of operations for the three
month period ended March 31, 1997, compared to the three month period ended
March 31, 1996. This discussion should be read in conjunction with the Company's
unaudited consolidated financial statements and accompanying notes appearing
elsewhere in this report.
FINANCIAL CONDITION
-------------------
During the first three months of 1997, total assets increased $7.2 million
or approximately 0.95%. Such growth was funded primarily by deposit growth of
$6.5 million or 0.98%. Net loans increased $1.1 million or 0.21% during the
first three months of 1997.
The amortized cost, gross unrealized gains and losses, and estimated fair
value of available for sale and held to maturity securities by type at March 31,
1997 were as follows:
<TABLE>
<CAPTION>
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 $ 60,519 57 (649) 59,927
State, county and
municipal securities 13,825 336 (67) 14,094
Mortgage-backed securities 23,029 160 (185) 23,004
Other debt securities 4,706 11 (65) 4,652
Equity securities 3,397 100 (77) 3,420
----------------------------------------------------------------------------
$105,476 664 (1,043) 105,097
----------------------------------------------------------------------------
Held to maturity:
U.S. Government agencies $9,476 114 (48) 9,542
State, county and
municipal securities 27,980 645 (154) 28,471
Mortgage-backed securities 1,962 25 (17) 1,970
Other debt securities 2,195 52 - 2,247
----------------------------------------------------------------------------
$41,613 836 (219) 42,230
----------------------------------------------------------------------------
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Balances within the major deposit categories as of March 31, 1997 and
December 31, 1996 are shown below:
<TABLE>
<CAPTION>
(amounts in millions)
March 31, December 31,
1997 1996
-------------------- -------------------
<S> <C> <C>
Noninterest-bearing demand deposits $ 81.5 75.7
Interest-bearing demand deposits 113.1 118.0
Money market accounts 25.3 23.7
Savings deposits 65.1 61.9
Certificates of deposit and
individual retirement accounts
of $100,000 or more 102.1 98.1
Other individual retirement accounts 40.4 40.5
Other certificates of deposit 249.3 252.4
----- -----
$676.8 670.3
====== =====
</TABLE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
---------------------------------------
The primary functions of asset/liability management are to assure adequate
liquidity and maintain an appropriate balance between interest earning assets
and interest-bearing liabilities. Liquidity management involves the matching of
the cash flow requirements of customers, either depositors withdrawing funds or
borrowers needing loans, and the ability of the Company to meet those
requirements. Management monitors and maintains appropriate levels of assets and
liabilities so that maturities of assets are such that adequate funds are
provided to meet estimated customer withdrawals and loan requests.
The Company's liquidity position depends primarily upon the liquidity of its
assets relative to its need to respond to short-term demand for funds caused by
withdrawals from deposit accounts and loan funding commitments. Primary sources
of liquidity are scheduled payments on the Company's loans and interest on and
maturities of its investments. Occasionally, the Company will sell investment
securities available for sale in connection with the management of its income
tax position, its liquidity position, and its interest sensitivity gap. The
Company may also utilize its cash and due from banks, interest-earning deposits
in other banks, and federal funds sold to meet liquidity requirements as needed.
At March 31, 1997, the Company's cash and due from banks was $32.1 million, its
federal funds sold were $47.7 million, its interest-earning deposits in other
banks were $0.6 million, and its investment securities designated as available
for sale were $105.1 million. All of the above could be converted to cash on
relatively short notice.
The Company also has the ability, on a short-term basis, to purchase federal
funds from other financial institutions. Presently, the Company has made
arrangements with commercial banks for short-term unsecured advances of up to
approximately $39.9 million, in addition to credit which is available in the
form of Federal Home Loan Bank advances.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
The relative interest rate sensitivity of the Company's assets and liabilities
indicates the extent to which the Company's net interest income may be affected
by interest rate movements. The Company's ability to reprice assets and
liabilities in the same dollar amounts and at the same time minimizes interest
rate risks. One method of measuring the impact of interest rate changes on net
interest income is to measure, in a number of time frames, the interest
sensitivity gap, by subtracting interest-sensitive liabilities from
interest-sensitive assets, as reflected in the following table. Such interest
sensitivity gap represents the risk, or opportunity, in repricing. If more
assets than liabilities are repriced at a given time in a rising rate
environment, net interest income improves; in a declining rate environment, net
interest income deteriorates. Conversely, if more liabilities than assets are
repriced while interest rates are rising, net interest income deteriorates; if
interest rates are falling, net interest income improves.
