<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 September 30, 1996
[ ] Transition Report Under Section 13
or 15(d) of the Exchange Act
For the transition period ended
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Commission File Number 000-21881
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CENTURY BANCORP, INC.
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(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
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(Address of principal executive office)
(910) 475-4663
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(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 January 27, 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 11 pages.
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Page No.
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Part 1. FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Statements of Financial Condition
September 30, 1996 and June 30, 1996................. 3
Statements of Operations
Three Months Ended September 30, 1996 and 1995....... 4
Statements of Cash Flows
Three Months Ended September 30, 1996 and 1995....... 5
Notes to 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............ 10
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<PAGE>
Part 1. FINANCIAL INFORMATION
Item 1 - Financial Statements
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Home Savings, SSB (See Note B)
Statements of Financial Condition
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<TABLE>
<CAPTION>
September 30,
1996 June 30,
ASSETS (Unaudited) 1996 *
-------------- --------
(In Thousands)
<S> <C> <C>
Cash on hand and in banks $ 2,026 $ 1,342
Interest-bearing balances in other banks 3,024 3,645
Investment securities available for sale, at fair value 12,131 11,707
Investment securities held to maturity, at amortized cost 6,055 6,857
Loans receivable, net 56,345 55,193
Accrued interest receivable 530 557
Premises and equipment, net 737 748
Real estate acquired in settlement of loans 278 333
Stock in the Federal Home Loan Bank, at cost 614 614
Other assets 430 308
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TOTAL ASSETS $82,170 $81,304
======= =======
LIABILITIES AND RETAINED EARNINGS
Deposit accounts $70,090 $69,669
Accrued interest payable 123 116
Advance payments by borrowers for property taxes
and insurance 30 106
Accrued expenses and other liabilities 631 168
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TOTAL LIABILITIES 70,874 70,059
Retained earnings, substantially restricted 11,296 11,245
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TOTAL LIABILITIES AND
RETAINED EARNINGS $82,170 $81,304
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</TABLE>
* Derived from audited financial statements
See accompanying notes.
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<PAGE>
Home Savings, SSB (See Note B)
Statements of Operations (Unaudited)
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<TABLE>
<CAPTION>
Three Months Ended
September 30,
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1996 1995
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(In Thousands)
<S> <C> <C>
INTEREST INCOME
Loans $1,180 $1,129
Investments and deposits in other banks 343 289
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TOTAL INTEREST INCOME 1,523 1,418
INTEREST EXPENSE ON DEPOSIT ACCOUNTS 880 879
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NET INTEREST INCOME 643 539
PROVISION FOR LOAN LOSSES 3 40
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 640 499
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OTHER INCOME 18 7
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GENERAL AND ADMINISTRATIVE EXPENSES
Compensation and benefits 134 126
Occupancy 18 20
Data processing expenses 25 23
Federal deposit insurance premiums 39 27
FDIC special assessment 409 -
Other 67 72
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TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES 692 268
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INCOME (LOSS) BEFORE
INCOME TAX EXPENSE (BENEFIT) (34) 238
INCOME TAX EXPENSE (BENEFIT) (12) 97
------ ------
NET INCOME (LOSS) $ (22) $ 141
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</TABLE>
See accompanying notes.
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<PAGE>
Home Savings, SSB (See Note B)
Statements of Cash Flows (Unaudited)
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<TABLE>
<CAPTION>
Three Months Ended
September 30,
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1996 1995
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(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (22) $ 141
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 11 9
Amortization, net 34 14
Gain on sale of assets (5) -
Provision for loan losses 3 40
Deferred compensation 6 6
Change in assets and liabilities
Decrease in accrued interest receivable 26 33
Increase in other assets (34) (13)
Increase in accrued interest payable 7 22
Increase in accrued expenses and other
liabilities 393 61
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 419 313
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities (1,717) (1,600)
Proceeds from maturities and calls of
investment securities 2,177 500
Net increase in loans (1,147) (192)
Purchase of property and equipment - (4)
Proceeds from sale of real estate acquired in
settlement of loans 55 -
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NET CASH USED BY
INVESTING ACTIVITIES (632) (1,296)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand accounts 1,089 (171)
Net increase (decrease) in certificates of
deposit (668) 2,912
Decrease in advance payments by borrowers for
taxes and insurance (75) (62)
Stock conversion costs incurred (70) -
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NET CASH PROVIDED BY
FINANCING ACTIVITIES 276 2,679
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NET INCREASE IN CASH
AND CASH EQUIVALENTS 63 1,696
CASH AND CASH EQUIVALENTS, BEGINNING 4,987 5,614
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CASH AND CASH
EQUIVALENTS, ENDING $ 5,050 $ 7,310
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</TABLE>
See accompanying notes.
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<PAGE>
Home Savings, SSB
Notes to Financial Statements
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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
month periods ended September 30, 1996 and 1995, in conformity with generally
accepted accounting principles. The financial statements include the accounts
of Home Savings, SSB ("Home Savings" or the "Bank"). Operating results for the
three month period ended September 30, 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 Bank, accounting policies followed by the
Bank and other information are contained in the notes to the consolidated
financial statements filed as part of Century Bancorp, Inc.'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 would convert from a North Carolina-chartered mutual savings bank to a
North Carolina-chartered stock savings bank and would become a wholly-owned
subsidiary of a holding company (Century Bancorp, Inc.) formed in connection
with the conversion. Century Bancorp, Inc. would issue common stock to be sold
in the conversion and would use that portion of the net proceeds thereof, which
it does not retain, to purchase the capital stock of Home Savings. The Plan was
subject to approval by regulatory authorities and the members of Home Savings at
a special meeting. At September 30, 1996, regulatory approval had not yet been
received.
