<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10Q
[X] Quarterly Report Under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended March 31, 1998
or
[_] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
------------------- --------------------
Commission File Number: 2-75364
--------------------------------------------------
Century South Banks, Inc.
- --------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1455591
- --------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
60 Main Street West, P O Box 1000, Dahlonega, Georgia 30533
- --------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(706) 864-1111
- --------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF APRIL 30, 1998
- --------------------------------------------------------------------------
Common stock, $1.00 par value 10,938,137
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Form 10Q
INDEX
Page No.
--------
Part I. Financial Information
---------------------
Item 1. Financial Statements
Consolidated Balance Sheets........................ 3
Consolidated Statements of Income.................. 4
Condensed Consolidated Statements of Cash Flows.... 5
Notes to Consolidated Financial Statements......... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 8
Item 3. Market Risk Disclosure............................. 15
Part II. Other Information
-----------------
Item 6. Exhibits and Report on Form 8-K.................... 16
Signatures....................................................... 17
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
March 31, December 31,
1998 1997
------------------------------
(amounts in thousands,
except share data)
Assets
- ------
Cash and due from banks $ 40,666 43,146
Federal funds sold 59,380 33,870
Interest-earning deposits in other banks 9,498 32,465
Investment securities:
Available for sale 126,619 138,592
Held to maturity (fair value: March
31, 1998 - $37,484 and December 31,
1997 - $41,153) 36,518 40,212
Loans, net of unearned income 765,854 758,731
Less allowance for loan losses 12,541 12,339
---------- ---------
Loans, net 753,313 746,392
---------- ---------
Premises and equipment, net 25,945 26,849
Goodwill and other intangibles, net 6,942 7,284
Other assets 18,704 19,558
---------- ---------
Total assets $1,077,585 1,088,368
========== =========
Liabilities and Shareholders' Equity
- ------------------------------------
Liabilities:
Deposits:
Noninterest-bearing demand deposits $ 137,204 129,418
Interest-bearing deposits 813,240 830,918
---------- ---------
Total deposits 950,444 960,336
Federal funds purchased 240 160
Other short-term borrowings 150 1,500
Federal Home Loan Bank advances 4,856 6,881
Long-term debt 38 39
Accrued expenses and other liabilities 10,043 10,314
---------- ---------
Total liabilities 965,771 979,230
---------- ---------
Shareholders' Equity:
Common Stock-$1 par value. Authorized
15,000,000 shares: issued 10,941,912 and
10,924,699 shares at March 31, 1998 and
December 31, 1997, respectively; and
outstanding 10,883,013 and 10,865,800 shares
at March 31, 1998 and December 31, 1997,
respectively 10,942 10,925
Additional paid-in capital 34,382 34,282
Retained earnings 65,926 63,566
Common stock in treasury (58,899 shares),
at cost (306) (306)
Accumulated other comprehensive income 870 671
---------- ---------
Total shareholders' equity 111,814 109,138
---------- ---------
Total liabilities and shareholders' equity $1,077,585 1,088,368
========== =========
See accompanying notes to consolidated financial statements.
3
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
Three months ended March 31,
1998 1997
----------------------------
(amounts in thousands,
except per share data)
Interest income:
Loans, including fees $19,563 18,335
Federal funds sold 591 312
Interest on deposits in other banks 224 207
Investment securities:
Taxable 2,052 2,602
Nontaxable 501 611
------- ------
Total interest income 22,931 22,067
------- ------
Interest expense:
Deposits 9,735 9,565
Federal funds purchased 4 2
Federal Home Loan Bank advances 70 111
Long-term debt and other borrowings 30 35
------- ------
Total interest expense 9,839 9,713
------- ------
Net interest income 13,092 12,354
Provision for loan losses 507 661
------- ------
Net interest income after
provision for loan losses 12,585 11,693
------- ------
Noninterest income:
Service charges on deposit accounts 1,497 1,081
Securities gains, net 18 156
Other operating income 1,988 846
------- ------
Total noninterest income 3,503 2,083
------- ------
Noninterest expense:
Salaries and employee benefits 5,969 5,476
Net occupancy and equipment expense 1,470 1,386
Other operating expenses 3,246 2,785
------- ------
Total noninterest expense 10,685 9,647
------- ------
Income before income taxes 5,403 4,129
Income tax expense 1,873 1,263
------- ------
Net income $ 3,530 2,866
======= ======
Net income per share:
Basic $ 0.32 0.26
======= ======
Diluted $ 0.32 0.26
======= ======
Cash dividends declared per share $0.1075 0.1025
======= ======
See accompanying notes to consolidated financial statements.