The Company's strategy in minimizing interest rate risk is to minimize the
impact of short term interest rate movements on its net interest income while
managing its middle and long-term interest sensitivity gap in light of overall
economic trends in interest rates. The following table illustrates the relative
sensitivity of the Company to changing interest rates as of March 31, 1997.
<TABLE>
<CAPTION>
0-90 days 91-365 days 1-5 years Over 5 years
Current Current Cumulative Current Cumulative Current Cumulative
---------------------------------------------------------------------------------------------
(amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-sensitive assets $263,175 151,235 414,410 239,733 654,143 52,144 706,287
Interest-sensitive
liabilities 297,888 186,368 484,256 118,022 602,278 67 602,345
-------- ------- ------- ------- ------- ------ -------
Interest-sensitivity gap $(34,713) (35,133) (69,846) 121,711 51,865 52,077 103,942
======== ======= ======= ======= ======= ====== =======
Ratio of interest-sensitive
assets to interest-
sensitive liabilities 0.88 0.81 0.86 2.03 1.09 778.27 1.17
===== ===== ===== ===== ===== ====== =====
</TABLE>
RESULTS OF OPERATIONS
----------------------
Net Interest Income
- -------------------
Net interest income is an effective measurement of how well management has
balanced the Company's interest rate sensitive assets and liabilities. The
Company's net interest income is its principal source of income.
Interest-earning assets for the Company include loans, federal funds sold,
interest-earning deposits in other banks, and investment securities. The
Company's interest-bearing liabilities include its deposits, federal funds
purchased, Federal Home Loan Bank advances, other short-term borrowings, and
long-term debt.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Net interest income for the three months ended March 31, 1997 increased $465,000
or 5.85% over the same period of 1996. The average yield earned on
interest-earning assets, on a fully tax equivalent basis, decreased to 9.41% for
the three months ended March 31, 1997 from 9.51% for the three months ended
March 31, 1996 and the average rate paid on interest-bearing liabilities
decreased to 5.03% for the three months ended March 31, 1997 from 5.29% for the
three months ended March 31, 1996. The Company's interest rate differential
increased to 4.38% from 4.22% and its net interest margin (net interest income
divided by average interest-earning assets) increased to 5.08% for the first
three months of 1997 from 4.95% for the same period of 1996.
Allowance for Loan Losses
- -------------------------
The Company provides for loan losses on a monthly basis based upon information
available at the end of each period. By such additions, management maintains the
allowance for loan losses at a level adequate to provide for losses that can be
reasonably anticipated. The level of the allowance for loan losses is based on,
among other things, management's periodic loan-by-loan evaluation of potential
losses, as well as its assessment of prevailing and anticipated economic
conditions in its market areas. Reviews are conducted throughout the year by
senior officers of the Company and by unrelated third parties.
A substantial portion of the Company's loan portfolio is secured by real estate
in markets in northern Georgia, southeastern Tennessee, and southwestern North
Carolina. To some extent the ultimate collectibility of a substantial portion of
the Company's loan portfolio is dependent on or susceptible to changes in market
conditions in these markets.
The allowance for loan losses was 1.53% of outstanding loans at March 31, 1997
as compared to 1.49% at December 31, 1996 and 1.55% at March 31, 1996. The
allowance increased to $7,793,000 at March 31, 1997 from $7,565,000 at December
31, 1996 and $7,357,000 at March 31, 1996. The provision for loan losses
increased to $557,000 for the three months ended March 31, 1997 from $401,000
for the three months ended March 31, 1996. Net loan charge offs for the three
months ended March 31, 1997 were $329,000 as compared to $92,000 for the three
months ended March 31, 1996. Net loans charged off as a percentage of average
loans was 0.26% for the three months ended March 31, 1997 as compared to 0.08%
for the three months ended March 31, 1996.
