<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10Q
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the period ended September 30, 1999
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: 0-26254
-------
Century South Banks, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1455591
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
60 Main Street West, P O Box 1000, Dahlonega, Georgia 30533
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(706) 864-1111
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF OCTOBER 31, 1999
- --------------------------------------------------------------------------------
Common stock, $1.00 par value 11,626,356
<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 10
Item 3. Market Risk Disclosure 19
Part II. Other Information
-----------------
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------------------------------------------
(amounts in thousands, except share data)
<S> <C> <C>
Assets
- ------
Cash and due from banks $ 39,442 51,420
Federal funds sold 14,380 30,550
Interest-earning deposits in other banks 2,444 4,949
Investment securities:
Available for sale 174,045 131,264
Held to maturity (fair value: September
30, 1999 - $23,119 and December 31,
1998 - $41,271) 22,608 40,302
Loans, net of unearned income 926,319 846,888
Less allowance for loan losses 13,815 13,035
---------- ---------
Loans, net 912,504 833,853
---------- ---------
Premises and equipment, net 26,692 25,300
Goodwill and other intangibles, net 4,295 4,637
Other assets 25,766 24,445
---------- ---------
Total assets $1,222,176 1,146,720
========== =========
Liabilities and Shareholders' Equity
- ------------------------------------
Liabilities:
Deposits:
Noninterest-bearing demand deposits $ 137,282 143,008
Interest-bearing deposits 892,278 850,300
---------- ---------
Total deposits 1,029,560 993,308
Federal funds purchased 10,895 -
Federal Home Loan Bank advances 39,205 16,280
Long-term debt 32 35
Other short-term borrowings 200 -
Accrued expenses and other liabilities 11,429 11,045
---------- ---------
Total liabilities 1,091,321 1,020,668
---------- ---------
Shareholders' Equity:
Common Stock-$1 par value. Authorized
30,000,000 shares; issued 11,768,356
and 11,787,334 shares at September 30, 1999
and December 31, 1998, respectively; and
outstanding 11,768,356 and 11,701,435
shares at September 30, 1999 and December
31, 1998, respectively 11,768 11,787
Additional paid-in capital 36,002 36,106
Retained earnings 85,805 78,219
Unearned compensation-restricted stock awards (795) -
Common stock in treasury (0 shares at
September 30, 1999 and 85,899 shares at
December 31, 1998), at cost - (1,051)
Accumulated other comprehensive income (loss) (1,925) 991
---------- ---------
Total shareholders' equity 130,855 126,052
---------- ---------
Total liabilities and shareholders' equity $1,222,176 1,146,720
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
-------------------------------------------------------------------
(amounts in thousands, except
per share data)
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees $ 22,103 21,915 64,648 64,381
Federal funds sold 330 525 1,214 1,697
Interest on deposits in other banks 20 199 144 617
Investment securities:
Taxable 2,389 1,879 6,233 6,175
Nontaxable 589 674 1,868 2,072
-------- ------- ------- -------
Total interest income 25,431 25,192 74,107 74,942
-------- ------- ------- -------
Interest expense:
Deposits 9,956 10,641 29,264 31,920
Federal funds purchased 147 10 390 29
Federal Home Loan Bank advances 366 124 748 272
Long-term debt and other borrowings 3 9 16 43
-------- ------- ------- -------
Total interest expense 10,472 10,784 30,418 32,264
-------- ------- ------- -------
Net interest income 14,959 14,408 43,689 42,678
Provision for loan losses 564 613 1,743 1,727
-------- ------- ------- -------
Net interest income after
provision for loan losses 14,395 13,795 41,946 40,951
-------- ------- ------- -------
Noninterest income:
Service charges on deposit accounts 1,523 1,620 4,541 4,918
Securities gains, net 32 251 472 289
Other operating income 1,372 1,267 4,213 4,816
-------- ------- ------- -------
Total noninterest income 2,927 3,138 9,226 10,023
-------- ------- ------- -------
Noninterest expense:
Salaries and employee benefits 6,510 6,284 19,098 18,805
Net occupancy and equipment expense 1,685 1,554 4,910 4,627
Other operating expenses 3,013 3,157 9,458 9,803
-------- ------- ------- -------
Total noninterest expense 11,208 10,995 33,466 33,235
-------- ------- ------- -------
Income before income taxes 6,114 5,938 17,706 17,739
Income tax expense 2,015 1,994 5,910 5,954
-------- ------- ------- -------
Net income $ 4,099 3,944 11,796 11,785
======== ======= ======= =======
Net income per share:
Basic $ 0.35 0.34 1.01 1.01
======== ======= ======= =======
Diluted $ 0.35 0.33 1.00 0.99
======== ======= ======= =======
Cash dividends declared per share $0.12000 0.11000 0.36000 0.32625
======== ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1999 1998
-------------------------
(amounts in thousands)
<S> <C> <C>
Net cash provided by operating activities $ 14,957 17,055
--------- --------
Cash flows from investing activities:
Proceeds from sales of investment securities available for sale 8,016 338
Principal collections and maturities of investment securities:
Available for sale 37,052 53,155
Held to maturity 3,246 10,601
Proceeds from maturities of interest-earning deposits 151,487 148,417
Purchases of investment securities held to maturity - (846)
Purchases of investment securities available for sale (77,570) (20,361)
Investment in interest-earning deposits (148,981) (127,221)
Net increase in loans (81,358) (54,770)
Proceeds from sales of real estate acquired through foreclosure 2,247 1,558
Purchases of premises and equipment (3,698) (2,663)
Proceeds from sale of premises and equipment 165 301
Purchase of life insurance contracts - (1,662)
--------- --------
Net cash (used in) provided by investing activities (109,394) 6,847
--------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits 36,252 (16,587)
Net increase (decrease) in federal funds purchased 10,895 (150)
Net increase in other short-term borrowings 200 -
Proceeds from issuance of Federal Home Loan Bank advances 25,000 6,425
Payments on long-term debt and Federal Home Loan
Bank advances (2,078) (7,163)
Dividends paid to shareholders (4,023) (3,803)
Purchase of treasury stock (345) -
Proceeds from issuance of common stock 388 824
--------- --------
Net cash provided by (used in) financing activities 66,289 (20,454)
--------- --------
Net (decrease) increase in cash and cash equivalents (28,148) 3,448
Cash and cash equivalents at beginning of period 81,970 78,801
--------- --------
Cash and cash equivalents at end of period $ 53,822 82,249
========= ========
Supplemental disclosure of cash paid during the period for:
Interest $ 30,681 32,940
========= ========
Income taxes $ 6,043 2,342
========= ========
Supplemental schedule of noncash investing and financing
Activities:
Real estate acquired through foreclosure $ 1,176 4,970
========= ========
Real estate sold and financed by the Company $ 213 1,223
========= ========
Treasury stock issued by the Company in merger $ 98 -
========= ========
</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, National Association, ("GFB"), Fannin County Bank,
N.A. ("FCB"), First Community Bank of Dawsonville ("FCBD"), Peoples Bank
("PBL"), Bank of Danielsville ("DAN"), First South Bank, National Association
("FSB"), AmeriBank, National Association ("AMB") and The Independent Bank of
Oxford ("IBO") (collectively "the Company").
These accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do not
include all information and notes necessary for a fair presentation of financial
position, results of operations, and cash flows in conformity with generally
accepted accounting principles. All adjustments consisting of normal recurring
accruals which, in the opinion of management, are necessary for a fair
presentation of the financial position and results of operations for the periods
covered by this report have been included.
(2) Statement No. 130 "Reporting Comprehensive Income"
--------------------------------------------------
Effective January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"). This statement establishes standards for reporting and displaying
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 financial statements,
enterprises are required to disclose a total for comprehensive income in those
financial statements. The term "comprehensive income" is used in the statement
to describe the total of all components of comprehensive income including net
income. "Other comprehensive income" for the Company consists of items recorded
directly in shareholders' equity under SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities".
Total comprehensive income for the three months ended September 30, 1999 was
$3,580,000 compared to $4,338,000 for the three months ended September 30, 1998.
Total comprehensive income for the nine months ended September 30, 1999 was
$8,880,000 as compared to $12,326,000 for the nine months ended September 30,
1998.
(3) Long-Term Debt and Short-Term Borrowings
----------------------------------------
On January 30, 1999, the Company renewed a $15,000,000 revolving line of credit
with a bank which is payable on demand and matures on January 30, 2000. The
line of credit accrues interest at the Prime Lending Rate minus one percent
(1%), as defined in the agreement, and is due quarterly. The line of credit is
secured by 100% of the outstanding common stock of three of the Company's
subsidiaries. As of September 30, 1999, there were no advances under this line
of credit.
6
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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. At September 30, 1999, the total advances under these lines approximated
$39.2 million. During the third quarter of 1999, two subsidiaries drew a total
of $25 million on their lines of credit. These advances mature at various dates
through June 2008. 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.
(4) Recent acquisition
------------------
In second quarter 1999, the Company completed the merger with Independent
Bancorp, Inc. ("IBC") and its subsidiary bank, The Independent Bank of Oxford in
Oxford, Alabama. The Company issued approximately 699,108 shares of its common
stock in exchange for all of the issued and outstanding shares of IBC. This
acquisition was accounted for as a pooling of interests and, accordingly, all
financial information preceding the date of acquisition has been restated to
include the financial position and results of operations of the acquired entity.
The Company's consolidated financial statements for the three and nine months
ended September 30, 1999 and September 30, 1998 have been restated for the
merger with IBC as follows:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
(Amounts in thousands) 1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest income:
Century South Banks, Inc. exclusive
of acquisition amounts $23,429 23,217 68,150 69,354
Independent Bancorp, Inc. and
Subsidiary 2,002 1,975 5,957 5,588
------- ------ ------ ------
Total $25,431 25,192 74,107 74,942
======= ====== ====== ======
Net interest income:
Century South Banks, Inc. exclusive
of acquisition amounts $13,991 13,513 40,844 40,087
Independent Bancorp, Inc. and
Subsidiary 968 895 2,845 2,591
------- ------ ------ ------
Total $14,959 14,408 43,689 42,678
======= ====== ====== ======
Noninterest income:
Century South Banks, Inc. exclusive
of acquisition amounts $ 2,622 2,984 8,417 9,590
Independent Bancorp, Inc. and
Subsidiary 305 154 809 433
------- ------ ------ ------
Total $ 2,927 3,138 9,226 10,023
======= ====== ====== ======
Net income:
Century South Banks, Inc. exclusive
of acquisition amounts $ 3,838 3,623 10,797 10,783
Independent Bancorp, Inc. and
Subsidiary 261 321 999 1,002
------- ------ ------ ------
Total $ 4,099 3,944 11,796 11,785
======= ====== ====== ======
</TABLE>
7
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
(5) Recent Accounting Pronouncements
--------------------------------
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. In June 1999, FASB issued Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Instruments and Hedging Activities
- - Deferral of the Effective Date of FASB Statement No. 133: ("SFAS 137"). SFAS
137 amends the effective date of implementation of SFAS 133 to all fiscal
quarters of fiscal years beginning after June 15, 2000. The Company has not yet
determined the impact of SFAS 133 on the Company's financial statements.
Effective January 1, 1999, the Company adopted SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of Mortgage Loans
Held for Sale by a Mortgage-Banking Enterprise, an Amendment of FASB Statement
No. 65" ("SFAS 134"). There was no impact on the Company's financial statements
upon adoption of SFAS 134.
