<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, 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 APRIL 30, 1999
- ----------------------------- --------------------------------
Common stock, $1.00 par value 11,042,364
<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 17
Part II. Other Information
-----------------
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------- -----------
<S> <C> <C>
(amounts in thousands,
except share data)
Assets
- ------
Cash and due from banks $ 43,430 49,227
Federal funds sold 55,240 29,430
Interest-earning deposits in other banks 6,092 7,875
Investment securities:
Available for sale 105,861 117,177
Held to maturity (fair value: March
31, 1999 - $26,355 and December 31,
1998 - $27,521) 25,282 26,384
Loans, net of unearned income 806,342 788,020
Less allowance for loan losses 12,056 11,631
---------- ---------
Loans, net 794,286 776,389
---------- ---------
Premises and equipment, net 25,020 23,686
Goodwill and other intangibles, net 4,511 4,637
Other assets 19,956 20,147
---------- ---------
Total assets $1,079,678 1,054,952
========== =========
Liabilities and Shareholders' Equity
- ------------------------------------
Liabilities:
Deposits:
Noninterest-bearing demand deposits $ 126,806 135,788
Interest-bearing deposits 800,018 777,165
---------- ---------
Total deposits 926,824 912,953
Federal funds purchased 10,110 -
Other short-term borrowings 500 -
Federal Home Loan Bank advances 10,755 12,780
Long-term debt 34 35
Accrued expenses and other liabilities 10,769 9,853
---------- ---------
Total liabilities 958,992 935,621
---------- ---------
Shareholders' Equity:
Common Stock-$1 par value. Authorized
30,000,000 shares; issued 11,125,676
and 11,088,226 shares at March 31, 1999
and December 31, 1998, respectively; and
outstanding 11,027,177 and 11,002,327
shares at March 31, 1999 and December 31,
1998, respectively 11,126 11,088
Additional paid-in capital 35,904 34,955
Retained earnings 75,528 73,442
Unearned compensation-restricted stock awards (942) -
Common stock in treasury (98,499 shares),
at cost (1,396) (1,051)
Accumulated other comprehensive income 466 897
---------- ---------
Total shareholders' equity 120,686 119,331
---------- ---------
Total liabilities and shareholders' equity $1,079,678 1,054,952
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1999 1998
-------- -------
<S> <C> <C>
(amounts in thousands,
except per share data)
Interest income:
Loans, including fees $ 19,473 19,563
Federal funds sold 416 591
Interest on deposits in other banks 89 224
Investment securities:
Taxable 1,504 2,052
Nontaxable 427 501
-------- -------
Total interest income 21,909 22,931
-------- -------
Interest expense:
Deposits 8,446 9,735
Federal funds purchased 113 4
Federal Home Loan Bank advances 143 70
Long-term debt and other borrowings 6 30
-------- -------
Total interest expense 8,708 9,839
-------- -------
Net interest income 13,201 13,092
Provision for loan losses 468 507
-------- -------
Net interest income after
provision for loan losses 12,733 12,585
-------- -------
Noninterest income:
Service charges on deposit accounts 1,345 1,497
Securities gains, net 241 18
Other operating income 1,291 1,988
-------- -------
Total noninterest income 2,877 3,503
-------- -------
Noninterest expense:
Salaries and employee benefits 6,024 5,969
Net occupancy and equipment expense 1,510 1,470
Other operating expenses 2,813 3,246
-------- -------
Total noninterest expense 10,347 10,685
-------- -------
Income before income taxes 5,263 5,403
Income tax expense 1,858 1,873
-------- -------
Net income $ 3,405 3,530
======== =======
Net income per share:
Basic $ 0.31 0.32
======== =======
Diluted $ 0.31 0.32
======== =======
Cash dividends declared per share $0.12000 0.10750
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CENTURY SOUTH BANKS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
March 31,
1999 1998
----------------------
(amounts in thousands)
<S> <C> <C>
Net cash provided by operating activities $ 5,173 6,618
-------- -------
Cash flows from investing activities:
Proceeds from sales of investment securities available for sale 6,083 18
Principal collections and maturities of investment securities:
Available for sale 18,117 23,362
Held to maturity 353 3,963
Proceeds from maturities of interest-earning deposits 23,737 65,891
Purchases of investment securities held to maturity - (200)
Purchases of investment securities available for sale (12,601) (11,087)
Investment in interest-earning deposits (21,953) (42,924)
Net increase in loans (18,023) (8,095)
Proceeds from sales of real estate acquired through foreclosure 243 164
Purchases of premises and equipment (2,024) (658)
Proceeds from sale of premises and equipment 13 219
-------- -------
Net cash (used in) provided by investing activities (6,055) 30,653
-------- -------
Cash flows from financing activities:
Net increase (decrease) in deposits 13,871 (9,892)
Net increase in federal funds purchased 10,110 80
Net increase (decrease) in other short-term borrowings 500 (1,350)
Proceeds from issuance of long-term debt - 1,500
Payments on long-term debt and Federal Home Loan
Bank advances (2,026) (3,526)
Dividends paid to shareholders (1,227) (1,170)
Purchase of treasury stock (345) -
Proceeds from issuance of common stock 12 117