Higher provisions have been made as a result of the continued growth in the loan
portfolio and also to provide for increased charge-offs at one of the affiliate
banks.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Nonperforming Loans, Nonperforming Assets, and Underperforming Loans
- --------------------------------------------------------------------
Nonperforming loans include nonaccrual loans. The Company has not restructured
any loans of significance through March 31, 1997. Nonperforming assets include
nonperforming loans, real estate acquired through foreclosure, securities which
are in default, and other repossessed assets. Underperforming loans consist of
loans which are past due with respect to principal or interest more than 90 days
and still accruing interest.
Accrual of interest on loans is discontinued when reasonable doubt exists as to
the full, timely collection of interest or principal or they become
contractually in default for 90 days or more as to either interest or principal
unless they are both well secured and in the process of collection. When a loan
is placed on nonaccrual status, previously accrued and uncollected interest for
the year in which the loan is placed on nonaccrual status is charged to interest
income on loans unless management believes the accrued interest is recoverable
through the liquidation of collateral.
Management is not aware of any loans classified for regulatory purposes as loss,
doubtful, substandard, or special mention that have not been disclosed below
which 1) represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity,
or capital resources, or 2) represent material credits about which management is
aware of any information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment terms.
The table on the following page provides information concerning nonperforming
loans, nonperforming assets, underperforming loans and certain asset quality
ratios at March 31, 1997 and December 31, 1996.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- -----------
(amounts in thousands except ratios and percentages)
<S> <C> <C>
Nonperforming loans $2,934 2,888
Real estate acquired through
foreclosure and other
repossessed assets 2,833 2,647
------ --------
Nonperforming assets $5,767 5,535
====== ========
Underperforming loans $1,751 1,572
====== ========
Asset Quality Ratios:
Nonperforming loans to total loans,
net of unearned income .57% .57%
====== ========
Nonperforming assets to total loans,
net of unearned income, real estate
acquired through foreclosure, and
other repossessed assets 1.12% 1.08%
====== ========
Allowance for loan losses to
nonperforming loans 2.66x 2.62x
====== ========
Underperforming loans to total loans,
net of unearned income .34% .31%
====== ========
Nonperforming loans to total assets .38% .38%
====== ========
Nonperforming assets to total assets .75% .73%
====== ========
</TABLE>
The Company's management provides for loan losses through a charge to earnings
to bring the allowance to a level which in management's judgement is considered
adequate to absorb potential losses inherent in the loan portfolio. A
substantial portion of the allowance is general in nature and is available for
the portfolio in its entirety.
Noninterest Income
- ------------------
Noninterest income for the first quarter of 1997 decreased $169,000 or 9.57% as
compared to the same period of 1996. This decrease was primarily attributable to
the inclusion of a $224,000 gain recorded in the first quarter of 1996 relating
to the sale of the mortgage servicing portfolio and also a decrease in net
securities gains (losses) of $38,000. The decrease was partially offset by an
increase in service charges on deposit accounts of $72,000 and an increase in
credit card fees of $35,000.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Noninterest Expense
- -------------------
The $590,000 or 9.62% increase in noninterest expense for the first quarter of
1997 as compared to the first quarter of 1996 was primarily due to an increase
in salary and benefit expense of $415,000, an increase in net occupancy and
equipment expense of $88,000, and an increase in computer related fees of
$83,000.
Income Tax Expense
- ------------------
The first quarter 1997 income tax expense was approximately $800,000, or an
effective rate of 29.4%, as compared to approximately $979,000 for the first
quarter 1996, or an effective rate of 30.9%.
Net Income
- ----------
The Company's first quarter 1997 net earnings were $0.25 per share or $1,922,000
as compared to $0.28 or $2,193,000 for the first quarter of 1996, representing a
decrease of 12.4%. This decrease is primarily the result of an increased level
of provision for loan losses at one affiliate bank for the first quarter of 1997
and operational costs associated with the investments made to open five new
facilities in 1996 and early 1997, the majority of which became operational in
the last quarter of 1996.
Performance Ratios
- ------------------
Performance of banks is often measured by various ratio analyses. Two widely
recognized performance indicators are return on average equity and return on
average assets. The return on average equity for the three months ended March
31, 1997 was 10.27% (annualized) as compared to 12.59% (annualized) for the
three months ended March 31, 1996. The Company's return on average assets was
1.04% (annualized) and 1.24% (annualized) for the three month periods ended
March 31, 1997 and 1996, respectively. These ratios compare favorably with other
holding companies of similar size.