(6) Pending Acquisitions
--------------------
On August 5, 1999, the Company and Haywood Bancshares, Inc. entered into an
Agreement and Plan of Merger whereby Haywood would be merged with a wholly-owned
subsidiary of Century South and Haywood's shareholders would receive
approximately $21.30 in a combination of cash and Company common stock for each
share of Haywood's common stock based on the current value of Century South
stock. The merger is subject to customary terms and conditions including
shareholder and regulatory approvals and is expected to close in the first
quarter of 2000. The merger will be accounted for as a purchase.
On October 25, 1999, the Company and Lanier Bankshares, Inc. entered into a
definitive agreement and plan of merger whereby Century South will acquire
Lanier and its bank subsidiary, Lanier National Bank. The definitive merger
agreement, which resulted out of a letter of intent signed and announced by the
parties on August 25, 1999, is valued at $39,650,000 or $31.00 per diluted
share. The merger will be accounted as a pooling of interests and is expected
to close in the first quarter of 2000.
(7) Subsequent Events
-----------------
In August of 1999, the Company announced plans to consolidate its two Georgia
headquarters into one office located in Alpharetta, Georgia, a suburb of
Atlanta. The dual Georgia headquarters had resulted from a previously
consummated merger transaction. The Company also announced plans to build a
single identity for its 11 different bank brands. When the Company's single
bank brand initiative is completed, all of the Company's banks will operate
under the "Century South Bank" brand name with a geographic identifier attached.
For example, after the merger, Haywood Savings is expected to operate under the
name "Century South Bank of the Carolinas." Each of the Company's banks will
continue to foster and promote the Company's community bank philosophy of
autonomous decision-making and responsive, personal service.
8
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
In connection with the headquarters consolidation and single bank brand
initiative, the Company expects to record merger-related charges of
approximately $1.8 million, after taxes, during the fourth quarter of 1999.
While this is the Company's best estimate of the expected costs of the merger-
related integration plan, there can be no assurance that the Company will not
incur additional charges in excess of its estimate. The non-recurring charge
includes costs to: (i) move the Company's Dahlonega and Macon, Georgia
headquarters to Alpharetta, Georgia; (ii) reduce employment at the two
headquarters and pay related severance benefits; (iii) rename the Company's
banks and market the uniform "Century South Bank" brand name; (iv) revise and
update operating policies and procedures; and (v) write-off redundant and
outdated equipment.
On October 21, 1999, the Company announced a stock repurchase program whereby
the Company will repurchase up to 550,000 shares of its common stock. As of
November 5, 1999, the Company had repurchased a total of 234,000 shares of its
common stock.
9
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
-------
The following is a discussion of the Company's financial condition at September
30, 1999, compared to December 31, 1998, and results of operations for the three
and nine month periods ended September 30, 1999, compared to the three and nine
month periods ended September 30, 1998. This discussion should be read in
conjunction with the Company's unaudited consolidated financial statements and
accompanying notes appearing elsewhere in this report.
FINANCIAL CONDITION
-------------------
During the first nine months of 1999, total assets increased $75.5 million or
approximately 6.6%, primarily due to increases in net loans of $78.7 million and
investment securities of $25.1 million. These increases were funded by deposit
growth of $36.3 million, a decrease in federal funds sold of $16.2 million, and
increases in federal funds purchased of $10.9 million and long-term debt of
$22.9 million.
The amortized cost, gross unrealized gains and losses, and estimated fair value
of available for sale and held to maturity securities by type at September 30,
1999 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Estimated
(amounts in thousands) cost Gains Losses fair value
- -------------------------------------------------------------------------------------------------
Available for sale:
<S> <C> <C> <C> <C>
U.S. Treasury and U.S.
Government agencies $ 89,990 257 (2,303) 87,944
State, county and
municipal securities 23,264 555 (133) 23,686
Mortgage-backed securities 14,974 82 (197) 14,859
Other debt securities 41,743 36 (1,417) 40,362
Equity securities 7,102 108 (16) 7,194
------------------------------------------------
$177,073 1,038 (4,066) 174,045
------------------------------------------------
Held to maturity:
U.S. Government agencies $ 333 14 - 347
State, county and
municipal securities 19,986 441 (17) 20,410
Mortgage-backed securities 336 5 (1) 340
Other debt securities 1,953 69 - 2,022
------------------------------------------------
$ 22,608 529 (18) 23,119
------------------------------------------------
</TABLE>
Balances within the major deposit categories as of September 30, 1999 and
December 31, 1998 are shown below:
<TABLE>
<CAPTION>
(amounts in millions)
September 30, December 31,
1999 1998
-------------------------- ----------------------
<S> <C> <C>
Noninterest-bearing demand deposits $ 137.3 143.0
Interest-bearing demand deposits 149.1 156.5
Money market accounts 141.9 121.5
Savings deposits 55.4 55.6
Certificates of deposit and
Individual retirement accounts
of $100,000 or more 170.7 156.0
Other individual retirement accounts 52.9 53.1
Other certificates of deposit 322.3 307.6
-------- -----
$1,029.6 993.3
======== =====
</TABLE>
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
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, its liquidity position, and its interest sensitivity gap. The
Company may also utilize its cash and due from banks, interest-earning deposits
in other banks, and federal funds sold to meet liquidity requirements as needed.
At September 30, 1999, the Company's cash and due from banks was $39.4 million,
its federal funds sold were $14.4 million, its interest-earning deposits in
other banks were $2.4 million, and its investment securities designated as
available for sale were $174.0 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 $43.7 million, in addition to credit, which is available in the
form of 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.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (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 September 30, 1999.
