<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10Q
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the period ended September 30, 1998
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.)
60 Main Street West, P O Box 1000, Dahlonega, Georgia 30533
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(706) 864-1111
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF OCTOBER 31, 1998
- -------------------------------------------------------------------------------
Common stock, $1.00 par value 11,029,327
<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 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Market Risk Disclosure 18
Part II. Other Information
-----------------
Item 6. Exhibits and Reports 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>
September 30, December 31,
1998 1997
-----------------------------------------
(amounts in thousands,
except share data)
<S> <C> <C>
Assets
- ------
Cash and due from banks $ 37,640 43,146
Federal funds sold 38,670 33,870
Interest-earning deposits in other banks 11,269 32,465
Investment securities:
Available for sale 105,301 138,592
Held to maturity (fair value: September
30, 1998 - $31,127 and December 31,
1997 - $41,153) 29,920 40,212
Loans, net of unearned income 802,009 758,731
Less allowance for loan losses 12,743 12,339
---------- ---------
Loans, net 789,266 746,392
---------- ---------
Premises and equipment, net 25,265 26,849
Goodwill and other intangibles, net 6,521 7,284
Other assets 20,779 19,558
---------- ---------
Total assets $1,064,631 1,088,368
========== =========
Liabilities and Shareholders' Equity
- -----------------------------------
Liabilities:
Deposits:
Noninterest-bearing demand deposits $ 125,350 129,418
Interest-bearing deposits 806,849 830,918
---------- ---------
Total deposits 932,199 960,336
Federal funds purchased 10 160
Other short-term borrowings 150 1,500
Federal Home Loan Bank advances 4,806 6,881
Long-term debt 36 39
Accrued expenses and other liabilities 9,819 10,314
---------- ---------
Total liabilities 947,020 979,230
---------- ---------
Shareholders' Equity:
Common Stock-$1 par value. Authorized
30,000,000 and 15,000,000 shares at
September 30, 1998 and December 31, 1997,
respectively: issued 11,087,226 and
10,924,699 shares at September 30,1998 and
December 31, 1997, respectively; and
outstanding 11,028,327 and 10,865,800
shares at September 30, 1998 and December
31, 1997, respectively 11,087 10,925
Additional paid-in capital 34,944 34,282
Retained earnings 70,769 63,566
Common stock in treasury (58,899 shares),
at cost (306) (306)
Accumulated other comprehensive income 1,117 671
---------- ---------
Total shareholders' equity 117,611 109,138
---------- ---------
Total liabilities and shareholders' equity $1,064,631 1,088,368
========== =========
</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 Nine months ended
September 30, September 30,
1998 1997 1998 1997
--------------------------------------------------------------------
(amounts in thousands, except
per share data)
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 20,377 19,171 60,002 56,041
Federal funds sold 492 503 1,641 1,508
Interest on deposits in other banks 199 130 615 663
Investment securities:
Taxable 1,693 2,491 5,663 7,514
Nontaxable 458 578 1,435 1,787
-------- ------- ------- -------
Total interest income 23,219 22,873 69,356 67,513
-------- ------- ------- -------
Interest expense:
Deposits 9,621 9,907 28,994 29,467
Federal funds purchased 10 10 21 25
Federal Home Loan Bank advances 74 112 218 323
Long-term debt and other borrowings 8 10 43 117
-------- ------- ------- -------
Total interest expense 9,713 10,039 29,276 29,932
-------- ------- ------- -------
Net interest income 13,506 12,834 40,080 37,581
Provision for loan losses 463 115 1,472 4,992
-------- ------- ------- -------
Net interest income after
provision for loan losses 13,043 12,719 38,608 32,589
-------- ------- ------- -------
Noninterest income:
Service charges on deposit accounts 1,485 1,794 4,543 4,277
Securities gains (losses), net 252 (143) 289 18
Other operating income 1,253 1,192 4,764 3,386
-------- ------- ------- -------
Total noninterest income 2,990 2,843 9,596 7,681
-------- ------- ------- -------
Noninterest expense:
Salaries and employee benefits 6,012 5,450 18,021 16,502
Net occupancy and equipment expense 1,500 1,710 4,447 4,749
Other operating expenses 2,986 2,905 9,302 10,445
-------- ------- ------- -------
Total noninterest expense 10,498 10,065 31,770 31,696
-------- ------- ------- -------
Income before income taxes 5,535 5,497 16,434 8,574
Income tax expense 1,913 1,991 5,652 2,270
-------- ------- ------- -------
Net income $ 3,622 3,506 10,782 6,304
======== ======= ======= =======
Net income per share:
Basic $ 0.33 0.32 0.98 0.58
======== ======= ======= =======
Diluted $ 0.32 0.32 0.97 0.57
======== ======= ======= =======
Cash dividends declared per share $0.11000 0.10500 0.32625 0.31125
======== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1998 1997
-----------------------------
(amounts in thousands)
<S> <C> <C>
Net cash provided by operating activities $ 15,762 15,760
--------- -------
Cash flows from investing activities:
Proceeds from sales of investment securities available for sale 338 2,272
Principal collections and maturities of investment securities:
Available for sale 53,155 28,330
Held to maturity 10,601 4,363
Proceeds from maturities of interest-earning deposits 148,417 29,654
Purchases of investment securities held to maturity (200) (1,785)
Purchases of investment securities available for sale (19,223) (34,191)
Investment in interest-earning deposits (127,221) (11,167)
Net increase in loans (47,630) (36,739)
Proceeds from sales of real estate acquired through foreclosure 1,559 832
Purchases of premises and equipment (2,156) (1,840)
Proceeds from sale of premises and equipment 301 860
--------- -------
Net cash provided by (used in) investing activities 17,941 (19,411)
--------- -------
Cash flows from financing activities:
Net decrease in deposits (28,137) (7,752)