-------- -------
Net cash provided by (used in) financing activities 20,895 (14,241)
-------- -------
Net increase in cash and cash equivalents 20,013 23,030
Cash and cash equivalents at beginning of period 78,657 77,016
-------- -------
Cash and cash equivalents at end of period $ 98,670 100,046
======== =======
Supplemental disclosure of cash paid during the period for:
Interest $ 8,973 10,406
======== =======
Income taxes $ 2,072 739
======== =======
Supplemental schedule of noncash investing and financing
Activities:
Real estate acquired through foreclosure $ 201 1,351
======== =======
Real estate sold and financed by the Company $ 542 684
======== =======
</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") and AmeriBank, National Association ("AMB"), (collectively "the
Company").
These accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore do not
include all information and notes necessary for a fair presentation of financial
position, results of operations, and cash flows in conformity with generally
accepted accounting principles. All adjustments consisting of normal recurring
accruals which, in the opinion of management, are necessary for a fair
presentation of the financial position and results of operations for the periods
covered by this report have been included.
(2) Statement No. 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 March 31, 1999 was
$2,974,000 compared to $3,729,000 for the three months ended March 31, 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 March 31, 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. Two of these subsidiaries made payments of $25,174 and $2,000,000 related
to advances under these lines in the first three months of 1999 making the total
advances under these lines approximately $10.8 million. One subsidiary has a
balance outstanding of $5.8 million with $0.8 million maturing on September 1,
2006 with an interest rate of 7.74% with principal and interest due monthly and
$5.0 million maturing on November 20, 2000 with an interest rate of 5.16%,
payable monthly. Another subsidiary has drawn $5.0 million, which will mature
on November 20, 2000 with an interest rate of 5.11%, payable monthly. 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) Subsequent Event
----------------
On April 13, 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 will issue approximately 699,108 shares of its common
stock in exchange for all of the issued and outstanding shares of IBC. This
acquisition has been accounted for as a pooling of interests and, accordingly,
all financial information preceding the date of acquisition will be restated to
include the financial position and results of operations of the acquired entity.
(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. This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company has not yet determined the impact of
SFAS 133 on the Company's financial statements upon adoption.
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.
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,
1999, compared to December 31, 1998, and results of operations for the three
month period ended March 31, 1999, compared to the three month period ended
March 31, 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 three months of 1999, total assets increased $24.7 million or
approximately 2.3%, primarily due to increases in deposits of $13.9 million and
in federal funds purchased of $10.0 million. Net loans grew $17.9 million or
2.3% during the first three months of 1999 and were funded by maturities of
investment securities of $12.4 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, 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 $ 44,590 624 - 45,214
State, county and
municipal securities 8,307 226 (155) 8,378
Mortgage-backed securities 13,577 159 (10) 13,726
Other debt securities 31,820 63 (247) 31,636
Equity securities 6,720 215 (28) 6,907
------------------------------------------------
$105,014 1,287 (440) 105,861
------------------------------------------------
Held to maturity:
U.S. Government agencies $ 425 24 - 449
State, county and
municipal securities 22,283 954 - 23,237
Mortgage-backed securities 625 13 (2) 636
Other debt securities 1,949 84 - 2,033
------------------------------------------------
$ 25,282 1,075 (2) 26,355
------------------------------------------------
</TABLE>
Balances within the major deposit categories as of March 31, 1999 and December
31, 1998 are shown below:
<TABLE>
<CAPTION>
(amounts in millions)
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Noninterest-bearing demand deposits $126.8 135.8
Interest-bearing demand deposits 142.7 146.4
Money market accounts 132.1 120.6
Savings deposits 53.3 52.7
Certificates of deposit and individual
retirement accounts of $100,000 or more 126.7 127.5
Other individual retirement accounts 48.4 48.6
Other certificates of deposit 296.8 281.4
------ -----
$926.8 913.0
====== =====
</TABLE>
8
<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 March 31, 1999, the Company's cash and due from banks was $43.4 million, its
federal funds sold were $55.2 million, its interest-earning deposits in other
banks were $6.1 million, and its investment securities designated as available
for sale were $105.9 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.