<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 $ 321,902 173,940 495,842 478,680 974,522 151,459 1,125,981
Interest-sensitive
liabilities 484,906 346,481 831,387 107,018 938,405 4,205 942,610
--------- -------- -------- ------- ------- ------- ---------
Interest-sensitivity gap $(163,004) (172,541) (335,545) 371,662 36,117 147,254 183,371
========= ======== ======== ======= ======= ======= =========
Ratio of interest-sensitive
assets to interest-
sensitive liabilities 0.66 0.50 0.60 4.47 1.04 36.02 1.19
========= ======== ======== ======= ======= ======= =========
</TABLE>
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 September 30, 1999, the Company was slightly below this
range. However, this slight deviation is not considered significant due to the
nature of sensitivity. For example, 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 purpose 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.
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.
Net interest income for the three months ended September 30, 1999 increased
$551,000 or 3.82% over the same period of 1998. For the nine months ended
September 30, 1999, net interest income was $43,689,000 representing an increase
of $1,011,000 or 2.37% as compared to the nine months ended September 30, 1998.
These increases were caused by volume increases offset by a decline in average
rates. The average yield earned on interest-earning assets, on a tax equivalent
basis, decreased to 9.04% for the nine months ended September 30, 1999 from
9.50% for the nine months ended September 30, 1998 and the average rate paid on
interest-bearing liabilities decreased to 4.46% for the
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
nine months ended September 30, 1999 from 4.88% for the nine months ended
September 30, 1998. The Company's interest rate differential decreased to 4.58%
from 4.62% and its net interest margin (net interest income divided by average
interest-earning assets) decreased to 5.36% for the first nine months of 1999
from 5.45% for the same period of 1998. The Company's net interest margin for
the quarter ended September 30, 1999 was 5.28% compared to 5.43% for the quarter
ended September 30, 1998.
Allowance for Loan Losses
- -------------------------
The Company maintains an allowance for loan losses appropriate for the quality
of the loan portfolio and sufficient to meet anticipated future loan losses.
The Company utilizes a comprehensive loan review and risk identification process
and the analysis of affiliate Banks' financial trends to determine the adequacy
of the allowance. Many factors are considered when evaluating the allowance.
The Company's quarterly analysis is based on historical loss trends; migration
trends in criticized and classified loans in the portfolio; trends in past due
and nonaccrual loans; trends in portfolio volume, composition, maturity, and
concentrations; changes in local and regional economic market conditions; the
accuracy of the loan review and risk identification system; and the experience,
ability, and depth of lending personnel and management.
In determining the appropriate level of the allowance for each affiliate bank,
the Company relies primarily on analysis of the major components of the loan
portfolio such as commercial loans, commercial real estate loans, consumer
loans, construction loans, residential real estate loans, and all other loans
and unfunded commitments. The Company has established a minimum loss factor for
certain problem loan grade categories and for general categories of non-
performing loans. All significant problem loans are reviewed individually to
establish either the minimum loss factor (formula) or a specific reserve higher
than the formula. All significant non-problem loans are reserved at the greater
of the minimum loss rate for the category of loans or the weighted average
historical loss rate over a defined loss horizon as computed from the migration
analysis. Other homogenous loan pools such as the consumer loans, construction
loans, and residential mortgage loans are reserved at the greater of the minimum
loss rate or the weighted average historical loss rate as computed in the
migration analysis.
Management evaluates the allowance on a quarterly basis. The provision for loan
losses for each affiliate bank is adjusted to the appropriate level based on the
analysis methodology described above.
A substantial portion of the Company's loan portfolio is secured by real estate
in markets in northern, middle and coastal Georgia, southeastern Tennessee,
southwestern North Carolina and eastern Alabama. 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 1.49% of outstanding loans at
September 30, 1999 as compared to 1.54% at December 31, 1998 and 1.56% at
September 30, 1998. The allowance increased to $13,815,000 at September 30, 1999
from $13,035,000 at December 31, 1998 and $13,436,000 at September 30, 1998.
The provision for loan losses increased to $1,743,000 for the nine months ended
September 30, 1999 from $1,727,000 for the nine months ended
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
September 30, 1998. Net loan charge offs for the nine months ended September 30,
1999 were $963,000 as compared to $1,144,000 for the nine months ended September
30, 1998. Net loans charged off as a percentage of average loans was 0.14% for
the nine months ended September 30, 1999 as compared to 0.14% for the nine
months ended September 30, 1998.
The table below summarizes the changes in the allowance for loan losses for the
nine months ended September 30, 1999 and the year ended December 31, 1998.
September 30, December 31,
1999 1998
------------- ------------
Allowance for loan losses at
beginning of year $13,035 12,853
Loans charged off 1,968 3,193
Recoveries on loans previously
charged off 1,005 798
------- ------
Net loans charged off 963 2,395
Allowances for loan losses of
loans of bank subsidiary sold - (558)
Provision for loan losses
charged to income 1,743 3,135
------- ------
Allowance for loan losses at
end of period $13,815 13,035
======= ======
Nonperforming Loans, Nonperforming Assets, and Underperforming Loans
- --------------------------------------------------------------------
Nonperforming loans include nonaccrual loans. The Company has not restructured
any loans of significance through September 30, 1999. Underperforming loans
include loans, which are past due with respect to principal or interest more
than 90 days and still accruing interest. Nonperforming assets include
nonperforming loans, underperforming loans, real estate acquired through
foreclosure, securities that are in default, and other repossessed assets.