Net increase (decrease) in federal funds purchased (150) 1,510
Net decrease in other short-term borrowings (1,350) -
Proceeds from issuance of long-term debt 1,500 4,010
Payments on long-term debt and Federal Home Loan
Bank advances (3,578) (4,150)
Dividends paid to shareholders (3,518) (2,388)
Proceeds from issuance of common stock 824 75
--------- -------
Net cash used in financing activities (34,409) (8,695)
--------- -------
Net decrease in cash and cash equivalents (706) (12,346)
Cash and cash equivalents at beginning of period 77,016 93,942
--------- -------
Cash and cash equivalents at end of period $ 76,310 81,596
========= =======
Supplemental disclosure of cash paid during the period for:
Interest $ 29,850 29,953
========= =======
Income taxes $ 2,042 3,879
========= =======
Supplemental schedule of noncash investing and financing
Activities:
Real estate acquired through foreclosure $ 4,970 1,702
========= =======
Real estate sold and financed by the Company $ 1,223 1,517
========= =======
Net reduction in guaranteed ESOP loan recorded in
shareholders' equity $ - 137
========= =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<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 Parent 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"), Bank of
Danielsville ("DAN"), First South Bank, National Association ("FSB") and
AmeriBank, National Association ("AMB"), (collectively "the Company").
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. 128 "Earnings Per Share"
--------------------------------------
On December 31, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS
128 supercedes Accounting Principles Board Opinion No. 15, "Earnings Per Share"
and specifies the computation, presentation, and disclosure requirements for
earnings per share (EPS). SFAS 128 replaces the presentation of primary EPS and
fully diluted EPS with a presentation of basic EPS and diluted EPS,
respectively. All prior period EPS data has been restated to conform with the
provisions of SFAS 128.
Basic EPS excludes dilution and is computed by dividing net income by the
weighted average shares outstanding. Diluted EPS is computed by dividing net
income by the weighted average shares outstanding plus potential common shares
resulting from dilutive options assuming the exercise proceeds would be used to
repurchase shares pursuant to the treasury stock method.
(3) Statement No. 130 "Reporting Comprehensive Income"
--------------------------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. SFAS 130 requires all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in an annual financial statement that is displayed in equal prominence
with the other annual financial statements. For interim period financial
statements, enterprises are required to disclose a total for comprehensive
income in those financial statements. The term "comprehensive income" is used in
SFAS 130 to describe the total of all components of comprehensive income
including net income. "Other comprehensive income"
6
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
refers to revenues, expenses, gains, and losses that are included in
comprehensive income but excluded from earnings under current accounting
standards. Currently, "other comprehensive income" for the Company consists of
items recorded as a component of shareholders' equity under SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities". The Company
has adopted the interim-period disclosure requirements of SFAS 130 effective
March 31, 1998 and will adopt the annual financial statement reporting and
disclosure requirements of SFAS 130 effective December 31, 1998.
Total comprehensive income for the nine months ended September 30, 1998 was
$11,228,000 compared to $6,564,000 for the nine months ended September 30, 1997.
Total comprehensive income for the three months ended September 30, 1998 was
$3,910,000 compared to $3,899,000 for the three months ended September 30, 1997.
(4) Long-Term Debt and Short-Term Borrowings
----------------------------------------
On January 30, 1998, the Company renewed a $15,000,000 revolving line of credit
with a bank which is payable on demand and matures on January 30, 1999. The
line of credit accrues interest at the Prime Lending Rate minus one percent
(1%), as defined in the agreement, and is due quarterly. The line of credit is
secured by 100% of the outstanding common stock of three of the Company's
subsidiaries. As of September 30, 1998, there were no advances under this line
of credit.
Certain 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 $2,075,525 related to advances
under these lines in the first nine months of 1998 making the total advances
under these lines approximately $4.8 million. One subsidiary has a balance
outstanding of $0.8 million which matures on September 1, 2006 and bears
interest at the rate of 7.74% with principal and interest due monthly. Another
subsidiary has drawn $4.0 million with $2.0 million maturing on December 28,
1998 and $2.0 million maturing on January 13, 1999 with interest, payable
monthly, based on the current LIBOR rate. The purpose of these advances was to
replace short-term deposits with longer term funds. In addition to these
advances, the 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.
7
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(5) Pending Acquisition/Sale
------------------------
On July 9, 1998, the Company and Independent Bancorp, Inc., with assets of
approximately $92 million, signed a letter of intent to merge their two
respective bank holding companies. Under the proposed merger, Independent
Bancorp shareholders will receive 3.2411 shares of Century South stock for each
share of Independent Bancorp stock. The merger is subject to regulatory and
shareholder approval.
On July 10, 1998, the Company entered into a definitive agreement for its
affiliate bank, First National Bank of Union County in Blairsville, Georgia, to
be acquired by Appalachian Bancshares, Inc. in Ellijay, Georgia. The
transaction should close not later than December 31, 1998.
