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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, 1997
[_] 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
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(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
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As of November 6, 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.
1
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Page No.
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Part I. FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Financial Condition
September 30, 1997 and June 30, 1997...................................... 3
Consolidated Statements of Operations
Three Months Ended September 30, 1997 and 1996............................ 4
Consolidated Statements of Cash Flows
Three Months Ended September 30, 1997 and 1996............................ 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
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2
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Part 1. FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
CENTURY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30,
1997 June 30,
ASSETS (Unaudited) 1997 *
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(In Thousands)
<S> <C> <C>
Cash on hand and in banks $ 1,691 $ 1,369
Interest-bearing balances in other banks 1,548 2,788
Investment securities available for sale, at fair value 19,559 20,745
Investment securities held to maturity, at amortized cost 11,310 11,060
Loans receivable, net 64,606 62,333
Accrued interest receivable 719 840
Premises and equipment, net 718 709
Real estate acquired in settlement of loans 47 53
Stock in the Federal Home Loan Bank, at cost 587 587
Other assets 152 156
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TOTAL ASSETS $100,937 $100,640
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposit accounts $ 69,736 $ 69,699
Accrued interest payable 120 108
Advance payments by borrowers for property taxes and insurance 30 126
Accrued expenses and other liabilities 479 404
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TOTAL LIABILITIES 70,365 70,337
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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 shares issued and outstanding 19,473 19,467
ESOP loan receivable (1,571) (1,585)
Retained earnings, substantially restricted 12,346 12,137
Unrealized holding gains 324 284
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TOTAL STOCKHOLDERS' EQUITY 30,572 30,303
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $100,937 $100,640
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</TABLE>
* Derived from audited financial statements
See accompanying notes.
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CENTURY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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<CAPTION>
Three Months Ended
September 30,
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1997 1996
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(In Thousands,
Except Per Share Data)
<S> <C> <C>
INTEREST INCOME
Loans $1,300 $1,180
Investments and deposits in other banks 528 343
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TOTAL INTEREST INCOME 1,828 1,523
INTEREST EXPENSE ON DEPOSIT ACCOUNTS 897 880
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NET INTEREST INCOME 931 643
PROVISION FOR LOAN LOSSES 5 3
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 926 640
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OTHER INCOME 6 18
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GENERAL AND ADMINISTRATIVE EXPENSES
Compensation and benefits 193 134
Occupancy 18 18
Data processing expenses 26 25
Federal deposit insurance premiums 10 39
FDIC special assessment - 409
Other 85 67
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TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES 332 692
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INCOME (LOSS) BEFORE
INCOME TAX EXPENSE (BENEFIT) 600 (34)
INCOME TAX EXPENSE (BENEFIT) 204 (12)
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NET INCOME (LOSS) $ 396 $ (22)
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NET INCOME PER COMMON SHARE $ 1.05 $ -
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DIVIDEND PER COMMON SHARE $.50 $ -
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</TABLE>
See accompanying notes.
4
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CENTURY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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<CAPTION>
Three Months Ended
September 30,
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1997 1996
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(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 396 $ (22)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation 12 11
Deferred compensation 6 6
Amortization of discounts and premiums on securities 13 34
Provision for loan losses 6 3
Release of ESOP shares 20 -
Loss on sale of investment securities - 4
Gain on sale of real estate acquired in foreclosure (1) (9)
Change in assets and liabilities
Decrease in accrued interest receivable 121 26
Increase in accrued interest payable 12 7
Other 45 359
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 630 419
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CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest-bearing balances in other banks 1,240 621
Purchases of:
Available for sale investment securities - (1,517)
Held to maturity investment securities (1,250) (200)
Proceeds from sales, maturities and calls of:
Available for sale investment securities 1,239 1,177
Held to maturity investment securities 1,000 1,000
Net increase in loans (2,278) (1,147)
Purchases of property and equipment (21) -
Proceeds from sale of real estate acquired in settlement of loans 7 55
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NET CASH USED BY
INVESTING ACTIVITIES (63) (11)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits (544) 1,089
Net increase (decrease) in certificate accounts 581 (668)
Decrease in advances from borrowers (95) (75)
Increase in stock conversion costs incurred - (70)
Cash dividends paid (187) -
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NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES (245) 276
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NET INCREASE IN CASH
ON HAND AND IN BANKS 322 684
CASH ON HAND AND IN BANKS, BEGINNING 1,369 1,342
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CASH ON HAND AND IN BANKS, ENDING $1,691 $2,026
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</TABLE>
See accompanying notes.
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Century Bancorp, Inc. and Subsidiary
Notes to Consolidated 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, 1997 and 1996, 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 months ended September 30, 1997 are not necessarily indicative of the
results that may be expected for the fiscal year ending June 30, 1998.
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 annual report on Form 10-
KSB. This quarterly report should be read in conjunction with such annual
report.
NOTE B - PLAN OF CONVERSION
On May 7, 1996, the Board of Directors of Home Savings unanimously adopted a
Plan of Holding Company Conversion 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.
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
$912,663. 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.
