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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(MARK ONE)
[x] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1997 or
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[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _________________ to
_____________
COMMISSION FILE NUMBER 2-75364
Century South Banks, Inc.
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(Exact name of registrant as specified in its charter)
Georgia 58-1455591
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
60 Main Street West, Dahlonega, Georgia 30533
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (706) 864-1111
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Common stock, $1.00
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par value
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Registrant's common stock (based upon the mean
of the closing high and low sales price reported by the Nasdaq Stock Market)
held by nonaffiliates as of February 28, 1998 was approximately $206,900,000.
The Registrant had 10,883,013 shares of its common stock outstanding as of March
24, 1998.
Documents Incorporated by Reference
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Portions of the Company's 1997 Annual Report to Shareholders and Proxy Statement
for the Company's 1998 Annual Meeting of Shareholders are incorporated by
reference into Part I, Item 1, Part II, Items 5, 6, 7, and 8, Part III, Items
10, 11, 12, and 13, and Part IV, Item 14.
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Form 10-K
Index
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Page
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PART I
Item 1. BUSINESS........................................... 3
Item 2. PROPERTIES......................................... 8
Item 3. LEGAL PROCEEDINGS.................................. 9
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS................................ 11
Item 6. SELECTED FINANCIAL DATA............................ 11
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................ 11
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA............................................... 11
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE................ 11
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. 11
Item 11. EXECUTIVE COMPENSATION............................. 12
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT..................................... 12
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..... 12
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PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K................................... 12
SIGNATURES.......................................................... 16
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PART I
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Item 1. BUSINESS
BUSINESS OF THE COMPANY
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Century South Banks, Inc. (the "Company") is a $1.09 billion asset multibank
holding company which engages through its wholly-owned subsidiaries, Bank of
Dahlonega ("BOD"), The Bank of Ellijay ("BOE"), First Bank of Polk County
("FBPC"), Georgia First Bank ("GFB"), First National Bank of Union County
("FNBUC"), Fannin County Bank, N.A. ("FCB"), Gwinnett National Bank ("GNB"),
First Community Bank of Dawsonville ("FCBD"), Peoples Bank ("PBL"), Bank of
Danielsville ("DAN"), First South Banks, N.A. ("FSB"), and AmeriBank, N.A.
("AMB") - (collectively the "Banks") in providing a full range of banking
services to customers of the Banks. The Company's executive offices are located
at 60 Main Street West, Dahlonega, Georgia 30533 and its telephone number is
(706) 864-1111.
The Company was incorporated as a Georgia business corporation in 1981. In the
last quarter of 1982, the Company acquired all of the issued and outstanding
common stock of BOD, Dahlonega, Georgia and on May 31, 1985, the Company
acquired all of the issued and outstanding shares of BOE, Ellijay, Georgia. The
Company acquired all of the issued and outstanding shares of common stock of The
First National Bank of Polk County ("FNBPC"), Copperhill, Tennessee, on December
16, 1988 and acquired 95.4% of the issued and outstanding shares of common stock
of GFB on September 11, 1989, bringing its ownership of the common stock of GFB
to 100%. The Company acquired all of the issued and outstanding shares of First
Union Bancorp ("FUB") and its wholly owned banking subsidiary, FNBUC, on April
30, 1990.
On May 31, 1994, the Company acquired the charter of Martin Bank, Dyersburg,
Tennessee at a cost of $31,000. In addition, with regulatory approval, FNBPC
relocated its charter to Blue Ridge, Georgia. FNBPC acquired assets of
approximately $28 million and assumed deposit liabilities of approximately $43
million of the Blue Ridge, Georgia offices of NationsBank of Georgia, N.A.
("Nations") on May 31, 1994. In conjunction with these transactions, effective
May 31, 1994, Martin Bank changed its name to FBPC, Copperhill, Tennessee and
FNBPC changed its name to FCB, Blue Ridge, Georgia. In a simultaneous
transaction, FBPC acquired assets of approximately $53 million and assumed
liabilities of approximately $56 million from FNBPC.
On April 14, 1995, the Company completed the acquisitions of Gwinnett Bancorp,
Inc. ("GBI"), a bank holding company located in Duluth, Georgia, and its
subsidiary bank GNB, and First Community Bank of Dawsonville, located in
Dawsonville, Georgia. These transactions were accounted for as poolings of
interests, and accordingly, financial information preceding the dates of
acquisition were restated to include the financial position and results of
operations of GBI, and its subsidiary GNB, and FCBD.
On December 14, and December 27, 1995, the Company completed the acquisitions of
Peoples Bank, located in Lavonia, Georgia, and Bank of Danielsville, located in
Danielsville, Georgia, respectively. These transactions were accounted for as
poolings of interests, and accordingly, financial information preceding the
dates of acquisition were restated to include the financial position and results
of operations of PBL and DAN.
On December 16, 1997, the Company completed the merger with Bank Corporation of
Georgia ("BCG"), a bank holding company located in Macon, Georgia and its
subsidiary banks, FSB and AMB. This transaction was accounted for as a
pooling of interests, and accordingly, financial information preceding the date
of acquisition was restated to include the financial position and results of
operations of BCG. The combined entity now maintains dual headquarters in
Dahlonega, Georgia and Macon, Georgia.
In June 1996, BCG completed the acquisition of Effingham Bank & Trust
("Effingham") located in Rincon, Georgia.
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This acquisition has been accounted for as a pooling of interests, and
accordingly, financial information preceding the dates of acquisition has been
restated to include the financial position and results of operations of
Effingham.
In March 1996, BCG acquired the remaining minority interest in AmeriCorp,
Inc., the parent conpany of AMB. In February 1996, AMB acquired certain assets
and assumed certain liabilities of the Bank South, N.A., Victory Drive branch in
Savannah, Georgia. These transactions were accounted for as purchases.
Because of its ownership of all the issued and outstanding shares of the common
stock of the Banks, the Company is a "Bank Holding Company" as that term is
defined under Federal law in the Bank Holding Company Act of 1956 (the "Act"),
as amended, and under the bank holding company laws of the State of Georgia
("Georgia Act"). As a bank holding company, the Company is subject to the
applicable provisions of the Act and the Georgia Act as well as to supervision
by the Board of Governors of the Federal Reserve System (the "Board") and the
State of Georgia Department of Banking and Finance (the "GDBF"). The Company's
primary business as a bank holding company is to manage the business affairs of
its banking subsidiaries. The Banks provide a full range of banking services to
their customers. BOD, BOE, GFB, FCBD, PBL and DAN were organized under the
state banking laws of Georgia and are not members of the Federal Reserve System.
FBPC is organized under the state banking laws of Tennessee and is not a member
bank of the Federal Reserve System. FCB, FNBUC, GNB, FSB, and AMB were
organized under the Federal banking laws of the United States of America and are
member banks of the Federal Reserve System.
COMPETITION
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The banking business is highly competitive. Each of the Banks faces strong
competition from commercial banks located in each Bank's primary market area.
The Banks also compete with other financial services organizations, including
thrifts, finance companies, credit unions and certain governmental agencies.
Many of these competing institutions are larger in size and have access to
resources with higher lending limits.
EMPLOYEES
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As of December 31, 1997, the Company had approximately 588 employees, with
approximately 90 serving the Company directly. As of December 31, 1997, BOD had
52 employees, BOE had 43 employees, FBPC had 43 employees, GFB had 56 employees,
FNBUC had 25 employees, FCB had 31 employees, GNB had 16 employees, FCBD had 29
employees, PBL had 17 employees, DAN had 34 employees, FSB had 90 employees, and
AMB had 62 employees. The Company is not a party to any collective bargaining
agreement and, in the opinion of management, the Company enjoys satisfactory
relations with its employees.
SUPERVISION, REGULATION, AND OTHER FACTORS
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Bank Holding Company Regulations
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Offers and sales of the common stock of the Company are subject to the
registration requirements of the Securities Act of 1933, as amended, and the
regulations promulgated thereunder which are administered by the Securities and
Exchange Commission. Such offers and sales are also subject to the registration
requirements of various state securities acts. The Company is subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended.
The Company is a registered holding company under the Act and the Georgia Act
and is regulated under such acts by the Board and by the GDBF, respectively. As
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a bank holding company, the Company is required to file with the Board an annual
report and such additional information as the Board may require pursuant to the
Act. The Board may also conduct examinations of the Company and each of its
subsidiaries. The Board possesses cease-and-desist powers over bank holding
companies if their actions represent an unsafe or unsound practice or violation
of laws.
The Act also requires every bank holding company to obtain prior approval from
the Board before acquiring direct or indirect ownership or control of more than
5% of the voting shares of any bank which is not already majority owned or
controlled by the bank holding company. The Board is prohibited, however, from
approving the acquisition by the Company of the voting shares of, or
substantially all the assets of, any bank located outside Georgia, unless such
acquisition is specifically authorized by the laws of the state in which the
bank is located. Under Georgia law, a bank holding company is authorized to
acquire ownership or control of additional banks in Georgia, Alabama, Florida,
Kentucky, Louisiana, Maryland, Mississippi, North Carolina, South Carolina,
Tennessee, Virginia, and the District of Columbia. Acquisition of any additional
state chartered banks would require prior approval from the Board, the GDBF, and
the Federal Deposit Insurance Corporation (the "FDIC"). The acquisition of a
national bank would require prior approval from the Board, the Office of the
Comptroller of the Currency (the "OCC"), the GDBF, and the FDIC.
The Act and Georgia Act further provide that the Board and the GDBF will not
approve any acquisition, merger, or consolidation (a) which would result in a
monopoly, (b) which would be in furtherance of any combination or conspiracy to
monopolize or attempt to monopolize the business of banking in any part of the
United States, (c) the effect of which may be substantially to lessen
competition or to tend to create a monopoly in any section of the country, or
(d) which in any other manner would be in restraint of trade, unless the
anticompetitive effects of the proposed transaction are clearly outweighed in
the public interest by the probable effect of the transaction in meeting the
convenience and needs of the community to be served.
In addition to having the right to acquire ownership or control of other banks,
the Company is authorized to acquire ownership or control of nonbanking
companies, provided the activities of such companies are so closely related to
banking or managing or controlling banks that the Board considers such
activities to be proper to the operation and control of banks. Regulation Y,
promulgated by the Board, sets forth those activities which are regarded as
closely related to banking or managing or controlling banks and, thus, are
permissible activities for bank holding companies, subject to approval by the
Board in individual cases.
Banks' Supervision and Regulations
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BOD, BOE, GFB, FCBD, PBL, and DAN are insured state nonmember banks chartered by
the GDBF and are subject to supervision by, and are regularly examined by, the
GDBF and the FDIC.
FBPC is an insured state nonmember bank chartered by the Tennessee Department of
Financial Institutions ("TDFI") and is subject to supervision by the TDFI and
the FDIC.
FCB, FNBUC, GNB, FSB and AMB are insured national banks chartered under the
Federal banking laws of the United States of America. All are members of the
Federal Reserve System, are subject to the supervision of the OCC and the FDIC,
and are regularly examined by the OCC.
To the extent provided by law, deposits of the Banks are insured by the FDIC.
Subsidiary banks of a banking holding company are subject to certain
restrictions imposed by the Act on any extension of credit to the bank holding
company or any of its subsidiaries, on investment in the stock or the securities
thereof, and on the taking of such stock or securities as collateral for loans
to any borrower.
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Other Factors
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Legislation has been adopted in order to assist in the resolution of the
insolvency of the Federal Savings and Loan Insurance Corporation, which insured
deposits maintained in most savings and loan associations and savings banks.
The Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") was adopted in order to address these issues. FIRREA contains major
regulatory reforms, strong capital standards, and safeguards for the disposal of
recoverable assets.
As a result of the enactment of FIRREA, a depository institution insured by the
FDIC can be held liable for any loss incurred by, or reasonably expected to be
incurred by, the FDIC in connection with (i) the default of a commonly
controlled FDIC insured depository institution; or (ii) any assistance provided
by the FDIC to a commonly controlled FDIC insured depository institution in
danger of default. "Default" is defined generally as the appointment of a
conservator or receiver and "in danger of default" is defined generally as the
existence of certain conditions indicating that a "default" is likely to occur
in the absence of regulatory assistance. The Banks are FDIC-insured depository
institutions within the meaning of FIRREA.
Additional Legislation
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The Company is subject to capital adequacy guidelines as established by the
Board. The Board has established risk-based capital guidelines for bank holding
companies which are applied to the Company and on a bank-only basis. The Board
has announced that these capital requirements are minimum requirements for the
most highly rated banking organizations and other banking organizations are
expected to maintain capital at higher levels.
The guidelines define Tier 1 Capital, Tier II Capital and Total Capital and
provide risk-based capital ratios calculated with reference to risk-weighted
assets which include both on and off-balance sheet exposures. Tier 1 Capital
must represent at least 50% of qualifying total capital and consists of common
and qualifying preferred shareholders' equity and minority interests in equity
accounts of consolidated subsidiaries, less goodwill. Tier II Capital consists
of allowances for loan and lease losses, perpetual preferred stock and related
surplus, hybrid capital instruments and mandatory convertible debt securities,
term subordinated debt and intermediate-term preferred stock, including related
surplus. Total Capital consists of Tier I Capital plus Tier II Capital less
investment in unconsolidated subsidiaries, reciprocal holdings of banking
organizations' capital securities, and other discretionary deductions.
The minimum required ratio for qualifying Total Capital to risk-weighted assets
(including grandfathered goodwill) as of December 31, 1997 was 8%, of which 4%
was required to be Tier 1 Capital. As of December 31, 1997, the Company's Tier
1 Capital was $101,105,000, Tier II Capital was $9,434,000 and its Total Risk-
Based Capital was $110,539,000 as determined in accordance with regulatory
requirements. Accordingly, 91.5% of the Company's qualifying Total Risk-Based
Capital was Tier 1 Capital.
Regarding regulation of the Company and the Banks, bills may be introduced in
the United States Congress and the Georgia Legislature to alter the structure,
regulation and competitive relationships of the nation's financial institutions.
As to other adopted legislation, the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") was enacted to further regulate the banking
industry. The principal initial effect of FDICIA is to permit the Bank
Insurance Fund (the "BIF") to borrow up to $30 billion from the U.S. Treasury
(to be repaid through deposit insurance premiums over 15 years) and to permit
the BIF to borrow working capital from the Federal Financing Bank in an amount
up to 90% of the value of the assets the FDIC has acquired from failed banks,
which is estimated would yield approximately $40 billion in working capital.
The additional supervisory powers and regulations mandated by FDICIA include a
"prompt corrective action" program based upon five regulatory zones for banks,
in which all banks are placed, largely based on their capital positions.
Regulators are permitted to take increasingly harsh action as a bank's financial
condition declines. Regulators are also empowered to place in receivership or
require the sale of a bank to another depository institution when a bank's
capital leverage ratio reaches 2%. Better capitalized institutions are
generally subject to less onerous regulation and supervision than banks with
lesser amounts of capital under FDICIA. Other sections of FDICIA impose
substantial new audit and reporting requirements and increase the role of
independent accountants and outside directors.
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Other Legislation
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On September 23, 1994, President Clinton signed into law the Riegle Community
Development and Regulatory Improvement Act of 1994 (the "CDA"). The CDA sets up
the Community Development Financial Institution Fund to provide assistance to
new and existing community lenders. The CDA also includes regulatory and
paperwork reduction provisions, and enhanced consumer protections.
On September 29, 1994, President Clinton signed into law The Riegle-Neal
Interstate Banking and Branching Act of 1994 (the "Interstate Banking Act").
The Interstate Banking Act allows banks to acquire out of state banks after one
year, and out of state branches through interstate mergers, beginning June 1,
1997. The Interstate Banking Act also protects key provisions of state law,
establishes a mechanism for de novo branching, and includes provisions relating
to interstate branching by foreign banks.
During the 1996 Georgia General Assembly, Senate Bill 165 ("SB165"), was passed
by both the House and Senate of Georgia and subsequently signed by Governor
Miller. SB165 permits state chartered banks to branch into any three counties
in Georgia between July 1, 1996 through July 1, 1998. If the bank is part of a
bank holding company, all affiliates are treated as one and the bank holding
company is limited to only three counties. On July 1, 1998, all branching
restrictions will be removed.
FDIC Insurance Assessments
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The FDIC adopted regulations amending the deposit insurance assessments
applicable to the Banks. The regulations provide for a risk based premium
system which requires higher assessment rates for banks which the FDIC
determines pose greater risks to the BIF.
Under the new regulations, banks pay an assessment depending upon risk
classification. Although the new regulations were adopted by the FDIC as final
regulations, the Board of the FDIC will consider whether changes in economic and
industry conditions require adjustments in the range of assessment rates to be
charged in future years.
To arrive at risk based assessments, the FDIC places each bank in one of nine
risk categories using a two step process based on capital ratios and on other
relevant information. Each bank is assigned to one of three groups (well
capitalized, adequately capitalized, or under capitalized) based on its capital
ratios. The FDIC has also assigned each bank to one of three subgroups based
upon an evaluation of the risk posed by the bank. The three subgroups include
(i) banks that are financially sound with only a few minor weaknesses, (ii)
those banks with weaknesses which, if not corrected, could result in significant
deterioration of the bank and increased risk to the BIF, and (iii) those banks
that pose a substantial probability of loss to the BIF unless corrective action
is taken. These supervisory evaluations modify premium rates within each of the
three capital groups with the result being the nine risk categories and
assessment rates based on a summary multiplier.
The Company has been informed by the FDIC that its Banks have been classified as
well capitalized and in the lowest risk category and will be assessed
accordingly for 1998.
MONETARY POLICY
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The earnings of the Company are affected by domestic and foreign economic
conditions, particularly by the monetary and fiscal policies of the United
States Government and its agencies.
The Board has had, and will continue to have, an important impact on the
operating results of banks through its power to implement national monetary
policy in order, among other things, to mitigate recessionary and inflationary
pressures by regulating the national money supply. The techniques used by the
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Board include setting the reserve requirements of member banks and establishing
the discount rate on member bank borrowings. The Board also conducts open
market transactions in United States Government securities.
Periodically, bills are pending before the United States Congress which contain
wide-ranging proposals for altering the structures, regulations, and competitive
relationships of the nation's financial institutions. President Clinton has
proposed such bills which have not yet been finalized. These bills may include
proposals to restructure reserve requirements of banks, to prohibit banks and
bank holding companies from conducting certain types of activities, to subject
banks to increased disclosure and reporting requirements, to eliminate on a
regional or other basis the present restriction on interstate expansion by banks
or bank holding companies, to alter the statutory separation of commercial and
investment banking, and to expand further the powers of thrift institutions and
other competitors of banks. It cannot be predicted whether or in what form any
of these proposals will be adopted or the extent to which the business of the
Company may be affected thereby.
SELECTED STATISTICAL INFORMATION
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Incorporated by reference from pages 15-30 of Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's 1997 Annual Report to Shareholders.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
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This financial report contains forward-looking statements, including statements
regarding, among other items, (i) the Company's plans, intentions or
expectations, (ii) general competitive conditions, and (iii) the Company's
management information systems. This notice is intended to take advantage of the
"safe harbor" provided by the Private Securities Litigation Reform Act of 1995
with respect to such forwarded-looking statements. These forward-looking
statements involve a number of risks and uncertainties. Among others, factors
that could cause actual results to differ materially are the following:
fluctuations in interest rates, inflation, competition in the geographic
business areas in which the Company does business, development of trends in the
general economy; the highly competitive nature of the banking industry; the
dependence on key personnel who have been hired or retained by the Company;
changes in regulatory requirements which are applicable to the Company's
business; and the risk factors listed from time to time in the Company's reports
filed with the Securities and Exchange Commission, including but not limited to,
its Annual Reports on Form 10-K.
Item 2. PROPERTIES
The Company and the Banks own or lease all of the real property and/or buildings
on which they are located. All of such buildings are in a good state of repair
and are appropriately designed for the purposes for which they are used.
BOD's main banking office is located at 60 Main Street West, Dahlonega, Georgia
and its branch offices are also located in Dahlonega, Georgia. BOD's main
office is a three-story building containing approximately 30,000 square feet
located on approximately two acres which is owned by BOD. BOD utilizes all of
the first floor and approximately 6,200 square feet of the second floor of the
main office building while the Company leases 3,800 square feet of the second
floor and all of the third floor, which houses the Company's executive offices.
BOD operates a full-service branch located at 148 Memorial Drive which consists
of approximately 1,200 square feet of space. Both the main office and the
Memorial Drive branch are owned by BOD.
BOD refurbished a former warehouse building into administrative offices which is
leased to the Company for the Accounting department. The building has
approximately 3,600 square feet. The Company is also leasing approximately 700
square feet of space for use by the Internal Auditing department.
On January 29, 1997, BOD opened a branch located in the Wal-Mart SuperCenter in
Dahlonega, Georgia. The branch consists of approximately 540 square feet and is
being leased by BOD from Wal-Mart Stores, Inc.
The main banking office of BOE is located in an approximately 8,000 square foot
one-story building owned by BOE in downtown Ellijay, Georgia. BOE occupies the
entire building and provides parking facilities adjacent to the building. BOE
also operates a limited service branch facility in an approximately 1,000 square
foot building owned by BOE and located on leased property. BOE opened a full-
service branch office on March 12, 1990 which comprises approximately 14,000
square feet and also houses BOE's operations center.
The main banking office of FBPC is located in an approximately 14,000 square
foot two-story building owned by FBPC in downtown Copperhill, Tennessee. FBPC
occupies the entire building. FBPC also owns and operates 2 full-service branch
facilities; one located in Ducktown, Tennessee in an approximately 3,000 square
foot building and one in Turtletown, Tennessee in an approximately 840 square
foot building.
GFB's main banking office is located at 455 Jesse Jewell Parkway, Gainesville,
Georgia. The 18,000 square foot facility includes drive-in banking and retail
banking facilities. GFB operates a full-service branch facility located at the
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intersection of McEver Road and Browns Bridge Road in Gainesville, Georgia. The
facility consists of 2,300 square feet and was purchased by the Company from the
Resolution Trust Corporation in March 1991. The Company leased the facility to
GFB through December 1992 which at such time was purchased from the Company by
GFB. In October 1993, GFB opened a full-service branch facility located on the
Limestone Parkway, Gainesville, Georgia. The facility consists of 2,820 square
feet of leased space. In May 1996, GFB opened a full-service branch facility
located in Flowery Branch, Georgia. This facility consists of 2,400 square feet
and is owned by GFB.
The main banking office of FNBUC is located at 236 Highway 515, Blairsville,
Georgia. This office was opened in November 1996 and contains approximately
11,900 square feet of space and is owned by FNBUC.
The main banking office of FCB is located at 480 West First Street, Blue Ridge,
Georgia. The main office of FCB contains approximately 7,100 square feet of
space. FCB also operates a branch office located in the Valley Village Shopping
Center, 111 County Road 260, Blue Ridge, Georgia. This office contains
approximately 2,150 square feet of space and is owned by FCB.
GNB is located at 3200 Peachtree Industrial Boulevard, Duluth, Georgia. GNB
leases approximately 9,000 square feet of the 27,000 square foot facility. GNB
has offices on the first and second floors of the three-story building. In
December 1996, GNB opened a full-service branch facility located in Dacula,
Georgia. This office contains approximately 2,623 square feet of space and is
owned by GNB.
FCBD is located at 136 Highway 400 South, Dawsonville, Georgia. The building
contains approximately 10,668 square feet of space and is owned by FCBD. In
September 1996, FCBD opened a full-service branch facility located in downtown
Dawsonville, Georgia. This office contains approximately 2,300 square feet of
space and is owned by FCBD.
PBL is located at 13321 Jones Street, Lavonia, Georgia. The building contains
approximately 11,000 square feet of space and is owned by PBL.
The main banking office of DAN is located at Courthouse Square, Danielsville,
Georgia. The main office of DAN contains approximately 4,500 square feet of
space. DAN operates two full-service branch facilities, one located at Highway
72 in Colbert, Georgia which contains 2,400 square feet and one located at
Highway 29 North in Hull, Georgia which contains 2,400 square feet. All
facilities are owned by DAN.
FSB has five banking locations. The main office of FSB is located at 4961
Forsyth Road, Macon, Georgia and is owned by FSB. FSB leases its loan operations
office space from William H. Anderson, II, Chairman of the Company's Board of
Directors. The Company also leases space from Mr. Anderson for the Macon
headquarters. FSB operates one branch in each of Peach, Macon, Bibb and Coweta
counties.
AMB has three banking locations. The main office of AMB is located at 7393
Hodgson Memorial Drive, Savannah, Georgia and is owned by AMB. AMB operates two
branches, one in Chatham county and one in Effingham county. Effective March 5,
1998, AMB closed its Victory Drive branch which was also located in Chatham
county.
Item 3. LEGAL PROCEEDINGS
The nature of the business of the Company and the Banks ordinarily results in a
certain amount of litigation. Accordingly, the Company and the Banks are
parties (both as plaintiff and defendant) to a limited number of lawsuits
incidental to their respective businesses and, in certain of such suits, claims
or counterclaims have been asserted. In the opinion of management, based in
part on the advice of counsel, the ultimate disposition of these matters will
not have a material adverse impact on the Company's consolidated financial
position or results of operations.
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Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a Special Shareholders' Meeting held on December 16, 1997, Century South
Banks, Inc. ("CSBI") shareholders voted on the following proposal: to approve
the issuance of shares of CSBI common stock in connection with the Agreement and
Plan of Merger, dated as of March 31, 1997 and amended July 11, 1997 and October
15, 1997 (the "Merger Agreement"), by and between Bank Corporation of Georgia
("BCG") and CSBI, pursuant to which, among other matters, (a) BCG will merge
with and into CSBI and (b) the shares of BCG common stock will be converted into
the right to receive shares of CSBI common stock, as described in the Joint
Proxy Statement/Prospectus dated November 10, 1997.
The proposal passed with 5,712,436 shares voted for, 75,072 shares voted
against, and 13,430 shares abstaining.
Executive Officers of the Registrant
The following table sets forth certain information regarding the Company's
executive officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
William H. Anderson, II 59 Chairman
James A. Faulkner 53 Vice Chairman and Chief
Executive Officer
J. Russell Ivie 62 Vice Chairman
Joseph W. Evans 48 President, Chief Operating
Officer and Chief Financial Officer
Tony E. Collins 44 Executive Vice President and
Chief Administrative Officer
Stephen W. Doughty 46 Executive Vice President and
Chief Credit Officer
Sidney J. Wooten 44 Executive Vice President and
Regional Executive
</TABLE>
William H. Anderson, II has been Chairman of the Board of the Company since
December 16, 1997. Prior to his election, Mr. Anderson served as BCG's Chairman
of the Board.
James A. Faulkner has been Chief Executive Officer of the Company since 1991. On
December 16, 1997, he was elected Vice Chairman. Mr. Faulkner had served as
President of the Company from 1989 to December 16, 1997 and Executive Vice
President from 1981 to 1989.
J. Russell Ivie was elected Vice Chairman on December 16, 1997. Mr. Ivie served
as Chairman of the Board of the Company from 1989 to December 16, 1997. Mr.
Ivie has also served as President and Chief Executive Officer of the Company.
10
<PAGE>
Joseph W. Evans was elected President, Chief Operating Officer and Chief
Financial Officer of the Company on December 16, 1997. Prior to his election,
Mr. Evans had served as BCG's President and Chief Executive Officer.
Tony E. Collins was elected Executive Vice President and Chief Administrative
Officer on December 16, 1997. Prior to his election, Mr. Collins had been
Senior Vice President of the Company since 1996 and Chief Operations Officer
since 1993.
Stephen W. Doughty was elected Executive Vice President and Chief Credit Officer
of the Company on December 16, 1997. Prior to his election, Mr. Doughty served
as BCG's Executive Vice President.
Sidney J. Wooten was elected Executive Vice President and Regional Executive of
the Company on December 16, 1997.
11
<PAGE>
PART II
-------
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Incorporated by reference from pages 29-30 of Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's 1997 Annual Report to Shareholders.
Item 6. SELECTED FINANCIAL DATA
Incorporated by reference from page 14 of the Company's 1997 Annual Report to
Shareholders.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Incorporated by reference from pages 15-30 of Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's 1997 Annual Report to Shareholders.
Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Incorporated by reference from pages 27-28 of Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's 1997 Annual Report to Shareholders.
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference from pages 31-57 of Century South Banks, Inc. and
Subsidiaries Consolidated Financial Statements included in the Company's 1997
Annual Report to Shareholders and page 30 of Management's Discussion and
Analysis of Financial Condition and Results of Operations included in the
Company's 1997 Annual Report to Shareholders.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
--------
Certain information required by Part III is omitted from this report in that the
Registrant will file a definitive Proxy Statement pursuant to Regulation 14A
(the "Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this report and certain information included therein is incorporated
herein by reference. Only those sections of the Proxy Statement which
specifically address the items set forth herein are incorporated by reference.
Such information does not include the Compensation Committee Report or the
Performance Graph included in the Proxy Statement.
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the Company's directors required by this Item is
incorporated by reference to the Company's Proxy Statement. The information
concerning the Company's executive officers required by this Item is
incorporated by reference to the section in Part 1, Item 4, entitled "Executive
Officers of the Registrant."
Incorporated by reference from pages 2-5 and pages 13-14 of the Proxy Statement
for the Company's 1998 Annual Meeting of Shareholders.
12
<PAGE>
Item 11. EXECUTIVE COMPENSATION
Incorporated by reference from pages 8-13 of the Proxy Statement for the
Company's 1998 Annual Meeting of Shareholders.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from pages 6-8 of the Proxy Statement for the
Company's 1998 Annual Meeting of Shareholders.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from pages 12-13 of the Proxy Statement for the
Company's 1998 Annual Meeting of Shareholders.
PART IV
-------
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The following consolidated financial statements of the Company and its
subsidiaries, together with the independent auditors' report, appear on pages
31-57 of the Company's 1997 Annual Report to Shareholders and are specifically
incorporated herein by reference:
Page Number
Consolidated Financial Statements in Section
- --------------------------------- -----------
<TABLE>
<CAPTION>
<S> <C>
Independent Auditors' Report.................... 31
Consolidated Balance Sheets at December 31,
1997 and 1996.................................. 32
Consolidated Statements of Income for the
Years ended December 31, 1997, 1996, and 1995.. 33
Consolidated Statements of Shareholders' Equity
for the
Years ended December 31, 1997, 1996, and 1995.. 34
Consolidated Statements of Cash Flows for the
Years ended December 31, 1997, 1996, and 1995.. 35
Notes to Consolidated Financial Statements-
December 31, 1997, 1996, and 1995.............. 36
</TABLE>
(2) Financial Statement Schedules
Financial statement schedules have been omitted because they are not applicable
or the required information has been incorporated in the consolidated financial
statements and related notes incorporated by reference herein.
13
<PAGE>
(3) Exhibit Index
Exhibit No. Document
- ----------- --------
3.1 Articles of Incorporation of Century South Banks, Inc. Incorporated by
reference from Registration Statement No. 33-18527 filed on Form S-8 on
March 23, 1990, and as amended on April 10, 1990.
3.2 Bylaws of Century South Banks, Inc. filed herewith.
10.1 Employee Stock Ownership Plan of Century South Banks, Inc. Incorporated
by reference from Registration Statement No. 33-18527 filed on Form S-8
on March 23, 1990, and as amended on April 10, 1990.
10.2 Dividend Reinvestment Plan of Century South Banks, Inc. Incorporated by
reference from Registration Statement No. 33-37784 filed on Form S-3 on
November 14, 1990 and as amended on June 13, 1996.
10.3 Incentive Stock Option Plan of Century South Banks, Inc. Incorporated
by reference from Registration Statement No. 33-91922 filed on Form S-8
on May 4, 1995 and as amended on December 30, 1997.
10.4 Employee Compensation Agreements, filed herewith.
11.1 Statement re: Computation of per share earnings for the years ended
December 31, 1997, 1996, and 1995, filed herewith.
13.1 Century South Banks, Inc. 1997 Annual Report to Shareholders for which
certain specified pages are specifically incorporated herein by
reference, filed herewith.
13.2 Quarterly Report to Shareholders for the quarter ended December 31,
1997, filed herewith.
21.1 Subsidiaries of Century South Banks, Inc. consist of:
Bank of Dahlonega - Dahlonega, Georgia
The Bank of Ellijay - Ellijay, Georgia
First Bank of Polk County - Copperhill, Tennessee
Georgia First Bank - Gainesville, Georgia
First National Bank of Union County - Blairsville, Georgia
Fannin County Bank, N.A. - Blue Ridge, Georgia
Gwinnett National Bank - Duluth, Georgia
First Community Bank of Dawsonville - Dawsonville, Georgia
Peoples Bank - Lavonia, Georgia
Bank of Danielsville - Danielsville, Georgia
First South Bank, N.A. Macon, Georgia
AmeriBank, N.A. Savannah, Georgia
23.1 Accountants' Consent filed herewith KPMG Peat Marwick LLP.
23.2 Accountants' Consent filed herewith Porter Keadle Moore, LLP.
27.1 Financial Data Schedule as of and for the year ended December 31, 1997
filed herewith (for SEC use only).
14
<PAGE>
27.2 Restated Financial Data Schedule as of and for the year ended December 31,
1996, filed herewith (for SEC use only).
99.1 Report of Independent Certified Public Accountants Consolidated
Financial Statements of Bank Corporation of Georgia and subsidiaries as of
December 31, 1996 and for the years ended December 31, 1996 and 1995, filed
herewith.
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K on December 30, 1997 regarding the
consummation of the merger with BCG on December 16, 1997.
15
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CENTURY SOUTH BANKS, INC.
(Registrant)
/s/ James A. Faulkner
-------------------------------------------
James A. Faulkner
Vice Chairman, Chief Executive Officer, and
Director
/s/ Joseph W. Evans
-------------------------------------------
Joseph W. Evans
President, Chief Operating Officer, Chief
Financial
Officer and Director
/s/ Susan J. Anderson
-------------------------------------------
Susan J. Anderson
Senior Vice President and
Corporate Controller
Date: March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
By: /s/ William H. Anderson, II Date: March 31, 1998
-------------------------------- ----------------------
William H. Anderson, II, Chairman
of the Board and Director
By: /s/ James A. Faulkner Date: March 31, 1998
-------------------------------- ----------------------
James A. Faulkner, Vice Chairman
of the Board, Chief Executive
Officer and Director
16
<PAGE>
By: /s/ J. Russell Ivie Date: March 31, 1998
-------------------------------- ---------------------
J. Russell Ivie, Vice Chairman
of the Board and Director
By: /s/ James R. Balkcom, Jr. Date: March 31, 1998
-------------------------------- ---------------------
James R. Balkcom, Jr., Director
By: /s/ William L. Chandler Date: March 31, 1998
-------------------------------- ---------------------
William L. Chandler, Director
By: /s/ Joseph W. Evans Date: March 31, 1998
-------------------------------- ----------------------
Joseph W. Evans, President,
Chief Operating Officer,
Chief Financial Officer
and Director
By: /s/ Thomas T. Folger, Jr. Date: March 31, 1998
--------------------------------- ----------------------
Thomas T. Folger, Jr., Director
By: /s/ Quill O. Healey Date: March 31, 1998
--------------------------------- ----------------------
Quill O. Healey, Director
By: /s/ Frank C. Jones Date: March 31, 1998
--------------------------------- ----------------------
Frank C. Jones, Director
By: /s/ John B. McKibbon, III Date: March 31, 1998
--------------------------------- ----------------------
John B. McKibbon, III, Director
By: /s/ E. Paul Stringer Date: March 31, 1998
-------------------------------- ----------------------
E. Paul Stringer, Director
17
<PAGE>
BY-LAWS
OF
CENTURY SOUTH BANKS, INC.