4
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1998 1997
-------------------------
(amounts in thousands)
<S> <C> <C>
Net cash provided by operating activities $ 6,618 5,958
-------- -------
Cash flows from investing activities:
Proceeds from sales of investment securities available for sale 18 830
Principal collections and maturities of investment securities:
Available for sale 23,362 9,716
Held to maturity 3,963 1,803
Proceeds from maturities of interest-earning deposits 65,891 4,001
Purchases of investment securities held to maturity (200) (910)
Purchases of investment securities available for sale (11,087) (17,254)
Investment in interest-earning deposits (42,924) (23,165)
Net increase in loans (8,095) (1,257)
Proceeds from sales of real estate acquired through foreclosure 164 316
Purchases of premises and equipment (658) (801)
Proceeds from sale of premises and equipment 219 773
-------- -------
Net cash provided by (used in) investing activities 30,653 (25,948)
-------- -------
Cash flows from financing activities:
Net increase (decrease) in deposits (9,892) 19,100
Net increase (decrease) in federal funds purchased 80 (1,000)
Net decrease in other short-term borrowings (1,350) -
Proceeds from issuance of long-term debt 1,500 -
Payments on long-term debt and Federal Home Loan
Bank advances (3,526) (32)
Dividends paid to shareholders (1,170) (786)
Proceeds from issuance of common stock 117 -
-------- -------
Net cash provided by (used in) financing activities (14,241) 17,582
-------- -------
Net increase (decrease) in cash and cash equivalents 23,030 (2,408)
Cash and cash equivalents at beginning of period 77,016 112,594
-------- -------
Cash and cash equivalents at end of period $100,046 110,186
======== =======
Supplemental disclosure of cash paid during the period for:
Interest $ 10,406 10,030
======== =======
Income taxes $ 739 463
======== =======
Supplemental schedule of noncash investing and financing
activities:
Real estate acquired through foreclosure $ 1,351 664
======== =======
Real estate sold and financed by the Company $ 684 411
======== =======
Net reduction in guaranteed ESOP loan recorded in
shareholders' equity $ - 13
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Basis of Presentation
---------------------
The unaudited consolidated financial statements include the accounts of Century
South Banks, Inc. ("the Parent Company") and its wholly owned subsidiaries, Bank
of Dahlonega ("BOD"), The Bank of Ellijay ("BOE"), First Bank of Polk County
("FBPC"), Georgia First Bank ("GFB"), First National Bank of Union County
("FNBUC"), Fannin County Bank, N.A. ("FCB"), Gwinnett National Bank ("GNB"),
First Community Bank of Dawsonville ("FCBD"), Peoples Bank ("PBL"), Bank of
Danielsville ("DAN"), First South Bank, N.A. ("FSB") and AmeriBank, N.A.
("AMB"), (collectively "the Company").
These accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do not
include all information and notes necessary for a fair presentation of financial
position, results of operations, and cash flows in conformity with generally
accepted accounting principles. All adjustments consisting of normal recurring
accruals which, in the opinion of management, are necessary for a fair
presentation of the financial position, results of operations, and cash flows
for the periods covered by this report have been included.
(2) Statement No. 128 "Earnings Per Share"
--------------------------------------
On December 31, 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"). SFAS
128 supercedes Accounting Principles Board Opinion No. 15, "Earnings Per Share"
and specifies the computation, presentation, and disclosure requirements for
earnings per share (EPS). SFAS 128 replaces the presentation of primary EPS and
fully diluted EPS with a presentation of basic EPS and diluted EPS,
respectively. All prior period EPS data has been restated to conform with the
provisions of SFAS 128.
Basic EPS excludes dilution and is computed by dividing net income by the
weighted average shares outstanding. Diluted EPS is computed by dividing net
income by the weighted average shares outstanding plus potential common shares
resulting from dilutive options assuming the exercise proceeds would be used to
repurchase shares pursuant to the treasury stock method.
6
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(3) Statement No. 130 "Reporting Comprehensive Income"
--------------------------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). This statement establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. SFAS 130 requires all items that are required to be
recognized under accounting standards as components of comprehensive income be
reported in an annual financial statement that is displayed in equal prominence
with the other annual financial statements. For interim period financial
statements, enterprises are required to disclose a total for comprehensive
income in those financial statements. The term "comprehensive income" is used
in SFAS 130 to describe the total of all components of comprehensive income
including net income. "Other comprehensive income" refers to revenues,
expenses, gains, and losses that are included in comprehensive income but
excluded from earnings under current accounting standards. Currently, "other
comprehensive income" for the Company consists of items recorded as a component
of shareholders' equity under SFAS 115, "Accounting for Certain Investments in
Debt and Equity Securities". The Company has adopted the interim-period
disclosure requirements of SFAS 130 effective March 31, 1998 and will adopt the
annual financial statement reporting and disclosure requirements of SFAS 130
effective December 31, 1998.