Capital Resources
- -----------------
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.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
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 following 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 March 31, 1997 that the Company meets
all capital adequacy requirements to which it is subject.
The Company's actual capital amounts and ratios are presented below on a
consolidated basis:
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of March 31, 1997:
Total Capital
(to Risk Weighted greater greater greater greater
Assets): $76,893 15.2% than or $40,563 than or 8.0% than or $50,704 than or 10.0%
equal to equal to equal to equal to
Tier 1 Capital
(to Risk Weighted greater greater greater greater
Assets): $70,537 13.9% than or $20,282 than or 4.0% than or $30,423 than or 6.0%
equal to equal to equal to equal to
Tier 1 Capital greater greater greater greater
(to Average Assets): $70,537 9.5% than or $29,611 than or 4.0% than or $37,014 than or 5.0%
equal to equal to equal to equal to
As of March 31, 1996:
Total Capital
(to Risk Weighted greater greater greater greater
Assets): $69,428 15.3% than or $36,295 than or 8.0% than or $45,369 than or 10.0%
equal to equal to equal to equal to
Tier 1 Capital
(to Risk Weighted greater greater greater greater
Assets): $63,737 14.0% than or $18,148 than or 4.0% than or $27,221 than or 6.0%
equal to equal to equal to equal to
Tier 1 Capital
(to Average Assets): greater greater greater greater
$63,737 8.9% than or $28,567 than or 4.0% than or $35,709 than or 5.0%
equal to equal to equal to equal to
</TABLE>
The Company continues to maintain a level of capital well in excess of
regulatory requirements and available for supporting future growth. The
Company's level of capital can be measured by its average shareholders' equity
to average assets ratio of 10.14% and its ratio of shareholders' equity to
assets of 9.93% at March 31, 1997.
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.
17
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits
The following exhibits are attached:
Exhibit 11 Computation of Per Share Earnings
Exhibit 20 Shareholders' Report
Exhibit 27 Financial Data Schedule
(b) There were no reports filed on Form 8-K for the quarter ended
March 31, 1997.
18
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Century South Banks, Inc.
DATE: May 14, 1997 By: /s/ James A. Faulkner
------------------------ ------------------------
James A. Faulkner
President & CEO
DATE: May 14, 1997 By: /s/ Susan J. Anderson
------------------------ ------------------------
Susan J. Anderson
Senior Vice President, CFO,
and Secretary/Treasurer
19
<PAGE>
EXHIBIT 11
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Statement re Computation of Per Share Earnings
The following computations set forth the calculations of primary and fully
diluted net income per common share and common share equivalent for the three
month periods ended March 31, 1997 and 1996.
<TABLE>
<CAPTION>
Primary Fully Diluted
Earnings Earnings
Per Share Per Share
--------- --------------
(amounts in thousands, except per share data)
<S> <C> <C>
For the three months ended March 31, 1997:
Net income $ 1,922 1,922
========== ===========
Weighted average number of common
shares outstanding 7,767 7,767
Common share equivalents resulting
from stock options 27 27
---------- -----------
Adjusted weighted average number
of common and common equivalent
shares outstanding 7,794 7,794
========== ===========
Net income per common and
common equivalent share $ .25 .25
========== ===========
For the three months ended March 31, 1996:
Net income $ 2,193 2,193
========== ===========
Weighted average number of common
shares outstanding 7,761 7,761
Common share equivalents resulting
from stock options 14 14
---------- -----------
Adjusted weighted average number
of common and common equivalent
shares outstanding 7,775 7,775
========== ===========
Net income per common and
common equivalent share $ .28 .28
========== ===========
</TABLE>
20
<PAGE>
EXHIBIT 20
CHAIRMAN'S MESSAGE
Dear Shareholder:
Century South Banks, Inc. reports net earnings for the first quarter of
1997 of $1,922,000 or $0.25 per share as compared to $2,193,000 or $0.28 per
share for the first quarter of 1996, a 12.4% decrease. This decrease is
primarily the result of an increased level of provision for loan losses at one
affiliate bank for the first quarter of 1997 and operational costs associated
with the investments made to open five new facilities in 1996 and early 1997,
the majority of which became operational in the last quarter of 1996.
The quarterly cash dividend of $0.1025 per share paid on April 7, 1997,
represents a 5.1% increase over the amount paid in April 1996.