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.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
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 below provides information concerning nonperforming loans,
underperforming loans, nonperforming assets, and certain asset quality ratios
at September 30, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- ------------
(amounts in thousands, except ratios and percentages)
<S> <C> <C>
Nonperforming loans $4,248 4,631
Other nonperforming assets 3,358 4,773
Underperforming loans 895 841
------ ------
Nonperforming assets $8,501 10,245
====== ======
Asset Quality Ratios:
Nonperforming loans to total loans,
net of unearned income 0.46% 0.55%
====== ======
Nonperforming assets to total loans,
net of unearned income, real estate
acquired through foreclosure, and
other repossessed assets 0.91% 1.20%
====== ======
Allowance for loan losses to
Nonperforming loans 3.25x 2.81x
====== ======
Underperforming loans to total loans,
net of unearned income 0.10% 0.10%
====== ======
</TABLE>
Noninterest Income
- ------------------
Noninterest income for the third quarter of 1999 decreased $211,000 or 6.7% as
compared to the same period of 1998. This decrease was primarily due to a
decrease in service charges on deposit accounts of $97,000 and a decrease in net
securities gains of $219,000. Noninterest income for the nine months ended
September 30, 1999 decreased $797,000 or 8.0% as compared to the same period of
1998. This decrease was primarily due to a gain on the sale of a branch in the
first quarter of 1998 of approximately $710,000 and a decrease in service
charges on deposit accounts of $377,000. This decrease was partially offset by
an increase in net securities gains of $183,000.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Noninterest Expense
- -------------------
The $213,000 or 1.9% increase in noninterest expense for the third quarter of
1999 as compared to the third quarter of 1998 was primarily due to an increase
in salary and benefit expense of $226,000 and an increase in net occupancy and
equipment expense of $131,000. The $231,000 increase in noninterest expense for
the nine months ended September 30, 1999 as compared to the same period of 1998
was primarily due to an increase in salary and employee benefits of $293,000, an
increase in net occupancy and equipment expense of $283,000 and an increase due
to special charges taken in the first quarter of 1999 of approximately $360,000
associated with the acquisition of Independent Bancorp, Inc.. These increases
were offset by a decrease in amortization expense of $185,000 taken in the first
quarter of 1998 on the sale of a branch as mentioned above and decreases in
microfiche/microfilm expenses of $86,000 due to the implementation of optical
disk storage technology, decreases in ATM related expenses, stationery and
supplies, and credit card expenses of $154,000, $72,000 and $71,000,
respectively.
Income Tax Expense
- ------------------
The third quarter 1999 income tax expense was approximately $2,015,000, or an
effective rate of 33.0%, as compared to $1,994,000 for the third quarter of
1998, or an effective rate of 33.6%. During the first nine months of 1999
income tax expense was approximately $5,910,000, or an effective rate of 33.4%,
as compared to approximately $5,954,000 for the first nine months of 1998, or an
effective rate of 33.6%.
Net Income
- ----------
The Company's third quarter 1999 net earnings were $0.35 per diluted share or
$4,099,000 as compared to $0.33 per diluted share or $3,944,000 for the third
quarter of 1998, representing an increase in net earnings of 6.1%. Net earnings
for the nine months ended September 30, 1999 were $1.02 per diluted share or
$12,043,000, exclusive of special charges taken in the first quarter of 1999 of
approximately $247,300 net of related taxes associated with the acquisition of
Independent Bancorp, Inc. Net earnings for the nine months ended September 30,
1998 were $0.96 per diluted share or $11,430,000, exclusive of an after-tax gain
of $355,000 taken in the first quarter of 1998 on the sale of a branch as
previously mentioned.
Performance Ratios
- ------------------
Performance of banks is often measured by various ratio analyses. Two widely
recognized performance indicators are return on average equity and return on
average assets. The return on average equity for the nine months ended
September 30, 1999 was 12.30% (annualized) as compared to 13.15% (annualized)
for the nine months ended September 30, 1998. The Company's return on average
assets was 1.33% (annualized) and 1.37% (annualized) for the nine month periods
ended September 30, 1999 and 1998, respectively.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Capital Resources
- -----------------
The Company is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory, and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Company's consolidated financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk weightings,
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company on a consolidated basis, and the Parent company and
subsidiary banks individually, to maintain minimum amounts and ratios (set forth
in the table below) of total and Tier 1 capital, (as defined in the
regulations), to risk-weighted assets (as defined) and of Tier 1 capital to
average assets. Management believes, as of September 30, 1999 that the Company
meets all capital adequacy requirements to which it is subject.
The Company's actual capital amounts and ratios are presented below on a
consolidated basis:
<TABLE>
<CAPTION>
For
Capital
Actual Adequacy Purposes
--------------------------------------------------------------------------------------------
Amount Ratio Amount Ratio
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
As of September 30,1999:
Total Capital (to Risk Weighted
Assets): $140,721 15.6% (equal to or greater than) $72,180 (equal to or greater than) 8.0%
Tier 1 Capital (to Risk Weighted
Assets): $129,363 14.3% (equal to or greater than) $36,090 (equal to or greater than) 4.0%
Tier 1 Capital (to Average Assets): $129,363 10.1% (equal to or greater than) $51,123 (equal to or greater than) 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 10.79% and its ratio of shareholders' equity to
assets of 10.71% at September 30, 1999.
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.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Year 2000
- ---------
The Year 2000 issue refers generally to the data structure problem that will
prevent systems from properly recognizing dates after the year 1999. For
example, computer programs and various types of electronic equipment that
process date information by reference to two digits rather than four to define
the applicable year may recognize a date using "00" as the year 1900 rather than
the year 2000. The Year 2000 problem may occur in computer software programs,
computer hardware systems and any device that relies on a computer chip if that
chip relies on date information. Even if the systems that process date-sensitive
data are Year 2000 compliant, a Year 2000 problem may exist to the extent that
the data that such systems process is not. In addition to evaluating the Year
2000 issues relative to its own systems, companies must also assess the ability
of the third parties upon which they rely to function on January 1, 2000 and
thereafter.
The Company has appointed a Year 2000 committee with a full-time Year 2000
coordinator to conduct a comprehensive review of its operational and financial
systems to determine how the year 2000 will impact operation of these systems.
