<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1996
[ ] Transition Report Under Section 13
or 15(d) of the Exchange Act
For the transition period ended _________________________
COMMISSION FILE NUMBER 000-21881
---------------------
CENTURY BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
NORTH CAROLINA 56-1981518
- ------------------------------------- -------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
22 WINSTON STREET, THOMASVILLE, NC 27360
- --------------------------------------------------------------------------------
(Address of principal executive office)
(910) 475-4663
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 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 __________
As of February 10, 1997, 407,330 shares of the issuer's common stock, no par
value, were outstanding. The registrant has no other classes of securities
outstanding.
This report contains 12 pages.
-1-
<PAGE>
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART 1. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Financial Condition
December 31, 1996 and June 30, 1996.................................................. 3
Consolidated Statements of Operations
Three Months and Six Months Ended December 31, 1996 and 1995......................... 4
Consolidated Statements of Cash Flows
Six Months Ended December 31, 1996 and 1995.......................................... 5
Notes to Consolidated Financial Statements........................................... 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................ 11
</TABLE>
-2-
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
- -----------------------------
CENTURY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
================================================================================
<TABLE>
<CAPTION>
December 31,
1996 June 30,
ASSETS (Unaudited) 1996 *
----------- --------
(In Thousands)
<S> <C> <C>
Cash on hand and in banks $ 846 $ 1,342
Interest-bearing balances in other banks 17,248 3,645
Investment securities available for sale, at fair value 12,531 11,707
Investment securities held to maturity, at amortized cost 7,756 6,857
Loans receivable, net 57,490 55,193
Accrued interest receivable 538 557
Premises and equipment, net 732 748
Real estate acquired in settlement of loans 278 333
Stock in the Federal Home Loan Bank, at cost 614 614
Other assets 82 308
------- -------
TOTAL ASSETS $98,115 $81,304
======= =======
LIABILITIES AND RETAINED EARNINGS
LIABILITIES
Deposit accounts $68,179 $69,669
Accrued interest payable 128 116
Advance payments by borrowers for property taxes and insurance 62 106
Accrued expenses and other liabilities 215 168
------- -------
TOTAL LIABILITIES 68,584 70,059
------- -------
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares
authorized, no shares issued and outstanding - -
Common stock, 20,000,000 shares authorized; 407,330 19,505 -
shares issued and outstanding at December 31, 1996.. 11,655 11,245
Retained earnings, substantially restricted (1,629) -
ESOP loan receivable ------- -------
29,531 11,245
TOTAL STOCKHOLDERS' EQUITY ------- -------
TOTAL LIABILITIES AND 98,115 $81,304
STOCKHOLDERS' EQUITY ====== =======
</TABLE>
* Derived from audited financial statements
See accompanying notes.
-3-
<PAGE>
CENTURY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
---------------------- ---------------------
1996 1995 1996 1995
---------- ----------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $1,158 $1,177 $2,338 $2,306
Investments and deposits in other banks 384 307 727 596
------ ------ ------ ------
TOTAL INTEREST INCOME 1,542 1,484 3,065 2,902
INTEREST EXPENSE ON DEPOSIT
ACCOUNTS 920 900 1,800 1,779
------ ------ ------ ------
NET INTEREST INCOME 622 584 1,265 1,123
PROVISION FOR LOAN LOSSES 5 45 8 85
------ ------ ------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 617 539 1,257 1,038
------ ------ ------ ------
OTHER INCOME - 7 18 14
------ ------ ------ ------
GENERAL AND ADMINISTRATIVE
EXPENSES
Compensation and benefits 167 144 301 270
Occupancy 21 18 39 38
Data processing expenses 24 21 49 44
Federal deposit insurance premiums 11 33 50 60
FDIC special assessment - - 409 -
Other expenses 14 31 81 103
------ ------ ------ ------
TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES 237 247 929 515
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 380 299 346 537
PROVISION FOR INCOME TAXES 124 120 112 217
------ ------ ------ ------
NET INCOME $ 256 $ 179 $ 234 $ 320
====== ====== ====== ======
</TABLE>
See accompanying notes.