The Company's provision for loan losses for the first quarter of 1997
was $557,000 as compared to $401,000 for the same period in 1996. At
March 31, 1997, the Company's allowance for loan losses was 1.53% of total loans
outstanding as compared to 1.55% at March 31, 1996.
Total assets at March 31, 1997 were approximately $768,305,000
representing a 6.5% increase over the March 31, 1996 assets of $721,617,000. The
Company's nonperforming assets, which include loans placed on nonaccrual status
and foreclosed assets, at March 31, 1997 were $5,767,000 as compared to
$5,535,000 at December 31, 1996 and $4,494,000 at March 31, 1996. Nonperforming
assets as a percentage of loans plus foreclosed assets were 1.12% at
March 31, 1997 as compared to 1.08% at December 31, 1996 and 0.94% at
March 31, 1996. Nonperforming loans as a percentage of total loans outstanding,
net of unearned income were 0.57% at March 31, 1997 as compared to 0.57% at
December 31, 1996 and 0.50% at March 31, 1996.
We are excited about our pending merger with Bank Corporation of
Georgia, headquartered in Macon, Georgia. Upon completion of the merger, Century
South Banks, Inc. will have assets of over $1 billion, making your company the
third largest bank holding company in Georgia. With the constant changes in the
banking industry and the demands on performance at an increased level, this
merger will allow Century South to meet those demands and become an even
stronger company. We feel our company will be able to face the challenges of the
future and continue to grow as a community bank holding company.
We would like to welcome new directors at three of our affiliate banks.
Mr. Gary Davenport, President of Davenport Transportation, Inc. in Blairsville,
Georgia, joined the board of First National Bank of Union County. Fannin County
Bank, N.A. added to their board Mr. Peter D. Folger, Manager of Folger Gas in
Blue Ridge, Georgia. First Bank of Polk County added Mr. Grady Scott to its
board. Mr. Scott is Administrator of Copper Basin Hospital located in
Copperhill, Tennessee. First Bank of Polk County also said farewell to Mr.
William E. Roach who retired as a Director and Chairman of the Board after
having been associated with the bank for approximately 32 years. Mr. Roach will
be greatly missed by the directors, officers, and employees of all the
affiliates of Century South Banks, Inc.
As always, we want to encourage you to support the Century South bank
in your community. 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>
March 31, March 31,
1997 1996
-----------------------------------
(amounts in thousands)
<S> <C> <C>
Assets
Cash and due from banks $ 32,091 $ 25,350
Federal funds sold 47,730 39,310
Interest-earning deposits in other banks 602 368
Investment securities 146,710 154,967
Loans, net of unearned income 510,714 473,902
Allowance for possible loan losses (7,793) (7,357)
Premises and equipment, net 18,561 15,897
Other assets 19,690 19,180
-----------------------------------
Total assets $768,305 $721,617
===================================
Liabilities
Noninterest-bearing deposits $ 81,483 $ 65,991
Interest-bearing deposits 595,336 567,747
Other short-term borrowings 300 900
Federal Home Loan Bank advances 6,957 8,057
Long-term debt 220 340
Other liabilities 7,709 8,271
-----------------------------------
Total liabilities 692,005 651,306
-----------------------------------
Shareholders' Equity
Common stock 7,826 7,826
Additional paid-in capital 28,879 28,780
Retained earnings 40,510 34,535
Reduction for ESOP loan guarantee (124) (214)
Common stock in treasury, at cost (331) (337)
Net unrealized loss on investment securities (460) (279)
-----------------------------------
Total shareholders' equity 76,300 70,311
-----------------------------------
Total liabilities and shareholders' equity $768,305 $721,617
===================================
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1996
----------------------------------
(amounts in thousands,
except per share data)
<S> <C> <C>
Interest income $ 15,768 $ 15,479
Interest expense 7,360 7,536
----------------------------------
Net interest income 8,408 7,943
Provision for loan losses 557 401
Noninterest income 1,597 1,766
Noninterest expense 6,726 6,136
Income tax expense 800 979
----------------------------------
Net income $ 1,922 $ 2,193
==================================
Weighted average common shares outstanding
and common share equivalents 7,794 7,775
Net income per share $ 0.25 $ 0.28
Dividends declared per share $ 0.10250 $ 0.09750
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CenturySouthbanks
- --------------------------------------------------------------------------------------
Inc.