ARTICLE I
OFFICES
SECTION 1.1 Initial Office. The initial registered office of the
--------------
Corporation shall be 200 West Main Street, Dahlonega, Lumpkin County, Georgia
30533.
SECTION 1.2 Other Offices. The Corporation may also have offices within
--------------
the State of Georgia as the Board of Directors may from time to time determine
and the business of the Corporation may require or make desirable.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 2.1 Annual Meeting. The regular annual meeting of the shareholders
---------------
for the election of Directors and the transaction of whatever other business may
properly come before the meeting, shall be held at the Main Office of the
Corporation, 200 West Main Street, Dahlonega, Georgia, or such other place as
the Board of Directors (hereinafter referred to as the "Board") may designate,
on the third Wednesday of March of each year or on such other date as the Board
may designate. Notice of such meeting shall be mailed, postage prepaid, at
least ten (10) days prior to the date thereof, addressed to each shareholder at
his address appearing on the books of the Corporation. If, from any cause, an
election of Directors is not made on the same day, the Board shall order the
election to be held on some subsequent day, as soon thereafter as practicable,
according to the provisions of law and notice thereof shall be given in the
manner herein provided for the annual meeting. (revised 3/83)
SECTION 2.2 Special Meetings. Except as otherwise specifically provided
-----------------
by statute, special meetings of the shareholders may be called for any purpose
at any time by the Board or by any three (3) or more shareholders owning, in the
aggregate, not less than thirty-three and one third percent (33 l/3%) of the
stock of the Corporation. Every such special meeting, unless otherwise provided
by law, shall be called by mailing, postage prepaid, not less than ten (10) days
1
<PAGE>
prior to the date fixed for such meeting, to each shareholder at his address
appearing on the books of the corporation, a notice stating the purpose of the
meeting.
SECTION 2.3 Record Date. In order that the Corporation may determine the
------------
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than fifty (50) days and, in case of a meeting of
shareholders, not less than ten (10) days prior to the date on which the
particular action requiring such determination of shareholders is to be taken.
If no record date is fixed for the determination of shareholders entitled to
notice of and to vote at any meeting of shareholders, the record date shall be
at the close of business on the day next preceding the day on which the notice
is given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. If no record date is fixed for
other purposes, the record date shall be at the close of business on the day
next preceding the day on which the Board of Directors adopts the resolution
relating thereto. A determination of shareholders entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board of Directors shall fix a new record date for the adjourned
meeting.
SECTION 2.4 Quorum. The holders of a majority of the stock issued and
-------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum for the transaction of business at all meetings
of the shareholders except as otherwise provided by statute, by the Articles of
Incorporation, or by these by-laws. If a quorum is not present or represented
at any meeting of the shareholders, a majority of the shareholders entitled to
vote thereat, present in person or represented by proxy, may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. If the
adjournment is for more than thirty (30) days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each shareholder of record entitled to vote at the
meeting.
SECTION 2.5 Order of business. At the annual meeting of shareholders the
------------------
order of business shall be as follows:
1. Call meeting to order.
2. Proof of notice of meeting.
3. Reading of minutes of last previous meeting.
4. Reports of Officers.
5. Reports of Committees.
6. Election of Directors.
7. Miscellaneous business.
2
<PAGE>
SECTION 2.6 Nominations for Director. Nominations for election to the
-------------------------
Board may be made by the Board or by any shareholder of any outstanding class of
capital stock of the Corporation entitled to vote for the election of Directors.
Such nomination shall contain the following information to the extent known to
the notifying shareholder: (i) the name and address of each proposed nominee;
(ii) the principal occupation of each proposed nominee; (iii) the total number
of shares of capital stock of the Corporation that will be voted for each
proposed nominee; (iv) the name and residence address of the notifying
shareholder; and (v) the number of shares of capital stock of the Corporation
owned by the notifying shareholder. Nominations not made in accordance herewith
may, in his/her discretion, be disregarded by the Chairperson of the meeting,
and upon his/her instructions, the vote tellers may disregard all votes cast for
each such nominee.
SECTION 2.7 Officers of Annual Meeting. The Chairman of the Board of
---------------------------
Directors shall preside at shareholders meetings. In his absence the President
shall preside. In absence of both, the shareholders may elect a Chairperson.
The Secretary of the Corporation shall be Secretary for the meeting.
SECTION 2.8 Judges of Election. Every election of Directors shall be
-------------------
managed by three (3) judges, who shall be appointed from among the shareholders
by the Board. The judges of election shall hold and conduct the election at
which they are appointed to serve; and, after the election, they shall file with
the Secretary/Controller a certificate under their hand, certifying the result
thereof and the names of the Directors elected. The judges of election, at the
request of the Chairperson of the meeting, shall act as tellers of any other
vote by ballot taken at such meeting, and shall certify the result thereof.
SECTION 2.9 Proxies. Shareholders may vote at any meeting of the
--------
shareholders by proxies duly authorized in writing. Proxies shall be valid only
for one (1) meeting to be specified therein and any adjournments of such
meeting. Proxies shall be dated and shall be filed with the records of the
meeting, and shall be presented to the Corporate Secretary within three (3)
hours before the meeting. (revised 3/86)
SECTION 2.10 Voting by Shareholders. In deciding on questions at
-----------------------
meetings, except in the election of Directors, each shareholder shall be
entitled to one (1) vote for each share of stock held and the majority of votes
so cast shall prevail.
SECTION 2.11 Voting for Directors. In election of Directors, each
---------------------
shareholder shall have the right to vote the number of shares held for each of
the persons nominated.
3
<PAGE>
ARTICLE III
THE BOARD OF DIRECTORS
SECTION 3.1 Board of Directors. The Board shall have the power, duty and
------------------
responsibility to manage and administer the business and affairs of the
Corporation. Except as expressly limited by law, all corporate powers of the
Corporation shall be vested in and may be exercised by the Board. The Board may
delegate such of its powers to such persons or Committees as it shall determine
but it shall not delegate any of its responsibilities in so doing.
SECTION 3.2 Number. The Board shall consist of not less than five (5) nor
------
more than twenty five (25) shareholders, the precise number to be fixed by
resolution of the shareholders or the Board of Directors from time to time.
Each director, except in the case of death, resignation or retirement,
disqualification or removal, shall serve until his successor shall have been
elected and qualified. Directors shall be elected by the shareholders at the
Annual Meeting for a one (1) year term. (revised 3/89)
SECTION 3.3 Requirements. Each Director of the Corporation shall be a
------------
United States citizen, and at least sixty percent (60%) of the Directors shall
reside in the State of Georgia and in the county in which the registered office
of the Corporation is located, or within forty (40) miles of any office of a
subsidiary bank authorized to offer a complete line of banking services. Each
Director shall maintain on file with the Chief Executive Officer of the
Corporation financial statements on forms prescribed by the Department of
Banking and Finance. Such Financial Statements shall be maintained in sealed
envelopes available for inspection only by State or Federal examiners. Each
director shall own in his name 500 shares of the Corporation's common stock
unhypothecated. No director may be re-elected after the age seventy (70) unless
such director is elected to the Board of the Corporation for his initial term
having then attained the age of 70. In such case, such director will serve no
more than five (5) successive one-year terms. (2/96)
SECTION 3.4 Organization Meeting. Upon their election and immediately
--------------------
following the Annual Meeting, the Board shall meet for the purpose of organizing
themselves, electing and fixing salaries of the Corporation's Officers,
approving Committee Appointments and acting on such other matters as may be
appropriate.
SECTION 3.5 Regular Meeting. The Regular Meetings of the Board shall be
---------------
held, without notice, on the second Tuesday of June and the second Tuesday of
December and at any other times as requested by at least two (2) of the Officers
of the Corporation. (revised 3/87)
SECTION 3.6 Special Meetings. Special meetings of the Board may be called
----------------
by the Chairman or President of the Corporation, or at the request of three (3)
or more Directors. Each member of the Board shall be given notice stating the
time and place, by telephone, letter, or in person of each special meeting.
4
<PAGE>
SECTION 3.7 Quorum. A majority of the Directors shall constitute a quorum
-------
of any meeting. In the event a quorum is not present for either a regular or
special meeting of the Board, that meeting shall be adjourned from time to time
until a quorum is obtained. A majority of Directors present and voting shall
decide each matter brought before the Board for action.
SECTION 3.8 Vacancies. When a vacancy occurs among the Directors, the
----------
remaining member of the Board, in accordance with the By-laws of this
Corporation, may appoint a Director to fill such vacancy at any regular meeting
of the Board, or at a special meeting called for that purpose.
SECTION 3.9 Conference Telephone Meeting. Unless the Articles of
----------------------------
Incorporation or these By-laws otherwise provide, members of the Board of
Directors, or any committee designated by such Board, may participate in a
meeting of such Board or committee by means of conference telephone or similar
communications equipment whereby all persons participating in the meeting can
hear each other. Participation in such a meeting shall constitute presence in
person.
SECTION 3.10 Consent of Directors. Unless otherwise restricted by the
---------------------
Articles of Incorporation or these By-laws, any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board or committee, as the
case may be, consent thereto in writing, setting forth the action so taken, and
the writing or writings are filed with the minutes of the proceedings of the
Board or committee. Such consent shall have the same force and effect as a
unanimous vote of the Board.
SECTION 3.11 Compensation of Directors. Directors shall be entitled to
--------------------------
such reasonable compensation for their services as directors or members of any
committee of the Board as shall be fixed from time to time by resolution adopted
by the Board, and shall also be entitled to reimbursement for any reasonable
expenses incurred in attending any meeting of the Board of any such committee.
SECTION 3.12 Directors Emeritus. There may be Directors Emeritus of the
--------------------
Board. After a director becomes seventy (70) years of age, and his then current
term as a director expires, he may be elected as a Director Emeritus. (amended
2/95)
SECTION 3.13 Nomination and Term of Office. Directors Emeritus shall be
------------------------------
nominated by the Board of Directors and elected by the shareholders for a term
of office concurrent with that of the Board.
SECTION 3.14 Responsibilities. Directors Emeritus shall be totally
-----------------
relieved of responsibilities for the management or administration of the affairs
of the Corporation and shall not be expected to attend regular or special
5
<PAGE>
meetings of the Board. However, each Director Emeritus shall be encouraged, as
a matter of tradition, to attend the Organizational Meeting of the Board
following the Annual Shareholders Meeting.
ARTICLE IV
COMMITTEES OF THE BOARD
SECTION 4.1 Executive Committee. The Board of Directors may by
--------------------
resolution adopted by a majority of the entire Board, designate an Executive
Committee of two (2) or more directors.
4.1.1 Each member of the Executive Committee shall hold office until
the first meeting of the Board of Directors after the annual meeting of
Shareholders next following his election and until his successor member of the
Executive Committee is elected, or until his death, resignation or removal, or
until he shall cease to be a directors.
4.1.2 During the intervals between the meetings of the Board of
Directors, the Executive Committee may exercise all of the powers of the Board
of Directors in the management of the business affairs of the Corporation,
including all powers herein or in the Articles of Incorporation specifically
granted to the Board of Directors, and may authorize the seal of the Corporation
to be affixed to all papers which may require it; provided, however, that the
Executive Committee shall not have the power to amend or repeal any resolution
of the Board of Directors that by its terms shall not be subject to amendment or
repeal by the Executive Committee, and the Executive Committee shall not have
the authority of the Board of Directors in reference to: (I) amending the
Articles of Incorporation or By-laws of the Corporation; (ii) adopting a plan
of merger or consolidation; (iii) the sale, lease, exchange or other disposition
of all or substantially all of the property and assets of the Corporation; or
(iv) a voluntary dissolution of the Corporation or a revocation of any such
voluntary dissolution.
4.1.3 The Executive Committee shall meet from time to time on call of
the President or of any two or more members of the Executive Committee.
Meetings of the Executive Committee may be held at such place or places, within
or without the State of Georgia, as the Executive Committee shall determine or
as may be specified or fixed in the respective notices or waivers of such
meetings. The Executive Committee may fix its own rules of procedure, including
provision for notice of its meetings. It shall keep a record of its proceedings
and shall report these proceedings to the Board of Directors at the meeting
thereof held next after they have been taken, and all such proceedings shall be
subject to revision or alteration by the Board of Directors except to the extent
that action shall have been taken pursuant to or in reliance upon such
proceedings prior to any such revision or alteration.
6
<PAGE>
4.1.4 The Executive Committee shall act by majority vote of its
members.
4.1.5 The Board of Directors, by resolution adopted in accordance
with paragraph 4.1 of this Section, may designate one (1) or more directors as
alternate members of any such committee, who may act in the place and stead of
any absent member or members at any meeting of such committee.
SECTION 4.2 Additional Committees. The Board of Directors, by
----------------------
resolution adopted by a majority of the entire Board, may designate one (1) or
more additional committees, each committee to consist of three (3) or more of
the directors of the Corporation, which shall have such name or names and shall
have and may exercise such powers of the Board of Directors in the management of
the business and affairs of the Corporation, except the powers denied to the
Executive Committee, as may be determined from time to time by the Board of
Directors.
ARTICLE V
OFFICERS OF THE CORPORATION
SECTION 5.1 Chief Officers. The Board shall designate certain of the
---------------
Corporation Officers to be the Chief Executive Officer, the Chief Administrative
Officer, and the Chief Operating Officer. The Chief Executive Officer shall be
the Senior General Executive Officer of the Corporation reporting to the Board.
SECTION 5.2 Chairman of the Board. The Board shall appoint one of its
----------------------
members to be the Chairman of the Board to serve at the pleasure of the Board.
Such person shall preside at all meetings of the Board. The Chairman shall
supervise the carrying out of the policies adopted or approved by the Board;
shall have general executive powers, as well as the specific powers conferred by
the By-laws; shall also have and may exercise such further powers and duties, as
from time to time may be conferred upon or assigned by the Board.
SECTION 5.3 Vice Chairman of the Board. The Board shall appoint any
---------------------------
number of its members to be Vice Chairman of the Board, as it may deem
appropriate and to serve at the pleasure of the Board. Any one of the persons so
appointed may, in the absence of the Chairman, serve as chairman of such meeting
and shall carry out the durites otherwise ascribed in these by-laws to be
carried out by the Chairman of the Board and shall alos have, and may exercise
such powers and duties, as from time to time may be conferred upon them or as
assigned to them by the Board.
SECTION 5.4 President. The Board shall appoint one of its members to be
---------
President of the Corporation. In the absence of the Chairman, the President
shall preside at any meetings of the Board. The President shall preside at any
meetings of the Board.
7
<PAGE>
The President shall have general executive powers, and shall have and may
exercise any and all other powers and duties pertaining by law regulations, or
practice, to the Office of President, or imposed by these By-laws. The
President shall also have and may exercise such further powers and duties as
from time to time may be conferred, or assigned by, the Board and shall be the
Chief Executive Officer.
SECTION 5.5 Vice Presidents. The Board may appoint one or more Vice
----------------
Presidents. Titles such as Executive Vice President, Senior Vice President,
Group Vice President shall be used to define the relative seniority among the
Vice Presidents. Each Vice President, who shall be the Chief Administrative
Officer of the Corporation, shall in the absence of the President, have the
power to perform all the duties of the President.
SECTION 5.6 Secretary and Treasurer. The Board shall appoint the
-------------------------
Secretary and the Treasurer, and the Secretary (or any other person designated
by the Board) shall serve as Secretary of the Board for the purpose of
maintaining accurate minutes of all Board meetings. The Secretary shall be
responsible for the maintenance of these By-laws; shall be responsible for the
Corporate Seal, records, documents and papers of the Corporation. As Secretary,
he shall be the Chief Operating Officer of the company in the event that a Chief
Operating Officer is not otherwise designated. The Secretary shall provide for
the maintenance and keeping of proper records of all transactions of the
Corporation; shall have and may exercise any and all other powers and duties
pertaining to law, regulation, or practice, or imposed by these By-laws; and
shall also perform other such duties as may be assigned from time to time by the
Board. The Treasurer shall be charged with the management of the financial
affairs of the Corporation and shall have the power to recommend action
concerning the Corporation's affairs to the Board and other Officers. The
offices of Secretary and Treasurer may be held by the same person.
SECTION 5.7 Other Officers. The Board may appoint one (1) or more
---------------
Officers with the title of Assistant Vice President, Corporate Officer,
Assistant Corporate Officer and such other Officers as from time to time may be
required for the proper conduct of the business of the Corporation. Such
Officers shall respectively exercise such powers and perform such duties as
pertain to the several offices as may be conferred upon them by the Board, the
Chairman or the President.
SECTION 5.8 Tenure of Office. The President and all other Officers shall
-----------------
hold office for the current year for which the Board was elected, unless they
shall resign, become disqualified, or be removed and any vacancy occurring in
the Office of President shall be filled promptly by the Board.
8
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ARTICLE VI
STOCK AND STOCK CERTIFICATES
SECTION 6.1 Transfers. Shares of stock of the Corporation shall be
----------
transferable on the books of the Corporation and transfer records shall be kept
in which all transfers of stock shall be recorded. Every person becoming a
shareholder by such transfer shall, in proportion to this shares, succeed to all
rights of the prior holder of such shares.
SECTION 6.2 Stock Certificates. Certificates of stock shall bear the
-------------------
signature of any two (2) of the following: The President, Vice President, or
any other Officers appointed by the Board for the purpose to be known as an
Authorized Officer. Each certificate shall recite on its face that the stock
represented thereby is transferable only upon the books of the Corporation
properly endorsed.
SECTION 6.3 Lost, Stolen, or Destroyed Certificates. Any person claiming
----------------------------------------
a share certificate to be lost, stolen, or destroyed shall make an affidavit or
affirmation of the fact in such manner as the Board of Directors may require and
shall, if the Board of Directors so required give the Corporation a bond of
indemnity in form and amount, and with one or more sureties satisfactory to the
Board of Directors, as the Board of Directors may require, whereupon an
appropriate new certificate may be issued in lieu of the one alleged to have
been lost, stolen or destroyed.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 7.1. Power to Indemnify. The Corporation shall have the power to
-------------------
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending, or completed action, suit, or proceeding, whether
civil, criminal, administrative, or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he is or was a
director, officer, employee, or agent of the corporation, or is or was serving
at the request of the Corporation as a director, officer, employee, or agent of
another Corporation, partnership, joint venture, trust, or other enterprise,
against expenses (including attorneys' fees), judgments, fines, and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
Corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
---------------
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful. (revised 3/88)
SECTION 7.2. Standard of Conduct. The Corporation shall have the power
--------------------
to indemnify any person who was or is a party or is threatened to be made a
9
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party to any threatened, pending, or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
he is or was a director, officer, employee, or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
employee, or agent of another Corporation, partnership, joint venture, trust or
other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of such
action or suit if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation and except that
no indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Superior Court or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of the liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Superior Court or such other court shall deem proper.
SECTION 7.3. Mandatory Indemnification. To the extent that a director,
--------------------------
officer, employee, or agent of the Corporation has been successful on the merits
or otherwise in defense of any action, suit, or proceeding referred to in
Sections 7.1 or 7.2, or in defense of any claim, issue, or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
SECTION 7.4. Determination of Coverage. Any indemnification under
--------------------------
Sections 7.1 and 7.2 (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee, or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Sections 7.1 and 7.2. Such determination shall be made (i) by the Board of
Directors by the affirmative vote of all directors not parties to such action,
suit, or proceeding, or (ii) if such affirmative vote of all directors is not
obtainable, or, even if obtainable and the disinterested director(s) so
direct(s) by independent legal counsel in a written opinion.
SECTION 7.5. Advance of Expenses. Expenses incurred in defending a civil
--------------------
or criminal action, suit, or proceeding may be paid by the Corporation in
advance of the final disposition of such action, suit, or proceeding upon
receipt of an undertaking by or on behalf of a director, officer, employee, or
agent to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this section or
otherwise pursuant to the laws of Georgia.
SECTION 7.6. Non-exclusive Right; Continuation. The indemnification and
----------------------------------
advancement of expenses provided or granted pursuant to this ARTICLE VII shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any statute,
agreement, vote of disinterested directors, or otherwise, both as to action in
an official capacity and as to action in another capacity while holding such
office. Any indemnification, whether required under this by-law or permitted by
10
<PAGE>
statute or otherwise, shall continue as to a person who has ceased to be a
director, officer, employee, or agent and shall inure to the benefit of the
heirs, executors, and administrators of such person.
SECTION 7.7. Insurance. The Corporation shall have power to purchase and
----------
maintain insurance on behalf of any person who is or was a director, officer,
employee, or agent of the Corporation, or is or was serving at the request of
the Corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of this
article.
SECTION 7.8. Notice to Shareholders. If any expenses or other amounts
-----------------------
are paid by way of indemnification, otherwise than by court order or by an
insurance carrier pursuant to insurance maintained by the Corporation, not later
than the next annual meeting of shareholders, unless such meeting is held within
three (3) months from the date of such payment, and in any event, within fifteen
(15) months from the date of such payment, shall send in accordance with the
manner specified in the Official Code of Georgia Annotated Section 14-2-856 to
its shareholders of record a statement specifying the persons paid, the amounts
paid, and the nature and status at the time of such payment of the litigation or
threatened litigation.
SECTION 7.9. Successor Rights. For purposes of this ARTICLE VII,
-----------------
references to "the Corporation" shall include, in addition to the surviving or
new Corporation, any merging or consolidating Corporation ( including any
merging or consolidating Corporation of a merging or consolidating Corporation)
absorbed in a merger or consolidation so that any person who is or was a
director, officer, employee or agent of such merging or consolidating
Corporation, or is or was serving at the request of such merging or
consolidating Corporation as a director, officer, employee or agent of another
Corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this ARTICLE VII with respect to
the resulting or surviving Corporation as he would if he had served the
resulting or surviving Corporation in the same capacity.
11
<PAGE>
ARTICLE VIII
CORPORATE SEAL
SECTION 8.1 Seal. The President, and Vice President, Secretary, Treasurer
-----
or any other Officers thereunto designated by the Board shall have authority to
affix the corporate seal to any document requiring such seal, and to attest the
same. Such seal shall be substantially in the following form:
ARTICLE IX
MISCELLANEOUS PROVISIONS
SECTION 9.1 Fiscal Year. The Fiscal Year of the Corporation shall be the
-------------
calendar year.
SECTION 9.2 Execution of Instruments. All agreements, indentures,
-------------------------
mortgages, deeds, conveyances, transfers, certificates, declarations, receipts,
discharges, releases, satisfactions, settlements, petitions, schedules,
accounts, affidavits, bonds, undertakings, proxies and other instruments or
documents may be signed, executed, acknowledged, verified, delivered or accepted
in behalf of the Corporation by the President, or any Vice President, the
Secretary, or the Treasurer. Any such instrument, may also be executed,
acknowledged, verified, delivered or accepted on behalf of the Corporation in
such other manner and by such other Officers as the Board may from time to time
direct. The provision of this Section 9.2 are supplementary to any other
provision of these By-laws.
SECTION 9.3 Voting Securities of Corporation. Unless otherwise ordered by
---------------------------------
the Board of Directors, the President shall have full power and authority on
behalf of the Corporation to attend and to act and vote at any meetings of
security holders of corporations in which the Corporation may hold securities,
and at such meetings shall possess and may exercise any and all rights and
powers incident to the ownership of such securities which the corporation might
have possessed and exercised if it had been present. The Board of Directors by
resolution from time to time may confer like powers upon any other person or
persons.
SECTION 9.4 Records. Articles of Incorporation, the By-laws and the
--------
proceedings of all meetings of the shareholders, the Board and standing
12
<PAGE>
committees of the Board, shall be recorded in appropriate minute books provided
for the purpose. The minutes of each meeting shall be signed by the Secretary
or other officer appointed to act as Secretary of the meeting.
SECTION 9.5 Annual Statements. Not later than four (4) months after the
------------------
close of each fiscal year, and in any case prior to the next annual meeting of
shareholders, the Corporation shall prepare:
(i) A balance sheet showing in reasonable detail the financial
condition of the Corporation as of the close of its fiscal year;
(ii) An income and expense statement showing the results of its
operations during its fiscal year; and
(iii) Other financial statement information required by regulation or law.
Upon receipt of written request by any shareholder of record, the Corporation
shall mail to such shareholder of record a copy of the financial statements
prior to the annual meeting of shareholders.
SECTION 9.6 Criteria which may be used by the Board of Directors in
-------------------------------------------------------
considering an offer to purchase common stock of the Corporation. (a) The Board
- -----------------------------------------------------------------
of Directors of the Corporation may, if it deems it advisable, oppose a tender
or other offer for the Corporation's securities, whether the offer is in cash or
in the securities of a corporation or otherwise. When considering whether to
oppose an offer, the Board of Directors may, but is not legally obligated to,
consider any pertinent issues; by way of illustration, but not of limitation,
the Board of Directors may, but shall not be legally obligated to, consider all
or any of the following:
(i) whether the offer price is acceptable based on the historical and
present operating results or financial condition of the Corporation;
(ii) whether a more favorable price could be obtained for the Corporation's
securities in the future;
(iii) the impact which an acquisition of the Corporation would have on the
employees, depositors and customers of the Corporation and its subsidiaries and
the communities which they serve;
(iv) the reputation and business practices of the offeror and its
management and affiliates;
(v) the value of the securities, if any, that the offeror is offering in
exchange for the Corporation's securities, based on an analysis of the worth of
the Corporation as compared to the offeror or any other entity whose securities
are being offered; and
13
<PAGE>
(vi) any antitrust or other legal or regulatory issues that are raised by
the offer.
(b) If the Board of Directors determines that an offer should be rejected,
it may take any lawful action to accomplish its purpose including, but not
limited to, any or all of the following: (i) advising shareholders not to accept
the offer; (ii) litigation against the offeror; (iii) filing complaints with
governmental and regulatory authorities; (iv) acquiring the Corporation's
securities; (v) selling or otherwise issuing authorized but unissued securities
of the Corporation or treasury stock or granting options or rights with respect
thereto; (vi) acquiring a company to create an antitrust or other regulatory
problem for the offeror; and (vii) soliciting a more favorable offer from
another individual entity. (added 3/87)
ARTICLE X
BY-LAWS
SECTION 10.1 Inspection. A copy of the By-laws, with all amendments
-----------
thereto, shall at all times be kept in a convenient place at the Main Office of
the Corporation, and shall be open for inspection to all shareholders during
office hours.
SECTION 10.2 Amendments. The Board of Directors shall have the power to
-----------
alter, amend, or repeal these By-laws or adopt new By-laws, but any By-laws
adopted by the Board of Directors may be altered amended or repealed, and the
new By-laws adopted, by the Shareholders. The Shareholders may prescribe that
any By-law or By-laws adopted by them shall not be altered, amended or repealed
by the Board of Directors. (amended 4/94)
14
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), made and entered into as of
November 1, 1995 by and between James A. Faulkner, a resident of the State of
Georgia ("Employee") and Century South Banks, Inc., a Georgia bank holding
company ("CSBI").
W I T N E S S E T H:
WHEREAS, CSBI and Employee each desire to enter into, or continue, an
employment relationship with the other; and
WHEREAS, CSBI and Employee each deem it necessary and desirable, for their
mutual protection, to execute a written document setting forth the terms and
conditions of said relationship;
NOW, THEREFORE, in consideration of the employment of Employee by CSBI, of
the premises and the mutual promises and covenants contained herein, and of
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. Employment and Duties. CSBI hereby employs Employee to serve as
President and Chief Executive Officer and to perform such duties and
responsibilities as customarily performed by persons acting in such capacity.
During the terms of this Agreement, Employee will devote his full time and
effort to his duties hereunder.
2. Term. Subject to the provisions of Section 14 of this Agreement, the
period of Employee's employment under this Agreement shall be deemed to have
commenced as of November 1, 1995, and shall continue for a period of Twelve
(12) calendar months thereafter, and any extensions thereafter, unless the
Employee dies before the end of such Twelve (12) months, in which case the
period of employment shall continue until the end of the month of such death.
The said Twelve (12) month period of employment shall automatically be extended
for additional Twelve
<PAGE>
(12) full calendar months terms without further action by the parties,
commencing on the one year anniversary of this Agreement and each anniversary
thereafter. No such automatic extension shall occur if either party shall,
within ninety (90) days prior to any said anniversary, have served written
notice upon the other of its intention that this Agreement shall not be so
extended.
3. Compensation. For all services to be rendered by Employee during the
term of this Agreement, CSBI agrees to pay Employee in accordance with the terms
outlined in Exhibit A.
4. Expenses. So long as Employee is employed hereunder, Employee is
entitled to receive reimbursement for, or seek payment directly by CSBI of, all
reasonable expenses which are consistent with the normal policy of CSBI in the
performance of Employee's duties hereunder, provided that Employee accounts for
such expenses in writing.
5. Employee Benefits. So long as Employee is actively employed hereunder,
Employee will be entitled to participate in the employee benefit programs
covering the Employee's employment and duties as described in Exhibit A of this
Agreement, if any, provided and paid for by CSBI for its employees generally.
6. Vacation. Employee shall be entitled to a vacation in accordance with
CSBI'S vacation policy in effect at the time the vacation is to be taken.
7. Confidentiality. In Employee's position as an employee of CSBI,
Employee has had and will have access to confidential information, trade secrets
and other proprietary information of vital importance to CSBI and has and will
also develop relationships with customers, employees and others who deal with
CSBI which are of value to CSBI. CSBI requires as a condition to Employee's
employment with CSBI that Employee agrees to certain restrictions on Employee's
use of the proprietary information and valuable relationships developed during
Employee's
2
<PAGE>
employment with CSBI. In consideration of the terms and conditions contained
herein, the parties hereby agree as follows:
7.1 CSBI and Employee mutually agree and acknowledge that CSBI may
entrust Employee with highly sensitive confidential, restricted and proprietary
information concerning various Business Opportunities (as hereinafter defined),
customer lists, and personnel matters. Employee acknowledges that he shall bear
a fiduciary responsibility to CSBI to protect such information from use or
disclosure that is not necessary for the performance of Employee's duties
hereunder, as an essential incident of Employee's employment with CSBI.
7.2 For the purposes of this Section, the following definitions shall
apply:
7.2.1 "Trade Secret" shall mean the identity of customers of CSBI,
the whole or any portion or phase of any scientific or technical information,
design, process, procedure, formula or improvement that is valuable and secret
(in the sense that it is not generally known to competitors of CSBI) and which
is defined as a "trade secret" under Georgia law pursuant to the Georgia Trade
Secrets Act.
7.2.2 "Confidential Information" shall mean any data or information,
other than Trade Secrets, which is material to CSBI and not generally known by
the public. Confidential Information shall include, but not be limited to,
Business Opportunities of CSBI (as hereinafter defined), the details of this
Agreement, CSBI's business plans and financial statements and projections, and
the costs of the services CSBI may offer or provide to the customers it serves,
to the extent such information is material to CSBI and not generally known by
the public.
7.2.3 "Business Opportunities" shall mean any specialized information
or plans of CSBI concerning the provision of financial services to the public,
together with all related
3
<PAGE>
information concerning the specifics of any contemplated financial services
regardless of whether CSBI has contacted or communicated with such target person
or business.
7.2.4 Notwithstanding the definitions of Trade Secrets, Confidential
Information, and Business Opportunities set forth above, Trade Secrets,
Confidential Information, and Business Opportunities shall not include any
information:
(i) that is or becomes generally known to the public;
(ii) that is already known by Employee or is developed by Employee
after termination of employment through entirely independent efforts;
(iii) that Employee obtains from an independent source having a
bona fide right to use and disclose such information;
(iv) that is required to be disclosed by law, except to the extent
eligible for special treatment under an appropriate protective order; or
(v) that CSBI's Board of Directors approves for release.
7.3 Employee shall not, without the prior approval of CSBI's Board, during
his employment with CSBI and for so long thereafter as the information or data
remain Trade Secrets, use or disclose, or negligently permit any unauthorized
person who is not an employee of CSBI to use, disclose, or gain access to, any
Trade Secrets of CSBI, its subsidiaries or affiliates, or of any other person or
entity making Trade Secret's available for CSBI's use.
7.4 Employee shall not, without the prior written consent of CSBI, during
his employment with CSBI and for a period of two (2) years thereafter as long as
the information or data remain competitively sensitive, use or disclose, or
negligently permit any unauthorized person who is not employed by CSBI to use,
disclose, or gain access to, any Confidential Information to
4
<PAGE>
which the Employee obtained access by virtue of his employment with CSBI, except
as provided in Section 7.2 of this Agreement.
8. Observance of Security Measures. During Employee's employment with
CSBI, Employee is required to observe all security measures adopted to protect
Trade Secrets, Confidential Information, and Business Opportunity of CSBI.
9. Return of Materials. Upon the request of CSBI and, in any event, upon
the termination of his employment with CSBI, Employee shall deliver to CSBI all
memoranda, notes, records, manuals or other documents, including all copies of
such materials, pertaining to the performance of Employee's services hereunder
or containing Trade Secrets or Confidential Information, whether made or
compiled by Employee or furnished to him from any source by virtue of his
employment with CSBI.
10. Severability. Employee acknowledges and agrees that the covenants
contained in Sections 7 through 9 of this Agreement shall be construed as
covenants independent of one another and distinct from the remaining terms and
conditions of this Agreement, and severable from every other contract and course
of business between CSBI and Employee, and that the existence of any claim, suit
or action by Employee against CSBI, whether predicated upon this or any other
agreement, shall not constitute a defense to CSBI's enforcement of any covenant
contained in Sections 7 through 9 of this Agreement.
11. Specific Performance. Employee acknowledges and agrees that the
covenants contained in Sections 7 through 9 of this Agreement shall survive any
termination of employment, as applicable, with or without Cause, at the
instigation or upon the initiative of either party. Employee further
acknowledges and agrees that the ascertainment of damages in the event of
Employee's breach of any covenant contained in Sections 7 through 9 of this
Agreement would be
5
<PAGE>
difficult, if at all possible. Employee therefore acknowledges and agrees that
CSBI shall be entitled in addition to and not in limitation of any other rights,
remedies, or damages available to CSBI in arbitration, at law or in equity, upon
submitting whatever affidavit the law may require, and posting any necessary
bond, to have a court of competent jurisdiction enjoin Employee from committing
any such breach.
12. Termination. During the term of this Agreement, employment, including
without limitation, all compensation, salary, expenses, reimbursement, and
employee benefits may be terminated as follows:
12.1 At the election of CSBI for Cause;
12.2 At Employee's election, upon CSBI's breach of any material
provision of this Agreement;
12.3 "Cause" shall mean (i) conduct by Employee that amounts to
fraud, dishonesty, gross negligence or willful misconduct in the performance of
his duties hereunder; (ii) the conviction (from which no appeal may be, or is,
timely taken) of the Employee of a felony; or (iii) initiation of suspension or
removal proceedings against the Employee by federal or state regulatory
authorities acting under lawful authority pursuant to provisions of federal or
state law or regulation which may be in effect from time to time. No
termination for Cause shall be effective unless it is approved by a two-thirds
(2/3) vote of CSBI's Board of Directors, excluding the vote, if any, of the
employee involved; or
12.4 Upon Employee's death, or at the election of either party, upon
Employee's disability resulting in inability to perform the duties described in
Section 1 of this Agreement for a period of ninety (90) consecutive days.