9
<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 March 31, 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 $ 343,709 194,094 537,803 374,982 912,785 86,032 998,817
Interest-sensitive
liabilities 444,356 274,379 718,735 101,426 820,161 755 820,916
--------- ------- -------- ------- ------- ------ -------
Interest-sensitivity gap $(100,647) (80,285) (180,932) 273,556 92,624 85,277 177,901
========= ======= ======== ======= ======= ====== =======
Ratio of interest-sensitive
assets to interest-
sensitive liabilities 0.77 0.71 0.75 3.70 1.11 113.95 1.22
========= ======= ======== ======= ======= ====== =======
</TABLE>
RESULTS OF OPERATIONS
---------------------
Net Interest Income
- -------------------
The Company's net interest income is its principal source of income. Interest-
earning assets for the Company include loans, federal funds sold, interest-
earning deposits in other banks, and investment securities. The Company's
interest-bearing liabilities include its deposits, federal funds purchased,
Federal Home Loan Bank advances, other short-term borrowings, and long-term
debt.
Net interest income for the three months ended March 31, 1999 increased $109,000
or 0.83% over the same period of 1998. The average yield earned on interest-
earning assets, on a tax equivalent basis, decreased to 9.17% for the three
months ended March 31, 1999 from 9.54% for the three months ended March 31, 1998
and the average rate paid on interest-bearing liabilities decreased to 4.45% for
the three months ended March 31, 1999 from 4.89% for the three months ended
March 31, 1998. The Company's interest rate differential increased to 4.72%
from 4.65% and its net interest margin (net interest income divided by average
interest-earning assets) increased to 5.55% for the first three months of 1999
from 5.48% for the same period of 1998.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
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-
profitable 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, 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 1.50% of outstanding loans at March
31, 1999 as compared to 1.48% at December 31, 1998 and 1.64% at March 31, 1998.
The allowance increased to $12,056,000 at March 31, 1999 from $11,631,000 at
December 31, 1998 and decreased from $12,541,000 at March 31, 1998. The
provision for loan losses decreased to $468,000 for the three months ended March
31, 1999 from $507,000 for the three months ended March 31, 1998. Net loan
charge offs for the three months ended March 31, 1999 were $43,000 as compared
to $305,000 for the three months ended March 31, 1998. Net loans charged off as
a percentage of average loans was 0.02% for the three months ended March 31,
1999 as compared to 0.16% for the three months ended March 31, 1998.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
The table below summarizes the changes in the allowance for loan losses for the
three months ended March 31, 1999 and the year ended December 31, 1998.
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- -------------
<S> <C> <C>
Allowance for loan losses at
beginning of year $11,631 12,339
Loans charged off 189 2,654
Recoveries on loans previously
charged off 146 732
------- ------
Net loans charged off 43 1,922
Allowances for loan losses of
loans of bank subsidiary sold - (558)
Provision for loan losses
charged to income 468 1,772
------- ------
Allowance for loan losses at
end of period $12,056 11,631
======= ======
</TABLE>
Nonperforming Loans, Nonperforming Assets, and Underperforming Loans
- --------------------------------------------------------------------
Nonperforming loans include nonaccrual loans. The Company has not restructured
any loans of significance through March 31, 1999. Nonperforming assets include
nonperforming loans, real estate acquired through foreclosure, securities that
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.
12
<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,
nonperforming assets, underperforming loans and certain asset quality ratios at
March 31, 1999 and December 31, 1998.