Total comprehensive income for the three months ended March 31, 1998 was
$3,729,000 compared to $2,253,000 for the three months ended March 31, 1997.
(4) Long-Term Debt and Short-Term Borrowings
----------------------------------------
On January 30, 1998, the Company renewed a $1,500,000 revolving line of credit
with a bank which is payable on demand and matures on January 30, 1999. The line
of credit accrues interest at the Prime Lending Rate minus one percent (1%), as
defined in the agreement, and is due quarterly. The line of credit is secured
by 100% of the outstanding common stock of one of the Company's subsidiaries. As
of March 31, 1998, there were no advances under this line of credit.
Certain of the Company's subsidiaries have invested in Federal Home Loan Bank
stock for the purpose of establishing credit lines with the Federal Home Loan
Bank. One of these subsidiaries made payments of $2,025,175 in the first three
months of 1998 making the total advances under these lines $4.9 million. One
subsidiary has a balance outstanding of $0.9 million which matures on September
1, 2006 and bears interest at the rate of 7.74% with principal and interest due
monthly. Another subsidiary has drawn $4.0 million with $2.0 million maturing
on December 28, 1998 and $2.0 million maturing on January 13, 1999 with
interest, payable monthly, based on the current LIBOR rate. The purpose of
these advances was to replace short-term deposits with longer term funds. In
addition to these advances, the subsidiaries have additional credit available on
their credit lines with the Federal Home Loan Bank. All lines with the Federal
Home Loan Bank are secured by a blanket lien on certain real estate loans of
each of the respective subsidiaries.
7
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
-------
The following is a discussion of the Company's financial condition at March 31,
1998, compared to December 31, 1997, and results of operations for the three
month period ended March 31, 1998, compared to the three month period ended
March 31, 1997. This discussion should be read in conjunction with the
Company's unaudited consolidated financial statements and accompanying notes
appearing elsewhere in this report.
FINANCIAL CONDITION
-------------------
During the first three months of 1998, total assets decreased $10.8 million or
approximately 0.99%, primarily due to a decline in deposits of $9.9 million.
However, net loans grew $6.9 million or 0.93% during the first three months of
1998 and were funded by a decrease in investment securities of $15.7 million.
The amortized cost, gross unrealized gains and losses, and estimated fair value
of available for sale and held to maturity securities by type at March 31, 1998
were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
(amounts in thousands) cost gains losses fair value
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury and U.S.
Government agencies $ 82,747 808 (55) 83,500
State, county and
Municipal securities 9,145 271 (13) 9,403
Mortgage-backed securities 19,896 222 (24) 20,094
Other debt securities 7,571 47 (68) 7,550
Equity securities 5,702 395 (25) 6,072
------------------------------------------------
$125,061 1,743 (185) 126,619
------------------------------------------------
Held to maturity:
U.S. Government agencies $ 6,182 52 (10) 6,224
State, county and
municipal securities 26,844 849 (15) 27,678
Mortgage-backed securities 1,515 26 (2) 1,539
Other debt securities 1,977 66 - 2,043
------------------------------------------------
$ 36,518 993 (27) 37,484
------------------------------------------------
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Balances within the major deposit categories as of March 31, 1998 and December
31, 1997 are shown below:
<TABLE>
<CAPTION>
(amounts in millions)
March 31, December 31,
1998 1997
---------------- ---------------
<S> <C> <C>
Noninterest-bearing demand deposits $137.2 129.4
Interest-bearing demand deposits 145.9 157.3
Money market accounts 99.6 104.7
Savings deposits 75.9 64.2
Certificates of deposit and
Individual retirement accounts
Of $100,000 or more 129.8 130.4
Other individual retirement accounts 51.5 52.8
Other certificates of deposit 310.5 321.5
------ -----
Total deposits $950.4 960.3
====== =====
</TABLE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
---------------------------------------
The primary functions of asset/liability management are to assure adequate
liquidity and maintain an appropriate balance between interest earning assets
and interest-bearing liabilities. Liquidity management involves the matching of
the cash flow requirements of customers, either depositors withdrawing funds or
borrowers needing loans, and the ability of the Company to meet those
requirements. Management monitors and maintains appropriate levels of assets
and liabilities so that maturities of assets are such that adequate funds are
provided to meet estimated customer withdrawals and loan requests.
The Company's liquidity position depends primarily upon the liquidity of its
assets relative to its need to respond to short-term demand for funds caused by
withdrawals from deposit accounts and loan funding commitments. Primary sources
of liquidity are scheduled payments on the Company's loans and interest on and
maturities of its investments. Occasionally, the Company will sell investment
securities available for sale in connection with the management of its income
tax position, its liquidity position, and its interest sensitivity gap. The
Company may also utilize its cash and due from banks, interest-earning deposits
in other banks, and federal funds sold to meet liquidity requirements as needed.