(6) New Accounting Pronouncements
-----------------------------
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133).
SFAS 133 is effective for financial statements for all fiscal quarters of all
fiscal years beginning after June 15, 1999. The Company does not believe the
provisions of SFAS 133 will have a significant impact on the financial
statements upon adoption.
In October 1998, the FASB issued Statement of Financial Accounting Standards No.
134, "Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise,
an amendment of FASB Statement No. 65" (SFAS 134). SFAS 134 is effective for
the first quarter beginning after December 15, 1998. The Company does not
believe the provisions of SFAS 134 will have a significant impact on the
financial statements upon adoption.
8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
-------
The following is a discussion of the Company's financial condition at September
30, 1998, compared to December 31, 1997, and results of operations for the three
and nine month periods ended September 30, 1998, compared to the three and nine
month periods ended September 30, 1997. This discussion should be read in
conjunction with the Company's unaudited consolidated financial statements and
accompanying notes appearing elsewhere in this report.
FINANCIAL CONDITION
-------------------
During the first nine months of 1998, total assets decreased $23.7 million or
approximately 2.2%, primarily due to a decline in deposits of $28.1 million.
However, net loans grew $42.9 million or 5.7% during the first nine months of
1998 and were funded by maturities of investment securities of $43.6 million.
The amortized cost, gross unrealized gains and losses, and estimated fair value
of available for sale and held to maturity securities by type at September 30,
1998 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 $ 64,127 1,175 - 65,302
State, county and
municipal securities 9,775 281 (2) 10,054
Mortgage-backed securities 15,467 225 (1) 15,691
Other debt securities 6,831 68 (87) 6,812
Equity securities 7,195 257 (10) 7,442
---------------------------------------------
$103,395 2,006 (100) 105,301
---------------------------------------------
Held to maturity:
U.S. Government agencies $ 2,713 34 (1) 2,746
State, county and
municipal securities 24,488 1,082 - 25,570
Mortgage-backed securities 774 18 (1) 791
Other debt securities 1,945 75 - 2,020
---------------------------------------------
$ 29,920 1,209 (2) 31,127
---------------------------------------------
</TABLE>
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Balances within the major deposit categories as of September 30, 1998 and
December 31, 1997 are shown below:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Noninterest-bearing demand deposits $125.4 129.4
Interest-bearing demand deposits 140.8 157.3
Money market accounts 127.9 104.7
Savings deposits 56.7 64.2
Certificates of deposit and
individual retirement accounts
of $100,000 or more 128.2 130.4
Other individual retirement accounts 51.2 52.8
Other certificates of deposit 302.0 321.5
------ -----
$932.2 960.3
====== =====
</TABLE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
---------------------------------------
The primary functions of asset/liability management are to assure adequate
liquidity and maintain an appropriate balance between interest earning assets
and interest-bearing liabilities. Liquidity management involves the matching of
the cash flow requirements of customers, either depositors withdrawing funds or
borrowers needing loans, and the ability of the Company to meet those
requirements. Management monitors and maintains appropriate levels of assets
and liabilities so that maturities of assets are such that adequate funds are
provided to meet estimated customer withdrawals and loan requests.
The Company's liquidity position depends primarily upon the liquidity of its
assets relative to its need to respond to short-term demand for funds caused by
withdrawals from deposit accounts and loan funding commitments. Primary sources
of liquidity are scheduled payments on the Company's loans and interest on and
maturities of its investments. Occasionally, the Company will sell investment
securities available for sale in connection with the management of its income
tax position, its liquidity position, and its interest sensitivity gap. The
Company may also utilize its cash and due from banks, interest-earning deposits
in other banks, and federal funds sold to meet liquidity requirements as needed.
At September 30, 1998, the Company's cash and due from banks was $37.6 million,
its federal funds sold were $38.7 million, its interest-earning deposits in
other banks were $11.3 million, and its investment securities designated as
available for sale were $105.3 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 $47.2 million, in addition to credit which is available in the
form of Federal Home Loan Bank advances.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
The relative interest rate sensitivity of the Company's assets and liabilities
indicates the extent to which the Company's net interest income may be affected
by interest rate movements. The Company's ability to reprice assets and
liabilities in the same dollar amounts and at the same time minimizes interest
rate risks. One method of measuring the impact of interest rate changes on net
interest income is to measure, in a number of time frames, the interest
sensitivity gap, by subtracting interest-sensitive liabilities from interest-
sensitive assets, as reflected in the following table. Such interest
sensitivity gap represents the risk, or opportunity, in repricing. If more
assets than liabilities are repriced at a given time in a rising rate
environment, net interest income improves; in a declining rate environment, net
interest income deteriorates. Conversely, if more liabilities than assets are
repriced while interest rates are rising, net interest income deteriorates; if
interest rates are falling, net interest income improves.
The Company's strategy in minimizing interest rate risk is to minimize the
impact of short-term interest rate movements on its net interest income while
managing its middle and long-term interest sensitivity gap in light of overall
economic trends in interest rates. The following table illustrates the relative
sensitivity of the Company to changing interest rates as of September 30, 1998.