-4-
<PAGE>
CENTURY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
================================================================================
<TABLE>
<CAPTION>
Six Months Ended
December,
-------------------
1996 1995
--------- --------
(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 234 $ 320
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 23 20
Amortization, net 27 17
(Gain) loss on sale of assets 8 (5)
Provision for loan losses 8 85
Deferred compensation 11 12
Change in assets and liabilities
(Increase) decrease in accrued interest receivable 19 (22)
Decrease in other assets 72 34
Increase in accrued interest payable 12 3
Increase in accrued expenses and other liabilities 37 14
------- -------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 451 478
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities (5,148) (3,215)
Proceeds from maturities and calls of investment securities 3,678 1,912
Net increase in loans (2,305) (604)
Purchase of property and equipment (7) (34)
Proceeds from sale of equipment - 5
Proceeds from sale of real estate acquired in settlement of loans 55 30
------- -------
NET CASH USED BY
INVESTING ACTIVITIES (3,727) (1,906)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in demand accounts (157) (272)
Net increase (decrease) in certificates of deposit (1,333) 3,494
Decrease in advance payments by borrowers for taxes and insurance (43) (34)
Net proceeds from issuance of common stock 19,505 -
Decrease in stock conversion costs 40 -
Increase in ESOP loan receivable (1,629) -
------- -------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 16,383 3,188
------- -------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 13,107 1,760
CASH AND CASH EQUIVALENTS, BEGINNING 4,987 5,614
------- -------
CASH AND CASH
EQUIVALENTS, ENDING $18,094 $ 7,374
======= =======
</TABLE>
See accompanying notes.
-5-
<PAGE>
CENTURY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE A - BASIS OF PRESENTATION
In management's opinion, the financial information, which is unaudited, reflects
all adjustments (consisting solely of normal recurring adjustments) necessary
for a fair presentation of the financial information as of and for the three and
six month periods ended December 31, 1996 and 1995, in conformity with generally
accepted accounting principles. The financial statements include the accounts of
Century Bancorp, Inc. (the "Company") and its wholly-owned subsidiary, Home
Savings, Inc., SSB ("Home Savings" or the "Bank"). Operating results for the
three and six month periods ended December 31, 1996 are not necessarily
indicative of the results that may be expected for the fiscal year ending June
30, 1997.
The organization and business of the Company, accounting policies followed by
the Company and other information are contained in the notes to the consolidated
financial statements filed as part of the Company's registration statement on
Form S-1. This quarterly report should be read in conjunction with such
registration statement.
NOTE B - PLAN OF CONVERSION
On May 7, 1996, the Board of Directors of Home Savings, SSB unanimously adopted
a Plan of Holding Company Conversion, which was subsequently amended and
restated on July 18, 1996 and on October 2, 1996 (the "Plan"), whereby Home
Savings converted from a North Carolina-chartered mutual savings bank to a North
Carolina-chartered stock savings bank and became a wholly-owned subsidiary of
Century Bancorp, Inc., which was formed in connection with the conversion.
Century Bancorp, Inc. issued common stock in the conversion and used a portion
of the net proceeds thereof to purchase the capital stock of Home Savings. The
Plan was approved by regulatory authorities and the members of Home Savings at a
special meeting.
At the time of conversion, Home Savings established a liquidation account in an
amount equal to its net worth as reflected in its latest balance sheet used in
its final conversion prospectus. The liquidation account will be maintained for
the benefit of eligible deposit account holders who continue to maintain their
deposit accounts in Home Savings after conversion. Only in the event of a
complete liquidation will each eligible deposit account holder be entitled to
receive a liquidation distribution from the liquidation account in the amount of
the then current adjusted subaccount balance for deposit accounts then held
before any liquidation distribution may be made with respect to common stock.
Dividends paid subsequent to the conversion cannot be paid from this liquidation
account.
Home Savings may not declare or pay a cash dividend on or repurchase any of its
common stock if its net worth would thereby be reduced below either the
aggregate amount then required for the liquidation account or the minimum
regulatory capital requirements imposed by federal and state regulations.
-6-
<PAGE>
CENTURY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE B - PLAN OF CONVERSION (CONTINUED)
On December 20, 1996, Home Savings completed its conversion from a North
Carolina-chartered mutual savings bank to a North Carolina-chartered stock
savings bank. The conversion occurred through the sale of 407,330 shares of
common stock (no par value) of Century Bancorp, Inc., a newly formed holding
company. Total proceeds of $20,366,500 were reduced by conversion expenses of
$861,791. Century Bancorp, Inc. paid $8,937,704 to Home Savings in exchange for
the common stock of Home Savings issued in the conversion, and retained the
balance of the net conversion proceeds. The transaction was recorded as an "as-
if" pooling with assets and liabilities recorded at historical cost.
NOTE C - FDIC SPECIAL ASSESSMENT
On September 30, 1996, a comprehensive continuing appropriations bill which
provided for a one-time assessment to recapitalize the SAIF was signed into law
by the President. This special assessment, which was imposed on all SAIF-insured
institutions, amounted to $409,000 for Home Savings and was charged against
earnings during the quarter ended September 30, 1996. Net of an income tax
benefit of $149,000, this special assessment decreased earnings by $260,000
during the quarter.