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Century Bancorp, Inc. and Subsidiary
Notes to Consolidated Financial Statements
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NOTE D - NET INCOME PER SHARE
Net income per share for the three months ended September 30, 1997 was computed
based on the weighted average number of shares outstanding during that period
(375,916 shares).
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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, 1997 and June 30, 1997
Total assets increased by $297,000 during the quarter ended September 30, 1997,
from $100.6 million at June 30, 1997 to $100.9 million at quarter's end. Cash
on hand and in banks increased by $322,000, resulting in the overall increase in
non-interest-earning assets of $200,000 during the quarter, while interest-
earning assets grew by $97,000. The Company's holding company conversion was
completed in December of 1996 with the issuance of common stock, which generated
net proceeds of $19.5 million. Since that time, the Company has attempted to
generate growth in higher yielding loans receivable funded by liquid assets
while maintaining its base of deposit customers. Loans receivable increased by
$2.3 million during the quarter ended September 30, 1997, from $62.3 million to
$64.6 million. This represents an annualized rate of growth of 14.6%. Customer
deposits were essentially unchanged at $69.7 million at both the beginning and
end of the quarter.
Total stockholders' equity was $30.6 million at September 30, 1997 as compared
with $30.3 million at June 30, 1997. The Company and its bank subsidiary
substantially exceeded all regulatory capital requirements.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1997 AND 1996
Net Income (Loss). Consolidated net income during the quarter ended September
30, 1997 was $396,000 as compared with a net loss of $22,000 during the three
months ended September 30, 1996, an increase of $418,000. The increase is
attributable to the higher level of interest-earning assets during the current
quarter as a result of investment of proceeds from the December 1996 issuance of
the Company's common stock, and to a special insurance assessment imposed in
September 1996 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 quarter ended
September 30, 1996 by $260,000.
Net Interest Income. Net interest income was $931,000 during the quarter ended
September 30, 1997 as compared with $643,000 during the first quarter of the
previous fiscal year, an increase of $288,000. The increase resulted from an
increase in average interest-earning assets attributable to investment of
proceeds from the sale in December of 1996 of the Company's common stock.
Average investment and loan balances were $12.1 million and $7.5 million,
respectively, higher during the current quarter than during the corresponding
quarter of the previous fiscal year.
Provision for Loan Losses. The provision for loan losses was $5,000 and $3,000
for the quarters ended September 30, 1997 and 1996, respectively. There were no
loan charge-offs during either of the quarters ended September 30, 1997 and
1996.
8
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General and Administrative Expenses. General and administrative expenses
decreased to $332,000 during the quarter ended September 30, 1997 as compared
with $692,000 during the quarter ended September 30, 1996, a decrease of
$360,000. An overall decrease of $438,000 in deposit insurance costs was offset
by increases of $59,000 and $18,000 in compensation and benefits and other
expenses, respectively. In connection with the stock conversion completed in
late 1996, the Company implemented an Employee Stock Ownership Plan and decided
to terminate Home Savings' defined benefit pension plan. The Company has been
required to continue to fund the pension plan until its termination is
completed. The combined costs of funding both plans during the quarter ended
September 30, 1997 is the principal reason for the increase in compensation and
benefits during the quarter.
Provision for Income Taxes. The provision for income taxes, as a percentage of
income before income taxes, was 34.0% and 35.3% for the three months ended
September 30, 1997 and 1996, respectively.
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 September
30, 1997, as computed under North Carolina regulations, was approximately 26%.
On a consolidated basis, liquid assets represented 34% of total assets.
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, 1997, Home Savings exceeded the capital requirements of both the
FDIC and the N. C. Administrator.
9
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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
September 30, 1997.
10
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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: November 7, 1997 By: /s/ James G. Hudson, Jr.
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James G. Hudson, Jr.
Chief Executive Officer
Date: November 7, 1997 By: /s/ Drema A. Michael
---------------------------
Drema A. Michael
Chief Financial Officer
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11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,691
<INT-BEARING-DEPOSITS> 1,548
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 19,559
<INVESTMENTS-CARRYING> 11,310
<INVESTMENTS-MARKET> 10,977
<LOANS> 65,161
<ALLOWANCE> 555
<TOTAL-ASSETS> 100,937
<DEPOSITS> 69,736
<SHORT-TERM> 0
<LIABILITIES-OTHER> 629
<LONG-TERM> 0
0
0
<COMMON> 19,473
<OTHER-SE> 11,099
<TOTAL-LIABILITIES-AND-EQUITY> 100,937
<INTEREST-LOAN> 1,300
<INTEREST-INVEST> 528
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,828
<INTEREST-DEPOSIT> 897
<INTEREST-EXPENSE> 897
<INTEREST-INCOME-NET> 931
<LOAN-LOSSES> 5
<SECURITIES-GAINS> 926
<EXPENSE-OTHER> 332
<INCOME-PRETAX> 600
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 396
<EPS-PRIMARY> 1.05
<EPS-DILUTED> 1.05
<YIELD-ACTUAL> 3.81
<LOANS-NON> 206
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 298
<ALLOWANCE-OPEN> 550
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 555
<ALLOWANCE-DOMESTIC> 433
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 122
</TABLE>