6
<PAGE>
13. Notice. All notice provided for herein shall be in writing and shall
be deemed to be given when delivered in person or deposited in the United States
Mail, registered or certified, return receipt requested, with proper postage
prepaid and addressed as follows:
7
<PAGE>
CSBI: Century South Banks, Inc.
60 Main Street West
Dahlonega, Georgia 30533
Attn: President
with a copy to: Troutman Sanders LLP
600 Peachtree Street, Suite 5200
Atlanta, Georgia 30308-2216
Attn: Thomas O. Powell, Esquire
Employee: __________________________________
__________________________________
__________________________________
with a copy to: __________________________________
__________________________________
__________________________________
Attn:_____________________________
14. Change in Control. None of the benefits provided in Section 14 of this
Agreement shall be payable to Employee unless (i) there shall have been a Change
in Control of CSBI, as set forth in this Section 14, and (ii) Employee is
employed by CSBI at such time.
14.1 "CSBI Board" shall mean the Board of Directors of CSBI.
14.2 "Change in Control" shall be deemed to have occurred if:
14.2.1 During the term of this Agreement, the individuals
constituting CSBI's Board at the beginning of such period ("Beginning CSBI
Board") cease for any reason to constitute at least a majority of said Board,
provided that in making such determination, a Director elected by or on the
recommendation of the Beginning CSBI Board shall be deemed to be a member of
such Beginning CSBI Board; or
8
<PAGE>
14.2.2 A notice or an application is filed with the Federal
Reserve Board ("FRB") pursuant to Regulation "Y" of the FRB under the Change in
Bank Control Act or the Bank Holding Company Act or with the Georgia Department
of Banking and Finance (the "Department") pursuant to the Financial Institutions
Code of Georgia for permission to acquire control of CSBI or more than twenty-
five percent (25%) of the CSBI's outstanding common stock or equivalent in
voting power of any class or classes of outstanding securities of CSBI entitled
to vote in elections of Directors, shall be acquired by any corporation or other
person, or group. "Group" shall mean persons who act in concert as described in
(S) 14(d) (2) of the Securities Exchange Act of 1934 as amended; or
14.2.3 CSBI shall become a subsidiary of another corporation or
shall be merged or consolidated into another corporation and less than a
majority of the outstanding voting shares of the parent or surviving corporation
after such acquisition, merger or consolidation are owned immediately after such
acquisition, merger or consolidation by the owners of the voting shares of CSBI
immediately before such acquisition, merger or consolidation; or
14.2.4 Substantially all of the assets of CSBI shall be sold to
another entity.
14.3 Employee and CSBI agree in the event of a Change in Control of
CSBI, Employee will remain in the employ of CSBI or its successor, and CSBI or
its successor shall employ Employee, for a period of at least thirty-five (35)
months after the occurrence of such Change in Control of CSBI, performing the
same duties that he was performing at the time of the effective date of the
Change in Control and with the same title, compensation, benefits and location.
14.4 Subject to the terms and conditions of this Agreement, following
a Change in Control of CSBI, Employee shall receive the following compensation
in consideration for the services to be provided on behalf of CSBI as set forth
herein:
9
<PAGE>
14.4.1 If Employee's employment terminates during the thirty-five
(35) month period commencing immediately following the date of occurrence of a
Change in Control of CSBI, ("Termination of Employment") for any reason other
than Cause, or the death of Employee, the Company shall pay Employee, at
Employee's election, the following amounts:
ALTERNATIVE A
(i) a lump sum cash payment in an amount equal to the product of two and
eleven twelfths (2-11/12) multiplied times Employee's annual compensation from
CSBI, including salary, bonuses, all perquisites, and all other forms of
compensation paid to Employee for his benefit or the benefit of his family,
however characterized, for the fiscal year ended immediately preceding the date
of a Change in Control of CSBI ("Employee's Annual Salary"). The payment
provided for in this Section 14.2.1 (i) shall be due and payable to Employee
within thirty (30) days after the date of Termination of Employment; or
ALTERNATIVE B
(i) twelve (12) payments, each in an amount equal to (A) the product of two
and eleven-twelfths (2-11/12) multiplied times Employee's Annual Salary, divided
by (B) twelve (12)("Monthly Payments"). The Monthly Payments shall be made,
commencing on the date of Termination of Employment, on the first day of each
calendar month; and
10
<PAGE>
(ii) for thirty-five (35) months commencing on the date of Termination of
Employment, CSBI shall provide to Employee and his spouse, and pay all costs and
expenses associated with, major medical insurance, health insurance,
hospitalization, life insurance, long-term disability and any related medical
plans and programs of CSBI with the same coverage and benefits provided to
Employee by CSBI immediately preceding the date of a Change of Control of CSBI.
In the event Employee is employed during the thirty-five (35) month period
commencing on the date of Termination of Employment by a person or entity
unaffiliated with CSBI, the benefits to be provided to Employee and his spouse
in this Section 14.2.1 (ii) shall be reduced to the extent equivalent benefits
are provided by the subsequent employer; and
(iii) In addition to the amounts paid under either ALTERNATIVE A or
ALTERNATIVE B, and Section 14.4.1(ii), CSBI shall pay Employee's full base
salary through the date of Termination of Employment at the rate in effect at
the time of Termination of Employment, plus any other amounts to which Employee
is entitled under any compensation plan of CSBI, at the time such payments are
due.
14.4.2 During the thirty-five (35) months following the effective
date of a Change in Control, if CSBI takes any of the following actions, such
action shall be deemed to be a termination without Cause. Those actions are:
(i) a reduction in Employee's salary, bonus provisions or other perquisites as
were in effect immediately prior to a Change in Control of CSBI, (ii) a material
change in the duties required to be performed by Employee on behalf of CSBI,
(iii) a failure by CSBI to increase Employee's salary annually in accordance
with an established procedure, or (iv) due to CSBI's requirement that Employee
relocate outside the geographic area where Employee is currently employed. In
any such event, Employee shall be entitled to all payments provided for in
Section 14.4.1 of this Agreement.
11
<PAGE>
15. Covenant Not to Compete.
15.1 For purposes of this Section 15, CSBI and Employee conduct the
following business in the following territories:
15.1.1 CSBI is engaged in the business of transacting business as
a bank holding company with subsidiary banks which accept deposits, make loans,
cash checks and otherwise engage in the business of banking ("Business of
CSBI").
15.1.2 CSBI (through its subsidiaries) actively conducts business
in the geographic areas of Georgia and Tennessee at the business locations of
CSBI's subsidiaries set forth in Exhibit B of this Agreement.
15.1.3 Employee has established business relationships and
performs the duties described in Section 1 of this Agreement in the geographic
area covered by a circle having a radius of fifty (50) miles from the location
set forth as item 4 on EXHIBIT "B" of this Agreement, and will work exclusively
in such area while in the employ of CSBI.
15.2 Employee covenants and agrees that for a period of two (2) years
after the termination of his employment with CSBI for Cause, Employee shall not,
directly or indirectly, as principal, agent, trustee, consultant or through the
agency of any corporation, partnership, association, trust or other entity or
person, on Employee's own behalf or for others, provide the duties described in
Section 1 of this Agreement for any entity or person conducting the Business of
CSBI within the geographic area covered by a circle having a radius of fifty
(50) miles from the location set forth as item 4 on EXHIBIT "B" of this
Agreement.
15.3 Employee and CSBI shall periodically amend this Agreement by
updating and initialing Exhibit B attached hereto so that it at all times lists
the then current geographic area served by CSBI for which Employee performs the
duties described in Section 1 of this Agreement.
12
<PAGE>
15.4 The covenants contained in this Section 15 shall be construed as
agreements severable from and independent of each other and of any other
provision of this or any other contract or agreement between the parties hereto.
The existence of any claim or cause of action by Employee against CSBI, whether
predicated upon this or any other contract or agreement, shall not constitute a
defense to the enforcement by CSBI of said covenants.
16. Miscellaneous.
16.1 This Agreement constitutes and expresses the whole agreement of
the parties in reference to the employment of Employee by CSBI, and there are no
representations, inducements, promises, agreements, arrangements, or
undertakings oral or written, between the parties other than those set forth
herein.
16.2 This Agreement shall be governed by the laws of the State of
Georgia.
16.3 Should any clause or any other provision of this Agreement be
determined to be void or unenforceable for any reason, such determination shall
not affect the validity or enforceability of any clause or provision of this
Agreement, all of which shall remain in full force and effect.
16.4 Time is of the essence in this Agreement.
16.5 This Agreement shall be binding upon and enure to the benefit of
the parties hereto and their successors and assigns. This Agreement shall not
be assignable by any other parties hereto without the prior written consent of
the other parties.
16.6 This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original and all of which taken together shall
constitute but a single instrument.
13
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
"Employee"
_________________________ _______________________________________(SEAL)
Witness
ATTEST: "CSBI"
CENTURY SOUTH BANKS, INC.
_________________________ By ______________________________________
____________________, ________________
(CORPORATE SEAL)
14
<PAGE>
EXHIBIT "A"
Employee Compensation and Duties
<PAGE>
EXHIBIT "B"
Business location of CSBI's Subsidiaries
1. Bank of Dahlonega
200 W. Main Street
Dahlonega, Georgia 30533-2043
2. Bank of Ellijay
P. O. Box P
Ellijay, Georgia 30540-0394
3. First Bank of Polk County
Copper Hill, Tennessee
4. Georgia First Bank
455 Jesse Jewell Parkway
Gainesville, Georgia 30501-3640
5. First National Bank of Union County
420 Blue Ridge Highway
Blairsville, Georgia 30512
6. Fannin County Bank, N.A.
P. O. Box 1899
Blue Ridge, Georgia 30513-1899
7. First Community Bank of Dawsonville
5000 Highway 400
Dawsonville, Georgia 30534
8. Gwinnett National Bank
3200 Peachtree Industrial Boulevard
Duluth, Georgia 30136-0667
9. Peoples Bank
13321 Jones Street
Lavonia, Georgia 30553-1125
10. Bank of Danielsville
Court House Square
Danielsville, Georgia 30633-9796
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), made and entered into as of
November 1, 1995 by and between Tony E. Collins, a resident of the State of
Georgia ("Employee") and Century South Banks, Inc., a Georgia bank holding
company ("CSBI").
W I T N E S S E T H:
WHEREAS, CSBI and Employee each desire to enter into, or continue, an
employment relationship with the other; and
WHEREAS, CSBI and Employee each deem it necessary and desirable, for their
mutual protection, to execute a written document setting forth the terms and
conditions of said relationship;
NOW, THEREFORE, in consideration of the employment of Employee by CSBI, of
the premises and the mutual promises and covenants contained herein, and of
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. Employment and Duties. CSBI hereby employs Employee to serve as Vice
President and Chief Operations Officer and to perform such duties and
responsibilities as customarily performed by persons acting in such capacity.
During the terms of this Agreement, Employee will devote his full time and
effort to his duties hereunder.
2. Term. Subject to the provisions of Section 14 of this Agreement, the
period of Employee's employment under this Agreement shall be deemed to have
commenced as of November 1, 1995, and shall continue for a period of Twelve
(12) calendar months thereafter, and any extensions thereafter, unless the
Employee dies before the end of such Twelve (12) months, in which case the
period of employment shall continue until the end of the month of such death.
The
17
<PAGE>
said Twelve (12) month period of employment shall automatically be extended
for additional Twelve (12) full calendar months terms without further action by
the parties, commencing on the one year anniversary of this Agreement and each
anniversary thereafter. No such automatic extension shall occur if either party
shall, within ninety (90) days prior to any said anniversary, have served
written notice upon the other of its intention that this Agreement shall not be
so extended.
3. Compensation. For all services to be rendered by Employee during the
term of this Agreement, CSBI agrees to pay Employee in accordance with the terms
outlined in Exhibit A.
4. Expenses. So long as Employee is employed hereunder, Employee is
entitled to receive reimbursement for, or seek payment directly by CSBI of, all
reasonable expenses which are consistent with the normal policy of CSBI in the
performance of Employee's duties hereunder, provided that Employee accounts for
such expenses in writing.
5. Employee Benefits. So long as Employee is actively employed hereunder,
Employee will be entitled to participate in the employee benefit programs
covering the Employee's employment and duties as described in Exhibit A of this
Agreement, if any, provided and paid for by CSBI for its employees generally.
6. Vacation. Employee shall be entitled to a vacation in accordance with
CSBI'S vacation policy in effect at the time the vacation is to be taken.
7. Confidentiality. In Employee's position as an employee of CSBI,
Employee has had and will have access to confidential information, trade secrets
and other proprietary information of vital importance to CSBI and has and will
also develop relationships with customers, employees and others who deal with
CSBI which are of value to CSBI. CSBI requires as a condition to Employee's
employment with CSBI that Employee agrees to certain restrictions on Employee's
use of the proprietary information and valuable relationships developed during
Employee's
18
<PAGE>
employment with CSBI. In consideration of the terms and conditions
contained herein, the parties hereby agree as follows:
7.1 CSBI and Employee mutually agree and acknowledge that CSBI may
entrust Employee with highly sensitive confidential, restricted and proprietary
information concerning various Business Opportunities (as hereinafter defined),
customer lists, and personnel matters. Employee acknowledges that he shall bear
a fiduciary responsibility to CSBI to protect such information from use or
disclosure that is not necessary for the performance of Employee's duties
hereunder, as an essential incident of Employee's employment with CSBI.
7.2 For the purposes of this Section, the following definitions shall
apply:
7.2.1 "Trade Secret" shall mean the identity of customers of CSBI,
the whole or any portion or phase of any scientific or technical information,
design, process, procedure, formula or improvement that is valuable and secret
(in the sense that it is not generally known to competitors of CSBI) and which
is defined as a "trade secret" under Georgia law pursuant to the Georgia Trade
Secrets Act.
7.2.2 "Confidential Information" shall mean any data or information,
other than Trade Secrets, which is material to CSBI and not generally known by
the public. Confidential Information shall include, but not be limited to,
Business Opportunities of CSBI (as hereinafter defined), the details of this
Agreement, CSBI's business plans and financial statements and projections, and
the costs of the services CSBI may offer or provide to the customers it serves,
to the extent such information is material to CSBI and not generally known by
the public.
7.2.3 "Business Opportunities" shall mean any specialized information
or plans of CSBI concerning the provision of financial services to the public,
together with all related
19
<PAGE>
information concerning the specifics of any contemplated financial services
regardless of whether CSBI has contacted or communicated with such target person
or business.
7.2.4 Notwithstanding the definitions of Trade Secrets, Confidential
Information, and Business Opportunities set forth above, Trade Secrets,
Confidential Information, and Business Opportunities shall not include any
information:
(i) that is or becomes generally known to the public;
(ii) that is already known by Employee or is developed by Employee
after termination of employment through entirely independent efforts;
(iii) that Employee obtains from an independent source having a
bona fide right to use and disclose such information;
(iv) that is required to be disclosed by law, except to the extent
eligible for special treatment under an appropriate protective order; or
(v) that CSBI's Board of Directors approves for release.
7.3 Employee shall not, without the prior approval of CSBI's Board, during
his employment with CSBI and for so long thereafter as the information or data
remain Trade Secrets, use or disclose, or negligently permit any unauthorized
person who is not an employee of CSBI to use, disclose, or gain access to, any
Trade Secrets of CSBI, its subsidiaries or affiliates, or of any other person or
entity making Trade Secret's available for CSBI's use.
7.4 Employee shall not, without the prior written consent of CSBI, during
his employment with CSBI and for a period of two (2) years thereafter as long as
the information or data remain competitively sensitive, use or disclose, or
negligently permit any unauthorized person who is not employed by CSBI to use,
disclose, or gain access to, any Confidential Information to
20
<PAGE>
which the Employee obtained access by virtue of his employment with CSBI, except
as provided in Section 7.2 of this Agreement.
8. Observance of Security Measures. During Employee's employment with
CSBI, Employee is required to observe all security measures adopted to protect
Trade Secrets, Confidential Information, and Business Opportunity of CSBI.
9. Return of Materials. Upon the request of CSBI and, in any event, upon
the termination of his employment with CSBI, Employee shall deliver to CSBI all
memoranda, notes, records, manuals or other documents, including all copies of
such materials, pertaining to the performance of Employee's services hereunder
or containing Trade Secrets or Confidential Information, whether made or
compiled by Employee or furnished to him from any source by virtue of his
employment with CSBI.
10. Severability. Employee acknowledges and agrees that the covenants
contained in Sections 7 through 9 of this Agreement shall be construed as
covenants independent of one another and distinct from the remaining terms and
conditions of this Agreement, and severable from every other contract and course
of business between CSBI and Employee, and that the existence of any claim, suit
or action by Employee against CSBI, whether predicated upon this or any other
agreement, shall not constitute a defense to CSBI's enforcement of any covenant
contained in Sections 7 through 9 of this Agreement.
11. Specific Performance. Employee acknowledges and agrees that the
covenants contained in Sections 7 through 9 of this Agreement shall survive any
termination of employment, as applicable, with or without Cause, at the
instigation or upon the initiative of either party. Employee further
acknowledges and agrees that the ascertainment of damages in the event of
Employee's breach of any covenant contained in Sections 7 through 9 of this
Agreement would be
21
<PAGE>
difficult, if at all possible. Employee therefore acknowledges and agrees that
CSBI shall be entitled in addition to and not in limitation of any other rights,
remedies, or damages available to CSBI in arbitration, at law or in equity, upon
submitting whatever affidavit the law may require, and posting any necessary
bond, to have a court of competent jurisdiction enjoin Employee from committing
any such breach.
12. Termination. During the term of this Agreement, employment, including
without limitation, all compensation, salary, expenses, reimbursement, and
employee benefits may be terminated as follows:
12.1 At the election of CSBI for Cause;
12.2 At Employee's election, upon CSBI's breach of any material
provision of this Agreement;
12.3 "Cause" shall mean (i) conduct by Employee that amounts to
fraud, dishonesty, gross negligence or willful misconduct in the performance of
his duties hereunder; (ii) the conviction (from which no appeal may be, or is,
timely taken) of the Employee of a felony; or (iii) initiation of suspension or
removal proceedings against the Employee by federal or state regulatory
authorities acting under lawful authority pursuant to provisions of federal or
state law or regulation which may be in effect from time to time. No
termination for Cause shall be effective unless it is approved by a two-thirds
(2/3) vote of CSBI's Board of Directors, excluding the vote, if any, of the
employee involved; or
12.4 Upon Employee's death, or at the election of either party, upon
Employee's disability resulting in inability to perform the duties described in
Section 1 of this Agreement for a period of ninety (90) consecutive days.
22
<PAGE>
13. Notice. All notice provided for herein shall be in writing and shall
be deemed to be given when delivered in person or deposited in the United States
Mail, registered or certified, return receipt requested, with proper postage
prepaid and addressed as follows:
23
<PAGE>
CSBI: Century South Banks, Inc.
60 Main Street West
Dahlonega, Georgia 30533
Attn: President
with a copy to: Troutman Sanders LLP
600 Peachtree Street, Suite 5200
Atlanta, Georgia 30308-2216
Attn: Thomas O. Powell, Esquire
Employee: __________________________________
__________________________________
__________________________________
with a copy to: __________________________________
__________________________________
__________________________________
Attn:______________________________
14. Change in Control. None of the benefits provided in Section 14 of this
Agreement shall be payable to Employee unless (i) there shall have been a Change
in Control of CSBI, as set forth in this Section 14, and (ii) Employee is
employed by CSBI at such time.
14.1 "CSBI Board" shall mean the Board of Directors of CSBI.
14.2 "Change in Control" shall be deemed to have occurred if:
14.2.1 During the term of this Agreement, the individuals
constituting CSBI's Board at the beginning of such period ("Beginning CSBI
Board") cease for any reason to constitute at least a majority of said Board,
provided that in making such determination, a Director elected by or on the
recommendation of the Beginning CSBI Board shall be deemed to be a member of
such Beginning CSBI Board; or
24
<PAGE>
14.2.2 A notice or an application is filed with the Federal
Reserve Board ("FRB") pursuant to Regulation "Y" of the FRB under the Change in
Bank Control Act or the Bank Holding Company Act or with the Georgia Department
of Banking and Finance (the "Department") pursuant to the Financial Institutions
Code of Georgia for permission to acquire control of CSBI or more than twenty-
five percent (25%) of the CSBI's outstanding common stock or equivalent in
voting power of any class or classes of outstanding securities of CSBI entitled
to vote in elections of Directors, shall be acquired by any corporation or other
person, or group. "Group" shall mean persons who act in concert as described in
(S) 14(d) (2) of the Securities Exchange Act of 1934 as amended; or
14.2.3 CSBI shall become a subsidiary of another corporation or
shall be merged or consolidated into another corporation and less than a
majority of the outstanding voting shares of the parent or surviving corporation
after such acquisition, merger or consolidation are owned immediately after such
acquisition, merger or consolidation by the owners of the voting shares of CSBI
immediately before such acquisition, merger or consolidation; or
14.2.4 Substantially all of the assets of CSBI shall be sold to
another entity.
14.3 Employee and CSBI agree in the event of a Change in Control of
CSBI, Employee will remain in the employ of CSBI or its successor, and CSBI or
its successor shall employ Employee, for a period of at least thirty-five (35)
months after the occurrence of such Change in Control of CSBI, performing the
same duties that he was performing at the time of the effective date of the
Change in Control and with the same title, compensation, benefits and location.
14.4 Subject to the terms and conditions of this Agreement, following
a Change in Control of CSBI, Employee shall receive the following compensation
in consideration for the services to be provided on behalf of CSBI as set forth
herein:
25
<PAGE>
14.4.1 If Employee's employment terminates during the thirty-five
(35) month period commencing immediately following the date of occurrence of a
Change in Control of CSBI, ("Termination of Employment") for any reason other
than Cause, or the death of Employee, the Company shall pay Employee, at
Employee's election, the following amounts:
ALTERNATIVE A
(i) a lump sum cash payment in an amount equal to the product of two and
eleven twelfths (2-11/12) multiplied times Employee's annual compensation from
CSBI, including salary, bonuses, all perquisites, and all other forms of
compensation paid to Employee for his benefit or the benefit of his family,
however characterized, for the fiscal year ended immediately preceding the date
of a Change in Control of CSBI ("Employee's Annual Salary"). The payment
provided for in this Section 14.2.1 (i) shall be due and payable to Employee
within thirty (30) days after the date of Termination of Employment; or
ALTERNATIVE B
(i) twelve (12) payments, each in an amount equal to (A) the product of two
and eleven-twelfths (2-11/12) multiplied times Employee's Annual Salary, divided
by (B) twelve (12)("Monthly Payments"). The Monthly Payments shall be made,
commencing on the date of Termination of Employment, on the first day of each
calendar month; and
26
<PAGE>
(ii) for thirty-five (35) months commencing on the date of Termination of
Employment, CSBI shall provide to Employee and his spouse, and pay all costs and
expenses associated with, major medical insurance, health insurance,
hospitalization, life insurance, long-term disability and any related medical
plans and programs of CSBI with the same coverage and benefits provided to
Employee by CSBI immediately preceding the date of a Change of Control of CSBI.
In the event Employee is employed during the thirty-five (35) month period
commencing on the date of Termination of Employment by a person or entity
unaffiliated with CSBI, the benefits to be provided to Employee and his spouse
in this Section 14.2.1 (ii) shall be reduced to the extent equivalent benefits
are provided by the subsequent employer; and
(iii) In addition to the amounts paid under either ALTERNATIVE A or
ALTERNATIVE B, and Section 14.4.1(ii), CSBI shall pay Employee's full base
salary through the date of Termination of Employment at the rate in effect at
the time of Termination of Employment, plus any other amounts to which Employee
is entitled under any compensation plan of CSBI, at the time such payments are
due.
14.4.2 During the thirty-five (35) months following the effective
date of a Change in Control, if CSBI takes any of the following actions, such
action shall be deemed to be a termination without Cause. Those actions are:
(i) a reduction in Employee's salary, bonus provisions or other perquisites as
were in effect immediately prior to a Change in Control of CSBI, (ii) a material
change in the duties required to be performed by Employee on behalf of CSBI,
(iii) a failure by CSBI to increase Employee's salary annually in accordance
with an established procedure, or (iv) due to CSBI's requirement that Employee
relocate outside the geographic area where Employee is currently employed. In
any such event, Employee shall be entitled to all payments provided for in
Section 14.4.1 of this Agreement.
27
<PAGE>
15. Covenant Not to Compete.
15.1 For purposes of this Section 15, CSBI and Employee conduct the
following business in the following territories:
15.1.1 CSBI is engaged in the business of transacting business as
a bank holding company with subsidiary banks which accept deposits, make loans,
cash checks and otherwise engage in the business of banking ("Business of
CSBI").
15.1.2 CSBI (through its subsidiaries) actively conducts
business in the geographic areas of Georgia and Tennessee at the business
locations of CSBI's subsidiaries set forth in Exhibit B of this Agreement.
15.1.3 Employee has established business relationships and
performs the duties described in Section 1 of this Agreement in the geographic
area covered by a circle having a radius of fifty (50) miles from the location
set forth as item 4 on EXHIBIT "B" of this Agreement, and will work exclusively
in such area while in the employ of CSBI.
15.2 Employee covenants and agrees that for a period of two (2) years
after the termination of his employment with CSBI for Cause, Employee shall not,
directly or indirectly, as principal, agent, trustee, consultant or through the
agency of any corporation, partnership, association, trust or other entity or
person, on Employee's own behalf or for others, provide the duties described in
Section 1 of this Agreement for any entity or person conducting the Business of
CSBI within the geographic area covered by a circle having a radius of fifty
(50) miles from the location set forth as item 4 on EXHIBIT "B" of this
Agreement.
15.3 Employee and CSBI shall periodically amend this Agreement by
updating and initialing Exhibit B attached hereto so that it at all times lists
the then current geographic area served by CSBI for which Employee performs the
duties described in Section 1 of this Agreement.
28
<PAGE>
15.4 The covenants contained in this Section 15 shall be construed as
agreements severable from and independent of each other and of any other
provision of this or any other contract or agreement between the parties hereto.
The existence of any claim or cause of action by Employee against CSBI, whether
predicated upon this or any other contract or agreement, shall not constitute a
defense to the enforcement by CSBI of said covenants.
16. Miscellaneous.
16.1 This Agreement constitutes and expresses the whole agreement of
the parties in reference to the employment of Employee by CSBI, and there are no
representations, inducements, promises, agreements, arrangements, or
undertakings oral or written, between the parties other than those set forth
herein.
16.2 This Agreement shall be governed by the laws of the State of
Georgia.
16.3 Should any clause or any other provision of this Agreement be
determined to be void or unenforceable for any reason, such determination shall
not affect the validity or enforceability of any clause or provision of this
Agreement, all of which shall remain in full force and effect.
16.4 Time is of the essence in this Agreement.
16.5 This Agreement shall be binding upon and enure to the benefit of
the parties hereto and their successors and assigns. This Agreement shall not
be assignable by any other parties hereto without the prior written consent of
the other parties.
16.6 This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original and all of which taken together shall
constitute but a single instrument.
29
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
"Employee"
_________________________ _______________________________________(SEAL)
Witness
ATTEST: "CSBI"
CENTURY SOUTH BANKS, INC.
_________________________ By ______________________________________
____________________, ________________
(CORPORATE SEAL)
30
<PAGE>
EXHIBIT "A"
Employee Compensation and Duties
<PAGE>
EXHIBIT "B"
Business location of CSBI's Subsidiaries
1. Bank of Dahlonega
200 W. Main Street
Dahlonega, Georgia 30533-2043
2. Bank of Ellijay
P. O. Box P
Ellijay, Georgia 30540-0394
3. First Bank of Polk County
Copper Hill, Tennessee
4. Georgia First Bank
455 Jesse Jewell Parkway
Gainesville, Georgia 30501-3640
5. First National Bank of Union County
420 Blue Ridge Highway
Blairsville, Georgia 30512
6. Fannin County Bank, N.A.
P. O. Box 1899
Blue Ridge, Georgia 30513-1899
7. First Community Bank of Dawsonville
5000 Highway 400
Dawsonville, Georgia 30534
8. Gwinnett National Bank
3200 Peachtree Industrial Boulevard
Duluth, Georgia 30136-0667
9. Peoples Bank
13321 Jones Street
Lavonia, Georgia 30553-1125
10. Bank of Danielsville
Court House Square
Danielsville, Georgia 30633-9796
<PAGE>
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement"), made and entered into as of
November 1, 1995 by and between Gary L. Evans, a resident of the State of
Georgia ("Employee") and Century South Banks, Inc., a Georgia bank holding
company ("CSBI").
W I T N E S S E T H:
WHEREAS, CSBI and Employee each desire to enter into, or continue, an
employment relationship with the other; and
WHEREAS, CSBI and Employee each deem it necessary and desirable, for their
mutual protection, to execute a written document setting forth the terms and
conditions of said relationship;
NOW, THEREFORE, in consideration of the employment of Employee by CSBI, of
the premises and the mutual promises and covenants contained herein, and of
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. Employment and Duties. CSBI hereby employs Employee to serve as Vice
President and Chief Credit Officer and to perform such duties and
responsibilities as customarily performed by persons acting in such capacity.
During the terms of this Agreement, Employee will devote his full time and
effort to his duties hereunder.
2. Term. Subject to the provisions of Section 14 of this Agreement, the
period of Employee's employment under this Agreement shall be deemed to have
commenced as of November 1, 1995, and shall continue for a period of Twelve
(12) calendar months thereafter, and any extensions thereafter, unless the
Employee dies before the end of such Twelve (12) months, in which case the
period of employment shall continue until the end of the month of such death.
The
33
<PAGE>
said Twelve (12) month period of employment shall automatically be extended
for additional Twelve (12) full calendar months terms without further action by
the parties, commencing on the one year anniversary of this Agreement and each
anniversary thereafter. No such automatic extension shall occur if either party
shall, within ninety (90) days prior to any said anniversary, have served
written notice upon the other of its intention that this Agreement shall not be
so extended.
3. Compensation. For all services to be rendered by Employee during the
term of this Agreement, CSBI agrees to pay Employee in accordance with the terms
outlined in Exhibit A.
4. Expenses. So long as Employee is employed hereunder, Employee is
entitled to receive reimbursement for, or seek payment directly by CSBI of, all
reasonable expenses which are consistent with the normal policy of CSBI in the
performance of Employee's duties hereunder, provided that Employee accounts for
such expenses in writing.
5. Employee Benefits. So long as Employee is actively employed hereunder,
Employee will be entitled to participate in the employee benefit programs
covering the Employee's employment and duties as described in Exhibit A of this
Agreement, if any, provided and paid for by CSBI for its employees generally.
6. Vacation. Employee shall be entitled to a vacation in accordance with
CSBI'S vacation policy in effect at the time the vacation is to be taken.
7. Confidentiality. In Employee's position as an employee of CSBI,
Employee has had and will have access to confidential information, trade secrets
and other proprietary information of vital importance to CSBI and has and will
also develop relationships with customers, employees and others who deal with
CSBI which are of value to CSBI. CSBI requires as a condition to Employee's
employment with CSBI that Employee agrees to certain restrictions on Employee's
use of the proprietary information and valuable relationships developed during
Employee's
34
<PAGE>
employment with CSBI. In consideration of the terms and conditions contained
herein, the parties hereby agree as follows:
7.1 CSBI and Employee mutually agree and acknowledge that CSBI may
entrust Employee with highly sensitive confidential, restricted and proprietary
information concerning various Business Opportunities (as hereinafter defined),
customer lists, and personnel matters. Employee acknowledges that he shall bear
a fiduciary responsibility to CSBI to protect such information from use or
disclosure that is not necessary for the performance of Employee's duties
hereunder, as an essential incident of Employee's employment with CSBI.
7.2 For the purposes of this Section, the following definitions shall
apply:
7.2.1 "Trade Secret" shall mean the identity of customers of CSBI,
the whole or any portion or phase of any scientific or technical information,
design, process, procedure, formula or improvement that is valuable and secret
(in the sense that it is not generally known to competitors of CSBI) and which
is defined as a "trade secret" under Georgia law pursuant to the Georgia Trade
Secrets Act.
7.2.2 "Confidential Information" shall mean any data or information,
other than Trade Secrets, which is material to CSBI and not generally known by
the public. Confidential Information shall include, but not be limited to,
Business Opportunities of CSBI (as hereinafter defined), the details of this
Agreement, CSBI's business plans and financial statements and projections, and
the costs of the services CSBI may offer or provide to the customers it serves,
to the extent such information is material to CSBI and not generally known by
the public.
7.2.3 "Business Opportunities" shall mean any specialized information
or plans of CSBI concerning the provision of financial services to the public,
together with all related
35
<PAGE>
information concerning the specifics of any contemplated financial services
regardless of whether CSBI has contacted or communicated with such target person
or business.
7.2.4 Notwithstanding the definitions of Trade Secrets, Confidential
Information, and Business Opportunities set forth above, Trade Secrets,
Confidential Information, and Business Opportunities shall not include any
information:
(i) that is or becomes generally known to the public;
(ii) that is already known by Employee or is developed by Employee
after termination of employment through entirely independent efforts;
(iii) that Employee obtains from an independent source having a
bona fide right to use and disclose such information;
(iv) that is required to be disclosed by law, except to the extent
eligible for special treatment under an appropriate protective order; or
(v) that CSBI's Board of Directors approves for release.
7.3 Employee shall not, without the prior approval of CSBI's Board, during
his employment with CSBI and for so long thereafter as the information or data
remain Trade Secrets, use or disclose, or negligently permit any unauthorized
person who is not an employee of CSBI to use, disclose, or gain access to, any
Trade Secrets of CSBI, its subsidiaries or affiliates, or of any other person or
entity making Trade Secret's available for CSBI's use.
7.4 Employee shall not, without the prior written consent of CSBI, during
his employment with CSBI and for a period of two (2) years thereafter as long as
the information or data remain competitively sensitive, use or disclose, or
negligently permit any unauthorized person who is not employed by CSBI to use,
disclose, or gain access to, any Confidential Information to
36
<PAGE>
which the Employee obtained access by virtue of his employment with CSBI, except
as provided in Section 7.2 of this Agreement.
8. Observance of Security Measures. During Employee's employment with
CSBI, Employee is required to observe all security measures adopted to protect
Trade Secrets, Confidential Information, and Business Opportunity of CSBI.
9. Return of Materials. Upon the request of CSBI and, in any event, upon
the termination of his employment with CSBI, Employee shall deliver to CSBI all
memoranda, notes, records, manuals or other documents, including all copies of
such materials, pertaining to the performance of Employee's services hereunder
or containing Trade Secrets or Confidential Information, whether made or
compiled by Employee or furnished to him from any source by virtue of his
employment with CSBI.
10. Severability. Employee acknowledges and agrees that the covenants
contained in Sections 7 through 9 of this Agreement shall be construed as
covenants independent of one another and distinct from the remaining terms and
conditions of this Agreement, and severable from every other contract and course
of business between CSBI and Employee, and that the existence of any claim, suit
or action by Employee against CSBI, whether predicated upon this or any other
agreement, shall not constitute a defense to CSBI's enforcement of any covenant
contained in Sections 7 through 9 of this Agreement.