At March 31, 1998, the Company's cash and due from banks was $40.7 million, its
federal funds sold were $59.4 million, its interest-earning deposits in other
banks were $9.5 million, and its investment securities designated as available
for sale were $126.6 million. All of the above could be converted to cash on
relatively short notice.
The Company also has the ability, on a short-term basis, to purchase federal
funds from other financial institutions. Presently, the Company has made
arrangements with commercial banks for short-term unsecured advances of up to
approximately $43.1 million, in addition to credit which is available in the
form of Federal Home Loan Bank advances.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The relative interest rate sensitivity of the Company's assets and liabilities
indicates the extent to which the Company's net interest income may be affected
by interest rate movements. The Company's ability to reprice assets and
liabilities in the same dollar amounts and at the same time minimizes interest
rate risks. One method of measuring the impact of interest rate changes on net
interest income is to measure, in a number of time frames, the interest
sensitivity gap, by subtracting interest-sensitive liabilities from interest-
sensitive assets, as reflected in the following table. Such interest
sensitivity gap represents the risk, or opportunity, in repricing. If more
assets than liabilities are repriced at a given time in a rising rate
environment, net interest income improves; in a declining rate environment, net
interest income deteriorates. Conversely, if more liabilities than assets are
repriced while interest rates are rising, net interest income deteriorates; if
interest rates are falling, net interest income improves.
The Company's strategy in minimizing interest rate risk is to minimize the
impact of short term interest rate movements on its net interest income while
managing its middle and long-term interest sensitivity gap in light of overall
economic trends in interest rates. The following table illustrates the relative
sensitivity of the Company to changing interest rates as of March 31, 1998.
<TABLE>
<CAPTION>
0-90 days 91-365 days 1-5 years Over 5 years
Current Current Cumulative Current Cumulative Current Cumulative
------------------------------------------------------------------------
(amounts in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-sensitive assets $402,027 189,699 591,726 336,708 928,434 70,334 998,768
Interest-sensitive
liabilities 447,432 263,704 711,136 106,533 817,669 856 818,525
-------- ------- ------- ------- ------- ------ -------
Interest-sensitivity gap $(45,405) (74,005) (119,410) 230,175 110,765 69,478 180,243
======== ======= ======= ======= ======= ======= =======
Ratio of interest-sensitive
assets to interest-
sensitive liabilities 0.90 0.72 0.83 3.16 1.14 82.17 1.22
======== ======= ======= ======= ======= ====== =======
</TABLE>
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.
RESULTS OF OPERATIONS
---------------------
Net Interest Income
- -------------------
The Company's net interest income is its principal source of income. Interest-
earning assets for the Company include loans, federal funds sold, interest-
earning deposits in other banks, and investment securities. The Company's
interest-bearing liabilities include its deposits, federal funds purchased,
Federal Home Loan Bank advances, other short-term borrowings, and long-term
debt.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net interest income for the three months ended March 31, 1998 increased $738,000
or 5.97% over the same period of 1997. The average yield earned on interest-
earning assets, on a tax equivalent basis, increased to 9.54% for the three
months ended March 31, 1998 from 9.50% for the three months ended March 31, 1997
and the average rate paid on interest-bearing liabilities increased to 4.89% for
the three months ended March 31, 1998 from 4.87% for the three months ended
March 31, 1997. The Company's interest rate differential increased to 4.65%
from 4.63% and its net interest margin (net interest income divided by average
interest-earning assets) increased to 5.48% for the first three months of 1998
from 5.34% for the same period of 1997.
Allowance for Loan Losses
- -------------------------
The Company provides for loan losses on a monthly basis based upon information
available at the end of each period. By such additions, management maintains
the allowance for loan losses at a level adequate to provide for losses that can
be reasonably anticipated. The level of the allowance for loan losses is based
on, among other things, management's periodic loan-by-loan evaluation of
potential losses, as well as its assessment of prevailing and anticipated
economic conditions in its market areas. Reviews are conducted throughout the
year by senior officers of the Company and by unrelated third parties.
A substantial portion of the Company's loan portfolio is secured by real estate
in markets in northern, middle and coastal Georgia, southeastern Tennessee, and
southwestern North Carolina. The ultimate collectibility of a substantial
portion of the Company's loan portfolio is dependent on or susceptible to
changes in market conditions in these markets.
The allowance for loan losses approximated 1.64% of outstanding loans at March
31, 1998 as compared to 1.63% at December 31, 1997 and 1.52% at March 31, 1997.