NOTE D - EMPLOYEE STOCK OWNERSHIP PLAN
In the mutual to stock conversion, the Home Savings, SSB Employee Stock
Ownership Plan (the "ESOP") purchased 32,586 shares of the common stock of
Century Bancorp, Inc. sold in the public offering at a total cost of $1,629,300.
The ESOP executed a note payable to Century Bancorp, Inc. for the full price of
the shares purchased.
NOTE E - NET INCOME PER SHARE
Net income per share for the period from the closing of the Company's stock
offering (December 20, 1996) through December 31, 1996 was $.12 and was computed
based on consolidated net income during that period divided by the weighted
average number of shares outstanding during that period (374,744 shares).
-7-
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- --------------------------------------------------------------------------------
OF OPERATIONS
-------------
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1996 AND JUNE 30, 1996
Principally as a result of net proceeds of $19.5 million received on December
20, 1996 from issuance of the Company's common stock, consolidated total assets
increased by $16.8 million, from $81.3 million at June 30, 1996 to $98.1 million
at December 31, 1996. Funds generated from the stock sale were used principally
to acquire liquid investments, with interest-bearing balances in other banks and
investment securities increasing by $13.6 million and $1.7 million,
respectively, since the beginning of the current year. Loan demand has also been
relatively strong, however, with net loans receivable increasing by $2.3 million
from $55.2 million to $57.5 million during the six months. Customer deposit
accounts declined by $1.5 million during the six months, with substantially all
of the decrease resulting from deposit withdrawals by customers who used the
funds thus provided to purchase shares of the Company's common stock.
Total stockholders' equity was $29.5 million at December 31 as compared with
$11.2 million at June 30. The Company and its bank subsidiary substantially
exceeded all regulatory capital requirements.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1996
AND 1995
Net Income. Consolidated net income during the quarter ended December 31, 1996
was $256,000 as compared with net income of $179,000 for the quarter ended
December 31, 1995. The increase is attributable to the higher level of interest-
earning assets during the current quarter as a result of investment of proceeds
from issuance of the Company's common stock, and to reduced provisions for loan
losses and income taxes as compared with the comparable quarter for the prior
year.
Net Interest Income. Net interest income was $622,000 during the quarter ended
December 31, 1996 as compared with $584,000 during the second quarter of the
previous year, an increase of $38,000. This increase resulted from a combination
of an increase in average interest-earning assets of $7.9 million, which
increase consisted principally of interest-bearing deposits in other banks, and
a reduction in the rate of interest paid on customer deposits, which declined
from a weighted average rate of 5.35% during the quarter ended December 31, 1995
to a weighted average rate of 5.24% during the quarter ended December 31, 1996,
tracking the general levels of interest rates during the respective quarters.
Provision for Loan Losses. The provision for loan losses was $5,000 and $45,000
for the quarters ended December 31, 1996 and 1995, respectively. Management
believes that the provision for loan losses and the resulting loan loss
allowance at December 31, 1996 will be adequate to absorb losses on existing
loans. There were no loan charge-offs during the three months ended December 31,
1996 as compared with net charge-offs of $27,000 during the three months ended
December 31, 1995. Nonaccrual loans aggregated $176,000 at December 31, 1996.
-8-
<PAGE>
General and Administrative Expenses. General and administrative expenses
decreased to $237,000 during the quarter ended December 31, 1996 as compared
with $247,000 during the quarter ended December 31, 1995. Increased costs
incurred for compensation and benefits were offset by a significant reduction in
deposit insurance premiums as reduced rates became effective at the beginning of
the quarter, and by a reduction in other expenses.
Provision for Income Taxes. The provision for income taxes, as a percentage of
income before income taxes, decreased from 40% to 33%, primarily because of a
reduction in the provision for state income taxes arising from the higher level
of interest income earned from federal government sources which is not subject
to state taxation.
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1996
AND 1995
Net Income. The Company earned consolidated net income of $234,000 during the
six months ended December 31, 1996 as compared with net income of $320,000
during the corresponding period of the prior year, a decrease of $86,000. The
decrease resulted from a special insurance assessment imposed on all SAIF-
insured institutions by the FDIC to recapitalize the SAIF fund. Home Savings'
assessment was $409,000. Net of an income tax benefit of $149,000, this special
assessment decreased earnings during the period by $260,000. If this special
assessment had not been incurred, net income during the six months ended
December 31, 1996 would have been $494,000.
Net Interest Income. Net interest income increased to $1,265,000 during the six
months ended December 31, 1996 as compared with $1,123,000 during the first six
months of the previous year. This increase resulted from a combination of an
increase in average interest-earning assets of $6.3 million, which increase
consisted principally of interest-bearing deposits in other banks, and a
reduction in the rate of interest paid on customer deposits, which declined from
a weighted average rate of 5.35% during the six months ended December 31, 1995
to a weighted average rate of 5.14% during the six months ended December 31,
1996, tracking the general levels of interest rates during the respective
periods.