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.
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Home Savings, SSB
Notes to Financial Statements
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NOTE B - PLAN OF CONVERSION (Continued)
Conversion costs of approximately $110,000 and $40,000 had been incurred and are
included in prepaid expenses and other assets as of September 30, 1996 and June
30, 1996, respectively.
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.
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<PAGE>
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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Comparison of Financial Condition at September 30, 1996 and June 30, 1996
Home Savings experienced moderate asset growth as total assets increased from
$81.3 million at June 30, 1996 to $82.2 million at September 30, 1996. Loan
demand during the quarter was relatively strong, as net loans receivable
increased by $1.1 million from $55.2 million to $56.3 million. The principal
source of funding for the increased loans was collection of principal from
investments, which decreased from $22.8 million at June 30, 1996 to $21.8
million at September 30, 1996.
Deposits increased $421,000 during the quarter, from $69.7 million at June 30,
1996 to $70.1 million at September 30, 1996. Retained earnings totaled $11.3
million at September 30, 1996 as compared with $11.2 million at June 30, 1996,
with the increase arising from an increase in the market value of available-for-
sale investment securities. At September 30, 1996, Home Savings continued to
substantially exceed all regulatory capital requirements.
Comparison of Results of Operations for the Three Months Ended September 30,
1996 and 1995
Net Income (Loss). Home Savings incurred a net loss of $22,000 during the
quarter ended September 30, 1996 as compared with net income of $141,000 during
the corresponding quarter of the prior year, a decrease of $163,000. The net
loss for the quarter ended September 30, 1996 resulted from a special insurance
assessment of $409,000 which was imposed on all SAIF-insured institutions by the
FDIC to recapitalize the SAIF fund (see Note C). Net of an income tax benefit
of $149,000, this special assessment decreased earnings by $260,000 during the
quarter ended September 30, 1996. If Home Savings had not incurred the SAIF
special assessment, its net income during the quarter ended September 30, 1996
would have been $238,000, an increase of $97,000 over its net income during the
quarter ended September 30, 1995.
Net Interest Income. Net interest income increased to $640,000 during the
quarter ended September 30, 1996 as compared with $499,000 during the first
quarter of the previous year. This increase resulted from a $3.7 million
increase in average interest-earning assets, which increase principally
consisted of higher yielding loans receivable, and a reduction in the rate of
interest paid on customer deposits, which declined from a weighted average rate
of 5.33% during the quarter ended September 30, 1995 to a weighted average rate
of 5.04% during the quarter ended September 30, 1996, reflecting general levels
of interest rates during the respective quarters.
Provision for Loan Losses. The provision for loan losses was $3,000 and $40,000
for the quarters ended September 30, 1996 and 1995, respectively. The reduced
provision during the quarter ended September 30, 1996 was due to a reduction in
both net loan charge-offs and nonaccrual loans as compared with the
corresponding quarter of the previous year. There were no loan charge-offs
during the three months ended September 30, 1996 as compared with net charge-
offs of $14,000 during the three months ended September 30, 1995, while
nonaccrual loans decreased to $213,000 at September 30, 1996 from $288,000 at
September 30, 1995.
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<PAGE>
Other Income. Other income increased to $18,000 during the three months ended
September 30, 1996 from $7,000 during the corresponding period in 1995. This
increase was principally due to a $9,000 gain from the sale of foreclosed real
estate during the quarter ended September 30, 1996.
General and Administrative Expenses. Excluding the FDIC special insurance
assessment described under "Net Income (Loss)" above, general and administrative
expenses remained relatively stable, increasing to $283,000 during the quarter
ended September 30, 1996 as compared with $268,000 during the quarter ended
September 30, 1995. This increase generally tracked Home Savings' growth in
assets, representing, on an annualized basis, 1.38% and 1.39% of average total
assets during the respective quarters.
Liquidity and Capital Resources
The objective of Home Savings' 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 September
30, 1996, as computed under North Carolina regulations, was approximately 28%.
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
September 30, 1996, Home Savings exceeded the capital requirements of both the
FDIC and the N. C. Administrator.
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<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 by the Bank during the quarter
ended September 30, 1996.
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<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: January 27, 1997 By: /s/ James G. Hudson, Jr.
-----------------------------
James G. Hudson, Jr.
Chief Executive Officer
Date: January 27, 1997 By: /s/ Drema A. Michael
------------------------------
Drema A. Michael
Chief Financial Officer
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,026
<INT-BEARING-DEPOSITS> 3,024
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,131
<INVESTMENTS-CARRYING> 6,055
<INVESTMENTS-MARKET> 6,067
<LOANS> 56,881
<ALLOWANCE> 536
<TOTAL-ASSETS> 82,170
<DEPOSITS> 70,090
<SHORT-TERM> 0
<LIABILITIES-OTHER> 784
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 11,296
<TOTAL-LIABILITIES-AND-EQUITY> 82,170
<INTEREST-LOAN> 1,180
<INTEREST-INVEST> 343
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,523
<INTEREST-DEPOSIT> 880
<INTEREST-EXPENSE> 880
<INTEREST-INCOME-NET> 643
<LOAN-LOSSES> 3
<SECURITIES-GAINS> 4
<EXPENSE-OTHER> 692
<INCOME-PRETAX> (34)
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 3.28
<LOANS-NON> 213
<LOANS-PAST> 143
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 565
<ALLOWANCE-OPEN> 533
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 536
<ALLOWANCE-DOMESTIC> 380
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 156
</TABLE>