<S> <C>
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
</TABLE>
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 770-497-9797
706-276-3400
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 March 31,
1997 1996 Percentage Change
------------------------------------------------------
(amounts in thousands, except per share data)
<S> <C> <C> <C>
Loans, net $502,921 $466,545 7.80%
Deposits 676,819 633,738 6.80
Total assets 768,305 721,617 6.47
Shareholders' equity 76,300 70,311 8.52
Net income 1,922 2,193 (12.36)
Book value per share 9.82 9.06 8.39
Net income per share 0.25 0.28 (10.71)
Weighted average common shares
outstanding and common share equivalents 7,794 7,775 0.24
Nonperforming loans 2,934 2,354 24.64
Other real estate and other
nonperforming assets 2,833 2,140 32.38
Financial Ratios
- ---------------------------------------------------------------------------------------
Return on average assets 1.04% 1.24% (16.13)%
Return on average shareholders' equity 10.27 12.59 (18.43)
Net interest margin (taxable equivalent) 5.08 4.95 2.63
Allowance for loan losses to loans 1.53 1.55 (1.29)
Nonperforming assets to total assets 0.75 0.62 20.97
</TABLE>
<PAGE>
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
Stock Information
Century South Banks, Inc. ("CSBI") lists its stock for trading on the National
Association of Securities Dealers Automated Quotations System ("NASDAQ"). The
ticker tape symbol is "CSBI". Market price for the quarter ended March 31, 1997:
<TABLE>
<S> <C>
Three month high ....................... $ 20.50
Three month low ........................ $ 17.75
Closing price .......................... $ 18.75
</TABLE>
- --------------------------------------------------------------------------------
Shareholder Services
Shareholders wishing to change the name or address on their stock, to report
lost certificates or to consolidate accounts should contact:
Century South Banks, Inc.
Shareholder Relations
P.O. Box 1000
Dahlonega, Georgia 30533
(706) 864-1111
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan/Cash Contributions
Shareholders wishing to automatically reinvest quarterly dividends into Century
South Banks, Inc. common stock or make voluntary cash contributions should
contact:
Century South Banks, Inc.
Dividend Reinvestment Plan/Cash Contributions
P.O. Box 1000
Dahlonega, Georgia 30533
(706) 864-1111
- --------------------------------------------------------------------------------
Investor Relations
Shareholders, analysts, and others seeking financial information on Century
South Banks, Inc. should contact:
James A. Faulkner Susan J. Anderson
President & CEO or Senior Vice President & CFO
(770) 287-9092 (770) 287-9092
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 32,091
<INT-BEARING-DEPOSITS> 602
<FED-FUNDS-SOLD> 47,730
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 105,097
<INVESTMENTS-CARRYING> 41,613
<INVESTMENTS-MARKET> 42,230
<LOANS> 510,714
<ALLOWANCE> 7,793
<TOTAL-ASSETS> 768,305
<DEPOSITS> 676,819
<SHORT-TERM> 300
<LIABILITIES-OTHER> 7,709
<LONG-TERM> 7,177
0
0
<COMMON> 7,826
<OTHER-SE> 68,474
<TOTAL-LIABILITIES-AND-EQUITY> 768,305
<INTEREST-LOAN> 13,160
<INTEREST-INVEST> 2,215
<INTEREST-OTHER> 393
<INTEREST-TOTAL> 15,768
<INTEREST-DEPOSIT> 7,239
<INTEREST-EXPENSE> 7,360
<INTEREST-INCOME-NET> 8,408
<LOAN-LOSSES> 557
<SECURITIES-GAINS> (1)
<EXPENSE-OTHER> 6,726
<INCOME-PRETAX> 2,722
<INCOME-PRE-EXTRAORDINARY> 2,722
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,922
<EPS-PRIMARY> 0.25
<EPS-DILUTED> 0.25
<YIELD-ACTUAL> 5.08
<LOANS-NON> 5,767
<LOANS-PAST> 1,751
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,565
<CHARGE-OFFS> 402
<RECOVERIES> 73
<ALLOWANCE-CLOSE> 7,793
<ALLOWANCE-DOMESTIC> 7,793
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
