<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 MARCH 31, 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
------------------------------- ---------------------
(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 May 5, 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.
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<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART 1. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Financial Condition
March 31, 1997 and June 30, 1996.............................. 3
Consolidated Statements of Operations
Three Months and Nine Months Ended March 31, 1997 and 1996.... 4
Consolidated Statements of Cash Flows
Nine Months Ended March 31, 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
</TABLE>
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<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
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CENTURY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31,
1997 June 30,
ASSETS (UNAUDITED) 1996 *
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(In Thousands)
<S> <C> <C>
Cash on hand and in banks $ 1,353 $ 1,342
Interest-bearing balances in other banks 4,975 3,645
Investment securities available for sale, at fair value 22,064 11,707
Investment securities held to maturity, at amortized cost 10,058 6,857
Loans receivable, net 59,077 55,193
Accrued interest receivable 731 557
Premises and equipment, net 721 748
Real estate acquired in settlement of loans 128 333
Stock in the Federal Home Loan Bank, at cost 587 614
Other assets 254 308
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TOTAL ASSETS $99,948 $81,304
======= =======
LIABILITIES AND RETAINED EARNINGS
LIABILITIES
Deposit accounts $69,489 $69,669
Accrued interest payable 90 116
Advance payments by borrowers for property taxes and insurance 103 106
Accrued expenses and other liabilities 346 168
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TOTAL LIABILITIES 70,028 70,059
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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 at March 31, 1997 19,505 -
Retained earnings, substantially restricted 12,031 11,245
ESOP loan receivable (1,616) -
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TOTAL STOCKHOLDERS' EQUITY 29,920 11,245
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $99,948 $81,304
======= =======
</TABLE>
* Derived from audited financial statements
See accompanying notes.
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<PAGE>
CENTURY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended March 31, Ended March 31,
--------------- ---------------
1997 1996 1997 1996
------- ------ ------ -------
(In Thousands)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $1,214 $1,142 $3,552 $3,448
Investments and deposits in other banks 642 339 1,369 935
------ ------ ------ ------
TOTAL INTEREST INCOME 1,856 1,481 4,921 4,383
INTEREST EXPENSE ON DEPOSIT
ACCOUNTS 916 882 2,716 2,661
------ ------ ------ ------
NET INTEREST INCOME 940 599 2,205 1,722
PROVISION FOR LOAN LOSSES 4 45 12 130
------ ------ ------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 936 554 2,193 1,592
------ ------ ------ ------
OTHER INCOME 13 28 31 42
------ ------ ------ ------
GENERAL AND ADMINISTRATIVE
EXPENSES
Compensation and benefits 164 155 465 425
Occupancy 21 21 60 59
Data processing expenses 28 24 77 68
Federal deposit insurance premiums 4 51 54 111
FDIC special assessment - - 409 -
Provision for loss on foreclosed real estate - 80 - 80
Other expenses 67 68 148 171
------ ------ ------ ------
TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES 284 399 1,213 914
------ ------ ------ ------
INCOME BEFORE INCOME TAXES 665 183 1,011 720
PROVISION FOR INCOME TAXES 226 25 338 242
------ ------ ------ ------
NET INCOME $ 439 $ 158 $ 673 $ 478
====== ====== ====== ======
</TABLE>
See accompanying notes.
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<PAGE>
CENTURY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Nine Months
Ended March 31,
----------------
1997 1996
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(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 673 $ 478
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 34 31
Amortization, net 17 14
Deferred income taxes - (37)
(Gain) loss on sale of assets 15 (3)
Provision for loan losses 12 130
Provision for loss on foreclosed real estate - 80
Deferred compensation 17 17
Change in assets and liabilities
(Increase) decrease in accrued interest receivable (174) 13
Increase in other assets (61) (14)
Decrease in accrued interest payable (26) (10)
Increase (decrease) in accrued expenses and other liabilities 162 (41)
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 669 658
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities (17,773) (6,687)
Proceeds from sales, maturities and calls of investment securities 4,404 4,072
Net increase in loans (3,896) (254)
Purchase of property and equipment (7) (34)
Proceeds from sale of equipment - 5
Proceeds from sale of real estate acquired in settlement of loans 198 59
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NET CASH USED BY
INVESTING ACTIVITIES (17,074) (2,839)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in demand accounts 1,005 446
Net increase (decrease) in certificates of deposit (1,185) 4,013
Decrease in advance payments by borrowers for taxes and insurance (3) (19)
Net proceeds from issuance of common stock 19,505 -
Decrease in stock conversion costs 40 -
Increase in ESOP loan receivable (1,616) -
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NET CASH PROVIDED BY
FINANCING ACTIVITIES 17,746 4,440
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NET INCREASE IN CASH
AND CASH EQUIVALENTS 1,341 2,259
CASH AND CASH EQUIVALENTS, BEGINNING 4,987 5,614
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CASH AND CASH
EQUIVALENTS, ENDING $ 6,328 $ 7,873
======== =======
</TABLE>
See accompanying notes.
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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
nine month periods ended March 31, 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 and nine month periods ended March 31, 1997 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.
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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 March 31, 1997 was $1.29 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). Net
income per share for the quarter ended March 31, 1997 was $1.17 and was computed
using the weighted average number of shares outstanding (374,744 shares) during
the quarter.
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<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1997 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 $18.6 million, from $81.3 million at June 30, 1996 to $99.9 million
at March 31, 1997. Funds generated from the stock sale were used principally to
acquire investments, with investment securities increasing by $14.6 million
since the beginning of the current year. Loan demand has also been relatively
strong, however, with net loans receivable increasing by $3.9 million from $55.2
million to $59.1 million during the nine months. Customer deposit accounts
declined slightly during the nine months as a result of deposit withdrawals by
customers who used the funds thus provided to purchase shares of the Company's
common stock.