11. Specific Performance. Employee acknowledges and agrees that the
covenants contained in Sections 7 through 9 of this Agreement shall survive any
termination of employment, as applicable, with or without Cause, at the
instigation or upon the initiative of either party. Employee further
acknowledges and agrees that the ascertainment of damages in the event of
Employee's breach of any covenant contained in Sections 7 through 9 of this
Agreement would be
37
<PAGE>
difficult, if at all possible. Employee therefore acknowledges and agrees that
CSBI shall be entitled in addition to and not in limitation of any other rights,
remedies, or damages available to CSBI in arbitration, at law or in equity, upon
submitting whatever affidavit the law may require, and posting any necessary
bond, to have a court of competent jurisdiction enjoin Employee from committing
any such breach.
12. Termination. During the term of this Agreement, employment, including
without limitation, all compensation, salary, expenses, reimbursement, and
employee benefits may be terminated as follows:
12.1 At the election of CSBI for Cause;
12.2 At Employee's election, upon CSBI's breach of any material
provision of this Agreement;
12.3 "Cause" shall mean (i) conduct by Employee that amounts to
fraud, dishonesty, gross negligence or willful misconduct in the performance of
his duties hereunder; (ii) the conviction (from which no appeal may be, or is,
timely taken) of the Employee of a felony; or (iii) initiation of suspension or
removal proceedings against the Employee by federal or state regulatory
authorities acting under lawful authority pursuant to provisions of federal or
state law or regulation which may be in effect from time to time. No
termination for Cause shall be effective unless it is approved by a two-thirds
(2/3) vote of CSBI's Board of Directors, excluding the vote, if any, of the
employee involved; or
12.4 Upon Employee's death, or at the election of either party, upon
Employee's disability resulting in inability to perform the duties described in
Section 1 of this Agreement for a period of ninety (90) consecutive days.
38
<PAGE>
13. Notice. All notice provided for herein shall be in writing and shall
be deemed to be given when delivered in person or deposited in the United States
Mail, registered or certified, return receipt requested, with proper postage
prepaid and addressed as follows:
39
<PAGE>
CSBI: Century South Banks, Inc.
60 Main Street West
Dahlonega, Georgia 30533
Attn: President
with a copy to: Troutman Sanders LLP
600 Peachtree Street, Suite 5200
Atlanta, Georgia 30308-2216
Attn: Thomas O. Powell, Esquire
Employee: __________________________________
__________________________________
__________________________________
with a copy to: __________________________________
__________________________________
__________________________________
Attn:______________________________
14. Change in Control. None of the benefits provided in Section 14 of this
Agreement shall be payable to Employee unless (i) there shall have been a Change
in Control of CSBI, as set forth in this Section 14, and (ii) Employee is
employed by CSBI at such time.
14.1 "CSBI Board" shall mean the Board of Directors of CSBI.
14.2 "Change in Control" shall be deemed to have occurred if:
14.2.1 During the term of this Agreement, the individuals
constituting CSBI's Board at the beginning of such period ("Beginning CSBI
Board") cease for any reason to constitute at least a majority of said Board,
provided that in making such determination, a Director elected by or on the
recommendation of the Beginning CSBI Board shall be deemed to be a member of
such Beginning CSBI Board; or
40
<PAGE>
14.2.2 A notice or an application is filed with the Federal Reserve
Board ("FRB") pursuant to Regulation "Y" of the FRB under the Change in Bank
Control Act or the Bank Holding Company Act or with the Georgia Department of
Banking and Finance (the "Department") pursuant to the Financial Institutions
Code of Georgia for permission to acquire control of CSBI or more than twenty-
five percent (25%) of the CSBI's outstanding common stock or equivalent in
voting power of any class or classes of outstanding securities of CSBI entitled
to vote in elections of Directors, shall be acquired by any corporation or other
person, or group. "Group" shall mean persons who act in concert as described in
(S) 14(d) (2) of the Securities Exchange Act of 1934 as amended; or
14.2.3 CSBI shall become a subsidiary of another corporation or
shall be merged or consolidated into another corporation and less than a
majority of the outstanding voting shares of the parent or surviving corporation
after such acquisition, merger or consolidation are owned immediately after such
acquisition, merger or consolidation by the owners of the voting shares of CSBI
immediately before such acquisition, merger or consolidation; or
14.2.4 Substantially all of the assets of CSBI shall be sold to
another entity.
14.3 Employee and CSBI agree in the event of a Change in Control of
CSBI, Employee will remain in the employ of CSBI or its successor, and CSBI or
its successor shall employ Employee, for a period of at least thirty-five (35)
months after the occurrence of such Change in Control of CSBI, performing the
same duties that he was performing at the time of the effective date of the
Change in Control and with the same title, compensation, benefits and location.
14.4 Subject to the terms and conditions of this Agreement, following
a Change in Control of CSBI, Employee shall receive the following compensation
in consideration for the services to be provided on behalf of CSBI as set forth
herein:
41
<PAGE>
14.4.1 If Employee's employment terminates during the thirty-five
(35) month period commencing immediately following the date of occurrence of a
Change in Control of CSBI, ("Termination of Employment") for any reason other
than Cause, or the death of Employee, the Company shall pay Employee, at
Employee's election, the following amounts:
ALTERNATIVE A
(i) a lump sum cash payment in an amount equal to the product of two and
eleven twelfths (2-11/12) multiplied times Employee's annual compensation from
CSBI, including salary, bonuses, all perquisites, and all other forms of
compensation paid to Employee for his benefit or the benefit of his family,
however characterized, for the fiscal year ended immediately preceding the date
of a Change in Control of CSBI ("Employee's Annual Salary"). The payment
provided for in this Section 14.2.1 (i) shall be due and payable to Employee
within thirty (30) days after the date of Termination of Employment; or
ALTERNATIVE B
(i) twelve (12) payments, each in an amount equal to (A) the product of two
and eleven-twelfths (2-11/12) multiplied times Employee's Annual Salary, divided
by (B) twelve (12)("Monthly Payments"). The Monthly Payments shall be made,
commencing on the date of Termination of Employment, on the first day of each
calendar month; and
42
<PAGE>
(ii) for thirty-five (35) months commencing on the date of Termination of
Employment, CSBI shall provide to Employee and his spouse, and pay all costs and
expenses associated with, major medical insurance, health insurance,
hospitalization, life insurance, long-term disability and any related medical
plans and programs of CSBI with the same coverage and benefits provided to
Employee by CSBI immediately preceding the date of a Change of Control of CSBI.
In the event Employee is employed during the thirty-five (35) month period
commencing on the date of Termination of Employment by a person or entity
unaffiliated with CSBI, the benefits to be provided to Employee and his spouse
in this Section 14.2.1 (ii) shall be reduced to the extent equivalent benefits
are provided by the subsequent employer; and
(iii) In addition to the amounts paid under either ALTERNATIVE A or
ALTERNATIVE B, and Section 14.4.1(ii), CSBI shall pay Employee's full base
salary through the date of Termination of Employment at the rate in effect at
the time of Termination of Employment, plus any other amounts to which Employee
is entitled under any compensation plan of CSBI, at the time such payments are
due.
14.4.2 During the thirty-five (35) months following the effective
date of a Change in Control, if CSBI takes any of the following actions, such
action shall be deemed to be a termination without Cause. Those actions are:
(i) a reduction in Employee's salary, bonus provisions or other perquisites as
were in effect immediately prior to a Change in Control of CSBI, (ii) a material
change in the duties required to be performed by Employee on behalf of CSBI,
(iii) a failure by CSBI to increase Employee's salary annually in accordance
with an established procedure, or (iv) due to CSBI's requirement that Employee
relocate outside the geographic area where Employee is currently employed. In
any such event, Employee shall be entitled to all payments provided for in
Section 14.4.1 of this Agreement.
43
<PAGE>
15. Covenant Not to Compete.
15.1 For purposes of this Section 15, CSBI and Employee conduct the
following business in the following territories:
15.1.1 CSBI is engaged in the business of transacting business as
a bank holding company with subsidiary banks which accept deposits, make loans,
cash checks and otherwise engage in the business of banking ("Business of
CSBI").
15.1.2 CSBI (through its subsidiaries) actively conducts business
in the geographic areas of Georgia and Tennessee at the business locations of
CSBI's subsidiaries set forth in Exhibit B of this Agreement.
15.1.3 Employee has established business relationships and
performs the duties described in Section 1 of this Agreement in the geographic
area covered by a circle having a radius of fifty (50) miles from the location
set forth as Item 1 on EXHIBIT "B" of this Agreement, and will work exclusively
in such area while in the employ of CSBI.
15.2 Employee covenants and agrees that for a period of two (2) years
after the termination of his employment with CSBI for Cause, Employee shall not,
directly or indirectly, as principal, agent, trustee, consultant or through the
agency of any corporation, partnership, association, trust or other entity or
person, on Employee's own behalf or for others, provide the duties described in
Section 1 of this Agreement for any entity or person conducting the Business of
CSBI within the geographic area covered by a circle having a radius of fifty
(50) miles from the location set forth as item 1 on EXHIBIT "B" of this
Agreement.
15.3 Employee and CSBI shall periodically amend this Agreement by
updating and initialing Exhibit B attached hereto so that it at all times lists
the then current geographic area served by CSBI for which Employee performs the
duties described in Section 1 of this Agreement.
44
<PAGE>
15.4 The covenants contained in this Section 15 shall be construed as
agreements severable from and independent of each other and of any other
provision of this or any other contract or agreement between the parties hereto.
The existence of any claim or cause of action by Employee against CSBI, whether
predicated upon this or any other contract or agreement, shall not constitute a
defense to the enforcement by CSBI of said covenants.
16. Miscellaneous.
16.1 This Agreement constitutes and expresses the whole agreement of
the parties in reference to the employment of Employee by CSBI, and there are no
representations, inducements, promises, agreements, arrangements, or
undertakings oral or written, between the parties other than those set forth
herein.
16.2 This Agreement shall be governed by the laws of the State of
Georgia.
16.3 Should any clause or any other provision of this Agreement be
determined to be void or unenforceable for any reason, such determination shall
not affect the validity or enforceability of any clause or provision of this
Agreement, all of which shall remain in full force and effect.
16.4 Time is of the essence in this Agreement.
16.5 This Agreement shall be binding upon and enure to the benefit of
the parties hereto and their successors and assigns. This Agreement shall not
be assignable by any other parties hereto without the prior written consent of
the other parties.
16.6 This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original and all of which taken together shall
constitute but a single instrument.
45
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
"Employee"
_________________________ _______________________________________(SEAL)
Witness
ATTEST: "CSBI"
CENTURY SOUTH BANKS, INC.
_________________________ By ______________________________________
____________________, ________________
(CORPORATE SEAL)
46
<PAGE>
EXHIBIT "A"
Employee Compensation and Duties
<PAGE>
EXHIBIT "B"
Business location of CSBI's Subsidiaries
1. Bank of Dahlonega
200 W. Main Street
Dahlonega, Georgia 30533-2043
2. Bank of Ellijay
P. O. Box P
Ellijay, Georgia 30540-0394
3. First Bank of Polk County
Copper Hill, Tennessee
4. Georgia First Bank
455 Jesse Jewell Parkway
Gainesville, Georgia 30501-3640
5. First National Bank of Union County
420 Blue Ridge Highway
Blairsville, Georgia 30512
6. Fannin County Bank, N.A.
P. O. Box 1899
Blue Ridge, Georgia 30513-1899
7. First Community Bank of Dawsonville
5000 Highway 400
Dawsonville, Georgia 30534
8. Gwinnett National Bank
3200 Peachtree Industrial Boulevard
Duluth, Georgia 30136-0667
9. Peoples Bank
13321 Jones Street
Lavonia, Georgia 30553-1125
10. Bank of Danielsville
Court House Square
Danielsville, Georgia 30633-9796
<PAGE>
AGREEMENT
---------
THIS AGREEMENT dated this day of 1993, by and
between BANK CORPORATION OF GEORGIA, a Georgia corporation (the
"Corporation"), and Stephen W. Doughty (the "Executive").
WITNESSETH
- ----------
WHEREAS, the Executive is a key employee of the Corporation and an integral
part of its management, and the Corporation wishes to assure both itself and its
key employees of continuity of management and objective judgment in the event of
any actual or threatened Change in Control of the Corporation; and
WHEREAS, this Agreement is not intended to materially alter the
compensation and benefits that the Executive could reasonably expect to receive
in the absence of a Change in Control of the Corporation, and, accordingly this
Agreement, though taking effect upon execution thereof, will be operative only
upon a Change in Control of the Corporation, as defined herein.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants herein contained, the parties hereby agree as follows:
I. OPERATION OF AGREEMENT
----------------------
This Agreement shall be effective immediately upon its execution by the
parties hereto, but anything in this Agreement to the contrary notwithstanding,
neither the Agreement nor any provision hereof shall be operative unless during
the term of this Agreement, there has been a Change in Control of the
Corporation, as defined in Article III below. Upon such a Change in Control of
the Corporation, during the term of this Agreement, all of the provisions hereof
shall become operative immediately.
II. TERM OF AGREEMENT
-----------------
The term of this Agreement shall be for an initial three (3) year period
commencing an the date hereof, and shall be renewable at the end of the first
year of such initial three (3) year period and annually thereafter, for an
additional one-year period in the sole discretion of the Compensation Committee
and upon such terms and Conditions as the compensation Committee may authorize
at such time.
III. DEFINITIONS
-----------
1. Base Amount - The term "Base Amount" shall have the same meaning
-----------
as ascribed to it under Section 280G(b)(3) of the Internal Revenue Code of 1986,
as amended (the "Code").
<PAGE>
2. Board or Board of Directors - The Board of Directors of Bank
---------------------------
Corporation of Georgia.
3. Cause - The term "Cause" as used herein shall mean and be limited to
-----
any act that constitutes, on the Part of the Executive, fraud, dishonesty, a
felony or gross malfeasance of duty and that directly results in material injury
to the Corporation.
4. Change in Control - The term "Change in Control" as used herein
----------------
shall mean (I) the acquisition, directly or indirectly, by any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended), within any twelve (12) month period of securities of the
Corporation representing an aggregate of forty percent (40%) or more of the
combined voting power of the Corporation's then outstanding securities; or, (ii)
during any period of two consecutive years, individuals who at the beginning of
such period constitute the Board, cease for any reason to constitute at least a
majority thereof, unless the election of each new director was approved in
advance by a vote of at least a majority of the directors then still in office
who were directors at the beginning of the period.
5. Compensation Committee - The term "Compensation Committee" shall
----------------------
mean the compensation Committee of the Board of directors of Bank Corporation of
Georgia.
6. Disability - The term "Disability" shall mean the Executive's
----------
inability as a result of physical or mental incapacity to substantially perform
his duties for the Corporation on a full-time basis for a period of six (6)
months.
7. Severance Payment - The term "Severance Payment" shall have the same
-----------------
meaning as the term "parachute payment" defined in Section 280G(b)(2) of the
Code.
8. Present Value - The term "Present Value" shall have the same meaning
-------------
as provided in, Section 280G(d)(4) of the Code.
9. Reasonable Compensation - The term "Reasonable Compensation" shall
-----------------------
have the same meaning as provided in Section 28OG(b)(4) of the code.
10. Retirement Plan - The Bank Corporation of Georgia Employees
---------------
Retirement Plan, or the successor or replacement of such retirement plan.
IV. BENEFITS UPON TERMINATION A FOLLOWING CHANGE IN CONTROL
-------------------------------------------------------
I. Termination - If a Change in Control occurs during the term of this
-----------
Agreement and the Executive's employment is terminated (I) within three (3)
years from the date of the Change in Control, or (ii) within three (3)
months prior to the date of the Change in Control as a part of such Change in
Control, as a result of Involuntary Termination or
<PAGE>
Voluntary Termination, as defined below, the benefits described in Section 2
below shall be paid or provided to the Executive:
(a) Involuntary Termination - For purposes hereof, "Involuntary
-----------------------
Termination" shall mean termination of employment that is involuntary on
the part of the Executive and that occurs for reasons other than for Cause,
Disability, voluntary retirement (including early retirement) within the
meaning of the Retirement Plan, or death of the Executive.
(b) Voluntary Termination - For purposes hereof, "Voluntary Termination"
----------------------
shall mean termination of employment that is voluntary on the part of the
Executive, and is due to (1) a reduction of the Executive's
responsibilities resulting from the assignment to the Executive of any
duties inconsistent with his positions, duties or responsibilities as in
effect immediately prior to the Change in Control; (ii) a reduction in the
Executive's compensation or benefits, or (iii) a forced relocation of the
Executive or significant increase in the Executive's travel requirements. A
termination shall not be considered voluntary within the meaning of this
Agreement if such termination is a result of Cause, Disability, voluntary
retirement (including early retirement) within the meaning of the
Corporation's Retirement Plan, or death of the Executive.
2. Benefits to be Provided - If an Executive becomes eligible for
------------------------
benefits under Section I above, the following benefits shall be provided:
(a) Salary - The Executive will continue to receive his current salary
------
(subject to withholding of all applicable taxes and any amounts referred to
in Section 2(c) below) for a period of thirty-six (36) months from his date
of termination in the same manner as it was being paid as of the date of
termination from the Corporation and/or any of its subsidiaries; provided,
--------
however, the Executive may elect in his sole discretion to receive the
-------
salary payments provided for hereunder in a single lump sum payment, to be
paid not later than 30 days after his termination of employment; provided
--------
further that the amount of such lump sum payment shall be, determined by
------------
taking the salary payments to be made and discounting to their present
value using an interest factor equal to the prime rate of First South Bank,
N.A. on the date the Executive terminated employment. For Purposes hereof,
the Executive's "current Salary" shall be the highest rate in effect during
the six-month period prior to the Executive's termination.
(b) Bonuses - The Executive shall receive bonus payments from the
-------
Corporation in the amounts, determined follows: (I) for the calendar year
in which he terminates employment in the amount equal to a pro rata portion
(determined based upon the number of days during such calendar year the
Executive was employed by the Corporation) of the average of the bonuses
paid to him by the Corporation or any of its subsidiaries for the two
calendar years immediately preceding the year in which his termination
occurs, and (i) for the three (3) calendar years following the calendar
year in which he terminates
<PAGE>
employment in an amount for each such year equal to the average of the
bonuses paid to him for the two calendar years immediately preceding the
year in which his termination occurs. Any bonus amounts that the Executive
had previously earned from the Corporation but which may not yet have been
paid as of the date of termination shall not be affected by this provision.
The total of the bonus amounts determined under (I) and (ii) above shall be
paid in substantially equal monthly installments over the period the
Executive is receiving salary pursuant to (a) above, the amount of each
payment to be determined by taking the total amount of bonuses to be paid
and dividing such amount by the number of months over which the payments
are to be made; provided, however, the Executive may elect in his sole
-----------------
discretion to receive the bonus amounts in a single lump sum payment, to be
paid not later than 30 days after his termination of employment; provided
--------
further that the amount of such lump sum payment shall be determined by
------------
taking the bonus payments to be made and discounting them to their present
value using an interest factor equal to the prime rate of First South Bank,
N.A. on the date the Executive terminated employment.
(c) Health and Life Insurance Coverage - The health and life insurance
----------------------------------
benefits coverage provided to the Executive at his date of termination
shall be continued at the same level and in the same manner as if his
employment had not terminated (subject to the customary changes in such
coverages if the Executive retires, reaches age 65 or similar events),
beginning on the date of such termination and ending on the date thirty-six
(36) months from the date of termination. Any additional coverages the
Executive had at termination, including dependent coverage, will also be
continued for such period on the same terms, to the extent permitted by the
applicable policies or contracts. Any costs the Executive was paying for
such coverages at the time of termination shall continue to be paid by the
Executive through payroll deduction from amounts payable to the Executive
under (a) or (b) above, or, to the extent such payroll deductions cannot be
made, by separate check payable to the Corporation each month in advance.
If the terms of any benefit plan referred to in this Section do not permit
continued participation by the Executive, then the Corporation will arrange
for other coverage at its expense providing substantially similar benefits.
(d) Employee Retirement Plans - To the extent permitted by the applicable
-------------------------
plan, the Executive will be entitled to continue to participate, consistent
with past practices, in all employee retirement plans maintained by the
Corporation In effect as of his date of termination, including, to the
extent such plan is still maintained by the Corporation, The Bank
Corporation of Georgia Employees' Retirement Plan. The Executive's
participation in such retirement plans shall continue for a period of
thirty-six (36) months from his date of termination (at which point he will
be considered to have terminated employment within the meaning of the plan)
and the compensation payable to the Executive under (a) and (b) above shall
be treated (unless otherwise excluded) as compensation under the plan. If
continued participation in any plan is not permitted, the Corporation shall
pay to the Executive and, if applicable his beneficiary, a supplemental
benefit equal to the Present Value of the excess of (I) the benefit the
<PAGE>
Executive would have been paid under such plan if he had continued to be
covered for the 36-month period (less any amounts he would have required to
contribute), over (ii) the benefit actually payable under such plan. The
Corporation shall pay such additional benefits (if any) in a lump sum or in
a series of cash payments, whichever coincides with the payment of benefits
under such plan.
(e) An Executive's election of a lump sum payment under (a) or (b) above
shall not alter the amounts he is entitled to receive under the benefit
plans described in (c) and (d) above. Benefits under such plans shall be
determined as if the lump sum election had not been made.
(f) The benefits payable or to be provided under this Agreement shall cease
in the event of the Executive's death or election to commence retirement
benefits under the Retirement Plan.
V. LIMITATION ON BENEFITS
----------------------
1. Limitation on Amount - Notwithstanding anything in this Agreement to
--------------------
the contrary, any benefits payable or to be provided to the Executive by the
Corporation or First South Bank, N.A., whether pursuant to this Agreement or
otherwise, which are treated as Severance Payments shall be modified or reduced
in the manner provided in Section 2 below to the extent necessary so that the
requirements below are in all cases satisfied:
(a) the aggregate Present Value of all Severance Payments payable to or for
the benefit of the Executive shall not exceed 2.99 times the Base
Amount;
(b) each Severance Payment payable to or for the benefit of the Executive
shall be in an amount which does not exceed the portion of the Base
Amount allocable to such Severance Payment plus the Reasonable
Compensation allocable to such Severance Payment; or
(c) the Severance Payments payable to or for the benefit of the Executive
shall be reduced by the amount of gain upon-the exercise of any
Corporation stock options, such gain to be measured by the difference
between the option exercise price and the fair market value of the
shares subject to such options on the date of exercise.
The calculation of the limit under this Section I shall be made by taking into
consideration the benefits payable, or to be provided to the Executive under
this Agreement that are treated as Severance Payments, as well as any payments
or benefits provided outside of this Agreement that are so treated.
2. Modification of Amount - In the event that the amount of any Severance
----------------------
Payments which would be payable to or for the benefit of the Executive under
this Agreement must be modified or reduced to comply with this Article, the
Executive shall direct which Severance Payments are to be modified or
<PAGE>
reduced; provided, however, that no increase in the amount of any payment or
-----------------
change in the timing of the payment (except as otherwise permitted by Article
IV, Sections 2(a) and (b)) shall be made without the consent of the Corporation.
3. Avoidance of Penalty Taxes - This Article shall be interpreted so as
---------------------------
to avoid the imposition of excise taxes on the Executive under Section 4999 of
the Code or the disallowance of a deduction to the Corporation pursuant to
Section 28OG(a) of the Code with respect to amounts payable under this Agreement
4. Additional Limitation - In addition to the limits otherwise provided
----------------------
in this Article, to the extent permitted by law, the Executive may in his sole
discretion elect to reduce any payments he may be eligible to receive under this
Agreement to prevent the imposition of excise taxes on the Executive under
Section 4999 of the Code.
VI. MISCELLANEOUS
-------------
1. Notices - Any notice to a party required or permitted to be given
--------
hereunder shall be in writing and shall be deemed given when mailed registered
or certified mail, to such party at such party's address as specified below, or
at such other address as such party shall specify by notice to the other.
If to the Corporation, the Bank Corporation of Georgia, 4951 Forsyth Road,
Macon, Georgia 31203-4099 Attn: President.
-----
If to the Executive, to his last address shown on the records of the
Corporation. The Executive shall be responsible for providing the Corporation
with a current address.
2. Assignment - This Agreement shall inure to the benefit of and shall be
-----------
binding upon the parties hereto and their respective executors, administrators,
heirs, personal representatives and successors, but, except as hereinafter
provided, neither this Agreement nor any right hereunder may be assigned or
transferred by either party thereto, any beneficiary or any other person, nor be
subject to alienation, anticipation, sale, pledge, encumbrance, execution,
levy or other legal process of any kind against the Executive, his beneficiary
or any other person, Notwithstanding the foregoing, any business entity
succeeding to substantially all of the business of the Corporation by purchase,
merger, consolidation, sale of assets or otherwise, shall be bound by and shall
adopt and assume this Agreement and the Corporation shall obtain the assumption
of this Agreement by such successor.
3. No Obligation to Fund - The agreement of the Corporation (or its
---------------------
successor) to make payments to the Executive hereunder shall represent solely
the unsecured obligation of the Corporation (and its successor), except to the
extent the Corporation (or its successors) in its sole discretion elects in
whole or in part to fund its obligation under this Agreement pursuant to a trust
arrangement or otherwise.
<PAGE>
4. Applicable Law - This Agreement shall be governed by and construed and
---------------
enforced in accordance with the laws of the State of Georgia.
5. Arbitration of Disputes Expenses - The parties agree that all disputes
---------------------------------
that may arise between them relating to the interpretation of performance of
this Agreement, including matters relating to any funding arrangements for the
benefits provided under this Agreement, shall be determined by binding
arbitration through an arbitrator approved by the American Arbitration
Association or other arbitrator mutually acceptable to the parties. The award of
the Arbitrator shall be final and binding upon the parties and judgment upon the
award rendered maybe entered in any court having jurisdiction. In the event the
Executive incurs legal fees and other expenses in seeking to obtain or to
enforce any rights or benefits provided by this Agreement and is successful, in
whole or in part, in obtaining or enforcing any such rights or benefits through
settlement, arbitration or otherwise, the Corporation shall promptly pay the
Executive's reasonable legal fees and expenses incurred in obtaining or
enforcing any such rights or benefits. Except to the extent provided in the
preceding sentence, each party shall pay its own legal fees and other expenses
associated with arbitration, provided that the fee for the arbitrator shall be
shared equally.
6. Amendment - This Agreement may only be amended by a written instrument
----------
signed by the parties hereto, which makes specific reference to this Agreement.
7. Severability - If any provision of this Agreement shall be held
------------
invalid or unenforceable by any court of competent jurisdiction, such holding
shall not invalidate or render unenforceable any other provisions hereof.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
executed on its behalf by its duly authorized officers and the Executive has
hereunder set his hand as of the date and, year first above written.
CORPORATION
ATTEST: BANK CORPORATION OF GEORGIA
By:
- ------------------------------ ------------------------
Title:
------------------------ Title:
---------------------
(CORPORATED SEAL)
EMPLOYEE:
---------------------------
STEPHEN W. DOUGHTY
<PAGE>
Exhibit 11.1
------------
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Statement re: Computation of Per Share Earnings
The following computations set forth the calculations of basic and diluted net
income per share for the years ended December 31, 1997, 1996, and 1995.
(amounts in thousands, except for per share data)
<TABLE>
<CAPTION>
Basic Diluted
earnings earnings
per share per share
--------- ---------
<S> <C> <C>
For the year ended December 31, 1997:
Net income $ 9,632 9,632
======= ======
Weighted average number of common shares
outstanding 10,838 11,101
======= ======
Net income per common share $ 0.89 0.87
======= ======
For the year ended December 31, 1996:
Net income $12,683 12,683
======= ======
Weighted average number of common shares
outstanding 10,769 11,001
======= ======
Net income per common share $ 1.18 1.15
======= ======
</TABLE>
For the year ended December 31, 1995:
Net income $10,759 10,759
======= ======
Weighted average number of common shares
outstanding 10,574 10,739
======= ======
Net income per common share $ 1.02 1.00
======= ======
<PAGE>
[PHOTO APPEARS HERE]
A New Momentum.
CenturySouthbanks
-----------------
INC.
1 9 9 7 A n n u a l R e p o r t
<PAGE>
[PHOTO APPEARS HERE]
C O N T E N T S
1 Financial Highlights
2 Shareholders' Letter
4 A New Momentum
13 Financial Review Contents
The Century South Banks
Family of Community Banks
Affiliate Bank
Year Primary Assets
Acquired Counties In Thousands,
Served as of 12/31/97
Bank of Dahlonega
1982 Lumpkin County $115,297
The Bank of Ellijay
1985 Gilmer County $90,048
First Bank of Polk County
1988 Polk County, TN $78,621
Georgia First Bank
1989 Hall County $160,124
First National Bank
of Union County
1990 Union County $45,583
Fannin County Bank
1994 Fannin County $68,826
Gwinnett National Bank
1995 Gwinnett County $48,524
First Community Bank
of Dawsonville
1995 Dawson County $66,769
Peoples Bank
1995 Franklin County $45,166
Bank of Danielsville
1995 Madison County $62,741
Ameribank
1997 Chatham and $125,900
Effingham Counties
First South Bank
1997 Bibb, Coweta, $186,580
Macon and Peach
Counties
<PAGE>
Financial Highlights
(Amounts in thousands, except per 1997 1996 1995
share data)
For the Year ---------------------------------------
Net Income $ 9,632 $ 12,683 $ 10,759
Cash dividends declared/(1)/ 3,568 3,085 2,303
Per Common Share ---------------------------------------
Net income - diluted $ 0.87 $ 1.15 $ 1 .00
Dividends declared/(1)/ 0.42 0.40 0.38
Market price:
High 25.00 19.00 17.50
Low 17.75 13.50 11.50
Close 23.88 18.00 16.38
Book value 10.04 9.44 8.64
Ratios ---------------------------------------
Return on average assets 0.91% 1.26% 1.16%
Return on average shareholders' equity 9.11 13.17 12.38
Net interest margin
(taxable-equivalent basis) 5.28 5.35 5.29
Selected Average Balances ---------------------------------------
Total assets $1,052,695 $1,004,260 $928,238
Earning assets 972,431 919,494 858,877
Loans, net of unearned income 722,718 676,909 626,345
Deposits 928,337 882,889 808,055
Shareholders' equity 105,735 96,312 86,937
Weighted average common shares
outstanding - diluted 11,101 11,001 10,739
At December 31 ---------------------------------------
Total assets $1,088,368 $1,051,399 $976,203
Earning assets 1,003,870 955,048 892,183
Loans, net of unearned income 758,731 698,815 657,052
Allowance for loan losses 12,339 10,414 9,700
Deposits 960,336 928,971 850,530
Total shareholders' equity 109,138 102,214 91,739
Outstanding common shares 10,866 10,823 10,613
/(1)/Excludes dividends declared by subsidiaries prior to acquisition.
[BAR GRAPH APPEARS HERE]
NET INCOME PER SHARE
(in dollars) (diluted)
[BAR GRAPH APPEARS HERE]
CLOSING STOCK PRICE
(in dollars)
[BAR GRAPH APPEARS HERE]
DIVIDENDS PER SHARE
(in dollars)
<PAGE>
- --------------------------------------------------------------------------------
"1997 WAS A [PICTURE APPEARS HERE]
HISTORIC YEAR ..."
- --------------------------------------------------------------------------------
To Our Shareholders:
1997 was a historic year indeed for Century South Banks as we consummated the
merger with Bank Corporation of Georgia. The year's performance was also
satisfying in many other respects, as we ended the year with total assets of
$1.09 billion.
Earnings were $9,632,000 as compared to $12,683,000
for 1996. However, 1997 earnings were significantly impacted by special charges
of $2,725,000 net of related taxes that were recorded during the second quarter.
Those earnings translate into $0.87 per diluted share for 1997 versus $1.15 per
diluted share for 1996. Our loan loss provision has positioned us well compared
to our peers as we go forward into 1998. The Company's provision for loan losses
for 1997 was $5,201,000 as compared to $2,166,000 for 1996.
The numbers in this report speak for themselves. While we are never
pleased to report a decline in earnings, we believe the merger positions us to
better take advantage of the great opportunity that lies ahead for enhanced
performance.
The Company's nonperforming assets, which include loans placed on
nonaccrual status and foreclosed assets, at December 31, 1997, were $7,436,000
as compared to $6,575,000 at December 31, 1996. Nonperforming assets as a
percentage of loans plus foreclosed assets were 0.98% at December 31, 1997, as
compared to 0.94% at December 31, 1996. While these numbers are not in excess of
industry norms, they do reflect a higher than desirable level by our standards.
We believe measures have been put into place to reduce these numbers over the
coming year.
For us, the merger, consummated on December 16, 1997, was indeed our
most important achievement. It was entered into with a clear understanding of
each company's philosophies, value systems and infrastructure. This depth of
understanding and compatibility resulted from a long standing relationship
between the two of us. (Jimmy Faulkner previously served on the Board of
Directors of Bank Corporation of Georgia.)
As we approached the merger, our number one objective was the
successful assimilation of the two companies. This was successfully completed
from a legal aspect, but more importantly, from the cultural perspective. This
was accomplished by our combined senior management team carefully evaluating our
strengths and weaknesses and committing to wholehearted cooperation. We begin
1998 with a smoothly operating organization that is poised to return outstanding
results.
The merger allowed us to reach a rather significant milestone in
banking, as we became a $1 billion asset company. This places us in a rather
elite group of companies. And, with the closing of the Bank Corporation merger,
Century South Banks now has 32 banking offices reaching from Copperhill in
southwestern Tennessee to Savannah in the coastal region of Georgia. This
widespread geographic distribution brings greater economic stability to our
company. It also provides us with significant expansion opportunities in the
areas that are in close proximity to our present service areas.
Our two "resource centers" in Dahlonega and Macon allow us to
effectively support our network of banks and their markets at both ends of the
state and will allow us to do the same for future acquisitions. We have made
adjustments at both sites to increase operating efficiency and to eliminate
duplications of efforts.
We are pleased with the appreciation in our stock price and our
increased trading volume over the course of the past year.
2
<PAGE>
- --------------------------------------------------------------------------------
"The merger allowed us to reach a rather significant milestone in
banking, as we became a $1 billion asset company."
- --------------------------------------------------------------------------------
We feel this speaks well to the market's acknowledgment of our company as a
leading community bank holding company. We have also been very pleased with the
increased favorable coverage received from analysts. In particular, the coverage
provided to our stock by Sterne, Agee & Leach, Inc. has been continual and very
much appreciated.
As we look to 1998 and beyond, these are our commitments to our major
constituents: our shareholders, employees and customers:
. To become the premier community bank holding company in the Southeast.
. To make our company the best investment in our shareholders' portfolio, the
best possible place to work for our employees and the best place to bank for our
customers.
. To develop effective risk management in all aspects of our business.
. To develop a total sales climate that will increase market share in each of
our communities.
In this year of change, we would like to give a special "thank you"
to those who served on the Century South Banks, Inc. and Bank Corporation of
Georgia boards prior to the merger. Their leadership and direction have been
most valuable over the years. We also extend a heartfelt thanks to our team of
over 600 very dedicated and talented men and women who work tirelessly to bring
us strong results and a promising future.
We also welcome our "new" Century South Banks, Inc. Board of
Directors consisting of William H. Anderson, II, Chairman; J. Russell Ivie, Vice
Chairman; James A. Faulkner, Vice Chairman and Chief Executive Officer; Joseph
W. Evans, President, Chief Operating Officer and Chief Financial Officer; James
R. Balkcom, Jr.; William L. Chandler; Thomas T. Folger, Jr.; Quill O. Healey;
Frank C. Jones; John B. McKibbon, III; and E. Paul Stringer. We welcome this
board and look forward to their direction and leadership.