Provision for Loan Losses. The provision for loan losses was $8,000 and $85,000
for the six months ended December 31, 1996 and 1995, respectively. Management
believes that the provision for loan losses and the resulting loan loss
allowance at December 31, 1996 will be adequate to absorb losses on existing
loans. There were no loan charge-offs during the six months ended December 31,
1996 as compared with net charge-offs of $41,000 during the six months ended
December 31, 1995.
General and Administrative Expenses. Exclusive of the FDIC special insurance
assessment explained under the caption "Net Income," general and administrative
expenses remained, in the aggregate, relatively stable, increasing to $520,000
during the six months ended December 31, 1996 as compared with $515,000 during
the six months ended December 31, 1995.
-9-
<PAGE>
Provision for Income Taxes. The provision for income taxes, as a percentage of
income before income taxes, decreased from 40% to 32%, primarily because of a
reduction in the provision for state income taxes arising from the higher level
of interest income earned from federal government sources which is not subject
to state taxation.
LIQUIDITY AND CAPITAL RESOURCES
The objective of the Company's liquidity management is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on opportunities for expansion. Liquidity management addresses Home
Savings' ability to meet deposit withdrawals on demand or at contractual
maturity, to repay borrowings as they mature, and to fund new loans and
investments as opportunities arise.
Home Savings' primary sources of internally generated funds are principal and
interest payments on loans receivable, cash flows generated from operations, and
repayments of mortgage-backed securities. External sources of funds include
increases in deposits and advances from the FHLB of Atlanta.
As a North Carolina-chartered savings bank, Home Savings must maintain liquid
assets equal to at least 10% of assets. The computation of liquidity under North
Carolina regulations allows the inclusion of mortgage-backed securities and
investments with readily marketable value, including investments with maturities
in excess of five years. Home Savings' liquidity ratio at December 31, 1996, as
computed under North Carolina regulations, was approximately 37%. Management
believes that it will have sufficient funds available to meet its anticipated
future loan commitments as well as other liquidity needs.
As a North Carolina-chartered savings bank, Home Savings is subject to the
capital requirements of the Federal Deposit Insurance Corporation ("FDIC") and
the North Carolina Administrator of Savings Institutions ("N. C.
Administrator"). The FDIC requires state-chartered savings banks to have a
minimum leverage ratio of Tier I capital (principally consisting of common
shareholders' equity, noncumulative perpetual preferred stock, and a limited
amount of cumulative perpetual preferred stock, less certain intangible assets)
to total assets of at least 3%; provided, however, that all institutions, other
than those (i) receiving the highest rating during the examination process and
(ii) not anticipating or experiencing any significant growth, are required to
maintain a ratio of 1% or 2% above the state minimum. The FDIC also requires
Home Savings to have a ratio of total capital to risk-weighted assets of at
least 8%, of which at least 4% must be comprised of Tier I capital. The N. C.
Administrator requires a net worth equal to at least 5% of total assets. At
December 31, 1996, Home Savings exceeded the capital requirements of both the
FDIC and the N. C. Administrator.
-10-
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
(27) Financial data schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended
December 31, 1996.
-11-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CENTURY BANCORP, INC.
Date: February 10, 1997 By: /s/ James G. Hudson, Jr.
---------------------------------------
James G. Hudson, Jr.
Chief Executive Officer
Date: February 10, 1997 By: /s/ Drema A. Michael
---------------------------------------
Drema A. Michael
Chief Financial Officer
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 846
<INT-BEARING-DEPOSITS> 17,248
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,531
<INVESTMENTS-CARRYING> 7,756
<INVESTMENTS-MARKET> 7,817
<LOANS> 58,031
<ALLOWANCE> 541
<TOTAL-ASSETS> 98,115
<DEPOSITS> 68,179
<SHORT-TERM> 0
<LIABILITIES-OTHER> 405
<LONG-TERM> 0
0
0
<COMMON> 19,505
<OTHER-SE> 10,026
<TOTAL-LIABILITIES-AND-EQUITY> 98,115
<INTEREST-LOAN> 2,338
<INTEREST-INVEST> 727
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,065
<INTEREST-DEPOSIT> 1,800
<INTEREST-EXPENSE> 1,800
<INTEREST-INCOME-NET> 1,265
<LOAN-LOSSES> 8
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 929
<INCOME-PRETAX> 346
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 112
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
<YIELD-ACTUAL> 3.11
<LOANS-NON> 176
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 453
<ALLOWANCE-OPEN> 536
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 541
<ALLOWANCE-DOMESTIC> 381
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 160
</TABLE>