<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 $359,760 196,457 556,217 358,730 914,947 72,222 987,169
Interest-sensitive
liabilities 431,179 273,585 704,764 106,281 811,045 806 811,851
-------- ------- ------- ------- ------- ------ -------
Interest-sensitivity gap $(71,419) (77,128) (148,547) 252,449 103,902 71,416 175,318
======== ======= ======== ======= ======= ====== =======
Ratio of interest-sensitive
assets to interest-
sensitive liabilities 0.83 0.72 0.79 3.38 1.13 89.61 1.22
======== ======= ======= ======= ======= ====== =======
</TABLE>
RESULTS OF OPERATIONS
---------------------
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 its deposits, federal funds purchased,
Federal Home Loan Bank advances, other short-term borrowings, and long-term
debt.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Net interest income for the three months ended September 30, 1998 increased
$672,000 or 5.24% over the same period of 1997. For the nine months ended
September 30, 1998, net interest income was $40,080,000 representing an increase
of $2,499,000 or 6.65% as compared to the nine months ended September 30, 1997.
The average yield earned on interest-earning assets, on a tax equivalent basis,
increased to 9.51% for the nine months ended September 30, 1998 from 9.44% for
the nine months ended September 30, 1997 and the average rate paid on interest-
bearing liabilities decreased to 4.83% for the nine months ended September 30,
1998 from 4.91% for the nine months ended September 30, 1997. The Company's
interest rate differential increased to 4.68% from 4.53% and its net interest
margin (net interest income divided by average interest-earning assets)
increased to 5.53% for the first nine months of 1998 from 5.29% for the same
period of 1997.
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, middle and coastal 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 loan losses approximated 1.59% of outstanding loans at
September 30, 1998 as compared to 1.63% at December 31, 1997 and 1.75% at
September 30, 1997. The allowance increased to $12,743,000 at September 30, 1998
from $12,339,000 at December 31, 1997 and decreased from $12,838,000 at
September 30, 1997. The provision for loan losses decreased to $1,472,000 for
the nine months ended September 30, 1998 from $4,992,000 for the nine months
ended September 30, 1997. This decrease in the provision for loan losses was
primarily due to the recording of additional provisions in the second quarter of
1997 of approximately $3,900,000 resulting from an in depth study of the loan
portfolios at two subsidiary banks where recent management changes had occurred
and a revision of the estimation process used by the Company. Net loan charge
offs for the nine months ended September 30, 1998 were $1,068,000 as compared to
$2,568,000 for the nine months ended September 30, 1997. Net loans charged off
as a percentage of average loans was 0.18% for the nine months ended September
30, 1998 as compared to 0.48% for the nine months ended September 30, 1997.
The table on the following page summarizes the changes in the allowance for loan
losses for the nine months ended September 30, 1998 and the year ended December
31, 1997.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
September 30, December 31,
1998 1997
------------- ------------
Allowance for loan losses at
beginning of year $12,339 10,414
Loans charged off 1,518 3,744
Recoveries on loans previously
charged off 450 468
------- ------
Net loans charged off 1,068 3,276
Provision for loan losses
charged to income 1,472 5,201
------- ------
Allowance for loan losses at
end of period $12,743 12,339
======= ======
Nonperforming Loans, Nonperforming Assets, and Underperforming Loans
- --------------------------------------------------------------------
Nonperforming loans include nonaccrual loans. The Company has not restructured
any loans of significance through September 30, 1998. 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 September 30, 1998 and December 31, 1997.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(amounts in thousands, except ratios and percentages)
<S> <C> <C>
Nonperforming loans $ 5,539 4,595
Real estate acquired through
foreclosure and other repossessed
assets 4,743 2,347
------- -----
Nonperforming assets $10,282 6,942
======= =====
Underperforming loans $ 1,587 2,535
======= =====
Asset Quality Ratios:
Nonperforming loans to total loans,
net of unearned income 0.69% 0.61%
======= =====
Nonperforming assets to total loans,
net of unearned income,real estate
acquired through foreclosure, and
other repossessed assets 1.27% 0.91%
======= =====
Allowance for loan losses to
Nonperforming loans 2.30% 2.69%
======= =====
Allowance for loan losses to total
loans, net of unearned income 1.59% 1.63%
======= =====
Underperforming loans to total loans,
net of unearned income 0.20% 0.33%
======= =====
Nonperforming loans to total assets 0.52% 0.42%
======= =====
Nonperforming assets to total assets 0.97% 0.64%
======= =====
</TABLE>
The Company experienced an increase in nonperforming assets primarily due to the
abandonment of branches at two of the subsidiaries in the amount of $1,405,000.
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 third quarter of 1998 increased $147,000 or 5.2% as
compared to the same period of 1997. This increase was primarily due to an
increase in net securities gains (losses) of $395,000 and an increase in
mortgage loan origination fees of $238,000. This increase was partially offset
by a decrease in service charges on deposit accounts of $309,000 and a decrease
in credit card fees of $132,000. For the first nine months of 1998, noninterest
income increased $1,915,000 or 24.9%. This increase was primarily due to an
increase in service charges on deposit accounts of $266,000, an increase in net
securities gains (losses) of $271,000, an increase in mortgage loan origination
fees of $839,000, and a gain on the sale of a branch of one of the subsidiaries
in the first quarter of 1998 of $849,000. This increase was partially offset by
a decrease in credit card fees of $357,000.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Noninterest Expense
- -------------------
The $433,000 or 4.3% increase in noninterest expense for the third quarter of
1998 as compared to the third quarter of 1997 was primarily due to an increase
in salary and benefit expense of $562,000. This increase was partially offset
by a decrease in net occupancy and equipment expense of $210,000. The first
nine months of 1998 as compared to the same period of 1997 resulted in an
increase of $74,000 or 0.2%. This increase was primarily due to an increase in
salary and benefit expense of $1,519,000 mainly due to increases in cost of
living expenses. This increase was offset by decreases in net foreclosed asset
related expenses of $287,000, credit card expenses of $330,000 and net occupancy
and equipment expenses of $302,000. Decreases were also noted in advertising
and marketing expense and ATM related expenses of $157,000 and $144,000,
respectively.