The committee has developed a plan to identify all critical systems and
developed solutions for all systems that are found to not be Year 2000
compliant. Each Board of Directors of the affiliate banks as well as the Board
of Directors of the Company has reviewed the overall project plans for the banks
with progress toward completion monitored regularly. To date, confirmations have
been received from the Company's primary processing vendors and counterparties
that plans have been developed to address processing of transactions in the year
2000. The Company has reviewed all testing results to ensure accuracy and
complete preparedness. In addition, comprehensive testing plans have been
developed to ensure all critical applications will process normally in the Year
2000. Testing plans have also been developed in coordination with the Company's
core-processing vendor. Regular communications procedures have been established
between the core-processing vendor and the Company to ensure any future testing
of all applications are completed and thoroughly reviewed. Customer awareness
and preparedness is also a priority. Loan relationships which could be
materially affected by the Year 2000 issue are being identified and monitored.
An employee and customer awareness campaign began on September 1, 1998 and will
be ongoing through the remainder of 1999. Contingency plans have been developed
to ensure direction in the event a non-compliant system or component is
detected. Disaster recovery and business resumption plans, which have been
validated and tested, were developed based upon each Bank's unique structure.
These plans provide the Company direction in the event an unforeseen
circumstance arises due to the Year 2000. An unforeseen circumstance can be
anything from a vault not opening to a power failure to a natural disaster. All
plans were finalized, tested and implemented before the end of third quarter
1999.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Based upon the preliminary study, the Company expects to spend approximately,
$1,000,000 from 1998 through 1999 to modify its computer information systems.
The replacement of personal computers and software will be approximately
$500,000, which will be recorded as capital expenditures and amortized. The
remainder will be expensed as incurred and are not expected to have a material
effect on the Company's financial condition or results of operations for 1999.
The costs of the project have been derived from actual expenditures plus
estimated additional expenditures related to Year 2000 that have not yet been
incurred. The dates on which the Company anticipates completion of the project
along with the costs of the Year 2000 project are based upon management's
estimates, which were formulated utilizing assumptions centered on the Year 2000
impact. There are no guarantees that these estimates will be attained, and
actual results could differ in reality from those anticipated.
There can be no assurance that the Company's systems nor the systems of other
companies with whom the Company conducts business will be year 2000 compliant
prior to December 31, 1999 or that failure of any such system will not have a
material adverse effect on the Company's business, operating results and
financial condition.
ITEM 3 - MARKET RISK DISCLOSURE
The information called for concerning market risk of the Company is not included
as there have not been any significant changes in the market rate table as shown
in the Company's 1998 Annual Report filed on Form 10-K.
PART II. OTHER INFORMATION
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits
The following exhibits are attached:
Exhibit 11 Computation of Per Share Earnings
Exhibit 20 Shareholders' Report
Exhibit 27.1 Financial Data Schedule as of and for the nine
months ended September 30, 1999
Exhibit 27.2 Financial Date Schedule as of and for the nine
months ended September 30, 1998
(b) There were no reports filed on Form 8-K for the
quarter ended September 30, 1999.
19
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Century South Banks, Inc.
DATE: November 15, 1999 By: /s/ James A. Faulkner
----------------- --------------------------
James A. Faulkner
Vice Chairman and Chief
Executive Officer
DATE: November 15, 1999 By: /s/ Joseph W. Evans
----------------- --------------------------
Joseph W. Evans
President, Chief Operating
Officer and Chief Financial
Officer
20
<PAGE>
EXHIBIT 11
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Statement re Computation of Per Share Earnings
The following computations set forth the calculations of basic and diluted net
income per common share and common share equivalents for the three and nine
month periods ended September 30, 1999 and 1998.
Basic Diluted
Earnings Earnings
Per Share Per Share
----------- ------------
(amounts in thousands,
except per share data)
For the three months ended September 30, 1999:
Net income $ 4,099 4,099
======= ======
Weighted average number of common
shares outstanding 11,765 11,765
Common share equivalents resulting
from dilutive stock options - 71
------- ------
Adjusted weighted average number
of common and common equivalent
shares outstanding 11,765 11,836
======= ======
Net income per common share $ 0.35 0.35
======= ======
For the three months ended September 30, 1998:
Net income $ 3,944 3,944
======= ======
Weighted average number of common
shares outstanding 11,714 11,714
Common share equivalents resulting
from dilutive stock options - 173
------- ------
Adjusted weighted average number
of common and common equivalent
shares outstanding 11,714 11,887
======= ======
Net income per common share $ 0.34 0.33
======= ======
<PAGE>
Basic Diluted
Earnings Earnings
Per Share Per Share
----------- ------------
(amounts in thousands,
except per share data)
For the nine months ended September 30, 1999:
Net income $11,796 11,796
======= ======
Weighted average number of common
shares outstanding 11,745 11,745
Common share equivalents resulting
from dilutive stock options - 109
------- ------
Adjusted weighted average number
of common and common equivalent
shares outstanding 11,745 11,854
======= ======
Net income per common share $ 1.01 1.00
======= ======
For the nine months ended September 30, 1998:
Net income $11,785 11,785
======= ======
Weighted average number of common
shares outstanding 11,645 11,645
Common share equivalents resulting
from dilutive stock options - 220
------- ------
Adjusted weighted average number
of common and common equivalent
shares outstanding 11,645 11,865
======= ======
Net income per common share $ 1.01 0.99
======= ======
<PAGE>
EXHIBIT 20
CHIEF EXECUTIVE OFFICER'S MESSAGE
Dear Shareholder:
We are pleased to report net earnings for Century South Banks, Inc. for the
third quarter of 1999. Net income for the quarter was $4,099,000 or $0.35 per
diluted share as compared to $3,944,000 or $0.33 per diluted share for the third
quarter of 1998, representing an increase in net income of 3.9%. Year-to-date
earnings at September 30, 1999 were $12,043,000 or $1.02 per diluted share,
exclusive of special charges taken in the first quarter of 1999 of approximately
$247,300, net of related taxes, associated with the acquisition of Independent
Bancorp, Inc. Year-to-date earnings at September 30, 1998 were $11,430,000 or
$0.96 per diluted share, exclusive of an after-tax gain of $355,000 taken in the
first quarter of 1998 on the sale of a branch.