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(amounts in thousands, except ratios and percentages)
<S> <C> <C>
Nonperforming loans $3,746 3,997
Real estate acquired through
foreclosure and other repossessed assets 3,984 4,685
------ -----
Nonperforming assets $7,730 8,682
====== =====
Underperforming loans $ 512 734
====== =====
Asset Quality Ratios:
Nonperforming loans to total loans,
net of unearned income 0.46% 0.51%
====== =====
Nonperforming assets to total loans
net of unearned income, real estate
acquired through foreclosure, and
other repossessed assets 0.95% 1.10%
====== =====
Allowance for loan losses to
nonperforming loans 3.22x 2.91x
======= ======
Underperforming loans to total loans,
net of unearned income 0.06% 0.09%
====== =====
</TABLE>
Noninterest Income
- ------------------
Noninterest income for the first quarter of 1999 decreased $626,000 or 17.9% as
compared to the same period of 1998. This decrease was primarily due to a gain
on the sale of a branch in first quarter 1998, of one of the subsidiaries of
approximately $849,000 and a decrease in service charges on deposit accounts of
$152,000. This decrease was partially offset by an increase in net securities
gains of $223,008.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
Noninterest Expense
- -------------------
The $338,000 or 3.2% decrease in noninterest expense for the first quarter of
1999 as compared to the first quarter of 1998 was primarily due to a decrease in
ATM expenses of $131,000, a decrease in microfilm expense of $62,000, and a
decrease in amortization expense of $185,000 associated with the sale of a
branch in 1998 as mentioned above. This decrease was partially offset by
increases in salary and benefit expense of $55,000 and net occupancy and
equipment expense of $40,000.
Income Tax Expense
- ------------------
The first quarter 1999 income tax expense was approximately $1,858,000, or an
effective rate of 35.3%, as compared to approximately $1,873,000 for the first
quarter 1998, or an effective rate of 34.7%.
Net Income
- ----------
The Company's first quarter 1999 net earnings were $0.31 per diluted share or
$3,405,000 as compared to $0.32 per diluted share or $3,530,000 for the first
quarter of 1998, representing a decrease in net earnings of 3.1%.
Performance Ratios
- ------------------
Performance of banks is often measured by various ratio analyses. Two widely
recognized performance indicators are return on average equity and return on
average assets. The return on average equity for the three months ended March
31, 1999 was 11.54% (annualized) as compared to 12.93% (annualized) for the
three months ended March 31, 1998. The Company's return on average assets was
1.31% (annualized) and 1.35% (annualized) for the three month periods ended
March 31, 1999 and 1998, respectively.
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.
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
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 March 31, 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> <C> <C>
As of March 31,1999:
Total Capital (to Risk Weighted
Assets): $126,684 16.1% greater than or $62,774 greater than or 8.0%
equal to equal to
Tier 1 Capital (to Risk Weighted
Assets): $116,764 14.9% greater than or $31,387 greater than or 4.0%
equal to equal to
Tier 1 Capital (to Average Assets):
Assets): $116,764 11.1% greater than or $41,898 greater than or 4.0%
equal to equal to
</TABLE>
The Company continues to maintain a level of capital well in excess of
regulatory requirements and available for supporting future growth. The
Company's level of capital can be measured by its average shareholders' equity
to average assets ratio of 11.36% and its ratio of shareholders' equity to
assets of 11.18% at March 31, 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.
15
<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. Project plans call for an ongoing
monitoring of systems to ensure full Year 2000 compliance. Contingency plans
will be monitored and updated as circumstances warrant. 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 1999. Disaster recovery and business
resumption plans are also being developed based upon each Bank's unique
structure. These plans will provide the Company direction in the event and
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. Century South's liquidity policy is also being evaluated and updated
to ensure an adequate supply of cash is on hand in the event of increased
demand. All plans will be finalized, tested and implemented before third
quarter 1999.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (Continued)
The Company spent approximately $1,126,000 in 1998 to modify its computer
information systems. The Company expects to spend approximately $75,000 in 1999
to complete this process. 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.
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 three
months ended March 31, 1999
(b) There were no reports filed on Form 8-K for the quarter ended
March 31, 1999.
17
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Century South Banks, Inc.
DATE: May 14, 1999 By: /s/ James A. Faulkner
------------ --------------------------
James A. Faulkner
Vice Chairman and Chief
Executive Officer
DATE: May 14, 1999 By: /s/ Joseph W. Evans
------------ -------------------------
Joseph W. Evans
President, Chief Operating
Officer and Chief Financial
Officer
18
<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, 1999 and 1998.