Income Tax Expense
- ------------------
The third quarter 1998 income tax expense was approximately $1,913,000, or an
effective rate of 34.6%, as compared to approximately $1,991,000 for the third
quarter 1997, or an effective rate of 36.2%. During the first nine months of
1998 income tax expense was approximately $5,652,000, or an effective rate of
34.4%, compared to approximately $2,270,000, or an effective rate of 26.5% for
the same period in 1997.
Net Income
- ----------
The Company's third quarter 1998 net earnings were $0.32 per diluted share or
$3,622,000 as compared to $0.32 per diluted share or $3,506,000 for the third
quarter of 1997, representing an increase in net earnings of 3.3%. Earnings for
the nine months ended September 30, 1998 were $10,782,000 up 71.0% from
$6,304,000 for the comparable period in 1997. Earnings per share for the nine
months ended September 30, 1998 were $0.97 per diluted share as compared to
$0.57 per diluted share for the corresponding period ended September 30, 1997.
These increases in net income are a result of special charges recorded in the
second quarter of 1997 of approximately $4,450,000. The special charges
consisted of additions to the loan loss provision as previously discussed,
write-offs of equipment that was determined to be obsolete, and buyouts of
various vendor contracts and leases.
Performance Ratios
- ------------------
Performance of banks is often measured by various ratio analyses. Two widely
recognized performance indicators are return on average equity and return on
average assets. The return on average equity for the nine months ended
September 30, 1998 was 12.75% (annualized) as compared to 8.07% (annualized) for
the nine months ended September 30, 1997. The Company's return on average
assets was 1.36% (annualized) and 0.81% (annualized) for the nine month periods
ended September 30, 1998 and 1997, respectively. These ratios reflect the
special charges taken in the second quarter of 1997.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
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.
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 September 30, 1998 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>
For
Capital
Actual Adequacy Purposes
-----------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
As of September 30,1998:
Total Capital (to Risk Weighted
Assets): $119,832 15.5% (greater than or equal to) $61,774 (greater than or equal to) 8.0%
Tier 1 Capital (to Risk Weighted
Assets): $110,146 14.3% (greater than or equal to) $30,887 (greater than or equal to) 4.0%
Tier 1 Capital (to Average Assets): $110,146 10.4% (greater than or equal to) $42,409 (greater than or equal to) 4.0%
</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 10.93% and its ratio of shareholders' equity to
assets of 11.05% at September 30, 1998.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Inflation
- ---------
Inflation impacts the growth in total assets in the banking industry and causes
a need to increase equity capital at higher than normal rates to meet capital
adequacy requirements. The Company copes with the effects of inflation through
effectively managing its interest rate sensitivity gap position, by periodically
reviewing and adjusting its pricing of services to consider current costs, and
through managing its dividend payout policy relative to its level of net income.
The impact of inflation has been minimal to the Company in recent years.
Year 2000
- ---------
The Year 2000 issue refers generally to the data structure problem that will
prevent systems from properly recognizing dates after the year 1999. For
example, computer programs and various types of electronic equipment that
process date information by reference to two digits rather than four to define
the applicable year may recognize a date using "00" as the year 1900 rather than
the year 2000. The Year 2000 problem may occur in computer software programs,
computer hardware systems and any device that relies on a computer chip if that
chip relies on date information. Even if the systems that process date-
sensitive data are Year 2000 compliant, a Year 2000 problem may exist to the
extent that the data that such systems process is not. In addition to
evaluating the Year 2000 issues relative to its own systems, companies must also
assess the ability of the third parties upon which they rely to function on
January 1, 2000 and thereafter.
The Company has appointed a Year 2000 committee with a full-time Year 2000
coordinator to conduct a comprehensive review of its operational and financial
systems to determine how the year 2000 will impact operation of these systems.
The committee has developed a plan to identify all critical systems and
developed solutions for all systems that are found to not be Year 2000
compliant. Each Board of Directors of the affiliate banks as well as the Board
of Directors of the Company has reviewed the overall project plans for the banks
with progress toward completion monitored regularly. To date, confirmations have
been received from the Company's primary processing vendors and counterparties
that plans have been developed to address processing of transactions in the year
2000. The Company will review all testing results to ensure accuracy and
complete preparedness. In addition, comprehensive testing plans have been
developed to ensure all critical applications will process normally in the Year
2000. Testing plans have also been developed in coordination with the Company's
core processing vendor. Regular communications procedures have been established
between the core processing vendor and the Company to ensure testing of all
applications are completed and thoroughly reviewed. Customer awareness and
preparedness is also a priority. Loan relationships which could be materially
affected by the Year 2000 issue are being identified and monitored. An employee
and customer awareness campaign began on September 1, 1998 and will be ongoing
through the remainder of 1998 and 1999. Contingency plans have been developed to
ensure direction in the event a non-compliant system or component is detected.