Total stockholders' equity was $29.9 million at March 31, 1997 as compared with
$11.2 million at June 30, 1996. The Company and its bank subsidiary
substantially exceeded all regulatory capital requirements.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997
AND 1996
Net Income. Consolidated net income during the quarter ended March 31, 1997 was
$439,000 as compared with net income of $158,000 for the quarter ended March 31,
1996. The increase is principally 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
losses on loans and foreclosed real estate as compared with the comparable
quarter for the prior year.
Net Interest Income. Net interest income was $940,000 during the quarter ended
March 31, 1997 as compared with $599,000 during the third quarter of the
previous fiscal year, an increase of $341,000. This increase resulted almost
entirely from an increase in average interest-earning assets attributable to
loan growth and to investment of proceeds from the sale of the Company's common
stock. Average investment and loan balances were $15 million and $4.2 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 $4,000 and $45,000
for the quarters ended March 31, 1997 and 1996, respectively. Management
believes that the provision for loan losses and the resulting loan loss
allowance at March 31, 1997 will be adequate to absorb losses on existing loans.
There were no loan charge-offs during the three months ended March 31, 1997 as
compared with net recoveries of loans previously charged off of $10,000 during
the three months ended March 31, 1996. Nonaccrual loans aggregated $263,000 at
March 31, 1997.
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<PAGE>
General and Administrative Expenses. General and administrative expenses
decreased to $284,000 during the quarter ended March 31, 1997 as compared with
$399,000 during the quarter ended March 31, 1996, a decrease of $115,000.
Deposit insurance costs decreased by $47,000 as reduced rates were effective
throughout the quarter. During the quarter ended March 31, 1996, the Company
recorded a provision of $80,000 for losses on real estate acquired through
foreclosure. No such provision has been made during the current quarter.
Provision for Income Taxes. The provision for income taxes, as a percentage of
income before income taxes, was 34% and 14%, respectively, during the quarters
ended March 31, 1997 and 1996. During the quarter ended March 31, 1996, the
Company's anticipated rate of tax for the year ended June 30, 1996 was revised
downward, with a corresponding decrease in the provision for income tax during
that quarter.
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1997 AND
1996
Net Income. The Company earned consolidated net income of $673,000 during the
nine months ended March 31, 1997 as compared with net income of $478,000 during
the corresponding period of the prior year, an increase of $195,000. The
increase resulted from increased interest income earned from investment of
proceeds from the sale of the Company's common stock, and would have been a
larger increase were it not for 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 nine months
ended March 31, 1997 would have been $933,000.
Net Interest Income. Net interest income increased to $2,205,000 during the
nine months ended March 31, 1997 as compared with $1,722,000 during the first
nine months of the previous year. This increase resulted from increases of $7
million and $3 million, respectively, in the average balances of loans
receivable and investments during the current fiscal year to date.
Provision for Loan Losses. The provision for loan losses was $12,000 and
$130,000 for the nine months ended March 31, 1997 and 1996, respectively.
Management believes that the provision for loan losses and the resulting loan
loss allowance at March 31, 1997 will be adequate to absorb losses on existing
loans. There were no loan charge-offs during the nine months ended March 31,
1997 as compared with net charge-offs of $31,000 during the nine months ended
March 31, 1996.
General and Administrative Expenses. Exclusive of the FDIC special insurance
assessment explained under the caption "Net Income," general and administrative
expenses declined by $110,000 from $914,000 during the nine months ended March
31, 1996 to $804,000 during the nine months ended March 31, 1997. The decrease
relates principally to the reduced rate of federal deposit insurance and to the
decrease in the provision for loss on foreclosed real estate.
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Provision for Income Taxes. The provision for income taxes, as a percentage of
income before income taxes, was 33.4% and 33.6% for the nine months ended March
31, 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 March 31,
1997, as computed under North Carolina regulations, was approximately 32%. On a
consolidated basis, liquid assets represented 38% 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
March 31, 1997, Home Savings exceeded the capital requirements of both the FDIC
and the N. C. Administrator.
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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 March
31, 1997.
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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: May 5, 1997 By: /s/ James G. Hudson, Jr.
------------------------
James G. Hudson, Jr.
Chief Executive Officer
Date: May 5, 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> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,353
<INT-BEARING-DEPOSITS> 4,975
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 22,064
<INVESTMENTS-CARRYING> 10,058
<INVESTMENTS-MARKET> 10,017
<LOANS> 59,077
<ALLOWANCE> 545
<TOTAL-ASSETS> 99,948
<DEPOSITS> 69,489
<SHORT-TERM> 0
<LIABILITIES-OTHER> 539
<LONG-TERM> 0
0
0
<COMMON> 19,505
<OTHER-SE> 10,415
<TOTAL-LIABILITIES-AND-EQUITY> 99,948
<INTEREST-LOAN> 3,552
<INTEREST-INVEST> 1,369
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 4,921
<INTEREST-DEPOSIT> 2,716
<INTEREST-EXPENSE> 2,716
<INTEREST-INCOME-NET> 2,205
<LOAN-LOSSES> 12
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,213
<INCOME-PRETAX> 1,011
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 673
<EPS-PRIMARY> 1.23
<EPS-DILUTED> 1.23
<YIELD-ACTUAL> 3.42
<LOANS-NON> 263
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 527
<ALLOWANCE-OPEN> 533
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 545
<ALLOWANCE-DOMESTIC> 430
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 115
</TABLE>