Basic Diluted
Earnings Earnings
Per Share Per Share
----------- ------------
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
For the three months ended March 31, 1999:
<S> <C> <C>
Net income $ 3,405 3,405
======= ======
Weighted average number of common
shares outstanding 11,028 11,028
Common share equivalents resulting
from dilutive stock options - 131
------- ------
Adjusted weighted average number
of common and common equivalent
shares outstanding 11,028 11,159
======= ======
Net income per common share $ 0.31 0.31
======= ======
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
======= ======
</TABLE>
<PAGE>
Exhibit 20
CHIEF EXECUTIVE OFFICER'S MESSAGE
Dear Shareholder:
We are pleased to report net earnings for Century South Banks, Inc. for the
first quarter of 1999. Net income for the quarter was $3,405,000 as compared to
$3,530,000 for the first quarter of 1998. Diluted earnings per share were $0.31
for the first quarter of 1999 as compared to $0.32 for the first quarter of
1998. First quarter of 1998 included an after-tax gain totaling $355,000
recognized on the sale of a branch. Exclusive of this gain, diluted earnings per
share for the first quarter of 1998 were $0.29.
You have previously received your quarterly cash dividend which was
increased to $0.12 per share and represents an 11.62% increase over the same
quarter of 1998 and a 7.86% increase over the previous quarter's dividend.
We continue to be pleased with the results of our company's operations.
Total assets at March 31, 1999 were approximately $1,079,678,000. Return on
average assets was 1.31% as compared to 1.35% for the period ended March 31,
1998. Return on assets for the period ending March 31, 1998 were positively
impacted by the one time gain recognized on the sale of the branch. Exclusive of
the gain, return on assets for the period ending March 31, 1998 was 1.21%. At
March 31, 1999, our reserve for loan losses was 1.50% of total loans outstanding
and nonperforming assets as a percentage of total assets were 0.72%.
On April 13, 1999, the Company completed the acquisition of The Independent
Bank of Oxford, Alabama. We welcome them to the Century South Banks, Inc.
family and anticipate strong contributions from them in the future.
We appreciate your continued support of our company and welcome your
comments and questions.
Sincerely,
James A. Faulkner
Vice Chairman and
Chief Executive Officer
<PAGE>
Century South Banks, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
--------------------------------
(amounts in thousands)
Assets
<S> <C> <C>
Cash and due from banks $ 43,430 $ 40,666
Federal funds sold 55,240 59,380
Interest-earning deposits in other banks 6,092 9,498
Investment securities 131,143 163,137
Loans, net of unearned income 806,342 765,854
Allowance for loan losses (12,056) (12,541)
Premises and equipment, net 25,020 25,945
Other assets 24,467 25,646
------------------------------
Total assets $1,079,678 $1,077,585
==============================
Liabilities
Noninterest-bearing deposits $ 126,806 $ 137,204
Interest-bearing deposits 800,018 813,240
Other short-term borrowings 10,610 390
Federal Home Loan Bank advances 10,755 4,856
Long-term debt 34 38
Other liabilities 10,769 10,043
------------------------------
Total liabilities 958,992 965,771
------------------------------
Shareholders' Equity
Common stock 11,126 10,942
Additional paid-in capital 35,904 34,382
Retained earnings 75,528 65,926
Unearned compensation-restricted stock awards (942) -
Common stock in treasury, at cost (1,396) (306)
Accumulated other comprehensive income 466 870
------------------------------
Total shareholders' equity 120,686 111,814
------------------------------
Total liabilities and shareholders' equity $1,079,678 $1,077,585
==============================
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998*
--------------------------------
<S> <C> <C>
(amounts in thousands,
except per share data)
Interest income $21,909 $22,931
Interest expense 8,708 9,839
-----------------------------
Net interest income 13,201 13,092
Provision for loan losses 468 507
Noninterest income 2,877 3,503
Noninterest expense 10,347 10,685
Income tax expense 1,858 1,873
-----------------------------
Net income $ 3,405 $ 3,530
=============================
Weighted average common shares outstanding
assuming dilution 11,159 11,137
Net income per share assuming dilution $ 0.31 $ 0.32
Dividends declared per share $0.1200 $0.1075
</TABLE>
* First quarter of 1998 included an after-tax gain totaling $355,000 recognized
on the sale of a branch. Exclusive of this gain, diluted earnings per share for
the first quarter of 1998 were $0.29 and first quarter 1998 return on assets was
1.21%.