The allowance increased to $12,541,000 at March 31, 1998 from $12,339,000 at
December 31, 1997 and $10,658,000 at March 31, 1997. The provision for loan
losses decreased to $507,000 for the three months ended March 31, 1998 from
$661,000 for the three months ended March 31, 1997. Net loan charge offs for the
three months ended March 31, 1998 were $305,000 as compared to $417,000 for the
three months ended March 31, 1997. Net loans charged off as a percentage of
average loans was 0.16% for the three months ended March 31, 1998 as compared to
0.24% for the three months ended March 31, 1997.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Nonperforming Loans, Nonperforming Assets, and Underperforming Loans
- --------------------------------------------------------------------
Nonperforming loans include nonaccrual loans. The Company has not restructured
any loans of significance through March 31, 1998. Nonperforming assets include
nonperforming loans, real estate acquired through foreclosure, investment
securities which are in default, and other repossessed assets. Underperforming
loans consist of loans which are past due with respect to principal or interest
more than 90 days and still accruing interest.
Accrual of interest on loans is discontinued when reasonable doubt exists as to
the full, timely collection of interest or principal or they become
contractually in default for 90 days or more as to either interest or principal
unless they are both well secured and in the process of collection. When a loan
is placed on nonaccrual status, previously accrued and uncollected interest for
the year in which the loan is placed on nonaccrual status is charged to interest
income on loans unless management believes the accrued interest is recoverable
through the liquidation of collateral.
Management is not aware of any loans classified for regulatory purposes as loss,
doubtful, substandard, or special mention that have not been disclosed below
which 1) represent or result from trends or uncertainties which management
reasonably expects will materially impact future operating results, liquidity,
or capital resources, or 2) represent material credits about which management is
aware of any information which causes management to have serious doubts as to
the ability of such borrowers to comply with the loan repayment terms.
The table on the following page provides information concerning nonperforming
loans, nonperforming assets, underperforming loans and certain asset quality
ratios at March 31, 1998 and December 31, 1997.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ------------
(amounts in thousands except ratios and percentages)
<S> <C> <C>
Nonperforming loans $5,578 4,595
Real estate acquired through
foreclosure and other
repossessed assets 2,702 2,347
------ -----
Nonperforming assets $8,280 6,942
====== =====
Underperforming loans $1,584 2,535
====== =====
Asset Quality Ratios:
Nonperforming loans to total loans,
net of unearned income 0.73% 0.61%
====== =====
Nonperforming assets to total loans,
net of unearned income, real estate
acquired through foreclosure, and
other repossessed assets 1.08% 0.91%
====== =====
Allowance for loan losses to
nonperforming loans 2.25x 2.69x
====== =====
Allowance for loan losses to total
loans, net of unearned income 1.64% 1.52%
====== =====
Underperforming loans to total loans,
net of unearned income 0.21% 0.33%
====== =====
Nonperforming loans to total assets 0.52% 0.42%
====== =====
Nonperforming assets to total assets 0.77% 0.64%
====== =====
</TABLE>
The Company experienced an increase in nonperforming loans primarily due to the
abandonment of a branch at one of the subsidiaries in the amount of $681,000.
The Company's management provides for loan losses through a charge to earnings
to bring the allowance to a level which in management's judgement is considered
adequate to absorb potential losses inherent in the loan portfolio. A
substantial portion of the allowance is general in nature and is available for
the portfolio in its entirety.
Noninterest Income
- ------------------
Noninterest income for the first quarter of 1998 increased $1,420,000 or 68.17%
as compared to the same period of 1997. This increase was primarily due to an
increase in service charges on deposit accounts of $416,000, an increase in
mortgage loan origination fees of $251,000, and a gain on the sale of a branch
of one of the subsidiaries of approximately $849,000.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Noninterest Expense
- -------------------
The $1,038,000 or 10.76% increase in noninterest expense for the first quarter
of 1998 as compared to the first quarter of 1997 was primarily due to an
increase in salaries and benefits expense of $493,000; an increase in net
occupancy and equipment expense of $84,000; an increase in stationery, supplies
and shareholder communications representing costs associated with the merger of
Bank Corporation of Georgia and Century South Banks, Inc. on December 16, 1997
of $201,000, and an increase in computer related fees of $56,000.
Income Tax Expense
- ------------------
The first quarter 1998 income tax expense was approximately $1,873,000, or an
effective rate of 34.7%, as compared to approximately $1,263,000 for the first
quarter 1997, or an effective rate of 30.6%.
Net Income
- ----------
The Company's first quarter 1998 net earnings were $0.32 per diluted share or
$3,530,000 as compared to $0.26 or $2,866,000 for the first quarter of 1997,
representing an increase of 23.2%.
Performance Ratios
- ------------------
Performance of banks is often measured by various ratios. Two widely recognized
performance indicators are return on average equity and return on average
assets. The return on average equity for the three months ended March 31, 1998
was 12.93% (annualized) as compared to 11.30% (annualized) for the three months
ended March 31, 1997. The Company's return on average assets was 1.35%
(annualized) and 1.12% (annualized) for the three month periods ended March 31,
1998 and 1997, respectively.