While there were many pleasant and uplifting experiences in 1997, we
would be remiss if we did not pay tribute to two of our directors who passed
away during the course of the year. In July, we were saddened by the untimely
death of Roger Bennett. While having only served for about one and a half years,
Roger contributed greatly to our board, particularly as we negotiated and
entered into the merger. In September, Director Emeritus Erwin Owens passed
away. He had been a cornerstone in the foundation of Century South Banks, Inc.
and its predecessor, Bank of Dahlonega. Both of these fine gentlemen are sorely
missed.
We are sure you see that your company has changed much during the
past year, and will continue to do so in the years ahead.
As we hope you will conclude, after review of this annual report,
with these changes, we have truly gained a "new momentum." This momentum, we
feel, will take us to new heights of growth and enhancement of shareholder value
in 1998 and into the new millennium.
We appreciate your continued support and look forward to a great
future.
Sincerely,
/s/ James A. Faulkner /s/ Joseph W. Evans
James A. Faulkner Joseph W. Evans
Vice Chairman President,
and Chief Executive Officer Chief Operating Officer, and
Chief Financial Officer
[4 PICTURES APPEAR HERE]
3
<PAGE>
Momentum. It's the force that a moving body has because of its weight and
motion. Any business can be regarded as a moving body, as long as it has assets
(weight) and sales (motion). But can a business actually have momentum?
Certainly, but only when the right moves are made at the right time.
Merger Negotiations Lead To A Merger Agreement: The Momentum
Builds.
On March 31, 1997, the momentum of Century South Banks gained
considerable speed. On that day, Century South Banks signed an agreement to
merge with Bank Corporation of Georgia, a $300 million asset bank holding
company with ten locations in seven Georgia counties. Together, now there are 32
offices in 16 counties creating a state-wide presence in Georgia that extends
into Tennessee.
The new momentum created by this union brings new goals and new
strengths. Today, Century South's primary goal is to be the premier community
bank holding company in the Southeast with a superior return to our
shareholders; excellence to our customers; and rewarding careers to those who
make it happen.
The strengths of the two companies can make it possible to become
that premier company. Century South already had a very practical day-to-day
concept of operating banks and providing services. Bank Corporation brought an
extremely strong credit culture and sales culture. Senior management of the two
companies knew each other well and had complementary strengths. And, with both
companies having a realistic management approach and a community-bank
4
<PAGE>
[PICTURE APPEARS HERE]
[PICTURE APPEARS HERE]
[PICTURE APPEARS HERE] [PICTURE APPEARS HERE]
[PICTURE APPEARS HERE]
[PICTURE APPEARS HERE]
[PICTURE APPEARS HERE]
5
<PAGE>
[PICTURE APPEARS HERE]
[PICTURE APPEARS HERE] [PICTURE APPEARS HERE] [PICTURE APPEARS HERE]
6
<PAGE>
philosophy, the union was a natural.
The merger also means the company now has over $1 billion in total
assets in two states. This opens up new opportunities and creates a
diversification of markets that brings greater stability to our company. We can
be more efficient. We have more resources and capabilities to support our
markets, and to grow through acquisitions. Together we realize economies of
scale. For example, compared to the two companies operating separately, data
processing costs are anticipated to be on average 15% lower.
When you look at the new Century South Banks you'll see a company
better prepared to meet the challenges ahead.
Employee Training Means Greater Productivity, Greater Opportunity.
For the employees of Century South Banks, the merger will have a positive
impact. New opportunities will abound. More effective and more consistent
training is being developed. And, on the job, employees are finding a clearer
definition of responsibilities. This is a combination that leads to more
efficient and more productive employees. Ultimately, that means a more
successful company.
[5 PICTURES APPEAR HERE]
7
<PAGE>
We are continually working to re-deploy our people into positions
that more closely match their skills. Also, It is our plan to re-direct as much
bank activity as possible into back office areas that will allow our personnel
to more effectively interact with customers.
Not only is this preferable for our employees, it is also beneficial
to our customers. It is quite simple really. A happier, more effective employee
translates into a customer whose banking needs are better met.
The Kind Of Service Only Community Banks Can Offer.
Our momentum propels us forward. As a result, there have been many positive
changes at Century South Banks. Yet, one thing remains the same. That is our
unwavering commitment
[PICTURE APPEARS HERE]
8 [PICTURE APPEARS HERE]
<PAGE>
to being a community bank. We believe that the community bank focus is not
determined by size. It is quite simply how you conduct your day-to-day business.
It is our community banking philosophy that allows the employee to
clearly focus on customer service. And, in the communities we serve, we know
that people want a bank that takes pride in being a member of the community.
They also want a banking officer who values them and their relationship, and has
credit authority at the local level.
We are indeed relationship oriented and our employees are committed
to meeting each customer's banking needs. These are critical components in
reaching our goal of being the premier bank holding company in the Southeast.
[5 PICTURES APPEAR HERE]
9
<PAGE>
[PICTURE APPEARS HERE]
New Ways To Help The Families That Trust Us.
For the thousands of families that depend on us each day, our new momentum means
we are better able to meet their full range of banking needs. We will do this
through several means.
Currently, senior management at each bank is working on market
specific plans that will allow them to meet the unique needs of their particular
market. Century South management believes that there are four overall regions to
serve. They are the North Georgia/mountain region, the north metro region, the
middle Georgia region and the coastal region. There are opportunities in each
of these markets. To insure that we realize those opportunities, we will closely
monitor and measure the contributions of products, locations and individuals.
And, make improvements accordingly.
The Company will be implementing a program to target market families
and individuals with specific lifestyle banking needs through various database
marketing systems. This will allow us to better know our customers and their
particular needs. With the roles of branches changing and the fact that products
and services will increasingly be delivered directly to the customer, these
systems will play a critical role in realizing our opportunities and meeting the
needs of our customers.
Overall, Century South's standards are being raised. And, our
employees are pushing forward to a primary corporate goal of providing superior
customer service.
10
<PAGE>
[PICTURE APPEARS HERE]
[PICTURE APPEARS HERE]
[PICTURE APPEARS HERE]
[PICTURE APPEARS HERE]
[PICTURE APPEARS HERE]
11
<PAGE>
For Investors, Momentum Means Ongoing Performance.
As each piece falls into place, it will add up to a stronger company. Century
South Banks has both the determination and the resources to provide benefits to
the stockholder, services to the customer, and a positive work environment for
the employee.
Because the original two companies greatly complemented each other,
and, combined, now have a much stronger holding company that will facilitate
intercompany teamwork, the new Century South Banks is on a fast track to
achieving its goals.
In 1998, we will concentrate on the basic fundamentals of sound
banking. Strengthening the credit culture, controlling risk and maintaining a
conservative operation are high on the list. There will also be a strong
emphasis on sales culture development. In this increasingly competitive
business, these are critical to our success.
The investment community has reacted favorably to the merger. In
fact, in it's December 22, 1997, Equity Research report, Sterne, Agee & Leach
reported that "The new Century South has much to offer investors in terms of
size and location of its Georgia franchise, in our opinion."
The Company also has a strong capital position and a strong loan loss
reserve. And, there are increased opportunities for growth because of the new
size. There is a strong commitment throughout every area of the organization to
regularly reassess, refocus, and redeploy our resources. Even though this may
create periodic change, it will be change that will keep the momentum going.
Increased size and capabilities. Better opportunities. More
resources. Higher standards. Dynamic goals. Definitely, a new momentum. For
the investor, these mean the Company has the potential to generate stronger
returns. It's the kind of momentum that will successfully carry us forward
into the new millennium.
[PICTURE APPEARS HERE]
12
[PICTURE APPEARS HERE]
[PICTURE APPEARS HERE]
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Financial Review
C O N T E N T S
14 Selected Financial Data
15 Management's Discussion and Analysis
31 Independent Auditors' Report
32 Consolidated Balance Sheets
33 Consolidated Statements of Income
34 Consolidated Statements of Shareholders' Equity
35 Consolidated Statements of Cash Flows
36 Notes to Consolidated Financial Statements
58 Senior Officers and Directors of Affiliate Banks
62 Directors and Senior Officers of Century South Banks, Inc.
13
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Selected Financial Data
[BAR CHART APPEARS HERE]
'93 800
'94 917
'95 976
'96 1,051
'97 1,088
A S S E T S
$ millions
[BAR CHART APPEARS HERE]
'93 533
'94 593
'95 647
'96 688
'97 746
L O A N S
$ millions
[BAR CHART APPEARS HERE]
'93 696
'94 803
'95 851
'96 929
'97 960
D E P O S I T S
$ millions
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data and percentages)
1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Summary of Operations
Net interest income $ 50,458 $ 48,218 $ 44,411 $ 38,689 $ 33,832
Provision for loan losses 5,201 2,166 2,159 1,390 2,689
Net income 9,632 12,683 10,759 9,300 7,104
- ------------------------------------------------------------------------------------------------------------------------------------
Per Share Data
Net income - Basic 0.89 1.18 1.02 0.90 0.70
Net income - Diluted 0.87 1.15 1.00 0.88 0.68
Cash dividends declared 0.42 0.40 0.38 0.34 0.28
Book value 10.04 9.44 8.64 7.54 7.09
Tangible book value 9.37 8.70 7.91 6.70 6.33
- ------------------------------------------------------------------------------------------------------------------------------------
Balance Sheet Summary
Investment securities 178,804 192,937 193,398 196,207 162,327
Loans, net 746,392 688,431 647,352 592,860 532,812
Deposits 960,336 928,971 850,530 802,761 696,423
Assets 1,088,368 1,051,399 976,203 917,484 799,675
Long-term debt and other borrowings:
Federal Home Loan Bank advances 6,881 6,982 14,183 15,183 12,000
Other long-term debt 39 1,741 6,327 8,774 10,390
Other borrowings 1,500 -- 501 1,850 200
Average shareholders' equity 105,735 96,312 86,937 77,024 68,304
Average total assets 1,052,695 1,004,260 928,238 855,343 774,437
- ------------------------------------------------------------------------------------------------------------------------------------
Financial Ratios
Net income to average assets 0.91% 1.26% 1.16% 1.09% 0.92%
Overhead ratio (a) 3.03 2.80 2.95 3.03 2.83
Net income to average shareholders' equity 9.11 13.17 12.38 12.07 10.40
Dividend payout ratio (b) 37.04 24.32 21.41 17.46 17.47
Average shareholders' equity to
average total assets 10.04 9.59 9.37 9.01 8.82
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Represents noninterest expense less noninterest income divided by average
assets.
(b) Represents dividends declared (excluding those of pooled subsidiaries)
divided by net income.
14
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Introduction
Century South Banks, Inc. (the "Company") is a multibank holding company
providing a full range of banking services to individual and corporate customers
in the communities of its market areas which include the areas of northern,
middle and coastal Georgia, southeastern Tennessee, and southwestern North
Carolina. These areas are served through the Company's twelve banking affiliates
and their branch banks, (collectively the "Banks"). The Company's executive
offices are located at 60 Main Street West, Dahlonega, Georgia 30533 and its
telephone number is (706) 864-1111.
The Company was formed and became the Parent Company of Bank of
Dahlonega located in Dahlonega, Georgia in 1982 and has grown steadily ever
since.
On December 16, 1997, the Company merged with Bank Corporation of
Georgia ("BCGA"), a bank holding company located in Macon, Georgia and its
subsidiary banks, First South Bank, N.A. ("FSB"), Macon, Georgia and Ameribank,
N.A. ("AMB"), Savannah, Georgia. This transaction has been accounted for as a
pooling of interests, and accordingly, financial information preceding the date
of acquisition has been restated to include the financial position and results
of operations of BCGA, and its subsidiaries FSB and AMB.
Because of its ownership of all of the issued and outstanding shares of
the common stock of the Banks, the Company is a "Bank Holding Company" as that
term is defined under Federal law in the Bank Holding Company Act of 1956 (the
"Act"), as amended, and under the bank holding company laws of the State of
Georgia ("Georgia Act"). As a bank holding company, the Company is subject to
the applicable provisions of the Act and the Georgia Act as well as to
supervision by the Board of Governors of the Federal Reserve System (the
"Board") and the State of Georgia Department of Banking and Finance. The
Company's primary business as a bank holding company is to manage the business
affairs of its bank subsidiaries.
The Company's mission is to provide high quality banking services to
the communities of its service area while maximizing the return on its
shareholders' investments and assisting the communities of its service area in
reaching their fullest potential. The Company accomplishes and intends to
continue accomplishing this mission by expanding its customer base in existing
and new markets, and by expanding the range of banking services offered to its
existing customers.
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the Company's
consolidated financial statements and related notes.
Results of Operations
The Company's net income for the year ended December 31, 1997 was $9,632,000
compared to $12,683,000 for the year ended December 31, 1996, a decrease of
approximately $3,051,000 or 24%. The Company's diluted earnings per share were
$0.87, a decrease of $0.28 per share or 24% from diluted earnings per share for
the year ended December 31, 1996 of $1.15. The Company's emphasis on maintaining
its net interest margin resulted in an increase in net interest income of
$2,240,000. Additionally, noninterest income increased $716,000. Increases in
noninterest expense of $4,507,000 and increases in provision for loan losses of
$3,035,000 offset the increases in net interest income and noninterest income.
15
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
The following table summarizes the results of operations including
selected financial performance ratios of the Company for the three years ended
December 31, 1997:
(Amounts in thousands, except per share data) 1997 1996 1995
- --------------------------------------------------------------------------------
Interest income $90,806 $87,261 $82,327
Interest expense 40,348 39,043 37,916
---------------------------
Net interest income 50,458 48,218 44,411
---------------------------
Provision for loan losses 5,201 2,166 2,159
Noninterest income 10,409 9,693 8,533
Noninterest expense 42,256 37,796 35,883
Income tax expense 3,778 5,266 4,143
--------------------------
Net income $ 9,632 $12,683 $10,759
==========================
Earnings per common share:
Basic $ 0.89 $ 1.18 $ 1.02
==========================
Diluted $ 0.87 $ 1.15 $ 1.00
==========================
Weighted average common shares outstanding:
Basic 10,838 10,769 10,574
==========================
Diluted 11,101 11,001 10,739
==========================
Cash dividends declared per share $0.4175 $0.3975 $0.3776
==========================
Return on average assets 0.91% 1.26% 1.16%
==========================
Return on average equity 9.11 13.17 12.38
==========================
Shareholders' equity to assets (average) 10.04 9.59 9.37
==========================
Shareholders' equity to assets (period-end) 10.03 9.72 9.39
==========================
Dividend payout ratio (1) 37.04 24.32 21.41
==========================
(1) Determined by dividing dividends declared (excluding those of pooled
subsidiaries) by net income.
Net Interest Income
The Company's net interest income is its principal source of income. Interest
earning assets for the Company include loans, federal funds sold, interest
earning deposits in other banks, and investment securities. The Company's
interest bearing liabilities include deposits, federal funds purchased,
long-term debt, and short-term borrowings.
In 1997, net interest income was $50,458,000 representing an increase of
$2,240,000 or 4.65% as compared to 1996. The average yield earned on interest
earning assets decreased to 9.43% in 1997 from 9.59% in 1996 and the average
rate paid on interest bearing liabilities decreased to 4.93% in 1997 from 4.98%
in 1996. The Company's net interest margin (net interest income divided by
average interest earning assets), on a tax equivalent basis, decreased to 5.28%
for 1997 from 5.35% for 1996.
In 1996, net interest income was $48,218,000 representing an increase of
$3,807,000 or 8.57% as compared to 1995. The average yield earned on interest
earning assets decreased to 9.59% in 1996 from 9.70% in 1995 and the average
rate paid on interest bearing liabilities decreased to 4.98% in 1996 from 5.12%
in 1995. The Company improved its net interest margin (net interest income
divided by average interest earning assets), on a tax equivalent basis, to 5.35%
for 1996 from 5.29% for 1995.
16
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
The following table presents average balance sheets, yields and interest
earned on interest earning assets, and rates and interest paid on interest
bearing liabilities of the Company for the three years ended December 31, 1997.
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------- -------------------------------- ---------------------------------
(Amounts in thousands, Average Yields Average Yields Average Yields
except ratios) balances Interest /rates balances Interest /rates balances Interest /rates
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest earning assets:
Interest earning deposits $ 18,097 $ 818 4.52% $ 987 $ 61 6.18% $ 5,011 $ 276 5.51%
Federal funds sold 37,695 2,060 5.46 40,125 2,145 5.35 27,815 1,628 5.85
Taxable investment
securities 152,888 9,812 6.42 157,994 9,893 6.26 155,676 9,843 6.32
Nontaxable investment
securities (2) 41,033 3,061 7.46 43,479 3,424 7.88 44,030 3,551 8.07
Loans, net (1) (2) 722,718 75,911 10.50 676,909 72,668 10.74 626,345 68,016 10.86
-----------------------------------------------------------------------------------------------------
Total interest
earning assets 972,431 91,662 9.43 919,494 88,191 9.59 858,877 83,314 9.70
-----------------------------------------------------------------------------------------------------
Noninterest earning assets:
Cash and due from
banks 37,376 42,740 29,693
Premises and
equipment, net 27,467 25,755 23,748
Other assets 27,172 26,143 25,227
Allowance for
loan losses (11,956) (10,302) (9,531)
Unrealized gains
on investment
securities 205 430 224
-----------------------------------------------------------------------------------------------------
Total noninterest
earning assets 80,264 84,766 69,361
-----------------------------------------------------------------------------------------------------
Total assets $1,052,695 $1,004,260 $928,238
=====================================================================================================
Liabilities and
Shareholders' Equity
Interest bearing liabilities:
Interest bearing
demand deposits $ 225,899 $ 7,087 3.14% $ 195,725 $ 6,030 3.08% $173,803 $ 5,538 3.19%
Savings deposits 72,324 2,805 3.88 72,046 2,390 3.32 70,745 2,666 3.77
Individual retirement
accounts 62,547 3,757 6.01 59,492 3,561 5.99 53,589 3,120 5.82
Certificates of deposit 447,892 26,093 5.83 442,576 26,176 5.91 419,167 25,012 5.97
Federal funds purchased 833 30 3.60 1,232 63 5.11 644 42 6.52
Long-term debt and
other borrowings 8,920 576 6.46 13,332 823 6.17 22,214 1,538 6.92
----------------------------------------------------------------------------------------------------
Total interest bearing
liabilities 818,415 40,348 4.93 784,403 39,043 4.98 740,162 37,916 5.12
----------------------------------------------------------------------------------------------------
Noninterest bearing
liabilities and
shareholders' equity:
Noninterest bearing
deposits 119,675 113,050 90,751
Other liabilities 8,870 10,495 10,388
Shareholders' equity 105,735 96,312 86,937
----------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $1,052,695 $1,004,260 $928,238
====================================================================================================
Interest rate differential (3) 4.50% 4.61% 4.58%
====================================================================================================
Net interest income $ 51,314 $ 49,148 $ 45,398
====================================================================================================
Net interest margin (4) 5.28% 5.35% 5.29%
====================================================================================================
Average interest earning
assets to average
total assets 92.38% 91.56% 92.53%
====================================================================================================
Average loans to
average deposits 77.85% 76.67% 77.51%
=====================================================================================================
</TABLE>
(1) Average loans are shown net of unearned income. Nonperforming and
underperforming loans are included. Interest income includes loan fees as
follows (amounts in thousands): 1997 - $4,646; 1996 - $4,173; 1995 -
$3,740. Income, if recognized, on nonaccrual loans is recorded on a cash
basis.
(2) Interest income includes the effects of taxable equivalent adjustments
(reduced by the non-deductible portion of interest expense) using a federal
income tax rate of 35% in 1997 and 1996 and 34% in 1995.
(3) Interest rate differential is the average yield earned on interest earning
assets less the average rate paid on interest bearing liabilities.
(4) Net interest margin is net interest income divided by average interest
earning assets.
17
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
The following table presents the changes in the Company's net interest
income as a result of changes in volume and rate of its interest earning assets
and interest bearing liabilities from 1996 to 1997 and from 1995 to 1996.
<TABLE>
<CAPTION>
1997 vs. 1996 1996 vs. 1995
---------------------------- ------------------------------
(Amounts in thousands) (1) Volume Rate Net Volume Rate Net
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income:
Federal funds sold $ (133) $ 48 $ (85) $ 658 $ (141) $ 517
Interest earning deposits in other banks 774 (17) 757 (249) 34 (215)
Taxable investment securities (324) 243 (81) 144 (94) 50
Nontaxable investment securities (2) (183) (180) (363) (36) (91) (127)
Loans, net (2) 4,812 (1,569) 3,243 5,438 (786) 4,652
--------------------------------------------------------------
Total interest income 4,946 (1,475) 3,471 5,955 (1,078) 4,877
--------------------------------------------------------------
Interest expense:
Interest bearing demand deposits 985 72 1,057 674 (182) 492
Savings deposits 11 404 415 43 (319) (276)
Individual retirement accounts 184 12 196 353 88 441
Certificates of deposit 310 (393) (83) 1,418 (254) 1,164
Federal funds purchased (14) (19) (33) 28 (7) 21
Long-term debt and other borrowings (313) 66 (247) (530) (185) (715)
--------------------------------------------------------------
Total interest expense 1,163 142 1,305 1,986 (859) 1,127
--------------------------------------------------------------
Net interest income $3,783 $(1,617) $2,166 $3,969 $ (219) $3,750
==============================================================
</TABLE>
(1) The change in interest due to rate is calculated by multiplying the
previous volume by the rate change and the change in interest due to volume
is calculated by multiplying the change in volume by the previous rate. The
change in interest due to both rate and volume has been allocated to the
volume and rate components in proportion to the relationship of the
absolute dollar amounts of the change in each.
(2) Interest income includes the effects of taxable equivalent adjustments
(reduced by the non-deductible portion of interest expense) using a federal
income tax rate of 35% in 1997 and 1996 and 34% in 1995.
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
reasonably can be 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 1.63% of outstanding loans at
December 31, 1997 and 1.49% at December 31, 1996. The allowance increased to
$12,339,000 at December 31, 1997 from $10,414,000 at December 31, 1996. The
increase in the provision for loan losses to $5,201,000 in 1997 from $2,166,000
in 1996 was primarily a result of 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. Loan growth also contributed to
the increase in the provision for loan losses. Net loans charged off in 1997
were $3,276,000 or approximately 0.45% of average loans outstanding as compared
to $1,452,000 or 0.21% in 1996.
18
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
The allowance for loan losses approximated 1.49% of outstanding loans at
December 31, 1996 and 1.48% at December 31, 1995. The allowance increased to
$10,414,000 at December 31, 1996 from $9,700,000 at December 31, 1995. The
provision for loan losses increased slightly to $2,166,000 in 1996 from
$2,159,000 in 1995. Net loans charged off in 1996 were $1,452,000 or
approximately 0.21% of average loans outstanding as compared to $1,621,000 or
0.26% in 1995.
The following table summarizes the changes in the allowance for loan
losses arising from loans charged off and recoveries on loans previously charged
off by loan category, additions to the allowance which have been charged to
income in the Company's consolidated statements of income, additions resulting
from the allowance of an acquired subsidiary and deductions related to
allowances of sold portfolios for the years ended December 31:
<TABLE>
<CAPTION>
(Amounts in thousands, except ratios and percentages) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average loans outstanding, net of
unearned income $722,718 $676,909 $626,345 $570,800 $512,637
===================================================================
Allowance for loan losses
at beginning of year $ 10,414 $ 9,700 $ 9,162 $ 8,447 $ 7,450
Loans charged off:
Commercial, financial and agricultural 808 302 488 688 644
Real estate 1,379 486 753 226 691
Consumer installment 1,557 1,302 869 611 918
-------------------------------------------------------------------
Total loans charged off 3,744 2,090 2,110 1,525 2,253
-------------------------------------------------------------------
Recoveries on loans previously charged off:
Commercial, financial, and agricultural 110 54 106 87 280
Real estate 89 289 136 182 77
Consumer installment 269 295 247 277 204
-------------------------------------------------------------------
Total loans recovered 468 638 489 546 561
-------------------------------------------------------------------
Net loans charged off 3,276 1,452 1,621 979 1,692
Allowances for loan losses of loans sold -- -- -- (166) --
Provision for loan losses charged to income 5,201 2,166 2,159 1,390 2,689
Allowance for loan losses of
acquired subsidiary -- -- -- 470 --
-------------------------------------------------------------------
Allowance for loan losses
at end of year $ 12,339 $ 10,414 $ 9,700 $ 9,162 $ 8,447
===================================================================
Ratio of net loans charged off to
average loans outstanding, net of
unearned income .45% .21% .26% .17% .33%
===================================================================
Allowance for loan losses to
loans, net of unearned income 1.63% 1.49% 1.48% 1.52% 1.56%
===================================================================
</TABLE>
19
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Total charge offs increased by $1,654,000 in 1997 from 1996. This was
primarily due to management's identification of certain loans primarily at three
of the subsidiary banks for which the credit quality had deteriorated and the
adoption by the Company of the charge off policy followed by the BCGA banks.
Nonperforming Loans, Nonperforming Assets, and Underperforming Loans
Nonperforming loans include nonaccrual loans. The Company has not restructured
any loans of significance through December 31, 1997. Nonperforming assets
include nonperforming loans, real estate acquired through foreclosure, and other
repossessed assets. Underperforming loans consist of loans that are past due
with respect to principal or interest more than 90 days and still accruing
interest.
Accrual of interest on loans is discontinued when reasonable doubt
exists as to the full, timely collection of interest or principal or they become
contractually in default for 90 days or more as to either interest or principal
unless they are both well secured and in the process of collection. When a loan
is placed on nonaccrual status, previously accrued and uncollected interest for
the year in which the loan is placed on nonaccrual status is charged to interest
income on loans unless management believes the accrued interest is recoverable
through the liquidation of collateral.
Management is not aware of any loans classified for regulatory purposes
as loss, doubtful, substandard, or special mention that have not been disclosed
which 1) represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity,
or capital resources, or 2) represent material credits about which management is
aware of any information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment terms.
Nonperforming loans were $4,595,000 at December 31, 1997 compared to
$3,387,000 at December 31, 1996. Nonperforming loans represented 0.61% of total
loans at December 31, 1997 as compared to 0.48% of total loans at December 31,
1996. Nonperforming assets increased to $7,436,000 at December 31, 1997 as
compared to $6,575,000 at December 31, 1996. Nonperforming assets represented
0.98% of total loans, real estate acquired through foreclosure, and other
nonperforming assets at December 31, 1997 as compared to 0.94% at December 31,
1996.
Underperforming loans, consisting of loans past due 90 days or more
which are still accruing interest, are much more volatile and tend to fluctuate
more frequently based upon the timing of payment collection, transfer to
nonperforming status, or transfer to current status. Underperforming loans
increased to $2,535,000 at December 31, 1997 from $1,797,000 at December 31,
1996. Such loans represented 0.33% and 0.26% of total loans at December 31, 1997
and 1996, respectively.
20
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
The table below provides information concerning nonperforming loans,
nonperforming assets, and underperforming loans and certain asset quality ratios
at December 31 for each of the last five years.
<TABLE>
<CAPTION>
(Amounts in thousands, except ratios and percentages) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net loans $758,731 $698,845 $657,052 $602,022 $541,259
====================================================================
Allowance for loan losses $ 12,339 $ 10,414 $ 9,700 $ 9,162 $ 8,447
====================================================================
Nonperforming loans $ 4,595 $ 3,387 $ 2,793 $ 3,490 $ 3,528
Real estate acquired through foreclosure
and other nonperforming assets 2,841 3,188 2,701 2,781 3,474
---------------------------------------------------------------------
Nonperforming assets $ 7,436 $ 6,575 $ 5,494 $ 6,271 $ 7,002
=====================================================================
Underperforming loans - still accruing $ 2,535 $ 1,797 $ 1,746 $ 1,088 $ 2,343
=====================================================================
Asset quality ratios:
Nonperforming loans to total loans,
net of unearned income .61% .48% .43% .58% .65%
=====================================================================
Nonperforming assets to total loans,
net of unearned income, real estate
acquired through foreclosure, and
other nonperforming assets .98% .94% .84% 1.04% 1.29%
=====================================================================
Allowance for loan losses
to nonperforming loans 2.69x 3.07x 3.47x 2.63x 2.39x
=====================================================================
Underperforming loans to total loans,
net of unearned income .33% .26% .27% .18% .43%
=====================================================================
</TABLE>
Interest income on nonaccrual loans that would have been reported for
the years ended December 31, 1997, 1996, and 1995 is summarized as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest at contractual rate $1,615 $585 $722
Less interest recorded as income 1,406 334 153
-------------------------------------------
Reduction of interest income $ 209 $251 $569
===========================================
</TABLE>
The Company has allocated the allowance for loan losses according to the
amount deemed to be reasonably necessary to provide for the possibility of
losses being incurred within the categories of loans set forth in the table
below. This allocation is based on management's evaluation of the loan portfolio
under current economic conditions, past loan loss experience, adequacy and
nature of collateral, and such factors, which, in the judgment of management,
deserve recognition in estimating loan losses. Regulatory agencies, as an
integral part of their examination process, periodically review the Company's
allowances for losses on loans and real estate acquired through foreclosure and
other nonperforming assets. Such agencies may require the Company to recognize
additions to the allowances based on their judgments about information available
to them at the time of their examination. Because the allocation is based on
estimates and subjective judgment, it is not necessarily indicative of the
specific amounts or loan categories in which charge offs may occur.
21
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of the
Operations (continued)
The amounts of such components of the allowance for loan losses and the
ratio of each loan category total loans outstanding at December 31 are presented
below:
<TABLE>
<CAPTION>
(Amounts in thousands) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allocation of allowance for
loan losses by loan type: (1)
Commercial, financial and agricultural $ 1,353 $ 4,063 $3,769 $3,704 $2,809
Real estate 8,987 4,638 4,020 3,645 3,820
Consumer installment 1,999 1,713 1,911 1,813 1,818
---------------------------------------------------------------------------
Total $12,339 $10,414 $9,700 $9,162 $8,447
===========================================================================
Loan balances by type as a percentage
of total loans outstanding:
Commercial, financial and agricultural 18.2% 18.1% 18.8% 20.7% 20.9%
Real estate 70.1 69.1 67.4 65.8 65.5
Consumer installment 11.7 12.8 13.8 13.5 13.6
---------------------------------------------------------------------------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===========================================================================
</TABLE>
(1) General allowances are included in the above loan categories to which they
apply.
Noninterest Income
Noninterest income increased $716,000 or 7.4% in 1997 from 1996. Increases were
primarily in service charges on deposit accounts and mortgage loan origination
fees.
Noninterest income increased $1,160,000 or 13.6% in 1996 from 1995.
Increases were primarily in service charges on deposit accounts and net
securities gains (losses), which included the recovery of the principal of two
previously partially charged-off municipal securities of $272,000 and $187,000,
respectively.
Noninterest Expense
Noninterest expense increased $4,460,000 or 11.8% in 1997. Salaries and benefits
expenses increased $2,698,000 or 13.9% in 1997, representing growth in the
number of employees. Occupancy related expenses increased by $1,115,000.
Noninterest expense increased $1,913,000 or 5.3% in 1996. Salaries and
benefits expenses increased $1,411,000 in 1996. Occupancy related expenses
increased by $370,000. These increases were partially offset by lower FDIC
assessment fees in 1996.
Income Taxes
The Company provided income tax expense of $3,778,000, $5,266,000 and $4,143,000
or approximately 28.2%, 29.3%, and 27.1% of its income before income taxes in
1997, 1996, and 1995, respectively. The Company expects its effective income tax
rate to increase in 1998 due to a decrease in tax free income as a percentage of
total income due to the unavailability of high yielding bank qualified tax free
investments.
Loan Portfolio
During 1997, average loans net of unearned income increased from $677 million to
$723 million and comprised 74.3% of average interest earning assets and 68.7% of
average total assets. During 1996, average loans net of
22
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
unearned income increased from $626 million to $677 million and comprised
73.6% of average interest earning assets and 67.4% of average total assets. The
ratio of average loans to average deposits was 77.9%, 76.7% and 77.5% in 1997,
1996, and 1995, respectively.
The following table presents the composition of the Company's loan
portfolio by type at December 31 for each of the last five years.
<TABLE>
<CAPTION>
(Amounts in thousands) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural $138,324 $126,891 $123,584 $124,743 $113,491
Real estate - construction 86,086 81,811 66,472 57,744 31,123
Real estate - mortgage 446,333 402,038 377,699 337,809 319,985
Consumer installment 89,072 89,512 90,880 81,654 73,969
Mortgage loans held for sale -- -- -- 1,164 4,107
------------------------------------------------------------------------
Total loans 759,815 700,252 658,635 603,114 542,675
Unearned income 1,084 1,407 1,583 1,092 1,416
Allowance for loan losses 12,339 10,414 9,700 9,162 8,447
------------------------------------------------------------------------
Loans, net $746,392 $688,431 $647,352 $592,860 $532,812
========================================================================
</TABLE>
The following table shows the maturity of selected loan categories as of
December 31, 1997. Also provided are the amounts due after one year classified
according to the sensitivity in interest rates.
<TABLE>
<CAPTION>
Maturing
after one but within
(Amounts in thousands) Within one year five years After five years
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Commercial, financial and agricultural $66,891 $48,520 $22,913
Real estate - construction 68,887 11,369 5,830
Real estate - mortgage 143,205 194,331 108,797
================================================================
- ------------------------------------------------------------------------------------------------------------------------
Summary of above loans due after one year:
Total fixed rate due after one year $212,472
Total adjustable rate due after one year 179,288
--------
Total loans due after one year $391,760
========
</TABLE>
Actual repayments of loans may differ from the contractual maturities
reflected above because borrowers have the right to prepay obligations with and
without prepayment penalties. Additionally, the refinancing of such loans or the
potential delinquency of such loans could also cause differences between the
contractual maturities reflected above and the actual repayment of such loans.
Investment Securities
The Company's investment securities portfolio serves several essential
functions, such as providing a vehicle for the investment of available funds,
furnishing liquidity, and supplying securities to pledge as required for certain
deposits. As a result, the Company has segmented its investment securities
portfolio to identify those securities that could possibly be used in future
asset/liability restructuring (securities available for sale). Average
investment securities, which includes securities held to maturity and securities
available for sale, decreased $7,552,000 or 3.7% in 1997 compared to an increase
of $1,767,000 or 0.9% in 1996. During 1997 and 1996, average investment
securities comprised 19.9% and 21.9%, respectively, of average interest earning
assets and 18.4% and 20.1%, respectively, of average total assets.
23
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
At December 31, 1997, investment securities with fair value of
approximately $139 million were identified as securities available for sale.
These securities are recorded at fair value with net unrealized gains reflected
as a component of shareholders' equity.
The tables below present the carrying values and the relative
composition of investment securities, included in the available for sale and
held to maturity portfolios, at December 31, 1997, 1996, and 1995.