These plans will provide the Company direction in the event an unforeseen
circumstance arises due to the year 2000. An unforeseen circumstance can be
anything from
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
a vault not opening as planned, a power failure, or a natural disaster. All
plans will be finalized, tested and implemented before third quarter 1999.
Based upon the preliminary study, the Company expects to spend approximately
$1,000,000 from 1998 through 1999 to modify its computer information systems.
The replacement of personal computers and software will be approximately
$500,000, which will be recorded as capital expenditures and amortized. The
remainder will be expensed as incurred and are not expected to have a material
effect on the Company's financial condition or results of operations for 1998 or
1999. The costs of the project have been derived from actual expenditures plus
estimated additional expenditures related to Year 2000 that have not yet been
incurred. The dates on which the Company anticipates completion of the project
along with the costs of the Year 2000 project are based upon management's
estimates, which were formulated utilizing assumptions centered on the Year 2000
impact. There are no guarantees that these estimates will be attained, and
actual results could differ in reality from those anticipated.
Project plans, precluding any unforeseen delays, call for all critical issues to
be identified and the needed changes implemented and tested before December 31,
1998. In the event a primary processing vendor does not meet Year 2000
compliant status by the end of 1998, the Company will move forward with the
established contingency plan for that particular vendor and component. There
can be no assurance that the Company's systems nor the systems of other
companies with whom the Company conducts business will be Year 2000 compliant
prior to December 31, 1999 or that failure of any such system will not have a
material adverse effect on the Company's business, operating results and
financial condition.
ITEM 3 - MARKET RISK DISCLOSURE
The information called for concerning market risk of the Company is not included
as there have not been any significant changes in the market rate table as shown
in the Company's 1997 Annual Report filed on Form 10-K.
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 27.1 Financial Data Schedule as of and for the nine
months ended September 30, 1998
Exhibit 27.2 Restated Financial Data Schedule as of and for
the nine months ended September 30, 1997
(b) There were no reports filed on Form 8-K for the
quarter ended September 30, 1998.
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: November 10, 1998 By: /s/ James A. Faulkner
----------------- --------------------------
James A. Faulkner
Vice Chairman and Chief
Executive Officer
DATE: November 10, 1998 By: /s/ Joseph W. Evans
----------------- -------------------------
Joseph W. Evans
President, Chief Operating
Officer and Chief Financial
Officer
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 basic and diluted net
income per common share and common share equivalents for the three and nine
month periods ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
Basic Diluted
Earnings Earnings
Per Share Per Share
----------- ------------
(amounts in thousands, except per share data)
<S> <C> <C>
For the three months ended September 30, 1998:
Net income $ 3,622 3,622
======= ======
Weighted average number of common
shares outstanding 11,015 11,015
Common share equivalents resulting
from dilutive stock options - 173
------- ------
Adjusted weighted average number
of common and common equivalent
shares outstanding 11,015 11,188
======= ======
Net income per common share $ 0.33 0.32
======= ======
For the three months ended September 30, 1997:
Net income $ 3,506 3,506
======= ======
Weighted average number of common
shares outstanding 10,838 10,838
Common share equivalents resulting
from dilutive stock options - 255
------- ------
Adjusted weighted average number
of common and common equivalent
shares outstanding 10,838 11,093
======= ======
Net income per common share $ 0.32 0.32
======= ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Basic Diluted
Earnings Earnings
Per Share Per Share
---------- ----------
(amounts in thousands, except per share data)
<S> <C> <C>
For the nine months ended September 30, 1998:
Net income $10,782 10,782
======= ======
Weighted average number of common
shares outstanding 10,946 10,946
Common share equivalents resulting
from dilutive stock options - 220
------- ------
Adjusted weighted average number
of common and common equivalent
shares outstanding 10,946 11,166
======= ======
Net income per common share $ 0.98 0.97
======= ======
For the nine months ended September 30, 1997:
Net income $ 6,304 6,304
======= ======
Weighted average number of common
shares outstanding 10,834 10,834
Common share equivalents resulting
from dilutive stock options - 259
------- ------
Adjusted weighted average number
of common and common equivalent
shares outstanding 10,834 11,093
======= ======
Net income per common share $ 0.58 0.57
======= ======
</TABLE>
<PAGE>
CHIEF EXECUTIVE OFFICER'S MESSAGE
Dear Shareholder:
We are pleased to report net earnings for Century South Banks, Inc. for the
third quarter of 1998. Net income for the quarter was $3,622,000 as compared to
$3,506,000 for the third quarter of 1997, representing an increase of 3.3%.
Earnings per diluted share remained constant at $0.32 for the third quarter of
1998 as compared to the same quarter of 1997. Net income for the year through
September 30, 1998 was $10,782,000 or $0.97 per diluted share as compared to
$6,304,000 or $0.57 per diluted share through September 30, 1997, representing
an increase of 71.0%.
The quarterly cash dividend of $0.11 per share paid on October 6, 1998,
represents a 4.8% increase over the same quarter of 1997 and a 1.1% increase
over the previous quarter's dividend.
We continue to be pleased with the results of our company's
operations. Total assets at September 30, 1998 were approximately
$1,064,631,000. Return on average assets was 1.36% as compared to 0.81% for the
nine-month period ended September 30, 1997. At September 30, 1998, our reserve
for loan losses was 1.59% of total loans outstanding and nonperforming assets as
a percentage of total assets were 0.97%.