Capital Resources
- -----------------
The Company is subject to various regulatory capital requirements administered
by the federal and state 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.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Quantitative measures established by regulation to ensure capital adequacy
require the Company on a consolidated basis, and the Parent company and
subsidiary banks individually, to maintain minimum amounts and ratios (set forth
below) of total and Tier 1 capital, (as defined in the regulations), to risk-
weighted assets (as defined) and of Tier 1 capital to average assets.
Management believes, as of March 31, 1998 that the Company meets all capital
adequacy requirements to which it is subject.
The Company's actual consolidated capital amounts and ratios are presented
below:
<TABLE>
<CAPTION>
For
Capital
Actual Adequacy Purposes
---------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
As of March 31, 1998:
Total Capital (to Risk greater than or greater than or
Weighted Assets): $113,389 15.1% equal to $60,114 equal to 8.0%
Tier 1 Capital (to Risk greater than or greater than or
Weighted Assets): $103,969 13.8% equal to $30,057 equal to 4.0%
Tier 1 Capital (to greater than or greater than or
Average Assets): $103,969 9.8% equal to $42,449 equal to 4.0%
</TABLE>
The Company continues to maintain a level of capital well in excess of
regulatory requirements and available for supporting future growth. The
Company's level of capital can be measured by its average shareholders' equity
to average assets ratio of 10.42% for the three months ended March 31, 1998 and
its ratio of shareholders' equity to assets of 10.38% at March 31, 1998.
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.
ITEM 3 MARKET RISK DISCLOSURE
The information called for concerning market risk of the Company is not included
as there have not been any significant changes in the market rate table as shown
in the Company's 1997 Annual Report filed on Form 10-K.
15
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits
The following exhibits are attached:
Exhibit 11 Computation of Per Share Earnings
Exhibit 20 Shareholders' Report
Exhibit 27.1 Financial Data Schedule as of and for the three
months ended March 31, 1998
Exhibit 27.2 Restated Financial Data Schedule as of and for
the three months ended March 31, 1997
(b) There were no reports filed on Form 8-K during the
quarter ended March 31, 1998.
16
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Century South Banks, Inc.
DATE: May 15, 1998 By: /s/ James A. Faulkner
------------------------ --------------------------
James A. Faulkner
Vice Chairman and Chief
Executive Officer
DATE: May 15, 1998 By: /s/ Susan J. Anderson
------------------------ --------------------------
Susan J. Anderson
Senior Vice President and
Corporate Controller
17
<PAGE>
EXHIBIT 11
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Statement re Computation of Per Share Earnings
The following computations set forth the calculations of basic and diluted net
income per common share and common share equivalents for the three month periods
ended March 31, 1998 and 1997.
<TABLE>
<CAPTION>
Basic Diluted
Earnings Earnings
Per Share Per Share
------------- -------------
(amounts in thousands, except per share data)
<S> <C> <C>
For the three months ended March 31, 1998:
Net income $ 3,530 3,530
========= =========
Weighted average number of common
shares outstanding 10,880 10,880
Common share equivalents resulting
from dilutive stock options - 257
--------- ---------
Adjusted weighted average number
of common and common equivalent
shares outstanding 10,880 11,137
========= =========
Net income per common share $ 0.32 0.32
========= =========
For the three months ended March 31, 1997:
Net income $ 2,866 2,866
========= =========
Weighted average number of common
shares outstanding 10,829 10,829
Common share equivalents resulting
from dilutive stock options - 264
--------- ---------
Adjusted weighted average number
of common and common equivalent
shares outstanding 10,829 11,093
========= =========
Net income per common share $ 0.26 0.26
========= =========
</TABLE>
<PAGE>
CHIEF EXECUTIVE OFFICER'S MESSAGE
Dear Shareholder:
We are pleased to report that Century South Banks, Inc. posted record
net earnings for the first quarter of 1998. Net income increased 23.2% to
$3,530,000 as compared to $2,866,000 for the first quarter of 1997. Similarly,
earnings per diluted share increased 23.1% to $0.32 as compared to $0.26 for the
same period of 1997.
The quarterly cash dividend of $0.1075 per share paid on April 7, 1998,
a 4.9% increase over the same quarter of 1997 and a 1.2% increase over the
previous quarter's dividend.
Total assets at March 31, 1998 were approximately $1,077,585,000.
Return on average assets increased to 1.35% as compared to 1.12% for the quarter
ended March 31, 1997. At March 31, 1998, our reserve for loan losses was 1.64%
of total loans outstanding and nonperforming assets as a percentage of total
assets were 0.77%.