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------
Available for Sale Held to Maturity
(Amounts in thousands, Carrying % of total Carrying % of total
except percentages) value securities value securities
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and
U.S. Government agencies $ 96,407 53.9% $ 8,813 4.9%
State, county and municipal securities 11,492 6.4 27,630 15.5
Mortgage-backed securities 17,036 9.5 1,729 1.0
Other debt securities 7,887 4.4 2,040 1.2
Equity securities 5,770 3.2 -- --
-----------------------------------------------------------
Total investment securities $138,592 77.4% $40,212 22.6%
===========================================================
<CAPTION>
1996
-----------------------------------------------------------
Available for Sale Held to Maturity
(Amounts in thousands, Carrying % of total Carrying % of total
except percentages) value securities value securities
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and
U.S. Government agencies $ 92,820 48.1% $11,024 5.7%
State, county and municipal securities 14,724 7.6 28,211 14.6
Mortgage-backed securities 31,560 16.4 2,023 1.1
Other debt securities 4,859 2.5 2,305 1.2
Equity securities 5,411 2.8 -- --
-----------------------------------------------------------
Total investment securities $149,374 77.4% $43,563 22.6%
===========================================================
<CAPTION>
1995
-----------------------------------------------------------
Available for Sale Held to Maturity
(Amounts in thousands, Carrying % of total Carrying % of total
except percentages) value securities value securities
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury and
U.S. Government agencies $ 85,853 44.4% $16,759 8.7%
State, county and municipal securities 15,838 8.2 30,269 15.6
Mortgage-backed securities 28,394 14.7 3,305 1.7
Other debt securities 5,007 2.6 3,193 1.7
Equity securities 4,780 2.4 -- --
-----------------------------------------------------------
Total investment securities $139,872 72.3% $53,526 27.7%
===========================================================
</TABLE>
The Company and the Banks did not have investments with a single issuer
in the aggregate exceeding 10% of the Company's shareholders' equity at December
31, 1997, 1996 and 1995, except for the U.S. Treasury and U.S. Government
agencies securities as shown in the table above.
24
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
The following depicts contractual maturities and yields of the debt
securities included in the Company's investment securities portfolio at December
31, 1997. Expected maturities may differ from contractual maturities because
issuers may have the right to call or prepay obligations with and without call
or prepayment penalties.
<TABLE>
<CAPTION>
Maturing
------------------------------------------------------------------------------------
After one but After five but
Within one year within five years within ten years After ten years
------------------------------------------------------------------------------------
(Amounts in thousands, Carrying Carrying Carrying Carrying
except percentages) value Yield value Yield value Yield value Yield
- ------------------------------------------------------------------- ------------------------- --------------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for Sale (AFS):
U.S. Treasury and U.S.
Government agencies $30,615 6.28% $59,922 6.31% $ 5,070 6.34% $ 800 6.53%
State, county, and municipal
securities(1) 3,221 5.38 6,399 5.93 1,572 5.68 300 7.61
Mortgage-backed securities 2,102 5.35 11,464 6.51 1,986 7.32 1,484 7.78
Other debt securities 1,268 6.59 4,242 6.78 2,340 7.05 37 7.90
------- ------- ------- ------
Total debt securities-AFS $37,206 6.16% $82,027 6.33% $10,968 6.57% $2,621 7.38%
======= ======= ======= ======
Held to Maturity (HTM):
U.S. Treasury and U.S.
Government agencies $ 5,953 5.16% $ 2,860 5.98% $ -- --% $ -- --%
State, county, and municipal
securities (1) 2,945 4.61 12,052 5.31 11,238 5.58 1,395 6.42
Mortgage-backed securities 341 5.36 1,087 7.28 301 6.77 -- --
Other debt securities 101 7.43 -- -- 1,939 7.03 -- --
------- ------- ------- ------
Total debt securities-HTM $ 9,340 5.02% $15,999 5.57% $13,478 6.09% $1,395 6.42%
======= ======= ======= ======
</TABLE>
(1) Yields on state, county, and municipal securities have not been computed on
a tax equivalent basis.
Deposits
Average deposits increased $45 million or 5.1% to $928 million during 1997 from
$883 million during 1996.
Average deposits by type, their relationship to total average deposits,
and the average rate paid on deposits by type for the years ended December 31,
1997, 1996, and 1995, respectively, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------- ------------------------------ -----------------------------
% of % of % of
(Amounts in thousands, total total total
except percentages) Amounts deposits Rate Amounts deposits Rate Amounts deposits Rate
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest bearing
demand deposits $119,675 12.9% N/A $113,050 12.8% N/A $ 90,751 11.2% N/A
Interest bearing
demand deposits 225,899 24.3 3.14% 195,725 22.2 3.08% 173,803 21.5 3.19%
Savings deposits 72,324 7.8 3.88 72,046 8.2 3.32 70,745 8.8 3.77
Individual retirement
accounts 62,547 6.7 6.01 59,492 6.7 5.99 53,589 6.6 5.82
Certificates of deposit 447,892 48.3 5.83 442,576 50.1 5.91 419,167 51.9 5.97
------------------- ------------------- -------------------
Total average deposits $928,337 100.0% 4.28% $882,889 100.0% 4.32% $808,055 100.0% 4.41%
=================== =================== ===================
</TABLE>
25
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operations (Continued)
The contractual maturities of certificates of deposit and individual
retirement accounts of $100,000 or more as of December 31, 1997 are presented
below.
(Amounts in thousands)
------------------------------------------------------------
Three months or less $ 48,367
Over three months through six months 24,040
Over six months through twelve months 37,601
Over twelve months 20,397
---------
Total certificates of deposit and individual
retirement accounts of $100 or more $ 130,405
=========
The Company has analyzed the composition of its certificates of deposit
and individual retirement accounts of $100,000 or more and believes that less
than 50% of such deposits should be deemed "volatile" and thereby affect the
Company's liquidity. The "volatile" deposits are with governmental bodies in the
states or in the local communities in the markets that the Company and the Banks
serve. The remainder of these certificates of deposit and individual retirement
accounts are with individuals who reside in the local areas and with whom the
Banks have had consistent deposit relations for long periods of time.
Liquidity and Interest Rate Sensitivity
Liquidity management involves the matching of the cash flow requirements of
customers, either depositors withdrawing funds or borrowers needing loans, and
the ability of the Company to meet those requirements. Management monitors and
maintains appropriate levels of assets and liabilities so that maturities of
assets are such that adequate funds are provided to meet estimated customer
withdrawals and loan requests.
The Company's liquidity position depends primarily upon the liquidity of
its assets relative to its need to respond to short-term demand for funds caused
by withdrawals from deposit accounts and loan funding commitments. Primary
sources of liquidity are scheduled payments on the Company's loans and interest
on and maturities of its investments. Occasionally, the Company will sell
investment securities available for sale in connection with the management of
its income tax position and its interest sensitivity gap. Proceeds from such
sales amounted to approximately $7,351,000 during 1997 and represent another
source of liquidity to the Company. Principal payments on loans also provide the
Company with a source of liquidity. The Company may also utilize its cash and
due from banks, interest earning deposits in other banks and federal funds sold,
to meet liquidity requirements as needed. At December 31, 1997, the Company's
cash and due from banks were $43,146,000, its interest earning deposits in other
banks were $32,465,000, its federal funds sold were $33,870,000 and its
investment securities designated as available for sale were $138,592,000. All of
the above could be converted to cash on relatively short notice.
The Company also has the ability, on a short-term basis, to purchase
federal funds from other financial institutions. Presently, the Company has made
arrangements with commercial banks for short-term unsecured advances up to
approximately $43,050,000, in addition to $66,000,000 which is available to the
Company, subject to available collateral, in the form of additional Federal Home
Loan Bank advances.
The relative interest rate sensitivity of the Company's assets and
liabilities indicates the extent to which the Company's net interest income may
be affected by interest rate movements. The Company's ability to reprice assets
and liabilities in the same dollar amounts and at the same time minimizes
interest rate risks. One method of measuring the impact of interest rate changes
on net interest income is to measure, in a number of time frames, the interest
sensitivity gap, by subtracting interest sensitive liabilities from interest
sensitive assets, as reflected in the following table. Such interest sensitivity
gap represents the risk, or opportunity, in repricing. If more assets than
liabilities are repriced at a given time in a rising rate environment, net
interest income improves; in a declining rate environment, net interest income
deteriorates. Conversely, if more liabilities than assets are repriced while
interest rates are rising, net interest income deteriorates; if interest rates
are falling, net interest income improves.
26
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operation
(continued)
The Company's strategy in minimizing interest rate risk is to minimize
the impact of short-term interest rate movements on its net interest income
while managing its middle and long-term interest sensitivity gap in light of
overall economic trends in interest rates. The following table illustrates the
relative sensitivity of the Company to changing interest rates as of December
31, 1997.
<TABLE>
<CAPTION>
Repricing
------------------------------------------------------------------------------------
0-90 days 91-365 days One to five years Over five years
(Amounts in thousands, ---------- -------------------- --------------------- -------------------
except ratios) Current Current Cumulative Current Cumulative Current Cumulative
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest sensitive assets:
Loans $ 314,738 $ 257,784 $ 572,522 $ 172,801 $ 745,323 $ 13,408 $ 758,731
Investment securities (1) 16,033 33,527 49,560 95,609 145,169 26,652 171,821
Interest earning deposits in
other banks and federal
funds sold 66,236 99 66,335 -- 66,335 -- 66,335
-----------------------------------------------------------------------------------
Total interest sensitive
assets 397,007 291,410 688,417 268,410 956,827 40,060 996,887
-----------------------------------------------------------------------------------
Interest sensitive liabilities:
Interest bearing demand and
savings deposits 326,205 -- 326,205 -- 326,205 -- 326,205
Certificates of deposit and
individual retirement accounts
of $100 or more 48,367 61,641 110,008 20,397 130,405 -- 130,405
Other certificates of deposit and
individual retirement accounts 102,175 192,029 294,204 80,083 374,287 21 374,308
Federal funds purchased,
short-term borrowings and
long-term debt 7,724 76 7,800 404 8,204 376 8,580
-----------------------------------------------------------------------------------
Total interest sensitive
liabilities 484,471 253,746 738,217 100,884 839,101 397 839,498
-----------------------------------------------------------------------------------
Interest sensitivity gap $ (87,464) $ 37,664 $ (49,800) $ 167,526 $ 117,726 $ 39,663 $ 157,389
===================================================================================
Ratio of interest sensitive assets
to interest sensitive liabilities 0.82 1.15 0.93 2.66 1.14 100.91 1.19
===================================================================================
</TABLE>
(1) Amounts exclude unrealized gains (losses) on investment securities.
The Company's strategy is to maintain a ratio of interest sensitive
assets to interest sensitive liabilities in the range of .80 to 1.20 at the less
than one year time frame. At December 31, 1997, the Company has been able to
meet such objective, although over the one-year time frame a ratio of 0.93 could
result in a negative short-term impact on earnings should rates rise. The ratio
in the one-year time frame is significantly impacted by the classification of
all interest bearing demand and savings deposits as immediately rate sensitive
for purposes of this analysis. These accounts are generally less sensitive to
short-term interest rate movements. Derivative financial instruments, consisting
primarily of interest rate swaps and purchased floors, are components of the
Company's interest risk management profile. The Company uses these instruments
to limit its sensitivity to changes in interest rates and thus limit the
volatility of net interest income. Management currently believes its interest
sensitivity position is such that short-term interest rate movements would not
materially impact its net interest income.
Inflation
Inflation impacts the growth in total assets in the banking industry and causes
a need to increase equity capital at higher than normal rates to meet capital
adequacy requirements. The Company copes with the effects of inflation through
effectively managing its interest rate sensitivity gap position, by periodically
reviewing and adjusting its pricing of services to consider current costs, and
through managing its dividend payout policy relative to its level of net income.
The impact of inflation has been minimal to the Company in recent years.
Market Risk
Market risk is defined as the risk of loss arising from adverse changes in
market interest rates and prices. This risk of loss can result in either lower
fair values or reduced net interest income.
The Company's primary market risk exposure is currently in the interest
rate risk inherent in its lending and deposit taking activities. Within interest
rate risk, the Company is most vulnerable to changes in the short-term
27
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operation (Continued)
U.S. prime interest rate because of the nature of its loan portfolio yields. The
Company manages its interest rate risk through various tools, including
monitoring of its interest sensitivity gap and use of purchased interest rate
swaps and floors.
The following table provides information about the Company's on-balance
sheet financial instruments and derivative financial instruments used for
purposes other than trading that are sensitive to changes in interest rates. For
loans, investment securities, and liabilities with contractual maturities, the
table presents principal cash flows and related weighted-average interest rates
by contractual maturities as well as the Company's historical experience of the
impact of interest-rate fluctuations on the prepayment of mortgage-backed
securities. For interest bearing deposits that have no contractual maturity, the
table presents principal cash flows based on the Company's historical experience
and management's judgment, as applicable, concerning their most likely
withdrawal behaviors. For interest rate swaps and interest rate floors, the
table presents notional amounts and, as applicable, weighted-average interest
rates by contractual maturity date. Notional amounts are used to calculate the
contractual payments to be exchanged under the contracts.
Weighted-average variable rates represent the variable rates in effect at
December 31, 1997.
<TABLE>
<CAPTION>
Expected Maturity Date
There- Estimated
(in thousands) 1998 1999 2000 2001 2002 after Total Fair Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Investment Securities:
Fixed rate $ 39,543 30,529 27,589 24,375 8,620 22,535 $153,191 $155,345
Average interest rate 6.26% 6.18% 6.26% 6.03% 5.78% 6.45% 6.21%
Variable rate $ 6,898 2,696 1,350 1,250 750 5,686 $ 18,630 $ 18,630
Average interest rate 6.35% 6.53% 6.44% 6.35% 6.29% 6.38% 6.39%
Loans:
Fixed rate $136,195 64,951 72,890 20,728 32,205 35,744 $362,713 $360,424
Average interest rate 9.47% 9.64% 9.64% 9.88% 8.92% 9.05% 9.47%
Variable rate $151,163 30,765 34,084 8,921 17,026 154,059 $396,018 $396,018
Average interest rate 9.28% 9.58% 9.47% 9.85% 9.70% 9.72% 9.52%
Other Interest Bearing Assets:
Fixed rate $ 99 -- -- -- -- -- $ 99 $ 99
Average interest rate 6.05% -- -- -- -- -- 6.05%
Variable rate $ 66,236 -- -- -- -- -- $ 66,236 $ 66,236
Average interest rate 5.50% -- -- -- -- -- 5.50%
Liabilities
Interest bearing deposits and savings $ 2,500 2,800 5,000 5,000 5,000 305,905 $326,205 $326,205
Average interest rate 3.34% 3.34% 3.34% 3.34% 3.34% 3.34% 20.04%
Time Deposits:
Fixed rate $357,407 88,339 26,742 12,034 7,129 188 $491,839 $494,775
Average interest rate 5.71% 5.87% 6.25% 6.25% 6.35% 5.53% 5.79%
Variable rate $ 11,699 1,167 8 -- -- -- $ 12,874 $ 12,874
Average interest rate 5.92% 5.90% 5.95% -- -- -- 5.92%
Long-term debt:
Fixed rate $ 2,000 -- -- -- -- 920 $ 2,920 $ 3,352
Average interest rate 5.83% -- -- -- -- 7.42% 6.33%
Variable rate $ 2,000 2,000 -- -- -- -- $ 4,000 $ 4,000
Average interest rate 5.64% 5.64% -- -- -- -- --
Variable rate short-term
borrowings $ 1,660 -- -- -- -- -- $ 1,660 $ 1,660
Average interest rate 7.50% -- -- -- -- -- 7.50%
Interest Rate Derivatives
Interest rate swaps:
Pay variable - federal funds rate $ -- -- 15,000 -- -- -- $ 15,000 $ (10)
Average pay rate -- -- 5.52% -- -- -- 5.52%
Average receive rate -- -- 5.74% -- -- -- 5.74%
Pay variable - LIBOR $ 20,000 -- -- -- -- -- $ 20,000 $ 54
Average pay rate 5.88% -- -- -- -- -- 5.88%
Average receive rate 6.53% -- -- -- -- -- 6.53%
Purchased interest rate floors -
federal funds rate $ -- 30,000 80,000 -- -- -- $110,000 $ 185
Average strike rate -- 5.00% 4.75% -- -- -- 4.82%
</TABLE>
28
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operation
(Continued)
Cautionary Notice Regarding Forward-Looking Statements
This financial report contains forward-looking statements, including statements
regarding, among other items, (i) the Company's plans, intentions or
expectations, (ii) general competitive conditions, and (iii) the Company's
management information systems. This notice is intended to take advantage of the
"safe harbor" provided by the Private Securities Litigation Reform Act of 1995
with respect to such forward-looking statements. These forward-looking
statements involve a number of risks and uncertainties. Among others, factors
that could cause actual results to differ materially are the following:
fluctuations in interest rates, inflation, competition in the geographic
business areas in which the Company does business, development of trends in the
general economy; the highly competitive nature of the banking industry; the
dependence on key personnel who have been hired or retained by the Company;
changes in regulatory requirements which are applicable to the Company's
business; and the risk factors listed from time to time in the Company's reports
filed with the Securities and Exchange Commission, including but not limited to,
its Annual Reports on Form 10-K.
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 miscalculations causing
disruptions of operations. 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 compliance committee to conduct a
comprehensive review of its operational and financial systems to determine how
the year 2000 will impact operation of these systems. This committee has
developed a plan to identify all critical systems and develop solutions for all
systems that are found to not be Year 2000 compliant. 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. Fiserv Atlanta, Inc. which provides processing
for the Banks' core processing systems, has notified the Company that it expects
to be Year 2000 compliant by December 31, 1998. The Company is also in the
process of addressing any loan relationships that it believes could be
materially affected by the year 2000 issue.
Based on a preliminary study, the Company expects to spend approximately
$900,000 to $1,000,000 from 1998 through 1999 to modify its computer information
systems enabling proper processing of transactions relating to the year 2000 and
beyond. This estimate includes approximately $500,000 of costs that will be
recorded as capital expenditures and amortized. Project plans, precluding any
unforeseen delays, call for all critical issues to be identified and the needed
changes implemented and tested before the end of first quarter 1999.
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.
Market and Dividend Information
The Company's common stock trades on the Nasdaq Stock Market under the symbol
"CSBI". There were approximately 2,800 shareholders of record of the Company's
common stock at December 31, 1997.
29
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operation
(continued)
The following table sets forth the high and low prices and the cash
dividends declared on the Company's common stock by quarter for 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------------------------
Price Cash dividends Price Cash dividends
---------------- -----------------
Quarter Ended High Low declared High Low declared
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
March 31 $20.50 $17.75 .10250 $16.75 $13.75 .09750
June 30 20.00 18.00 .10375 15.25 13.50 .09875
September 30 20.38 18.00 .10500 17.50 14.50 .10000
December 31 25.00 19.75 .10625 19.00 16.25 .10125
</TABLE>
The Company expects to continue its policy of paying quarterly cash
dividends although there is no assurance that such dividends will continue to be
paid in the future. The payment of dividends in the future is dependent on
future income, financial position, capital requirements and other
considerations. In addition, the payment of dividends is subject to the
restrictions described in note 15 to the Company's consolidated financial
statements.
Summary of Quarterly Financial Data
Presented below is a summary of the unaudited consolidated quarterly financial
data for the years ended December 31, 1997 and 1996.
<TABLE>
<CAPTION>
(Amounts in thousands) Fourth Quarter Third Quarter Second Quarter First Quarter
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997:
Interest income $23,293 $22,873 $22,573 $22,067
Net interest income 12,877 12,834 12,393 12,354
Provision for loan losses 209 115 4,216 661
Income (loss) before income taxes 4,836 5,497 (1,052) 4,129
Net income (loss) 3,328 3,506 (68) 2,866
Net income (loss) per share:
Basic 0.31 0.32 (0.01) 0.27
Diluted 0.30 0.32 (0.01) 0.26
Weighted average common shares
outstanding:
Basic 10,838 10,838 10,833 10,829
Diluted 11,116 11,093 10,833 11,093
1996:
Interest income 21,960 21,897 22,044 21,360
Net interest income 12,307 12,183 12,315 11,413
Provision for loan losses 580 444 620 522
Income before income taxes 4,589 4,510 4,505 4,345
Net income 3,147 3,059 3,500 2,977
Net income per share:
Basic 0.29 0.29 0.32 0.28
Diluted 0.28 0.28 0.32 0.27
Weighted average common shares
outstanding:
Basic 10,847 10,740 10,818 10,595
Diluted 11,094 10,968 11,037 10,807
</TABLE>
30
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Independent Auditors' Report
The Board of Directors and Shareholders
Century South Banks, Inc.:
We have audited the accompanying consolidated balance sheets of Century
South Banks, Inc. and subsidiaries ("the Company") as of December 31, 1997 and
1996, and the related consolidated statements of income, shareholders' equity,
and cash flows for each of the years in the three-year period ended December 31,
1997. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits. We did not audit the
consolidated financial statements of Bank Corporation of Georgia and
subsidiaries as of and for the years ended December 31, 1996 and 1995, which
statements are combined with the consolidated financial statements of the
Company as a result of the 1997 pooling-of-interests described in note 2 to the
consolidated financial statements, and which statements reflect total assets
constituting 30 percent of the 1996 related consolidated amount and total net
interest income constituting 30 percent in both 1996 and 1995 of the related
consolidated amounts. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for Bank Corporation of Georgia and subsidiaries, is based
solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other
auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Century South Banks,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Atlanta, Georgia
January 23, 1998
31
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Balance Sheets
<TABLE>
<CAPTION>
December 31,
---------------------------------------
(Amounts in thousands, except share and per share data) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks (note 3) $ 43,146 $ 50,002
Federal funds sold 33,870 43,940
Interest earning deposits in other banks 32,465 19,319
Investment securities (note 4):
Available for sale 138,592 149,374
Held to maturity (fair value: 1997 - $41,153
and 1996 - $44,289) 40,212 43,563
Loans, net of unearned income (note 5) 758,731 698,845
Less allowance for loan losses 12,339 10,414
---------------------------------------
Loans, net 746,392 688,431
---------------------------------------
Premises and equipment, net (note 6) 26,849 28,173
Goodwill and other intangibles, net 7,284 8,035
Other assets (notes 7 and 10) 19,558 20,562
---------------------------------------
Total assets $ 1,088,368 $ 1,051,399
=======================================
Liabilities
Deposits:
Noninterest bearing demand deposits $ 129,418 $ 120,415
Interest bearing deposits (note 8) 830,918 808,556
---------------------------------------
Total deposits 960,336 928,971
Federal funds purchased 160 1,000
Other short-term borrowings (note 9) 1,500 -
Long-term debt (note 9) 6,920 8,723
Accrued expenses and other liabilities 10,314 10,491
---------------------------------------
Total liabilities 979,230 949,185
---------------------------------------
Shareholders' equity (notes 2, 9, 11, 15 and 16):
Common stock-$1 par value. Authorized 15,000,000 shares; issued
10,924,699 shares in 1997, 10,888,222 in 1996, and outstanding
10,865,800 shares in 1997 and 10,823,488 shares in 1996 10,925 10,888
Additional paid-in capital 34,282 34,051
Retained earnings 63,566 57,731
Unearned ESOP shares - (333)
Common stock in treasury (58,899 and 64,734 shares in 1997
and 1996, respectively), at cost (306) (337)
Net unrealized gains on investment securities 671 214
---------------------------------------
Total shareholders' equity 109,138 102,214
---------------------------------------
Commitments and contingencies (notes 5 and 12)
Total liabilities and shareholders' equity $ 1,088,368 $ 1,051,399
=======================================
</TABLE>
See accompanying notes to consolidated financial statements.
32
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Statements of Income
Years ended December 31,
--------------------------
(Amounts in thousands, except per share data) 1997 1996 1995
- --------------------------------------------------------------------------------
Interest income:
Loans, including fees $75,771 $72,540 $67,869
Federal funds sold 2,060 2,145 1,628
Interest on deposits in other banks 818 61 276
Investment securities:
Taxable 9,812 9,893 9,843
Nontaxable 2,345 2,622 2,711
---------------------------
Total interest income 90,806 87,261 82,327
---------------------------
Interest expense:
Deposits (note8) 39,742 38,157 36,336
Federal funds purchased 30 63 42
Long-term debt and other borrowings 576 823 1,538
---------------------------
Total interest expense 40,348 39,043 37,916
---------------------------
Net interest income 50,458 48,218 44,411
Provision for loan losses (note 5) 5,201 2,166 2,159
---------------------------
Net interest income after provision for
loan losses 45,257 46,052 42,252
---------------------------
Noninterest income:
Service charges on deposit accounts 5,834 5,451 4,970
Securities gains, net (note 4) 23 215 18
Other operating income (note 14) 4,552 4,027 3,545
---------------------------
Total noninterest income 10,409 9,693 8,533
---------------------------
Noninterest expense:
Salaries and employee benefits (note 11) 22,080 19,382 17,971
Occupancy and equipment expense, net 6,281 5,166 4,796
Other operating expenses (note 14) 13,895 13,248 13,116
---------------------------
Total noninterest expense 42,256 37,796 35,883
---------------------------
Income before income taxes 13,410 17,949 14,902
Income tax expense (note 10) 3,778 5,266 4,143
---------------------------
Net income $ 9,632 $12,683 $10,759
===========================
Net income per common share:
Basic $ 0.89 $ 1.18 $ 1.02
===========================
Diluted $ 0.87 $ 1.15 $ 1.00
===========================
Weighted average common shares outstanding:
Basic 10,838 10,769 10,574
===========================
Diluted 11,101 11,001 10,739
===========================
See accompanying notes to consolidated financial statements.
33
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Net
unrealized
Additional Unearned gains (losses)
(Amounts in thousands, Common paid-in Retained ESOP Treasury on investment
except per share data) stock (1) capital earnings shares stock (2) securities Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1994, $ 7,826 $ 28,780 $ 27,889 $ (261) $ (337) $(2,471) $ 61,426
as previously reported
Issuance of common
stock for acquisition
(note 2) 2,786 3,446 12,588 (301) -- (221) 18,298
------------------------------------------------------------------------------------------
Balance at
December 31, 1994,
as restated $ 10,612 $ 32,226 $ 40,477 $ (562) $ (337) $(2,692) $ 79,724
Cash dividends declared -
$0.3776 per share -- -- (2,303) -- -- -- (2,303)
Net income -- -- 10,759 -- -- -- 10,759
Exercise of stock options 66 218 -- -- -- -- 284
Net unrealized gains on
investment securities -- -- -- -- -- 3,783 3,783
Principal payments, net of proceeds,
on ESOP loan (note 11) -- -- -- 65 -- -- 65
Cash dividends of
pooled subsidiaries
prior to acquisition -- -- (573) -- -- -- (573)
------------------------------------------------------------------------------------------
Balance at
December 31, 1995 $ 10,678 $ 32,444 $ 48,360 $ (497) $ (337) $ 1,091 $ 91,739
Cash dividends declared -
$0.3975 per share -- -- (3,085) -- -- -- (3,085)
Net income -- -- 12,683 -- -- -- 12,683
Issuance of common stock
of pooled subsidiary
for acquisition 201 1,584 -- -- -- -- 1,785
Exercise of stock options 9 23 -- -- -- -- 32
Net unrealized losses on
investment securities -- -- -- -- -- (877) (877)
Principal payments on
ESOP loan (note 11) -- -- -- 164 -- -- 164
Cash dividends of
pooled subsidiary
prior to acquisition -- -- (227) -- -- -- (227)
------------------------------------------------------------------------------------------
Balance at
December 31, 1996 $ 10,888 $ 34,051 $ 57,731 $ (333) $ (337) $ 214 $102,214
Cash dividends declared -
$0.4175 per share -- -- (3,568) -- -- -- (3,568)
Net income -- -- 9,632 -- -- -- 9,632
Exercise of stock options 37 119 -- -- -- -- 156
Stock option tax benefit -- 38 -- -- -- -- 38
Issuance of stock under
incentive plan -- 74 -- -- 31 -- 105
Net unrealized gains on
investment securities -- -- -- -- -- 457 457
Principal payments on
ESOP loan (note 11) -- -- -- 333 -- -- 333
Cash dividends of
pooled subsidiary
prior to acquisition -- -- (229) -- -- -- (229)
------------------------------------------------------------------------------------------
Balance at
December 31, 1997 $ 10,925 $ 34,282 $ 63,566 $ -- $ (306) $ 671 $109,138
==========================================================================================
</TABLE>
(1) Common shares issued: 10,925 shares at December 31, 1997, 10,888 shares at
December 31, 1996, and 10,678 shares at December 31, 1995 and 1994.
(2) Common stock held in treasury: 59 shares at December 31, 1997 and 65 shares
at December 31, 1996, 1995 and 1994.
See accompanying notes to consolidated financial statements.
34
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------------
(Amounts in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 9,632 $ 12,683 $ 10,759
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 5,201 2,166 2,159
Write-downs and other (gains) losses on sale of other real estate (164) 89 232
Depreciation 2,908 2,278 2,218
Amortization and accretion, net 722 676 353
Minority interest in earnings of subsidiary -- 47 381
Securities gains, net (23) (215) (18)
Gain on sale of mortgage servicing rights -- (224) (375)
Deferred income tax benefit (902) (608) (67)
Decrease in mortgage loans held for sale -- -- 1,164
(Increase) decrease in other assets 1,789 (2,192) (1,937)
Increase (decrease) in accrued expenses and other liabilities (402) (881) 2,357
-------------------------------------
Net cash provided by operating activities 18,761 13,819 17,226
-------------------------------------
Cash flows from investing activities:
Proceeds from sales of investment securities available for sale 7,351 17,636 11,943
Principal collections and maturities of investment
securities available for sale 39,309 36,118 41,749
Principal collections and maturities of investment
securities held to maturity 5,259 11,568 12,630
Proceeds from maturities of interest earning deposits with banks 41,305 2,235 16,333
Purchases of investment securities held to maturity (1,785) (1,618) (11,820)
Purchases of investment securities available for sale (35,134) (64,041) (43,214)
Investment in interest earning deposits with banks (54,451) (21,101) (14,405)
Proceeds from sales of other real estate 2,103 645 1,673
Net increase in loans (65,340) (41,054) (59,394)
Purchase of premises and equipment (1,869) (6,151) (3,428)
Proceeds from sales of premises and equipment 285 105 512
Proceeds from sale of mortgage servicing rights -- 108 652
Net cash received from acquisition of branch -- 12,688 --
Cash paid to dissenting and fractional shareholders of subsidiaries
in connection with acquisitions of the subsidiaries -- (121) --
-------------------------------------
Net cash used in investing activities (62,967) (52,983) (46,769)
-------------------------------------
Cash flows from financing activities:
Net increase in deposits 31,365 61,751 47,769
Net increase (decrease) in federal funds purchased (840) 1,000 (80)
Proceeds from issuance of long-term debt and other borrowings 6,236 5,414 12,642
Payments on long-term debt and other borrowings (6,206) (17,538) (17,373)
Dividends paid to shareholders (3,431) (3,272) (2,626)
Proceeds from issuance of common stock 156 32 284
-------------------------------------
Net cash provided by financing activities 27,280 47,387 40,616
-------------------------------------
Net increase (decrease) in cash and cash equivalents (16,926) 8,223 11,073
Cash and cash equivalents at beginning of year 93,942 85,719 74,646
-------------------------------------
Cash and cash equivalents at end of year $ 77,016 $ 93,942 $ 85,719
=====================================
Supplemental disclosures of cash paid during the year for:
Interest $ 40,165 $ 39,738 $ 35,416
=====================================
Income taxes $ 5,201 $ 6,133 $ 4,410
=====================================
Supplemental schedule of noncash investing and financing activities:
Real estate acquired through foreclosure $ 3,962 $ 2,799 $ 2,864
=====================================
Real estate sold and financed by the Company $ 1,784 $ 1,712 $ 1,284
=====================================
Securities transferred from available for sale to
held to maturity at fair value $ -- $ -- $ 3,864
=====================================
Securities transferred from held to maturity to available for sale $ -- $ -- $ 1,786
=====================================
Net reduction in guaranteed ESOP loan recorded
in shareholders' equity $ 333 $ 164 $ 65
=====================================
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
Note 1. Summary of Significant Accounting Policies
The accounting and reporting policies of Century South Banks, Inc. and
subsidiaries ("the Company") conform to generally accepted accounting principles
and to general practices within the banking industry. The following is a
description of the more significant of those policies.
Business
The Company provides a full range of banking services to individual and
corporate customers through its banking subsidiaries in Georgia and Tennessee.
The Company is subject to competition from other financial institutions, is
subject to the regulations of certain Federal and state agencies, and undergoes
periodic examinations by those regulatory agencies.
Basis of Financial Statement Presentation
The consolidated financial statements include the accounts of Century South
Banks, Inc. ("Parent Company") and its wholly-owned bank subsidiaries. The
Company has twelve wholly-owned bank subsidiaries predominantly involved in
commercial banking activities. All significant intercompany accounts and
transactions are eliminated in consolidation.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the allowance for loan losses
and the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowances
for losses on loans and real estate acquired through foreclosure, management
obtains independent appraisals and reviews available market data such as
comparable sales and recent market trends through discussions with local real
estate professionals.
Cash and Cash Equivalents
Cash equivalents include due from banks and federal funds sold. Generally,
federal funds are sold for periods of less than 90 days.
Investment Securities
The Company has classified its investment securities in two categories:
available for sale and held to maturity. Held to maturity securities are those
securities for which the Company has the ability and intent to hold the security
until maturity. All other securities are classified as available for sale. The
classification of investment securities is determined at the date of purchase.
Available for sale securities are recorded at fair value. Held to maturity
securities are recorded at cost adjusted for the amortization or accretion of
premiums or discounts. Unrealized holding gains and losses, net of the related
income tax effects, on securities available for sale are excluded from earnings
and are reported as a separate component of shareholders' equity until realized.
Available for sale securities transferred into the held to maturity
category are recorded at fair value at date of transfer. The related unrealized
holding gain or loss at date of transfer is reported as a component of
shareholders' equity and is amortized over the remaining life of the security as
an adjustment of yield.
CenturySouthbanks
-----------------
36
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
Mortgage-backed securities held to maturity are recorded at their unpaid
principal balances, adjusted for unamortized premiums and unaccreted discounts.
Mortgage-backed securities available for sale are recorded at their estimated
fair value. Principal repayments received on mortgage-backed securities are
included in proceeds from maturities of investment securities in the
consolidated statements of cash flows for the available for sale securities and
held to maturity securities, as applicable.
A decline in the market value of any available for sale or held to maturity
security below cost that is deemed other than temporary results in a charge to
earnings and the establishment of a new cost basis for the security. At December
31, 1997, the Company did not have any securities with other than temporary
impairment for which a new cost basis had not been established.
Premiums and discounts are amortized or accreted over the life of the
related investment security as an adjustment to yield using the effective
interest method and prepayment assumptions. Dividend and interest income are
recognized when earned. Realized gains and losses for investment securities sold
are recognized on the settlement date and are derived using the specific
identification method for determining the cost of securities sold. The financial
statement impact of settlement date accounting versus trade date accounting is
immaterial.
Loans and Interest Income
Loans are recorded at principal amounts outstanding, net of unearned income,
purchase discounts and the allowance for loan losses. Interest income on loans
is recognized on a level yield basis.
Loan fees, net of certain direct origination costs, are deferred and
amortized over the estimated terms of the loans using a method which
approximates a level yield. Discounts on loans purchased are amortized into
income over the estimated terms of the loans using a method which approximates
level yield.
Loans on which the accrual of interest has been discontinued are designated
as nonaccrual loans. Accrual of interest on loans is discontinued when
reasonable doubt exists as to the full collection of interest or principal or
they become contractually in default for 90 days or more as to either interest
or principal unless they are both well secured and in the process of collection.
When a loan is placed on nonaccrual status, previously accrued and uncollected
interest for the year in which the loan is placed on nonaccrual status is
charged to interest income on loans with the balance, if any, charged to the
allowance for loan losses, unless management believes that the accrued interest
is recoverable through the liquidation of collateral. Nonaccrual loans may only
be returned to accruing status when, in management's judgement, they are
determined to be fully collectible.