You have no doubt read in recent business publications that some of the
nations largest banks are experiencing credit problems. Be assured that we are
very mindful of the risks that stem from over-aggressive lending. We are
resolved to accept a slower rate of growth in our company, if necessary, rather
than compromise our credit standards. The safety and soundness of your
investment is our number one concern.
Our previously announced acquisition of The Independent Bank of Oxford,
Alabama is progressing on schedule. We look forward to welcoming this fine bank
into the Century South Banks, Inc. family very early in 1999.
We appreciate your continued support of our company and welcome your
comments and questions.
Sincerely,
James A. Faulkner
Vice Chairman and
Chief Executive Officer
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1998 1997
-------------------------------
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks $ 37,640 $ 38,486
Federal funds sold 38,670 43,110
Interest-earning deposits in other banks 11,269 842
Investment securities 135,221 192,300
Loans, net of unearned income 802,009 732,829
Allowance for loan losses (12,743) (12,838)
Premises and equipment, net 25,265 27,159
Other assets 27,300 27,178
------------------------------
Total assets $1,064,631 $1,049,066
==============================
LIABILITIES
Noninterest-bearing deposits $ 125,350 $ 122,038
Interest-bearing deposits 806,849 799,180
Other short-term borrowings 160 2,510
Federal Home Loan Bank Advances 4,806 6,906
Long-term debt 36 1,540
Other liabilities 9,819 10,264
------------------------------
Total liabilities 947,020 942,438
------------------------------
SHAREHOLDERS' EQUITY
Common stock 11,087 10,896
Additional paid-in capital 34,944 34,202
Retained earnings 70,769 61,558
Reduction for ESOP loan guarantee - (196)
Common stock in treasury, at cost (306) (306)
Accumulated other comprehensive income 1,117 474
------------------------------
Total shareholders' equity 117,611 106,628
------------------------------
Total liabilities and shareholders' equity $1,064,631 $1,049,066
==============================
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Interest income $ 23,219 $ 22,873 $ 69,356 $ 67,513
Interest expense 9,713 10,039 29,276 29,932
-------------------------------------------------------
Net interest income 13,506 12,834 40,080 37,581
Provision for loan losses 463 115 1,472 4,992
Noninterest income 2,990 2,843 9,596 7,681
Noninterest expense 10,498 10,065 31,770 31,696
Income tax expense 1,913 1,991 5,652 2,270
-------------------------------------------------------
Net income $ 3,622 $ 3,506 $ 10,782 $ 6,304
=======================================================
Weighted average common shares outstanding
assuming dilution 11,188 11,093 11,166 11,093
Net income per share assuming dilution $ 0.32 $ 0.32 $ 0.97 $ 0.57
Dividends declared per share $0.11000 $0.10500 $0.32625 $0.31125
</TABLE>
<PAGE>
CenturySouthbanks
- --------------------------------------------------------------------------------
Inc.
EXECUTIVE OFFICERS
- --------------------------------------------------------------------------------
William H. Anderson, II Chairman
J. Russell Ivie Vice Chariman
James A. Faulkner Vice Chairman & CEO
Joseph W. Evans President, COO & CFO
Tony E. Collins Executive Vice President & CAO
Stephen W. Doughty Executive Vice President & CCO
J. Thomas Wiley, Jr. Executive Vice President
Sidney J. Wooten Executive Vice President
DIRECTORS
- -------------------------------------------------------------------------------
William H. Anderson, II, Chairman Thomas T. Folger, Jr.
J. Russell Ivie, Vice Chairman Quill O. Healey
James A. Faulkner, Vice Chairman Frank C. Jones
James R. Balkcom, Jr. John B. McKibbon, III
William L. Chandler E. Paul Stringer
Joseph W. Evans
AFFILIATES
- -------------------------------------------------------------------------------
Bank of Dahlonega Gwinnett National Bank
60 Main Street West 3200 Peachtree Industrial Boulevard
Dahlonega, GA 30533 Duluth, GA 30136
John L. Lewis, President Terry C. Evans, President
706-864-3314 770-497-9797
The Bank of Ellijay First Community Bank of Dawsonville
Sand and Broad Street 136 Highway 400 South
Ellijay, GA 30540 Dawsonville, GA 30534
R. A. Robinson, CEO Gary L. Evans, President
C. Paul Nealey, President 706-216-5050
706-276-3400
First Bank of Polk County Peoples Bank
40 Ocoee Street 13321 Jones Street
Copperhill, TN 37317 Lavonia, GA 30553
David E. Adkisson, President J. Douglas Cleveland, President
423-496-3261 706-356-8040
Georgia First Bank Bank of Danielsville
455 Jesse Jewell Parkway Courthouse Square
Gainesville, GA 30501 Danielsville, GA 30633
Allen J. Satterfield, President L. Banister Sexton, President
770-535-8000 706-795-2121
First National Bank of Union County First South Bank, N.A.
420 Blue Ridge Highway 4951 Forsyth Road
Blairsville, GA 30512 Macon, GA 31210
Rodney B. McCombs, President Daniel M. Forrester, President
706-745-5571 912-757-2000
Fannin County Bank, N.A. AmeriBank, N.A.