<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 First Community Bank of Dawsonville
60 Main Street West 136 Highway 400 South
Dahlonega, GA 30533 Dawsonville, GA 30534
John L. Lewis, President Gary L. Evans, President
706-864-3314 706-216-5050
The Bank of Ellijay Peoples Bank
Sand and Broad Street 13321 Jones Street
Ellijay, GA 30540 Lavonia, GA 30553
Britt H. Henderson, President J. Douglas Cleveland, President
706-276-3400 706-356-8040
First Bank of Polk County Bank of Danielsville
40 Ocoee Street Courthouse Square
Copperhill, TN 37317 Danielsville, GA 30633
David E. Adkisson, President L. Banister Sexon, President
423-496-3261 706-795-2121
Georgia First Bank, N.A. First South Bank, N.A.
455 Jesse Jewell Parkway 4951 Forsyth Road
Gainesville, GA 30501 Macon, GA 31210
Allen J. Satterfield, President Daniel M. Forrester, President
770-535-8000 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>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (Unaudited)
Selected Balances
- ------------------------------------------------------------------------------------------------------------------------------------
As of and for three months
ended March 31,
1999 1998* Percentage Change
---------------------------------------------------------------
<S> <C> <C> <C>
(amounts in thousands, except per share data)
Loans, net $ 794,286 $ 753,313 5.44%
Deposits 926,824 950,444 (2.49)
Total assets 1,079,678 1,077,585 0.19
Shareholders' equity 120,686 111,814 7.93
Net income 3,405 3,530 (3.54)
Book value per share 10.94 10.27 6.52
Net income per share assuming dilution 0.31 0.32 (3.13)
Weighted average common shares outstanding
assuming dilution 11,159 11,137 0.20
Nonperforming loans 3,746 5,578 (32.84)
Other real estate and other
nonperforming assets 3,984 2,702 47.45
</TABLE>
<TABLE>
<CAPTION>
Financial Ratios
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Return on average assets 1.31% 1.35% (2.96)%
Return on average shareholders' equity 11.54 12.93 (10.75)
Net interest margin (taxable equivalent) 5.55 5.48 1.28
Allowance for loan losses to loans 1.50 1.64 (8.54)
Nonperforming assets to total assets 0.72 0.77 (6.49)
</TABLE>
* First quarter of 1998 included an after-tax gain totaling $355,000 recognized
on the sale of a branch. Exclusive of this gain, diluted earnings per share for
the first quarter of 1998 were $0.29 and first quarter 1998 return on assets was
1.21%.
<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
price for the quarter ended March 31, 1999:
Three month high ......................... $ 30.125
Three month low .......................... $ 22.625
Closing price ............................ $ 25.625
- --------------------------------------------------------------------------------
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 43,430
<INT-BEARING-DEPOSITS> 6,092
<FED-FUNDS-SOLD> 55,240
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 105,861
<INVESTMENTS-CARRYING> 25,282
<INVESTMENTS-MARKET> 26,355
<LOANS> 806,342
<ALLOWANCE> 12,056
<TOTAL-ASSETS> 1,079,678
<DEPOSITS> 926,824
<SHORT-TERM> 10,610
<LIABILITIES-OTHER> 10,769
<LONG-TERM> 10,789
0
0
<COMMON> 11,126
<OTHER-SE> 109,560
<TOTAL-LIABILITIES-AND-EQUITY> 1,079,678
<INTEREST-LOAN> 19,473
<INTEREST-INVEST> 1,931
<INTEREST-OTHER> 505
<INTEREST-TOTAL> 21,909
<INTEREST-DEPOSIT> 8,446
<INTEREST-EXPENSE> 8,708
<INTEREST-INCOME-NET> 13,201
<LOAN-LOSSES> 468
<SECURITIES-GAINS> 241
<EXPENSE-OTHER> 10,347
<INCOME-PRETAX> 5,263
<INCOME-PRE-EXTRAORDINARY> 5,263
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,405
<EPS-PRIMARY> 0.31
<EPS-DILUTED> 0.31
<YIELD-ACTUAL> 5.55
<LOANS-NON> 3,746
<LOANS-PAST> 512
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 11,631
<CHARGE-OFFS> 189
<RECOVERIES> 146
<ALLOWANCE-CLOSE> 12,056
<ALLOWANCE-DOMESTIC> 12,056
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