Impaired loans are measured based on the present value of expected future
cash flows, discounted at the loan's effective interest rate, or at the loan's
observable market price, or the fair value of the collateral if the loan is
collateral dependent.
A loan is considered impaired when it is probable that the Company will be
unable to collect all amounts due according to the contractual terms of the loan
agreement. When the ultimate collectibility of an impaired loan's principal is
in doubt, cash receipts are applied under the contractual terms of the loan
agreement first to principal and then to interest income. Once the recorded
principal balance has been reduced to zero, future cash receipts are applied to
interest income, to the extent that interest has not been previously recognized.
Additional future cash receipts are recorded as recoveries of any amounts
previously charged off.
37
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
Allowance for Loan Losses
The allowance for loan losses is based on management's evaluation of the loan
portfolio under current economic conditions, past loan loss experience, adequacy
of collateral, and such other factors which in management's judgment, deserve
recognition in estimating loan losses. Loans are charged to the allowance when,
in the opinion of management, such loans are deemed to be uncollectible.
Subsequent recoveries are added to the allowance.
A substantial portion of the Company's loans is secured by real estate in
markets in northern, middle and coastal Georgia, southeastern Tennessee, and
southwestern North Carolina. In addition, a substantial portion of the Company's
real estate acquired through foreclosure is located in these same markets.
Accordingly, the ultimate collectibility of a substantial portion of the
Company's loan portfolio and the recovery of a substantial portion of the
Company's real estate acquired through foreclosure are susceptible to changes in
market conditions in these markets.
Management believes that the allowance for losses on loans is adequate.
While management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions, particularly in northern, middle and coastal Georgia, southeastern
Tennessee, and southwestern North Carolina. In addition, various regulatory
agencies, as an integral part of their examination process, periodically review
the Company's allowance for losses on loans. Such agencies may require the
Company to recognize additions to the allowance based on their judgments about
information available to them at the time of their examination.
Premises and Equipment
Premises and equipment, including the cost of purchased computer software, are
stated at cost less accumulated depreciation and amortization which are computed
using straight-line or accelerated methods over the estimated useful lives of
the related assets.
Real Estate Acquired Through Foreclosure
Real estate acquired through foreclosure is reported at the lower of cost or
fair value, adjusted for estimated selling costs. Fair value is determined on
the basis of current appraisals, comparable sales, and other estimates of value
obtained principally from independent sources. Any excess of the loan balance at
the time of foreclosure over the fair value of the real estate held as
collateral, as adjusted, is treated as a loan loss. Further deterioration in the
fair value of real estate acquired through foreclosure during the disposition
period is charged to other operating expenses.
Goodwill and Other Intangibles
Goodwill is being amortized using the straight-line method over periods ranging
from 15 to 20 years.
Other acquired intangible assets, such as core deposit premiums, are
amortized over the periods benefited, ranging from seven to twelve years.
Amortization periods for intangible assets are monitored to determine if
events and circumstances require such periods to be reduced. Goodwill and core
deposit premiums are reviewed for impairment on the basis of whether these
assets are fully recoverable from expected undiscounted cash flows of the
related businesses.
Derivative Financial Instruments
The Company uses derivative financial instruments to swap floating rate assets
or liabilities to fixed rate and to hedge the interest rate spread between
assets and liabilities. These transactions serve to better match the repricing
characteristics of various assets and liabilities, reduce spread risk, adjust
overall rate sensitivity and enhance net interest income.
Interest rate swaps, purchased floors, and purchased caps are accounted for
on an accrual basis, and the net interest differential, including premiums paid,
if any, is recognized as an adjustment to interest income or expense of the
related designated asset or liability. Changes in the fair values of the swaps,
purchased floors, or purchased caps are not recorded in the consolidated
statements of income because these agreements are being treated
CenturySouthbanks
-----------------
38
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
as a synthetic alteration of the designated assets or liabilities. The Company
considers its interest rate swaps to be a synthetic alteration of an asset or
liability as long as (i) the swap is designated with a specific asset or
liability or finite pool of assets or liabilities; (ii) there is a high
correlation, at inception and throughout the period of the synthetic alteration,
between changes in the interest income or expense generated by the swap and
changes in the interest income or expense generated by the designated asset or
liability; (iii) the notional amount of the swap is less than or equal to the
principal amount of the designated asset or liability; and (iv) the swap term is
less than or equal to the remaining term of the designated asset or liability.
The criteria for consideration of a floor or cap as a synthetic alteration of an
asset or liability are generally the same as those for a swap arrangement.
If the swap, floor, or cap arrangements are terminated before their
maturity, the net proceeds received or paid are deferred and amortized over the
shorter of the remaining contract life or the maturity of the designated asset
or liability as an adjustment to interest income or expense. If the designated
asset or liability is sold or matures, the swap agreement is marked to market
and the gain or loss is included in the gain or loss on the sale/maturity of the
designated asset or liability. Changes in the fair value of any undesignated
swaps, floors, and caps are included in other income in the consolidated
statements of income.
Income Taxes
The Company accounts for income taxes under the asset and liability method.
Deferred income tax assets and liabilities are recognized for the 40
CenturySouthbanks, Inc. and Subsidiaries Notes to Consolidated Financial
Statements (continued) future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred income tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred income tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the
enactment date.
Stock-Based Compensation
The Company accounts for its fixed stock option plans in accordance with the
provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees ("APB Opinion 25"), and related interpretations. As such,
compensation expense is recorded only to the extent that the market price of the
underlying stock at the date of grant exceeds the exercise price. In October
1995, Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation ("SFAS 123"), was issued. SFAS 123 allows entities to
continue to apply the provisions of APB Opinion 25 for recognizing stock-based
compensation expense in the basic financial statements. However, companies are
encouraged to adopt a new accounting method based on the estimated fair value of
stock-based compensation. Companies that do not follow the new fair value based
method are required to provide expanded disclosures in the notes to the
financial statements. The Company has elected to continue to apply the
provisions of APB Opinion 25 and follow the disclosure provisions of SFAS 123.
Earnings Per Share
In 1997, the Company adopted the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share ("SFAS 128"). SFAS 128 supercedes APB
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. SFAS 128 also requires dual presentation of
basic and diluted EPS on the face of the income statement for all entities with
complex capital structures. 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 263,000, 232,000, and
165,000 potential common shares for 1997, 1996, and 1995, respectively,
resulting from dilutive options assuming the exercise proceeds would be used to
repurchase shares pursuant to the treasury stock method.
39
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
Recent Accounting Pronouncements
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 ("SFAS
125"). SFAS 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and is to be
applied prospectively. SFAS 125 was amended by Statement of Financial Accounting
Standards No. 127, which defers the effective date of certain provisions of SFAS
125 until January 1, 1998. SFAS 125 provides accounting and reporting standards
for transfers and servicing of financial assets and extinguishments of
liabilities based on consistent application of a financial-components approach
that focuses on control. It distinguishes transfers of financial assets that are
sales from transfers that are secured borrowings. Effective January 1, 1997, the
Company adopted the applicable provisions of SFAS 125. The impact of the
adoption of SFAS 125 was not material to the Company's consolidated financial
statements. Additionally, the impact of the SFAS 125 provisions that are
effective in 1998 is not expected to be material to the Company's consolidated
financial statements.
In June 1997, the 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 a financial statement that is
displayed in equal prominence with the other 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" 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. SFAS 130 is effective for
both interim and annual financial statement periods beginning after December 15,
1997.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
("SFAS 131"). SFAS 131 supercedes Statement of Financial Accounting Standards
No. 14, FINANCIAL REPORTING IN SEGMENTS OF A BUSINESS ENTERPRISE, and
establishes new standards for the disclosures made by public business
enterprises to report information about operating segments in annual financial
statements and requires those enterprises to report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographical areas, and major customers. SFAS 131 is effective for financial
statement periods beginning after December 15, 1997.
Note 2. Business Combinations
On December 16, 1997, the Company merged with Bank Corporation of Georgia
("BCGA"), a bank holding company located in Macon, Georgia and its subsidiary
banks, First South Bank, N.A. ("FSB") based in Macon, Georgia and Ameribank,
N.A. ("AMB") based in Savannah, Georgia. The Company issued 3,069,993 shares of
its common stock in exchange for all of the issued and outstanding shares of
BCGA.
This acquisition has been accounted for as a pooling of interests and,
accordingly, financial information preceding the dates of acquisition has been
restated to include the financial position and results of operations of the
CenturySouthbanks
-----------------
40
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
acquired entity. The Company's consolidated financial statements for the years
ended December 31, 1997, 1996, and 1995 have been restated for the merger with
BCGA as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income:
Century South Banks, Inc. exclusive of pre-acquisition amounts $34,817 $33,661 $31,159
Bank Corporation of Georgia and subsidiaries (a) 15,641 14,557 13,252
-------------------------------
Total $50,458 $48,218 $44,411
===============================
Net Income:
Century South Banks, Inc. exclusive of pre-acquisition amounts $ 4,761 $ 9,370 $ 7,895
Bank Corporation of Georgia and subsidiaries (a) 4,871 3,313 2,864
-------------------------------
Total $ 9,632 $12,683 $10,759
===============================
</TABLE>
(a) The 1997 balances reflect the results of operations for the year ended
December 31, 1997, as the post-merger 1997 results are immaterial.
In June 1996, BCGA completed the acquisition of Effingham Bank & Trust
("Effingham") located in Rincon, Georgia. BCGA issued 204,928 shares (equivalent
of 276,653 Company shares) of its common stock in exchange for all of the issued
and outstanding shares of Effingham except for dissenting and fractional shares
for which BCGA paid $53,352 in cash. This acquisition has been accounted for as
a pooling of interests and, accordingly, financial information preceding the
dates of acquisition has been restated to include the financial position and
results of operations of the acquired entity.
As of March 1996, BCGA owned 67% of the common stock of AmeriCorp, Inc. the
parent company of AMB. In March 1996, BCGA acquired the minority interest in
AmeriCorp, Inc. and issued 149,215 shares (equivalent of 201,440 Company shares)
for all of the remaining outstanding shares of AmeriCorp, Inc. except for
dissenting and fractional shares, for which BCGA paid $67,432 in cash. This
acquisition was accounted for as a purchase.
In February 1996, AMB acquired certain assets and assumed certain
liabilities of the Bank South, N.A., Victory Drive branch in Savannah, Georgia.
Bank South paid to AMB $12,688,000 as consideration for this transaction. The
acquisition was accounted for as a purchase.
On December 27, 1995, the Company completed the acquisition of Bank of
Danielsville ("DAN") located in Danielsville, Georgia. The Company issued
784,000 shares of its common stock in exchange for all of the issued and
outstanding shares of DAN.
On December 14, 1995, the Company completed the acquisition of Peoples Bank
("PBL") located in Lavonia, Georgia. The Company issued 687,174 shares of its
common stock in exchange for all of the issued and outstanding shares of PBL.
On April 14, 1995, the Company completed the acquisition of Gwinnett
Bancorp, Inc. ("GBI"), a bank holding company located in Duluth, Georgia, and
its subsidiary bank, Gwinnett National Bank ("GNB"). The Company issued 668,217
shares of its common stock in exchange for all of the issued and outstanding
shares of GBI.
On April 14, 1995, the Company completed the acquisition of First Community
Bank of Dawsonville ("FCBD") located in Dawsonville, Georgia. The Company issued
808,066 shares of its common stock in exchange for all of the issued and
outstanding shares of FCBD.
The acquisitions of DAN, PBL, GBI, and FCBD have been accounted for as
poolings of interests and accordingly, financial information preceding the dates
of acquisition has been restated to include the financial position and results
of operations of these acquired entities.
Note 3. Restricted Cash
Aggregate reserves (in the form of deposits with the Federal Reserve Bank and
vault cash) of approximately $6,346,000 and $4,997,000 were maintained to
satisfy regulatory requirements as of December 31, 1997 and 1996, respectively.
41
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
Note 4. Investment Securities
The amortized cost, gross unrealized gains and losses, and estimated fair value
of available for sale and held to maturity securities by security type at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997
-----------------------------------------------------------------
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 $ 95,647 $ 837 $ (77) $ 96,407
State, county and municipal securities 11,240 270 (18) 11,492
Mortgage-backed securities 16,806 247 (17) 17,036
Other debt securities 7,916 43 (72) 7,887
Equity securities 5,673 121 (24) 5,770
----------------------------------------------------------------
$137,282 $1,518 $(208) $138,592
================================================================
Held to maturity:
U.S. Treasury and
U.S. Government agencies $ 8,813 $ 98 $ (18) $ 8,893
State, county and municipal securities 27,630 859 (94) 28,395
Mortgage-backed securities 1,729 27 (3) 1,753
Other debt securities 2,040 72 -- 2,112
----------------------------------------------------------------
$ 40,212 $1,056 $ (115) $ 41,153
================================================================
<CAPTION>
1996
-----------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
(Amounts in thousands) cost gains losses fair value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury and
U.S. Government agencies $ 92,505 $ 743 $(428) $ 92,820
State, county and municipal securities 14,427 378 (81) 14,724
Mortgage-backed securities 31,524 220 (184) 31,560
Other debt securities 4,911 17 (69) 4,859
Equity securities 5,384 100 (73) 5,411
----------------------------------------------------------------
$148,751 $1,458 $(835) $149,374
================================================================
Held to maturity:
U.S. Treasury and
U.S. Government agencies $ 11,024 $ 155 $ (53) $ 11,126
State, county and municipal securities 28,211 699 (162) 28,748
Mortgage-backed securities 2,023 30 (7) 2,046
Other debt securities 2,305 64 -- 2,369
----------------------------------------------------------------
$ 43,563 $ 948 $(222) $ 44,289
================================================================
</TABLE>
During 1995 and 1994, the Company transferred available for sale
securities with a fair value of $3,864,000 and $11,149,000, respectively, to the
held to maturity category. At the dates of transfer during 1995 and 1994, these
securities had unrealized losses of approximately $93,000 and $735,000,
respectively. The unamortized portion of such unrealized losses, included as a
component of amortized cost, approximated $213,000 and $353,000 at December 31,
1997 and 1996, respectively.
42
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
In April 1995, in conjunction with the acquisition of GBI and FCBD, the
Company transferred certain acquired held to maturity securities to the
available for sale category. These transfers were made to conform to the
Company's existing interest rate risk position under its asset liability
management policy. Such transfers consisted of investment securities with an
estimated fair value of $1,754,000 and an amortized cost of $1,786,000.
The amortized cost and estimated fair values of investment securities at
December 31, 1997, by contractual maturity are shown below. Actual maturities
may differ from contractual maturities because issuers may have the right to
call or prepay obligations with or without call or prepayment penalties.
Mortgage-backed securities and other investment securities which have prepayment
provisions are assigned to maturity categories based on their estimated average
lives.
Amortized Estimated
(Amounts in thousands) cost fair value
- --------------------------------------------------------------------------------
Available for sale:
Due in one year or less $ 37,101 $ 37,206
Due after one year through five years 81,160 82,027
Due after five years through ten years 10,763 10,968
Due after ten years 2,585 2,621
Equity securities 5,673 5,770
---------------------------
$137,282 $138,592
===========================
Held to maturity:
Due in one year or less $ 9,340 $ 9,490
Due after one year through five years 15,999 16,316
Due after five years through ten years 13,478 13,940
Due after ten years 1,395 1,407
---------------------------
$ 40,212 $ 41,153
===========================
Proceeds from sales of securities available for sale during 1997, 1996
and 1995 were $7,351,000, $17,636,000 and $11,943,000 respectively. Securities
gains, net for 1997, 1996 and 1995 included gross realized gains of
approximately $48,000, $248,000, and $42,000, and gross realized losses of
approximately $25,000, $33,000, and $24,000, respectively.
Securities with a carrying value of approximately $114,411,000 and
$100,332,000 at December 31, 1997 and 1996, respectively, were pledged to secure
public funds on deposit and for other purposes as required by law.
Note 5. Loans
Loans outstanding, by classification, are summarized as follows at December 31:
(Amounts in thousands) 1997 1996
- --------------------------------------------------------------------------------
Commercial, financial, and agricultural $138,324 $126,891
Real estate-construction 86,086 81,811
Real estate-mortgage 446,333 402,038
Consumer installment 89,072 89,512
---------------------------
759,815 700,252
Less: Unearned income 1,084 1,407
Allowance for loan losses 12,339 10,414
---------------------------
Net loans $746,392 $688,431
===========================
At December 31, 1997 and 1996, the Company was servicing commercial
loans for others totaling $10,318,000 and $12,011,000, respectively.
43
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
At December 31, 1997, outstanding commitments included commitments to
fund commercial, consumer, real estate-construction, and real estate-mortgage
loans of approximately $87,071,000. It is the opinion of management that such
commitments do not involve more than the normal risk of loss.
Transactions in the allowance for loan losses are summarized as follows
for the years ended December 31, 1997, 1996, and 1995.
<TABLE>
<CAPTION>
(Amounts in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at beginning of year $ 10,414 $ 9,700 $ 9,162
Provision charged to operating expense 5,201 2,166 2,159
Recoveries on loans previously charged off 468 638 489
Loans charged off (3,744) (2,090) (2,110)
--------------------------------------
Balance at end of year $ 12,339 $ 10,414 $ 9,700
======================================
</TABLE>
Nonaccrual loans amounted to $4,595,000 at December 31, 1997 and
$3,387,000 at December 31, 1996. The approximate effect on interest income of
nonaccrual loans for the years ended December 31, 1997, 1996, and 1995 is
summarized as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest at contractual rate $ 1,615 $ 585 $ 722
Less interest recorded as income 1,406 334 153
--------------------------------------
Reduction of interest income $ 209 $ 251 $ 569
======================================
</TABLE>
Impaired loans and related amounts included in the allowance for loan
losses at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------------------------------
Principal Principal
(Amounts in thousands) Balance Allowance Balance Allowance
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Impaired loans, with a related allowance $1,460 $ 463 $1,163 $ 400
Impaired loans, without allowance 6,512 -- 4,648 --
----------------------------------------------------
Total $7,972 $ 463 $5,811 $ 400
====================================================
</TABLE>
The allowance amounts were primarily determined using the fair value of
the related collateral.
The average recorded investment in impaired loans for the year ended
December 31, 1997 was $6,373,000. Interest income of approximately $765,000 was
recognized on impaired loans for the year ended December 31, 1997.
The average recorded investment in impaired loans for the year ended
December 31, 1996 was $6,298,000. The interest income on impaired loans for the
year ended December 31, 1996 was approximately $461,000.
The average recorded investment in impaired loans for the year ended
December 31, 1995 was $7,648,000. The interest income on impaired loans for the
year ended December 31, 1995 was approximately $355,000.
The Company has direct and indirect loans outstanding to certain
executive officers, directors, and principal holders of equity securities
(including their associates). All of these loans were made in the ordinary
course of business on substantially the same terms, including interest rate and
collateral, as those prevailing at the time for
44
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
comparable transactions with other persons, and did not involve more than the
normal credit risk or present other unfavorable features. The following is a
summary of such loans outstanding and the activity in these loans for 1997:
(Amounts in thousands)
---------------------------------------------------------------------------
Balance at December 31, 1996 $ 36,450
Adjustment due to changes in related parties (2,891)
--------
Adjusted balance at December 31, 1996 33,559
New loans 21,601
Repayments (17,386)
--------
Balance at December 31, 1997 $ 37,774
========
Note 6. Premises and Equipment
Premises and equipment at December 31, 1997 and 1996 are summarized as follows:
(Amounts in thousands) 1997 1996
- --------------------------------------------------------------------------------
Land $ 5,602 $ 5,541
Buildings and improvements 20,284 19,824
Furniture and equipment 19,327 18,000
Leasehold improvements 360 278
Construction in progress 252 993
-------------------------
45,825 44,636
Accumulated depreciation and amortization (18,976) (16,463)
-------------------------
$ 26,849 $ 28,173
=========================
Note 7. Real Estate Acquired Through Foreclosure
Real estate acquired through foreclosure, in the net amount of $2,803,000 and
$2,974,000 at December 31, 1997 and 1996, respectively, is included in other
assets.
Note 8. Interest Bearing Deposits
A summary of interest bearing deposits at December 31, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest bearing demand deposits $157,335 $141,351
Money market accounts 104,708 79,732
Savings deposits 64,162 71,244
Certificates of deposit and individual retirement accounts of $100 or more 130,405 127,209
Other individual retirement accounts 52,804 50,527
Other certificates of deposit 321,504 338,493
----------------------
$830,918 $808,556
======================
</TABLE>
Interest expense on certificates of deposit and individual retirement
accounts of $100,000 or more was approximately $5,851,000, $7,151,000, and
$6,983,000, for the years ended December 31, 1997, 1996, and 1995, respectively.
45
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
Note 9. Long-Term Debt and Short-Term Borrowings
Short-term borrowings at December 31, 1997 and 1996 consist of the following:
<TABLE>
<CAPTION>
(Amounts in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Credit facility with a bank at prime less 100 basis points with
maximum borrowing of up to $15,000; interest payable monthly;
maturing January 30, 1998; secured by the common stock of
three bank subsidiaries $1,500 $ -
==============================
</TABLE>
A summary of long-term debt at December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Parent Company:
Note payable to a bank in annual installments of $300
with interest payable quarterly at prime rate and
secured by the common stock of two bank subsidiaries $ - $1,500
Parent Company guaranteed ESOP promissory notes at
prime + 1/2%, secured by common stock held by the ESOP - 137
Subsidiaries:
Credit facilities with Federal Home Loan Banks with maximum
borrowings of up to $66,000, secured by qualified real estate loans:
Fixed rate of 7.74%, with monthly principal payments of $8,
maturing September 1, 2006 881 982
Fixed rate of 5.83%, maturing January 2, 1998 2,000 2,000
Variable rate based on monthly LIBOR with $2,000 maturing on
December 28, 1998 and $2,000 maturing on January 13, 1999 4,000 4,000
Other notes payable and capital lease obligations payable, with
a weighted average interest rate of 9.61%, maturing at
various dates, through 2000. 39 104
------------------------------
Total long-term debt $6,920 $8,723
==============================
</TABLE>
The provisions of the loan and security agreements associated with
certain of the promissory notes restrict, within specified limits, the Company
from, among other things, incurring borrowings and the sale or transfer of
assets without prior written consent. At December 31, 1997, the Company was in
compliance with the covenants of the aforementioned loan and security
agreements.
Required principal payments on long-term debt for years subsequent to
December 31, 1997 are: 1998 - $4.1 million; 1999 - $2.1 million; 2000 - $0.1
million; 2001 - $0.1 million; and $0.5 million thereafter.
Note 10. Income Taxes
The components of income tax expense (benefit) are as follows:
(Amounts in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
Current:
Federal $4,472 $5,617 $4,127
State 208 257 83
---------------------------------------
4,680 5,874 4,210
---------------------------------------
Deferred:
Federal (768) (518) (54)
State (134) (90) (13)
---------------------------------------
(902) (608) (67)
---------------------------------------
$3,778 $5,266 $4,143
=======================================
46
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
The following is a summary of the differences between the income tax
expense as shown in the consolidated statements of income and income tax expense
that would result from applying the statutory Federal income tax rate of 35% in
1997, 35% in 1996 and 34% in 1995 to income before income taxes.
<TABLE>
<CAPTION>
(Amounts in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense $ 4,693 $ 6,282 $ 5,067
Increase (decrease) resulting from:
Tax-exempt interest (841) (903) (909)
Amortization of goodwill and other intangibles 154 134 129
Acquisition costs 83 31 119
State income tax, net of federal income tax benefit 48 108 46
Changes in valuation allowance -- (552) (483)
Other, net (359) 166 174
--------------------------------
$3,778 $5,266 $4,143
================================
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred income tax assets and deferred income tax liabilities
at December 31, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
(Amounts in thousands) 1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Allowance for losses on real estate acquired through foreclosure $ 110 $ 90
Deferred compensation 238 190
Allowance for loan losses 3,979 3,011
Unearned income 92 79
Net operating losses 1,537 1,925
Tax credits 124 --
Other 92 --
-------------------
Total gross deferred income tax assets 6,172 5,295
-------------------
Deferred income tax liabilities:
Net unrealized gains on investment securities 422 56
Depreciation 937 1,068
Other, net 156 50
-------------------
Total gross deferred income tax liabilities 1,515 1,174
-------------------
Net deferred income tax assets $4,657 $4,121
===================
</TABLE>
There was no valuation allowance for deferred tax assets at December 31,
1997 or 1996. During 1996, the Company reduced its valuation allowance by
$551,956.
In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected future
taxable income, and tax planning strategies in making this assessment. Based
upon the level of historical taxable income and projections for future taxable
income over the periods in which the temporary differences resulting in the
deferred tax assets are deductible, management believes it is more likely than
not that the Company will realize the benefits of these deductible differences.
Consolidated Federal and Georgia tax net operating losses, approximating
$3,365,000 and $7,715,000 at December 31, 1997, respectively, are available to
offset future consolidated taxable income. The use of these carryforwards is
limited to future consolidated taxable earnings and to annual limitations
imposed by the Internal Revenue Code. The Company may use no more than
$1,007,000 annually of its remaining Federal and State of Georgia net operating
losses which begin to expire in 2003.
47
<PAGE>
Century Southbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
Note 11. Employee Benefits
(a) Employee Benefit Plans
The Company provides a contributory, trusteed 401(k) profit sharing and employee
stock ownership plan to substantially all full-time employees. Additionally,
certain defined contribution plans of acquired subsidiaries will be merged into
the Company's plans during 1998. Accordingly, the following information combines
the respective acquired subsidiaries' plans compensation expense with the
Company's contribution expense. At December 31, 1997, the plans had extinguished
all debt incurred to purchase shares of the Company's common stock and all
shares had been released to plan participants. Annual employer contributions to
the plans are determined at the discretion of the Board of Directors of the
Company and its subsidiaries. Aggregate contributions and compensation expense
relating to the plans was approximately $512,000, $473,000, and $492,000 in
1997, 1996, and 1995, respectively.
(b) Stock Option Plans
In April 1994, the Company adopted the Century South Banks, Inc. Incentive Stock
Option Plan ("ISOP") under which the Compensation Committee of the Board of
Directors has the authority to grant stock options to key employees of the
Company. Five hundred thousand shares of common stock are reserved for issuance
under the ISOP. Recipients of the options are fully vested upon grant of the
options or over periods ranging from one to ten years. Options are granted with
exercise prices at least equal to the fair value of a share of stock on the
grant date and with a maximum term of ten years.
BCGA had a fixed stock option plan under which stock options were
granted with exercise prices approximating market value of its common stock at
the grant date. Outstanding options under this plan were exchanged for options
for Company common stock on an equivalent basis to shares exchanged in
connection with the merger discussed in note 2. Such options vest over periods
ranging from two to five years and have a maximum term of ten years.
A summary of the status of the Company's ISOP and other fixed stock
option plans as of December 31, 1997, 1996, and 1995 and changes during the
years ended on those dates is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Fixed Stock Options
Outstanding at beginning of year 375,318 $5.72 327,098 $4.98 378,858 $4.55
Granted 33,375 18.30 57,501 9.24 18,562 6.20
Exercised (36,222) 4.31 (9,281) 3.58 (66,779) 4.25
Cancelled -- -- -- -- (3,543) 5.50
--------------------------------------------------------------------------------
Outstanding at end of year 372,471 $7.00 375,318 $5.72 327,098 $4.98
================================================================================
Options exercisable at year-end 296,065 $5.22 313,725 $4.79 261,288 $4.80
================================================================================
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Weighted
Weighted Average
Range of Average Remaining
Number Outstanding Number Exercisable Exercise Prices Exercise Price Contractual Life
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
276,587 276,587 $ 4.29 to 6.33 $ 5.08 3.7 years
50,359 19,478 7.41 to 12.00 8.80 6.2 years
45,525 -- 12.22 to 19.25 16.74 9.4 years
</TABLE>
48
<PAGE>
Century Southbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
The per share weighted-average fair value of stock options granted during
1997, 1996, and 1995 was $7.23, $5.33, and $2.16, respectively, using the Black
Scholes option-pricing model with the following weighted-average assumptions:
expected life of nine years, expected dividend yield of 2.55%, risk free
interest rate of 5.70%, and an expected volatility of 31.14%, 29.60%, and
32.66%, for each of the years ended December 31, 1997, 1996, and 1995,
respectively.
The Company applies the provisions of APB Opinion No. 25 in accounting
for the fixed stock option plans and accordingly, compensation costs using the
fair-value based method provided by SFAS 123 for the options granted during the
three years ended December 31, 1997 have not been recognized in the accompanying
consolidated financial statements. Had the Company determined compensation cost
based on the fair value at the grant date for its stock options under SFAS 123,
the Company's net income would have been reduced to the pro forma amounts
indicated below:
Years ended December 31, 1997 1996 1995
- --------------------------------------------------------------------------------
Net income (in thousands):
As reported $9,632 $12,683 $10,759
Pro forma 9,581 12,545 10,749
Diluted net income per share:
As reported $ 0.87 $ 1.15 $ 1.00
Pro forma $ 0.86 $ 1.14 $ 1.00
Pro forma amounts reflect only options granted in 1997, 1996, and 1995.
The full impact of calculating compensation cost for stock options under SFAS
123 is not reflected in the pro forma net income amounts presented above. The
pro forma net income amounts above do not include compensation cost for options
granted prior to January 1, 1995.
Note 12. Commitments and Contingencies
In the normal course of business, the Company's various subsidiaries have
entered into commitments to extend credit which are not reflected in the
accompanying consolidated financial statements, including approximately
$2,946,000 under standby letters of credit at December 31, 1997. It is the
opinion of management that such commitments do not involve more than the normal
risk of loss.
The Company and its subsidiaries are involved in various claims and
legal actions arising in the ordinary course of business. In the opinion of
management, based in part on the advice of counsel, the ultimate disposition of
these matters will not have a material adverse impact on the Company's
consolidated financial position or results of operations.
Note 13. Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments ("SFAS 107"), requires that the Company disclose
estimated fair values for its financial instruments. Fair value estimates,
methods, and assumptions are set forth below for the Company's financial
instruments.
Cash and Due From Banks, Interest Earning Deposits in Other Banks, Federal Funds
Sold and Purchased, and Short-term Borrowings
The carrying amount of these instruments approximates fair value because of the
short-term maturities of these instruments.
49
<PAGE>
Century Southbanks and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
Investment Securities
The fair value of investment securities, except certain state and municipal
securities, is estimated based on published bid prices or bid quotations
received from securities dealers. The fair value of certain state and municipal
securities is not readily available through market sources other than dealer
quotations, so fair value estimates are based on quoted market prices of similar
instruments, adjusted for differences between the quoted instruments and the
instruments being valued.
The following table presents information on the fair value of investment
securities:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-----------------------------------------------
Carrying Estimated Carrying Estimated
(Amounts in thousands) amount fair value amount fair value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment securities available for sale $138,592 $138,592 $149,374 $149,374
Investment securities held to maturity 40,212 41,153 43,563 44,289
-----------------------------------------------
$178,804 $179,745 $192,937 $193,663
===============================================
</TABLE>
Derivatives
The fair value of interest rate swap agreements and purchased floors is obtained
from dealer quotes. These values represent the estimated amount that the Company
would receive or pay to terminate the contracts or agreements, taking into
account current interest rates, and when appropriate, the creditworthiness of
the counterparties.
The following table presents information on the fair value of
derivatives:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-----------------------------------------------
Carrying Estimated Carrying Estimated
(Amounts in thousands) amount fair value amount fair value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate swap agreements $ -- $ 44 $ -- $ 225
Purchased interest rate floors 219 185 111 213
-----------------------------------------------
$ 219 $ 229 $ 111 $ 438
===============================================
</TABLE>
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. The fair value of loans is calculated by discounting scheduled
cash flows through the estimated maturity using estimated market discount rates
that reflect the credit and interest rate risk inherent in the loan. The
estimate of maturity is based on the Company's historical experience with
repayments for each loan classification, modified, as required, by an estimate
of the effect of the current economic and lending conditions.
The following table presents information on the fair value of loans:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-----------------------------------------------
Carrying Estimated Carrying Estimated
(Amounts in thousands) amount fair value amount fair value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and consumer real estate related $532,419 $530,039 $483,759 $482,327
All other loans 227,396 226,403 216,493 215,070
Unearned income (1,084) -- (1,407) --
Allowance for loan losses (12,339) -- (10,414) --
-----------------------------------------------
$746,392 $756,442 $688,431 $697,397
</TABLE>
Deposit Liabilities
Under SFAS 107, the fair value of deposits with no stated maturity, such as
noninterest bearing demand deposits, savings accounts, NOW accounts, and money
market accounts, is equal to the amount payable on demand. The fair value of
certificates of deposit and individual retirement accounts is based on the
discounted value of contractual cash flows. The discount rate is estimated using
the rates currently offered for deposits of similar remaining maturities.
50
<PAGE>
Century Southbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
The following table presents information on the fair value of deposits:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-----------------------------------------------
Carrying Estimated Carrying Estimated
(Amounts in thousands) amount fair value amount fair value
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest bearing demand deposits $129,418 $129,418 $120,415 $120,415
Savings and NOW accounts 221,497 221,497 212,595 212,595
Money market accounts 104,708 104,708 79,732 79,732
Certificates of deposit and individual
retirement accounts:
Maturing within twelve months or less 384,387 385,746 378,091 379,848
Maturing beyond one year 120,326 121,903 138,138 139,647
-----------------------------------------------
$960,336 $963,272 $928,971 $932,237
===============================================
</TABLE>
The fair value estimates do not include the benefit that results from
the low cost funding provided by the deposit liabilities compared to the cost of
borrowing funds in the credit markets. The table below presents at December 31,
1997 and 1996, the fair value by which the Company's assets would increase if
the fair value of the deposit base intangibles was included in the accompanying
consolidated balance sheets.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-------------------------------------------
Estimated Estimated
(Amounts in thousands) (unaudited) fair value fair value
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Core deposit intangible $28,382 $24,500
Less: Recorded amounts 1,287 1,600
-------------------------------------------
Net increase in fair value $27,095 $22,900
===========================================
</TABLE>
LONG-TERM DEBT
The fair value of the Company's long-term debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturities. At December 31, 1997 and
1996, the fair value of the long-term debt was $7,352,000 and $9,135,000,
respectively. At December 31, 1997 and 1996, the carrying amount of long-term
debt was $6,920,000 and $8,723,000, respectively.
Commitments
The fair value of commitments to extend credit to fund commercial, consumer,
real estate-construction, and real estate-mortgage loans is equal to the
carrying amount of commitments outstanding at December 31, 1997 and 1996, which
is not significant. This is based on the fact that the Company generally does
not offer lending commitments to its customers for long periods and, therefore,
the underlying rates of the commitments approximate market rates.
Limitations
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets that are not considered
financial instruments include deferred income tax assets, premises and
equipment, and goodwill and certain intangibles. In addition, the tax
ramifications related to the realization of the unrealized gains and losses can
have a significant effect on fair value estimates and have not been considered
in any of the estimates.