The quarterly cash dividend of $0.12 per share paid on October 6, 1999
represents a 9.10% increase over the same quarter of 1998 dividend.
The third quarter results reflect continued growth in earnings and assets,
as well as continued improvement in our asset quality. Total assets at September
30, 1999 were approximately $1,222,176,000. Return on assets was 1.33% for the
nine-month period. At September 30, 1999, our allowance for loan loss was very
strong, at approximately 1.50% of total loans outstanding. Our nonperforming
assets continue to trend downward, and were at 0.70% as a percentage of total
assets.
We continue to move forward with our previously announced acquisitions of
Haywood Bancshares, Inc., Waynesville, North Carolina, and Lanier Bankshares,
Inc., Gainesville, Georgia. We expect to complete these mergers in first
quarter 2000, which will add some $270 million in assets to our Company.
We appreciate the dedication of our committed staff of professional
bankers, and encourage your continued support of your Company.
Sincerely,
James A. Faulkner
Vice Chairman and
Chief Executive Officer
<PAGE>
Century South Banks, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
-------------------------------------
(amounts in thousands)
Assets
<S> <C> <C>
Cash and due from banks $ 39,442 $ 41,059
Federal funds sold 14,380 41,190
Interest-earning deposits in other banks 2,444 11,269
Investment securities 196,653 163,047
Loans, net of unearned income 926,319 860,146
Allowance for loan losses (13,815) (13,436)
Premises and equipment, net 26,692 26,907
Other assets 30,061 31,035
----------------------------------
Total assets $1,222,176 $1,161,217
==================================
Liabilities
Noninterest-bearing deposits $ 137,282 $ 135,377
Interest-bearing deposits 892,278 881,784
Other short-term borrowings 11,095 160
Federal Home Loan Bank advances 39,205 8,306
Long-term debt 32 36
Other liabilities 11,429 10,808
----------------------------------
Total liabilities 1,091,321 1,036,471
----------------------------------
Shareholders' Equity
Common stock 11,768 11,786
Additional paid-in capital 36,002 36,095
Retained earnings 85,805 75,902
Unearned compensation-restricted stock awards (795) -
Common stock in treasury, at cost - (306)
Accumulated other comprehensive income (1,925) 1,269
Total shareholders' equity 130,855 124,746
----------------------------------
Total liabilities and shareholders' equity $1,222,176 $1,161,217
==================================
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998* 1999 1998*
---------------------------------------------------------
<S> <C> <C> <C> <C>
(amounts in thousands, except per share data)
Interest income $ 25,431 $ 25,192 $ 74,107 $ 74,942
Interest expense 10,472 10,784 30,418 32,264
---------------------------------------------------------
Net interest income 14,959 14,408 43,689 42,678
Provision for loan losses 564 613 1,743 1,727
Noninterest income 2,927 3,138 9,226 10,023
Noninterest expense 11,208 10,995 33,466 33,235
Income tax expense 2,015 1,994 5,910 5,954
---------------------------------------------------------
Net income $ 4,099 $ 3,944 $ 11,796 $ 11,785
=========================================================
Weighted average common shares outstanding
assuming dilution 11,836 11,887 11,854 11,865
Net income per share assuming dilution $ 0.35 $ 0.33 $ 1.00 $ 0.99
Dividends declared per share $0.12000 $0.11000 $0.36000 $0.32625
</TABLE>
* First quarter of 1998 included an after-tax gain totaling $355,000
recognized on the sale of a branch. 1998 numbers have also been restated to
reflect the acquisition of Independent Bancorp, Inc.
<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
E. Max Crook Executive Vice President
J. Perry Hendrix Executive Vice President
J. Thomas Wiley, Jr. Executive Vice President
Sidney J. Wooten Executive Vice President
Directors
- -----------------------------------------------------------------------------
William H. Anderson, II, Chairman Thomas T. Folger, Jr.
J. Russell Ivie, Vice Chairman Quill O. Healey
James A. Faulkner, Vice Chairman Frank C. Jones
James R. Balkcom, Jr. John B. McKibbon, III
William L. Chandler E. Paul Stringer
Joseph W. Evans
Affiliates
- -----------------------------------------------------------------------------
Bank of Dahlonega Peoples Bank
60 Main Street West 13321 Jones Street
Dahlonega, GA 30533 Lavonia, GA 30553
John L. Lewis, President J. Douglas Cleveland, President
706-864-3314 706-356-8040
The Bank of Ellijay Bank of Danielsville
Sand and Broad Street Courthouse Square
Ellijay, GA 30540 Danielsville, GA 30633
Britt H. Henderson, President L. Banister Sexton, President
706-276-3400 706-795-2121
First Bank of Polk County First South Bank, N.A.
40 Ocoee Street 4951 Forsyth Road
Copperhill, TN 37317 Macon, GA 31210
James R. Quintrell, President E. Max Crook, President
Sidney J. Wooten, Chief Executive Officer 912-757-2000
423-496-3261
Georgia First Bank, N.A. AmeriBank, N.A.