480 W. First Street 7393 Hodgson Memorial Drive
Blue Ridge, GA 30513 Savannah, GA 31406
Steve M. Eaton, President J. Thomas Wiley, Jr., President
706-632-2075 912-232-3800
<PAGE>
FINANCIAL HIGHLIGHTS (UNAUDITED)
SELECTED BALANCES
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AS OF AND FOR NINE MONTHS
ENDED SEPTEMBER 30,
1998 1997 PERCENTAGE CHANGE
--------------------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Loans, net $ 789,266 $ 719,991 9.62%
Deposits 932,199 921,218 1.19
Total assets 1,064,631 1,049,066 1.48
Shareholders' equity 117,611 106,628 10.30
Net income 10,782 6,304 71.03
Book value per share 10.66 9.84 8.33
Net income per share assuming dilution 0.97 0.57 70.18
Weighted average common shares outstanding
assuming dilution 11,166 11,093 0.66
Nonperforming loans 5,539 2,490 122.45
Other real estate and other
nonperforming assets 4,743 2,466 92.34
</TABLE>
<TABLE>
FINANCIAL RATIOS
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Return on average assets 1.36% 0.81% 67.90%
Return on average shareholders' equity 12.75 8.07 57.99
Net interest margin (taxable equivalent) 5.53 5.29 4.54
Allowance for loan losses to loans 1.59 1.75 (9.14)
Nonperforming assets to total assets 0.97 0.47 106.38
</TABLE>
<PAGE>
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------
STOCK INFORMATION
Century South Banks, Inc. ("CSBI") lists its stock for trading on the National
Association of Securities Dealers Automated Quotations System ("NASDAQ"). THE
ticker tape symbol is "CSBI". Market price for the quarter ended September 30,
1998:
Three month high ......................... $ 38.00
Three month low .......................... $ 25.00
Closing price ..............................$ 30.50
- -------------------------------------------------------------------------------
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 one of the following:
James A. Faulkner Susan J. Anderson Joseph W. Evans
Vice Chairman & CEO Senior Vice President & Controller President,COO & CFO
(706) 864-3915 (706) 864-3915 (912) 475-4340
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<S> <C>
<CASH> 37,640
<INT-BEARING-DEPOSITS> 11,269
<FED-FUNDS-SOLD> 38,670
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 105,301
<INVESTMENTS-CARRYING> 29,920
<INVESTMENTS-MARKET> 31,127
<LOANS> 802,009
<ALLOWANCE> 12,743
<TOTAL-ASSETS> 1,064,631
<DEPOSITS> 932,199
<SHORT-TERM> 160
<LIABILITIES-OTHER> 9,819
<LONG-TERM> 4,842
0
0
<COMMON> 11,087
<OTHER-SE> 106,524
<TOTAL-LIABILITIES-AND-EQUITY> 1,064,631
<INTEREST-LOAN> 60,002
<INTEREST-INVEST> 7,098
<INTEREST-OTHER> 2,256
<INTEREST-TOTAL> 69,356
<INTEREST-DEPOSIT> 28,994
<INTEREST-EXPENSE> 29,276
<INTEREST-INCOME-NET> 40,080
<LOAN-LOSSES> 1,472
<SECURITIES-GAINS> 289
<EXPENSE-OTHER> 31,770
<INCOME-PRETAX> 16,434
<INCOME-PRE-EXTRAORDINARY> 16,434
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,782
<EPS-PRIMARY> 0.98
<EPS-DILUTED> 0.97
<YIELD-ACTUAL> 5.53
<LOANS-NON> 5,539
<LOANS-PAST> 1,587
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,339
<CHARGE-OFFS> 1,518
<RECOVERIES> 450
<ALLOWANCE-CLOSE> 12,743
<ALLOWANCE-DOMESTIC> 12,743
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<S> <C>
<CASH> 38,486
<INT-BEARING-DEPOSITS> 842
<FED-FUNDS-SOLD> 43,110
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 151,220
<INVESTMENTS-CARRYING> 41,080
<INVESTMENTS-MARKET> 0
<LOANS> 732,829
<ALLOWANCE> 12,838
<TOTAL-ASSETS> 1,049,066
<DEPOSITS> 921,218
<SHORT-TERM> 2,510
<LIABILITIES-OTHER> 10,264
<LONG-TERM> 8,446
0
0
<COMMON> 10,896
<OTHER-SE> 95,732
<TOTAL-LIABILITIES-AND-EQUITY> 1,049,066
<INTEREST-LOAN> 56,041
<INTEREST-INVEST> 9,300
<INTEREST-OTHER> 2,172
<INTEREST-TOTAL> 67,513
<INTEREST-DEPOSIT> 29,467
<INTEREST-EXPENSE> 29,932
<INTEREST-INCOME-NET> 37,581
<LOAN-LOSSES> 4,992
<SECURITIES-GAINS> 18
<EXPENSE-OTHER> 31,696
<INCOME-PRETAX> 8,574
<INCOME-PRE-EXTRAORDINARY> 8,574
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,304
<EPS-PRIMARY> 0.58
<EPS-DILUTED> 0.57
<YIELD-ACTUAL> 5.29
<LOANS-NON> 2,490
<LOANS-PAST> 1,561
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10,414
<CHARGE-OFFS> 2,771
<RECOVERIES> 203
<ALLOWANCE-CLOSE> 12,838
<ALLOWANCE-DOMESTIC> 12,838
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