51
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
Note 14. Supplementary Income Statement Information
Components of other operating income and expenses in excess of 1% of total
income for any of the respective years are as follows:
<TABLE>
<CAPTION>
(Amounts in thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Income associated with originating, servicing, and
selling mortgage loans $1,391 $ 804 $ 839
Expenses:
Regulatory agency fees and insurance assessments 394 329 1,244
Computer services 1,021 909 796
Stationery and supplies 960 1,039 1,107
</TABLE>
Rental expense on computers, buildings and office equipment, including
cancelable leases, was $805,000, $589,000, and $584,000 for the years ended
December 31, 1997, 1996, and 1995, respectively.
Note 15. Condensed Financial Information of Century South Banks, Inc. (Parent
Only)
<TABLE>
<CAPTION>
Condensed Balance Sheets
December 31,
------------------------
(Amounts in thousands) 1997 1996
- ------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash $ 2,138 $ 946
Investment in consolidated bank subsidiaries, at equity 101,869 95,866
Investment securities 282 272
Premises and equipment, net 472 300
Goodwill, net 5,451 5,929
Other intangible assets, net 291 359
Other assets 814 1,846
-----------------------
Total assets $111,317 $105,518
=======================
Liabilities
Long-term debt $ -- $ 1,637
Other borrowings 1,500 --
Other liabilities 679 1,667
-----------------------
Total liabilities 2,179 3,304
-----------------------
Shareholders' equity
Common stock 10,925 10,888
Additional paid-in capital 34,282 34,051
Retained earnings 63,566 57,731
Unearned ESOP shares -- (333)
Common stock in treasury (306) (337)
Net unrealized gains on investment securities 671 214
-----------------------
Total shareholders' equity 109,138 102,214
-----------------------
Total liabilities and shareholders' equity $111,317 $105,518
=======================
</TABLE>
52
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
Condensed Statements of Income
Years ended December 31,
(Amounts in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends received from bank subsidiaries $6,263 $10,054 $ 8,100
Interest income -- 4 6
Other income 4,618 3,116 2,766
------------------------------
Total income 10,881 13,174 10,872
------------------------------
Expenses:
Interest expense 114 209 634
Salaries and employee benefits 4,296 3,308 2,887
Other expenses 2,994 2,351 2,313
------------------------------
Total expenses 7,404 5,868 5,834
------------------------------
Income before income taxes and equity in
undistributed income of subsidiaries 3,477 7,306 5,038
Income tax benefit - allocated from
consolidated income tax return 603 1,229 743
------------------------------
Income before equity in undistributed
income of subsidiaries 4,080 8,535 5,781
Equity in undistributed income of subsidiaries 5,552 4,148 4,978
------------------------------
Net income $9,632 $12,683 $10,759
==============================
</TABLE>
53
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
Condensed Statements of Cash Flows
Years ended December 31,
------------------------------------
(Amounts in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 9,632 $12,683 $10,759
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed income of subsidiaries (5,552) (4,148) (4,978)
Depreciation 93 49 39
Amortization 536 529 608
Preferred stock dividends in kind -- (52) (303)
Decrease (increase) in other assets
and other intangible assets 555 (717) (259)
Decrease in other liabilities (728) (301) (64)
-----------------------------------
Net cash provided by operating activities 4,536 8,043 5,802
-----------------------------------
Cash flows from investing activities:
Investment in bank subsidiary -- -- (301)
Purchases of premises and equipment (270) (94) (289)
Proceeds from sale of premises and equipment 5 419 --
Cash paid to dissenting and fractional shareholders by subsidiaries
in connection with acquisitions of the subsidiaries -- (121) --
-----------------------------------
Net cash provided by (used in) investing activities (265) 204 (590)
-----------------------------------
Cash flows from financing activities:
Payments on long-term debt (1,304) (4,396) (2,386)
Proceeds from issuance of short-term borrowings 1,925 2,824 549
Payments on short-term borrowings (425) (2,825) (798)
Proceeds from issuance of common stock 156 32 90
Dividends paid (3,431) (3,272) (2,626)
-----------------------------------
Net cash used in financing activities (3,079) (7,637) (5,171)
-----------------------------------
Net increase in cash 1,192 610 41
Cash at beginning of year 946 336 295
-----------------------------------
Cash at end of year $ 2,138 $ 946 $ 336
===================================
Supplemental disclosures of cash paid during year for:
Interest $ 114 $ 261 $ 661
===================================
Income taxes $ 5,201 $ 5,942 $ 3,489
===================================
</TABLE>
54
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
The amount of dividends paid to the Parent Company from the subsidiary
banks is limited by various banking regulatory agencies. The amount of cash
dividends available from subsidiary banks for payment in 1998, without prior
approval from the banking regulatory agencies, is approximately $19,726,000,
subject to maintenance of required capital.
As a result of these regulatory limitations, at December 31, 1997,
approximately $82,143,000 of the Parent Company's investment in net assets of
subsidiary banks of $101,869,000 was restricted from transfer by subsidiary
banks to the Parent Company in the form of cash dividends.
Note 16. Shareholders' Equity and Regulatory Matters
The Company is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Company's consolidated financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company on a consolidated basis, and the Parent Company and
subsidiary banks individually, to maintain minimum amounts and ratios (set forth
in the following table) of total and Tier 1 capital, (as defined in the
regulations), to risk-weighted assets (as defined) and of Tier 1 capital to
average assets. Management believes, as of December 31, 1997, that the Company
meets all capital adequacy requirements to which it is subject.
As of December 31, 1997 and 1996 the most recent notification from The
Federal Reserve Bank of Atlanta categorized the Company's subsidiary banks as
well-capitalized under the regulatory framework for prompt corrective action. To
be categorized as well-capitalized the Company and its subsidiaries must
maintain minimum total risk based, Tier I risk based, and Tier I leverage ratios
as set forth in the following table. Management is not aware of the existence of
any conditions or events occurring subsequent to December 31, 1997 which would
affect the Company's or the subsidiaries' well-capitalized classification.
55
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
The Company's actual capital amounts and ratios are presented below on a
consolidated basis and for each significant subsidiary:
<TABLE>
<CAPTION>
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
-----------------------------------------------------------------------------------
(Amounts in thousands) Amount Ratio Amount Ratio Amount Ratio
- ---------------------------------------------------------------------------------------------------------------------------------
As of December 31, 1997:
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk Weighted Assets):
Consolidated $110,539 14.7% *$ 60,305 * 8.0% N/A N/A
Ameribank, N.A. 13,044 15.0 * 6,940 * 8.0 * $ 8,675 * 10.0%
Bank of Dahlonega 12,208 15.2 * 6,409 * 8.0 * 8,011 * 10.0
First South Bank, N.A. 18,148 14.4 * 10,092 * 8.0 * 12,615 * 10.0
First Bank of Polk County 8,493 15.7 * 4,330 * 8.0 * 5,412 * 10.0
Bank of Danielsville 7,550 19.3 * 3,133 * 8.0 * 3,916 * 10.0
Georgia First Bank 12,358 11.0 * 8,988 * 8.0 * 11,235 * 10.0
Tier 1 Capital (to Risk Weighted Assets):
Consolidated $101,105 13.4% *$ 30,153 * 4.0% N/A N/A
Ameribank, N.A. 12,006 13.8 * 3,470 * 4.0 * $ 5,205 * 6.0%
Bank of Dahlonega 11,199 14.0 * 3,204 * 4.0 * 4,807 * 6.0
First South Bank, N.A. 16,581 13.1 * 5,046 * 4.0 * 7,569 * 6.0
First Bank of Polk County 7,811 14.4 * 2,165 * 4.0 * 3,247 * 6.0
Bank of Danielsville 7,060 18.0 * 1,566 * 4.0 * 2,349 * 6.0
Georgia First Bank 11,085 10.0 * 4,494 * 4.0 * 6,741 * 6.0
Tier 1 Capital (to Average Assets):
Consolidated $101,105 9.4% *$ 42,100 * 4.0% N/A N/A
Ameribank, N.A. 12,006 10.0 * 4,807 * 4.0 *$ 6,009 * 5.0%
Bank of Dahlonega 11,199 9.6 * 4,766 * 4.0 * 5,957 * 5.0
First South Bank, N.A. 16,581 9.2 * 5,654 * 4.0 * 7,068 * 5.0
First Bank of Polk County 7,811 10.0 * 3,032 * 4.0 * 3,790 * 5.0
Bank of Danielsville 7,060 11.3 * 2,442 * 4.0 * 3,053 * 5.0
Georgia First Bank 11,085 8.1 * 5,540 * 4.0 * 6,925 * 5.0
As of December 31, 1996:
Total Capital (to Risk Weighted Assets):
Consolidated $101,416 14.5% *$ 56,048 * 8.0% N/A N/A
Ameribank, N.A. 10,517 12.4 * 6,764 * 8.0 *$ 8,455 * 10.0%
Bank of Dahlonega 11,626 15.0 * 6,210 * 8.0 * 7,763 * 10.0
First South Bank, N.A. 16,438 12.9 * 10,165 * 8.0 * 12,706 * 10.0
First Bank of Polk County 8,169 16.5 * 3,955 * 8.0 * 4,943 * 10.0
Bank of Danielsville 6,890 22.1 * 2,491 * 8.0 * 3,114 * 10.0
Georgia First Bank 11,426 11.2 * 8,152 * 8.0 * 10,189 * 10.0
Tier 1 Capital (to Risk Weighted Assets):
Consolidated $ 92,641 13.2% *$ 28,024 * 4.0% N/A N/A
Ameribank, N.A. 9,572 11.3 * 3,382 * 4.0 *$ 5,073 * 6.0%
Bank of Dahlonega 10,650 13.7 * 3,105 * 4.0 * 4,658 * 6.0
First South Bank, N.A. 14,850 11.7 * 5,082 * 4.0 * 7,624 * 6.0
First Bank of Polk County 7,548 15.3 * 1,977 * 4.0 * 2,966 * 6.0
Bank of Danielsville 6,504 20.9 * 1,246 * 4.0 * 1,869 * 6.0
Georgia First Bank 10,153 10.0 * 4,076 * 4.0 * 6,114 * 6.0
Tier 1 Capital (to Average Assets):
Consolidated $ 92,641 9.3% *$ 39,863 * 4.0% N/A N/A
Ameribank, N.A. 9,572 11.3 * 3,317 * 4.0 *$ 4,146 * 5.0%
Bank of Dahlonega 10,650 9.2 * 4,643 * 4.0 * 5,803 * 5.0
First South Bank, N.A. 14,850 8.8 * 6,783 * 4.0 * 8,479 * 5.0
First Bank of Polk County 7,548 10.3 * 2,930 * 4.0 * 3,663 * 5.0
Bank of Danielsville 6,504 11.5 * 2,260 * 4.0 * 2,825 * 5.0
Georgia First Bank 10,153 8.6 * 4,747 * 4.0 * 5,934 * 5.0
</TABLE>
* Symbol denotes a greater than or equal to sign.
56
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements (continued)
Note 17. Off-balance Sheet Derivative Financial Instruments
Derivative financial instruments, such as interest rate swaps and purchased
floors, are components of the Company's risk management profile. The Company
uses interest rate swap contracts as hedges against volatility in the variable
rate loan portfolio.
The following summary presents information pertaining to the Company's
interest rate swaps at December 31, 1997:
<TABLE>
<CAPTION>
Net Average Weighted Weighted
Notional unrealized Months to Average Pay Average Receive
(amounts in thousands) Amount gain (loss) Maturity Rate (a) Rate
- ----------------------------------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C>
Pay variable - 3 month LIBOR $20,000 $ 54 8.0 5.88% 6.53%
Pay variable - Federal Funds Rate 15,000 (10) 32.0 5.52 5.74
--------------------------------------------------- ---------------
Total $35,000 $ 44 18.3 5.72% 6.19%
=================================================== ===============
</TABLE>
(a) Weighted-average variable rates represent variable rates in effect at
December 31, 1997.
In addition, the Company has purchased interest rate floor contracts with
aggregate notional amounts of $110,000,000 and with remaining maturities ranging
from two to three years. Under the terms of these agreements, the Company will
be reimbursed on a quarterly basis for decreases in the federal funds rate for
any period during the agreement in which the federal funds rate falls below a
specified strike rate. The strike rates on these agreements range from 4.5% to
5.0%. The carrying amount of premiums related to the purchase of these contracts
amounted to $219,000 and $111,000 at December 31, 1997 and 1996, respectively.
Related premium amortization expense was approximately $61,000 and $44,000 for
1997 and 1996, respectively. There was no amortization expense related to these
premiums for 1995.
57
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Senior Officers and Directors of Affiliate Banks
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Bank of Dahlonega Senior Officers Directors
60 Main Street West John L. Lewis, President & Chief Executive Officer Gary L. Evans, Chairman
Dahlonega, Georgia Herman J. Essert, Executive Vice President & James A. Faulkner
Chief Credit Officer Thomas T. Folger, Jr.
J. R. Fields, Senior Vice President Sherman Green
Robert Schuetze, Group Vice President J. Russell Ivie
Susan J. Anderson, Vice President & Controller John L. Lewis
Dudley K. Owens
J. Douglas Parks
E. Paul Stringer
Al J. Wimpy
- ------------------------------------------------------------------------------------------------------------------------
First Bank of Polk County Senior Officers Directors
40 Ocoee Street David E. Adkisson, President & Chief Executive Officer William P. Jabaley, Chairman
Copperhill, Tennessee William J. Stuart, Senior Vice President & Cashier David E. Adkisson
Linda W. Helton, Vice President David L. Hopkins
Gerald R. Ledford, Vice President J. Russell Ivie
James R. Quintrell, Vice President Bill C. Queen
Julia S. Ramsey, Vice President Grady Scott
C. J. (Jim) Sisson
Robert Sosebee
- ------------------------------------------------------------------------------------------------------------------------
First National Bank Senior Officers Directors
of Union County Rodney B. McCombs, President & Rodney B. McCombs,
236 Highway 515 Chief Executive Officer Chairman
Blairsville, Georgia Kenneth R. Castle, Senior Vice President Danny L. Brown
Joyce K. Byers, Vice President & Cashier J. Gary Davenport
Robert Kaser, Vice President E. Harris Griffin
William H. Haney
Myron B. Turner
- ------------------------------------------------------------------------------------------------------------------------
The Bank of Ellijay Senior Officers Directors
5 Broad Street C. Paul Nealey, President Charles H. Kiker, Chairman
Ellijay, Georgia Robby A. Robinson, Executive Vice President & James A. Faulkner
Chief Executive Officer T. Edmund Miller
David Boulware, Senior Vice President William S. Miller
Sandra Key, Vice President C. Paul Nealey
Eloise Lindsey, Vice President Janice R. Smith
Patrick McVey, Vice President Sandie Sparks
Mary Osborne, Vice President George A. Winn
Jean Woodring, Vice President
</TABLE>
58
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Senior Officers and Directors of Affiliate Banks
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Georgia First Bank Senior Officers Directors
455 Jesse Jewell Parkway Andrew K. Walker, President & Chief Executive Officer E. H. Chambers, Jr.,
Gainesville, Georgia Allan J. Satterfield, Executive Vice President Chairman
Joy C. Fowler, Senior Vice President Joe Biddy
Marlon Mayfield, Senior Vice President James A. Faulkner
Jim West, Senior Vice President J. W. Lancaster, Jr.
Robin A. Smith, Group Vice President Robert W. Lawson, Jr.
Jim Tankersley, Group Vice President John B. McKibbon, III
Robert J. Andrews, Vice President Andrew K. Walker
Brian W. Ball, Vice President
B. Kim Griffin, Vice President
Jason Weaver, Vice President
- ------------------------------------------------------------------------------------------------------------------------------
Fannin County Bank Senior Officers Directors
480 W. First Street Steve M. Eaton, President & Chief Executive Officer C. J. (Jim) Sisson, Chairman
Blue Ridge, Georgia Harold L. Herndon, Vice President Paul Cochran
Steve M. Eaton
Pete Folger
Voncel Gregory
Elden Moates
- ------------------------------------------------------------------------------------------------------------------------------
Gwinnett National Bank Senior Officers Directors
3200 Peachtree Industrial Boulevard Terry C. Evans, President & Chief Executive Officer William D. Reeves, Chairman
Duluth, Georgia H. Randolph Lee, Jr., Executive Vice President Terry C. Evans
E. Randy Marcus, Executive Vice President J. Russell Ivie
Gail P. Davault, Vice President James Little
William H. Maddox
Jerry J. Patterson
William B. Stark, Jr.
- ------------------------------------------------------------------------------------------------------------------------------
Peoples Bank Senior Officers Directors
13321 Jones Street J. Douglas Cleveland, President & Chief Executive Officer Barron C. Harbin, Chairman
Lavonia, Georgia Wendelle T. (Wendy) Foster, Senior Vice President Charles W. Bennett
Bruce Knighton, Vice President Dwight J. Eavenson
James A. Faulkner
C. William Kidd
R. Neal Old, Jr.
Phil D. Owens
Robert L. Reed
</TABLE>
59
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Senior Officers and Directors of Affiliate Banks
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
First Community Bank Senior Officers Directors
of Dawsonville Keith Morris, President & Chief Executive Officer Clarence B. Denard,
136 Highway 400 South Jeff Loggins, Executive Vice President Chairman
Dawsonville, Georgia Michael Bailey, Vice President Howard Burt
Michael Woody, Vice President Lawton Burt
Sam Dayton
Gary L. Evans
J. C. Irby
Larry Lemley
Kim Mills
Keith Morris
Terry Smith
Don Stephens
David Wallace
- ------------------------------------------------------------------------------------------------------------------------
Bank of Danielsville Senior Officers Directors
Courthouse Square L. Banister Sexton, President & Chief Executive Officer William L. Chandler,
Danielsville, Georgia Barry Hardeman, Executive Vice President Chairman
Tom Lackey, Senior Vice President James A. Faulkner
Thomas Dial, Vice President Nancy K. Freeman
Felix P. Graham, Jr.
Richard P. Huff
L. Banister Sexton
- ------------------------------------------------------------------------------------------------------------------------
AmeriBank Senior Officers Directors
J. Thomas Wiley, Jr., President & Chief Executive Officer Malcolm L. Butler, Chairman
Heys E. McMath, III, Executive Vice President Scott Center
James A. LaHaise, Senior Vice President Jane Feiler
Savannah Charlie T. Lovering, Senior Vice President Heys E. McMath, III
7 East Congress Street W. Michael Miller, Senior Vice President Connie Farmer Ray
Savannah, Georgia Linda D. Walsh, Vice President J. Thomas Wiley, Jr.
Kelley R. White, Vice President Charles B. Compton, Jr.,
Advisory
W. Brooks Stillwell, III,
Advisory
Effingham County Senior Officers Directors
302 South Columbia Avenue I. Jefferson Mulling, Community President Kimball A. Warnock, Sr.,
Rincon, Georgia Charles R. Davis, Vice President Chairman
Lamar C. Lucas, Vice President Herb Jones, Jr.
Charles F. "Rick" Stewart, Vice President Freddy Long
Norma Jean Morgan
Latrelle Y. Pevey
Charles E. Teel
Ronald H. VanDenHeuvel
</TABLE>
60
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Senior Officers and Directors of Affiliate Banks
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
First South Bank Senior Officers Directors
Daniel M. Forrester, President & Chief Executive Officer William H. Anderson, II,
E. Max Crook, Executive Vice President Chairman
Benton Gunter, Senior Vice President Halstead T. Anderson
Macon Charles C. Smith, Jr., Senior Vice President Oliver C. Bateman
502 Mulberry Street Rick A. Eisel, Vice President E. Max Crook
Macon, Georgia Deborah K. Fields, Vice President Charles B. Evans, Jr.
Judy B. Findley, Vice President Daniel M. Forrester
Anderson J. Stroud, Jr.,Vice President William H. Jarrard, Jr., M.D.
Derek T. Watkins, Vice President Kenneth D. Sams
Robert F. Willingham, Jr., Vice President
Newnan Senior Officers Directors
232 Bullsboro Road John E. Harrell, Community President John M. Stuckey, Jr., Chairman
Newnan, Georgia Therese M. Konis, Senior Vice President Donna S. Brooks
Sally F. Brown, Vice President D. Terry Daviston
Rhodes H. Shell, Vice President Sidney Pope Jones, Jr.
Rhonda L. McClendon, CPA
Sanford C. Pike
Michael L. Smith
Montezuma Senior Officers Directors
118 Walnut Street Ann M. Lacey, Community President Sara Frances Carey
Montezuma, Georgia Charles Benjamin Haugabook
George Randall Keene
Gretha Meadows Young
Ft. Valley Senior Officers Directors
110 N. Camellia Boulevard Barbara R. Poloncic, Community President F. Herbert Hiley, Jr., Chairman
Ft. Valley, Georgia Sam J. McGehee, Jr., Vice President Claybon J. Edwards
Richard M. Hudson
James C. Liipfert, Jr.
Timothy A. McCord
Joseph L. Pearson
John David Duke Lane, Sr.
(Emeritus)
J. Nolan McGarity, D.D.S.
(Emeritus)
</TABLE>
61
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Directors and Senior Officers of Century South Banks, Inc.
Directors
William H. Anderson, II, Chairman Thomas T. Folger, Jr.
James A. Faulkner, Vice Chairman Quill O. Healey
J. Russell Ivie, Vice Chairman Frank C. Jones
James R. Balkcom, Jr. John B. McKibbon, III
William L. Chandler E. Paul Stringer
Joseph W. Evans
Senior Officers
James A. Faulkner
Vice Chairman and Chief Executive Officer
Joseph W. Evans, President
Chief Operating Officer and Chief Financial Officer
Tony E. Collins
Executive Vice President and Chief Administrative Officer
Stephen W. Doughty
Executive Vice President and Chief Credit Officer
Sidney J. Wooten
Executive Vice President and Regional Executive
Susan J. Anderson
Senior Vice President and Corporate Controller
Kim M. Childers
Senior Vice President, Credit Administration
Gary L. Evans
Senior Vice President, Credit Administration
Fred Allen Mason
Senior Vice President, Management Information Systems
Phillip D. Sapp
Senior Vice President and Director of Marketing
62
<PAGE>
CenturySouthbanks, Inc. and Subsidiaries
- --------------------------------------------------------------------------------
Shareholder Information
Market Makers For
Century South Banks, Inc.
Common Stock
The Robinson-Humphrey Company
Allen Gudenrath, First Vice President
Macon, Georgia 1-800-926-2136
Interstate Johnson Lane
Claude Rudder, Vice President
Atlanta, Georgia 1-800-462-6355
Morgan, Keegan & Company, Inc.
William M. Lellyett, Jr.
Managing Director/Branch Manager
Rod Hennek, Managing Director/Branch Manager
Atlanta, Georgia 1-800-669-3469
Sterne, Agee & Leach, Inc.
R. Andrew Garrett, Managing Director
Atlanta, Georgia 1-800-239-2408
J. C. Bradford & Company
Leonard Seawell, Investment Vice President
Ken McAfee, Investment Vice President
Atlanta, Georgia 1-800-522-1927
The common stock of Century South Banks, Inc., is approved for purchase on
margin.
Annual Meeting
The Annual Meeting of the Shareholders of Century South Banks, Inc. will be held
at 10:00 a.m., on Wednesday, May 13, 1998, at:
Justus Martin Room
Buckhead Club
Atlanta Financial Center
3343 Peachtree Road, NE
East Tower, Suite 1850
Atlanta, Georgia 30326
There will be a reception following the meeting. All shareholders are invited
to attend.
Corporate Reports
The Annual Report, quarterly shareholder reports, quarterly Form 10-Qs, and
copies of Century South Banks, Inc.'s Annual Report to the Securities and
Exchange Commission on Form 10-K are available upon written request without
charge. For a copy, please indicate reports desired and a mailing address in the
form of a written request to:
Susan J. Anderson
Senior Vice President
Century South Banks, Inc.
P.O. Box 1000
Dahlonega, Georgia 30533
706-864-1111
Independent Certified Public Accountants
KPMG Peat Marwick LLP
Atlanta, Georgia
Counsel
Troutman Sanders LLP
Atlanta, Georgia
Transfer Agent
Century South Banks, Inc.
P.O. 1000
Dahlonega, Georgia 30533
706-864-1111
<PAGE>
[LOGO OF CENTURY SOUTHBANKS, INC. APPEARS HERE]
60 Main Street West
P. O. Box 1000
Dahlonega, Georgia 30533
<PAGE>
CENTURY SOUTHBANKS
- --------------------------------------------------------------------------------
INC.
Shareholder's Report
Fourth Quarter 1997
- --------------------------------------------------------------------------------
<PAGE>
CHIEF EXECUTIVE OFFICER'S MESSAGE
- --------------------------------------------------------------------------------
Dear Shareholders:
December 16, 1997, a new momentum!! Truly this date marked a historic time
in the life of your company as we consummated the merger of Bank Corporation of
Georgia with Century South Banks, Inc. This made us a one-billion dollar
company and did in fact, give us a new momentum as we move forward with our
strategic plan of continued growth in assets and shareholder value.
To the 600 plus staff of professional bankers we say "Thank You" for your
outstanding dedication and hard work as we completed this merger in great
fashion and have 1998 off to a great start.
We concluded 1997 with total assets of $1,088,368,000. Earnings for the
fourth quarter were $3,328,000 or $0.30 per diluted share. This compares to
$3,148,000 or $0.28 per diluted share for the fourth quarter of 1996. For the
year ended December 31, 1997, earnings were $9,632,000 or $0.87 per diluted
share after accounting for special charges that were recorded at the end of
second quarter.
At December 31, 1997, our reserve for loan losses stood at 1.63% of loans
outstanding, and our nonperforming assets represented a very manageable 0.68% of
total assets. Both these numbers compare very favorably with our industry
peers.
While asset growth for 1997 was minimal, we feel confident that our
emphasis on a strong sales culture throughout our company will pay dividends in
the form of quality asset growth in 1998. To complement this planned internal
growth, we have implemented a renewed and very focused acquisition strategy that
we feel can add shareholder worth in the months and years to come.
We are extremely excited about your company's future, and we encourage each
of you to utilize our affiliate banks to the fullest and to encourage your
friends and associates to do likewise.
Sincerely,
/s/James A. Faulkner
------------------------
James A. Faulkner
Vice Chairman and
Chief Executive Officer
<PAGE>
Condensed Consolidated Balance Sheets (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
---------------------------
(amounts in thousands)
ASSETS
<S> <C> <C>
Cash and due from banks $43,146 $50,002
Federal funds sold 33,870 43,940
Interest-earning deposits in other banks 32,465 19,319
Investment securities 178,804 192,937
Loans, net of unearned income 758,731 698,845
Allowance for loan losses (12,339) (10,414)
Premises and equipment, net 26,849 28,173
Other assets 26,842 28,597
---------------------------
Total assets $1,088,368 $1,051,399
===========================
LIABILITIES
Noninterest-bearing deposits $129,418 $120,415
Interest-bearing deposits 830,918 808,556
Federal funds purchased 160 1,000
Other short-term borrowings 1,500 -
Federal Home Loan Bank advances 6,881 6,982
Long-term debt 39 1,741
Other liabilities 10,314 10,491
---------------------------
Total liabilities 979,230 949,185
---------------------------
SHAREHOLDERS' EQUITY
Common stock 10,925 10,888
Additional paid-in capital 34,282 34,051
Retained earnings 63,566 57,731
Reduction for ESOP loan guarantee - (333)
Common stock in treasury, at cost (306) (337)
Net unrealized gain on investment securities 671 214
---------------------------
Total shareholders' equity 109,138 102,214
Total liabilities and shareholders' equity $1,088,368 $1,051,399
===========================
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three months ended Twelve months ended
December 31, December 31,
1997 1996 1997 1996
-------------------------------------------------
(amounts in thousands, except per share
data)
<S> <C> <C> <C> <C>
Interest income $23,293 $21,960 $90,806 $87,261
Interest expense 10,416 9,653 40,348 39,043
-------------------------------------------------
Net interest income 12,877 12,307 50,458 48,218
Provision for loan losses 209 580 5,201 2,166
Noninterest income 2,728 2,629 10,409 9,693
Noninterest expense 10,560 9,766 42,256 37,749
Income tax expense 1,508 1,442 3,778 5,266
Minority interest in earning of subs - - - 47
-------------------------------------------------
Net income $3,328 $3,148 $9,632 $12,683
=================================================
Weighted average common shares
outstanding assuming dilution 11,111 11,094 11,101 11,001
Net income per share assuming
dilution $ 0.30 $ 0.28 $ 0.87 $ 1.15
Dividends declared per share $0.10625 $0.10125 $0.41750 $0.39750
</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
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
Directors Emeritus
- -------------------------------------------------------------------------------
J. Marvin Anderson James H. Sanders, Sr.
Glen W. Marshall Forrest J. Sisk, Sr.
Rodney B. McCombs
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 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
C. Paul Nealey, President Keith Morris, President
706-276-3400 706-216-5050
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
Andrew K. Walker, 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, Interim President Dan 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 Tom Wiley, President
706-632-2075 912-232-3800
<PAGE>
Financial Highlights (Unaudited)
- -------------------------------------------------------------------------------
Selected Financial Data
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
As of and for twelve months
ended December 31,
1997 1996 Percentage Change
--------------------------------------------------------
(amounts in thousands, except per share data)
<S> <C> <C> <C>
Loans, net $746,392 $688,431 8.42%
Deposits 960,336 928,971 3.38
Total assets 1,088,368 1,051,399 3.52
Shareholders' equity 109,138 102,214 6.77
Net income 9,632 12,683 (24.06)
Book value per share 10.04 9.49 5.80
Net income per share assuming
dilution 0.87 1.15 (24.35)
Weighted average common shares
outstanding assuming dilution 11,101 11,001 0.91
Nonperforming loans 4,595 3,687 (24.63)
Other real estate and other
nonperforming assets 2,841 3,187 (10.86)
Financial Ratios
- --------------------------------------------------------------------------------------------
Return on average assets 0.91% 1.31% (30.53)%
Return on average shareholders'
equity 9.11 13.37 (31.86)
Net interest margin (taxable
equivalent) 5.28 5.35 (1.31)
Allowance for loan losses to loans 1.63 1.50 8.67
Nonperforming assets to total assets 0.68 0.63 7.94
</TABLE>
<PAGE>
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Stock Information
Century South Banks, Inc. ("CSBI") lists its stock for trading on the National
Association of Securities Dealers Automated Quotations System ("NASDAQ"). The
ticker tape symbol is "CSBI". Market price for the quarter ended December 31,
1997:
Three month high ............................. $ 24.75
Three month low .............................. $ 20.00
Closing price ................................ $ 23.875
- -------------------------------------------------------------------------------
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
[LOGO OF CENTURYSOUTHBANKS INC. APPEARS HERE]
<PAGE>
ACCOUNTANTS' CONSENT
The Board of Directors
Century South Banks, Inc.:
We consent to incorporation by reference in the Registration Statements (No.
33-37784) on Form S-3 and (Nos. 33-18527 and 33-91922) on Form S-8 of Century
South Banks, Inc. of our report dated January 23, 1998, relating to the
consolidated balance sheets of Century South Banks, Inc. and subsidiaries as of
December 31, 1997 and 1996, and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1997, which report is incorporated by reference in the
December 31, 1997 Annual Report on Form 10-K of Century South Banks, Inc.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
March 31, 1998
<PAGE>
CONSENT OF INDEPENDENT AUDITOR
We consent to incorporation by reference in the Registration Statements
on Form S-3 (File No. 33-37784) and on Forms S-8 (File No. 33-18527 and
33-91922) of Century South Banks, Inc. of our report dated March 5, 1997, except
for note 14, as to which the date is July 11, 1997 relating to the consolidated
balance sheet of Bank Corporation of Georgia and subsidiaries as of December 31,
1996, and the related consolidated statements of earnings, changes in
shareholders' equity, and cash flows for the years ended December 31, 1996 and
1995, which report appears in the December 31, 1997 Annual Report on Form 10-K
of Century South Banks, Inc.
PORTER KEADLE MOORE, LLP
Successor to the practice of
Evans, Porter Bryan & Co.
Atlanta, Georgia
March 31, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 43,126
<INT-BEARING-DEPOSITS> 32,465
<FED-FUNDS-SOLD> 33,870
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 138,592
<INVESTMENTS-CARRYING> 40,212
<INVESTMENTS-MARKET> 41,153
<LOANS> 758,731
<ALLOWANCE> 12,339
<TOTAL-ASSETS> 1,088,368
<DEPOSITS> 960,336
<SHORT-TERM> 1,660
<LIABILITIES-OTHER> 10,314
<LONG-TERM> 6,920
0
0
<COMMON> 10,925
<OTHER-SE> 98,213
<TOTAL-LIABILITIES-AND-EQUITY> 1,088,368
<INTEREST-LOAN> 75,771
<INTEREST-INVEST> 12,157
<INTEREST-OTHER> 2,878
<INTEREST-TOTAL> 90,806
<INTEREST-DEPOSIT> 39,742
<INTEREST-EXPENSE> 40,348
<INTEREST-INCOME-NET> 50,458
<LOAN-LOSSES> 5,201
<SECURITIES-GAINS> 23
<EXPENSE-OTHER> 42,256
<INCOME-PRETAX> 13,410
<INCOME-PRE-EXTRAORDINARY> 13,410
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,632
<EPS-PRIMARY> .89
<EPS-DILUTED> .87
<YIELD-ACTUAL> 5.28
<LOANS-NON> 4,595
<LOANS-PAST> 2,535
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10,414
<CHARGE-OFFS> 3,744
<RECOVERIES> 468
<ALLOWANCE-CLOSE> 12,339
<ALLOWANCE-DOMESTIC> 12,339
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 50,002
<INT-BEARING-DEPOSITS> 19,319
<FED-FUNDS-SOLD> 43,940
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 149,374
<INVESTMENTS-CARRYING> 43,563
<INVESTMENTS-MARKET> 44,289
<LOANS> 698,845
<ALLOWANCE> 10,414
<TOTAL-ASSETS> 1,051,399
<DEPOSITS> 928,971
<SHORT-TERM> 1,000
<LIABILITIES-OTHER> 10,491
<LONG-TERM> 8,723
0
0
<COMMON> 10,888
<OTHER-SE> 91,326
<TOTAL-LIABILITIES-AND-EQUITY> 1,051,399
<INTEREST-LOAN> 72,540
<INTEREST-INVEST> 12,515
<INTEREST-OTHER> 2,206
<INTEREST-TOTAL> 87,261
<INTEREST-DEPOSIT> 38,157
<INTEREST-EXPENSE> 39,043
<INTEREST-INCOME-NET> 49,218
<LOAN-LOSSES> 2,166
<SECURITIES-GAINS> 215
<EXPENSE-OTHER> 37,796
<INCOME-PRETAX> 17,949
<INCOME-PRE-EXTRAORDINARY> 17,949
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,683
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.15
<YIELD-ACTUAL> 5.35
<LOANS-NON> 3,387
<LOANS-PAST> 1,797
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,700
<CHARGE-OFFS> 2,090
<RECOVERIES> 638
<ALLOWANCE-CLOSE> 10,414
<ALLOWANCE-DOMESTIC> 10,414
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Bank Corporation of Georgia
Macon, Georgia
We have audited the accompanying consolidated balance sheet of Bank Corporation
of Georgia and subsidiaries as of December 31, 1996, and the related
consolidated statements of earnings, changes in shareholders' equity, and cash
flows for each of the two years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted accounting
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentations.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects the financial position of Bank Corporation of
Georgia and subsidiaries as of December 31, 1996, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
PORTER KEADLE MOORE, LLP
Successor to the practice of
Evans, Porter, Bryan & Co.
Atlanta, Georgia
March 5, 1997, except for note 14, as to which the date is July 11, 1997.