455 Jesse Jewell Parkway 7393 Hodgson Memorial Drive
Gainesville, GA 30501 Savannah, GA 31406
James A. Faulkner, Chairman Heys E. McMath, III, President
J. Perry Hendrix, Interim President 912-232-3800
770-535-8000
Fannin County Bank, N.A. The Independent Bank of Oxford
480 W. First Street 402 Main Street
Blue Ridge, GA 30513 Oxford, AL 36203
Steve M. Eaton, President Joel B. Carter, President
706-632-2075 256-835-1776
First Community Bank of Dawsonville
136 Highway 400 South
Dawsonville, GA 30534
Gary L. Evans, President
706-216-5050
<PAGE>
Financial Highlights (Unaudited)
<TABLE>
<CAPTION>
Selected Balances
- --------------------------------------------------------------------------------------------------------------------
As of and for nine months
Ended September 30,
1999 1998* Percentage Change
---------------------------------------------------------------------
<S> <C> <C> <C>
(amounts in thousands, except per share data)
Loans, net $ 912,504 $ 846,710 7.78%
Deposits 1,029,560 1,017,161 1.22
Total assets 1,222,176 1,161,217 5.25
Shareholders' equity 130,855 124,746 4.90
Net income 11,796 11,785 0.09
Book value per share 11.12 10.64 4.51
Net income per share assuming dilution 1.00 0.99 1.01
Weighted average common shares outstanding
assuming dilution 11,854 11,865 (0.09)
Nonperforming loans 4,248 5,965 (28.78)
Other nonperforming assets 4,253 6,575 (35.32)
Financial Ratios
- --------------------------------------------------------------------------------------------------------------------
Return on average assets 1.33% 1.37% (2.92)%
Return on average shareholders' equity 12.30 13.15 (6.46)
Net interest margin (taxable equivalent) 5.36 5.45 (1.65)
Allowance for loan losses to loans 1.49 1.56 (4.49)
Nonperforming assets to total assets 0.70 1.08 (35.19)
</TABLE>
* First quarter of 1998 included an after-tax gain totaling $355,000 recognized
on the sale of a branch. 1998 numbers have also been restated to reflect the
acquisition of Independent Bancorp, Inc.
<PAGE>
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
Stock Information
Century South Banks, Inc. ("CSBI") lists its stock for trading on the Nasdaq
National Market tier of The Nasdaq Stock Market under the Symbol "CSBI". Market
prices for the quarter ended September 30, 1999 are as follows:
Three month high ......................... $ 25.00
Three month low .......................... $ 20.875
Closing price ............................ $ 23.00
- --------------------------------------------------------------------------------
Shareholder Services
Shareholders wishing to change the name or address on their stock, to report
lost certificates or to consolidate accounts should contact:
Registrar and Transfer Company
Attn: Investor Relations
10 Commerce Drive
Cranford, New Jersey 07016
(800) 368-5948
- --------------------------------------------------------------------------------
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:
Registrar and Transfer Company
Attn: Investor Relations
10 Commerce Drive
Cranford, New Jersey 07016
(800) 368-5948
- --------------------------------------------------------------------------------
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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 39,442
<INT-BEARING-DEPOSITS> 2,444
<FED-FUNDS-SOLD> 14,380
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 174,045
<INVESTMENTS-CARRYING> 22,608
<INVESTMENTS-MARKET> 23,119
<LOANS> 926,319
<ALLOWANCE> 13,815
<TOTAL-ASSETS> 1,222,176
<DEPOSITS> 1,029,560
<SHORT-TERM> 11,095
<LIABILITIES-OTHER> 11,429
<LONG-TERM> 39,237
0
0
<COMMON> 11,768
<OTHER-SE> 119,087
<TOTAL-LIABILITIES-AND-EQUITY> 1,222,176
<INTEREST-LOAN> 64,648
<INTEREST-INVEST> 8,101
<INTEREST-OTHER> 1,358
<INTEREST-TOTAL> 74,107
<INTEREST-DEPOSIT> 29,264
<INTEREST-EXPENSE> 30,418
<INTEREST-INCOME-NET> 43,689
<LOAN-LOSSES> 1,743
<SECURITIES-GAINS> 472
<EXPENSE-OTHER> 33,466
<INCOME-PRETAX> 17,706
<INCOME-PRE-EXTRAORDINARY> 17,706
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,796
<EPS-BASIC> 1.01
<EPS-DILUTED> 1.00
<YIELD-ACTUAL> 5.36
<LOANS-NON> 4,248
<LOANS-PAST> 895
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 13,035
<CHARGE-OFFS> 1,968
<RECOVERIES> 1,005
<ALLOWANCE-CLOSE> 13,815
<ALLOWANCE-DOMESTIC> 13,815
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 41,059
<INT-BEARING-DEPOSITS> 11,269
<FED-FUNDS-SOLD> 41,190
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 118,782
<INVESTMENTS-CARRYING> 44,265
<INVESTMENTS-MARKET> 46,272
<LOANS> 860,146
<ALLOWANCE> 13,436
<TOTAL-ASSETS> 1,161,217
<DEPOSITS> 1,017,161
<SHORT-TERM> 160
<LIABILITIES-OTHER> 10,808
<LONG-TERM> 8,342
0
0
<COMMON> 11,786
<OTHER-SE> 112,960
<TOTAL-LIABILITIES-AND-EQUITY> 1,161,217
<INTEREST-LOAN> 64,381
<INTEREST-INVEST> 8,247
<INTEREST-OTHER> 2,314
<INTEREST-TOTAL> 74,942
<INTEREST-DEPOSIT> 31,920
<INTEREST-EXPENSE> 32,264
<INTEREST-INCOME-NET> 42,678
<LOAN-LOSSES> 1,727
<SECURITIES-GAINS> 289
<EXPENSE-OTHER> 33,235
<INCOME-PRETAX> 17,739
<INCOME-PRE-EXTRAORDINARY> 17,739
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,785
<EPS-BASIC> 1.01
<EPS-DILUTED> 0.99
<YIELD-ACTUAL> 5.45
<LOANS-NON> 5,965
<LOANS-PAST> 1,770
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 12,853
<CHARGE-OFFS> 1,645
<RECOVERIES> 501
<ALLOWANCE-CLOSE> 13,436
<ALLOWANCE-DOMESTIC> 13,436
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