We are pleased with the Company's solid first quarter performance. More
importantly, we are excited about the direction in which the Company is headed
and the momentum we have achieved. The Company is focused on developing a
stronger sales culture, strengthening credit quality, and lowering overhead
costs while continuing to provide for our customers' banking needs. We expect
this strategy to create a stronger company that will be better able to meet the
challenges ahead and offer more to its customers and investors.
As always, we want to encourage you to utilize the Century South
affiliate bank in your community.
Sincerely,
James A. Faulkner
Vice Chairman and
Chief Executive Officer
<PAGE>
Century South Banks, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
March 31, March 31,
1998 1997
-----------------------------------
(amounts in thousands)
<S> <C> <C>
Assets
Cash and due from banks $ 40,666 $ 45,136
Federal funds sold 59,380 65,050
Interest-earning deposits in other banks 9,498 19,842
Investment securities 163,137 195,680
Loans, net of unearned income 765,854 699,448
Allowance for loan losses (12,541) (10,658)
Premises and equipment, net 25,945 27,419
Other assets 25,646 28,894
-----------------------------------
Total assets $1,077,585 $1,070,811
===================================
Liabilities
Noninterest-bearing deposits $ 137,204 $ 127,598
Interest-bearing deposits 813,240 820,474
Other short-term borrowings 390 300
Federal Home Loan Bank advances 4,856 6,957
Long-term debt 38 1,720
Other liabilities 10,043 10,023
-----------------------------------
Total liabilities 965,771 967,072
-----------------------------------
Shareholders' Equity
Common stock 10,942 10,888
Additional paid-in capital 34,382 34,125
Retained earnings 65,926 59,751
Reduction for ESOP loan guarantee -- (320)
Common stock in treasury, at cost (306) (306)
Accumulated other comprehensive income (loss) 870 (399)
-----------------------------------
Total shareholders' equity 111,814 103,739
-----------------------------------
Total liabilities and shareholders' equity $1,077,585 $1,070,811
===================================
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
Three months ended
March 31,
1998 1997
-----------------------------------
(amounts in thousands,
except per share data)
Interest income $ 22,931 $ 22,067
Interest expense 9,839 9,713
-----------------------------------
Net interest income 13,092 12,354
Provision for loan losses 507 661
Noninterest income 3,503 2,083
Noninterest expense 10,685 9,647
Income tax expense 1,873 1,263
-----------------------------------
Net income $ 3,530 $ 2,866
===================================
Weighted average common shares outstanding
assuming dilution 11,137 11,093
Net income per share assuming dilution $ 0.32 $ 0.26
Dividends declared per share $ 0.1075 $ 0.1025
</TABLE>
<PAGE>
CenturySouthbanks
- -------------------------------------------------------------------------
Inc.
Executive Officers
- -------------------------------------------------------------------------------
William H. Anderson, II Chairman
J. Russell Ivie Vice Chairman
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
Affiliates
- -------------------------------------------------------------------------------
Bank of Dahlonega Gwinnett National Bank
60 Main Street West 3200 Peachtree Industrial Boulevard
Dahlonega, GA 30533 Duluth, GA 30136
John L. Lewis, President Terry C. Evans, President
706-864-3314 770-497-9797
The Bank of Ellijay First Community Bank of Dawsonville
Sand and Broad Street 136 Highway 400 South
Ellijay, GA 30540 Dawsonville, GA 30534
C. Paul Nealey, President W. 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 Daniel M. Forrester, President
706-745-5571 912-757-2000
Fannin County Bank, N.A. Ameribank, N.A.
480 W. First Street 7393 Hodgson Memorial Drive
Blue Ridge, GA 30513 Savannah, GA 31406
Steve M. Eaton, President J. Thomas Wiley, Jr., President
706-632-2075 912-232-3800
<PAGE>
FINANCIAL HIGHLIGHTS (Unaudited)
<TABLE>
<CAPTION>
Selected Balances
- -----------------------------------------------------------------------------------------
As of March 31,
1998 1997 Percentage Change
------------------------------------------------------
(amounts in thousands, except per share data)
<S> <C> <C> <C>
Loans, net $ 753,313 $ 688,790 9.37%
Deposits 950,444 948,072 0.25
Total assets 1,077,585 1,070,811 0.63
Shareholders' equity 111,814 103,739 7.78
Net income 3,530 2,866 23.17
Book value per share 10.27 9.58 7.20
Net income per share assuming dilution 0.32 0.26 23.08
Weighted average common shares outstanding
assuming dilution 11,137 11,093 .40
Nonperforming loans 5,578 3,283 69.91
Other real estate and other
nonperforming assets 2,702 2,884 (0.63)
Financial Ratios
- ---------------------------------------------------------------------------------0-----------
Return on average assets 1.35% 1.12% 20.54%
Return on average shareholders' equity 12.93 11.30 14.42
Net interest margin (taxable equivalent) 5.48 5.34 2.62
Allowance for loan losses to loans 1.64 1.52 7.89
Nonperforming assets to total assets 0.77 0.58 32.76
</TABLE>
<PAGE>
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
Stock Information
Century South Banks, Inc. ("CSBI") lists its stock for trading on the National
Association of Securities Dealers Automated Quotations System ("NASDAQ"). The
ticker tape symbol is "CSBI". Market price for the quarter ended March 31, 1998:
Three month high ................. $ 25.75
Three month low .................. $ 23.50
Closing price .................... $ 24.75
- --------------------------------------------------------------------------------
Shareholder Services
Shareholders wishing to change the name or address on their stock, to report
lost certificates or to consolidate accounts should contact:
Century South Banks, Inc.
Shareholder Relations
P.O. Box 1000
Dahlonega, Georgia 30533
(706) 864-1111
- --------------------------------------------------------------------------------
Dividend Reinvestment Plan/Cash Contributions
Shareholders wishing to automatically reinvest quarterly dividends into Century
South Banks, Inc. common stock or make voluntary cash contributions should
contact:
Century South Banks, Inc.
Dividend Reinvestment Plan/Cash Contributions
P.O. Box 1000
Dahlonega, Georgia 30533
(706) 864-1111
- --------------------------------------------------------------------------------
Investor Relations
Shareholders, analysts, and others seeking financial information on Century
South Banks, Inc. should contact one of the following:
James A. Faulkner Susan J. Anderson Joseph W. Evans
Vice Chairman & CEO Senior Vice President & Controller President, COO & CFO
(706) 864-3915 (706) 864-3915 (912) 475-4340
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 40,666
<INT-BEARING-DEPOSITS> 9,498
<FED-FUNDS-SOLD> 59,380
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 126,619
<INVESTMENTS-CARRYING> 36,518
<INVESTMENTS-MARKET> 37,484
<LOANS> 765,854
<ALLOWANCE> 12,541
<TOTAL-ASSETS> 1,077,585
<DEPOSITS> 950,444
<SHORT-TERM> 390
<LIABILITIES-OTHER> 10,043
<LONG-TERM> 4,894
0
0
<COMMON> 10,942
<OTHER-SE> 100,872
<TOTAL-LIABILITIES-AND-EQUITY> 1,077,585
<INTEREST-LOAN> 19,563
<INTEREST-INVEST> 2,553
<INTEREST-OTHER> 815
<INTEREST-TOTAL> 22,931
<INTEREST-DEPOSIT> 9,735
<INTEREST-EXPENSE> 9,839
<INTEREST-INCOME-NET> 13,092
<LOAN-LOSSES> 507
<SECURITIES-GAINS> 18
<EXPENSE-OTHER> 10,685
<INCOME-PRETAX> 5,403
<INCOME-PRE-EXTRAORDINARY> 5,403
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,530
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
<YIELD-ACTUAL> 5.48
<LOANS-NON> 5,578
<LOANS-PAST> 1,584
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,339
<CHARGE-OFFS> 515
<RECOVERIES> 210
<ALLOWANCE-CLOSE> 12,541
<ALLOWANCE-DOMESTIC> 12,541
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 45,136
<INT-BEARING-DEPOSITS> 19,842
<FED-FUNDS-SOLD> 65,050
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 152,978
<INVESTMENTS-CARRYING> 42,702
<INVESTMENTS-MARKET> 0
<LOANS> 699,448
<ALLOWANCE> 10,658
<TOTAL-ASSETS> 1,070,811
<DEPOSITS> 948,072
<SHORT-TERM> 300
<LIABILITIES-OTHER> 10,023
<LONG-TERM> 8,677
0
0
<COMMON> 10,888
<OTHER-SE> 92,851
<TOTAL-LIABILITIES-AND-EQUITY> 1,070,811
<INTEREST-LOAN> 18,335
<INTEREST-INVEST> 3,213
<INTEREST-OTHER> 519
<INTEREST-TOTAL> 22,067
<INTEREST-DEPOSIT> 9,565
<INTEREST-EXPENSE> 9,713
<INTEREST-INCOME-NET> 12,354
<LOAN-LOSSES> 661
<SECURITIES-GAINS> 156
<EXPENSE-OTHER> 9,647
<INCOME-PRETAX> 4,129
<INCOME-PRE-EXTRAORDINARY> 4,129
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,866
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
<YIELD-ACTUAL> 5.34
<LOANS-NON> 3,283
<LOANS-PAST> 1,763
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 10,414
<CHARGE-OFFS> 417
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 10,658
<ALLOWANCE-DOMESTIC> 10,658
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
