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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, 1998
[_] Transition Report Under Section 13
or 15(d) of the Exchange Act
For the transition period ended ___________________
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)
(336) 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, 1998, 1,255,869 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)
Consolidated Statements of Financial Condition
September 30, 1998 and June 30, 1998................................................ 3
Consolidated Statements of Operations
Three Months Ended September 30, 1998 and 1997...................................... 4
Consolidated Statements of Cash Flows
Three Months Ended September 30, 1998 and 1997...................................... 5
Notes to Consolidated Financial Statements.......................................... 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.......................................... 10
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PART 1. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
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CENTURY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
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<TABLE>
<CAPTION>
September 30,
1998 June 30,
ASSETS (Unaudited) 1998 *
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(In Thousands)
<S> <C> <C>
Cash on hand and in banks $ 646 $ 1,450
Interest-bearing balances in other banks 542 5,356
Investment securities available for sale, at fair value 7,616 7,709
Investment securities held to maturity, at amortized cost 9,220 10,217
Loans receivable, net 72,194 69,997
Accrued interest receivable 559 545
Premises and equipment, net 678 687
Real estate acquired in settlement of loans 8 8
Stock in the Federal Home Loan Bank, at cost 653 653
Other assets 204 244
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TOTAL ASSETS $92,320 $96,866
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposit accounts $72,626 $73,023
Note payable - 4,200
Accrued interest payable 97 152
advance payments by borrowers for property taxes and insurance 48 171
Accrued expenses and other liabilities 593 588
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TOTAL LIABILITIES 73,364 78,134
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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;
1,270,869 shares issued and outstanding 9,215 9,224
ESOP loan and unvested stock awards (3,381) (3,519)
Retained earnings, substantially restricted 12,626 12,579
Unrealized holding gains 496 448
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TOTAL STOCKHOLDERS' EQUITY 18,956 18,732
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $92,320 $96,866
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* 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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1998 1997
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(In Thousands, Except Per Share Data)
<S> <C> <C>
INTEREST INCOME
Loans $ 1,409 $ 1,300
Investments and deposits in other banks 297 528
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TOTAL INTEREST INCOME 1,706 1,828
INTEREST EXPENSE ON DEPOSIT ACCOUNTS 931 897
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NET INTEREST INCOME 775 931
PROVISION FOR LOAN LOSSES 5 5
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 770 926
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OTHER INCOME 5 6
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GENERAL AND ADMINISTRATIVE EXPENSES
Compensation and benefits 245 193
Occupancy 21 18
Data processing expenses 36 26
Federal deposit insurance premiums 11 10
Other 95 85
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TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES 408 332
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INCOME BEFORE
INCOME TAX EXPENSE 367 600
INCOME TAX EXPENSE 125 204
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NET INCOME $ 242 $ 396
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NET INCOME PER COMMON SHARE
Basic and diluted $ .22 $ .35
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Weighted average shares outstanding 1,121,089 1,127,748
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DIVIDEND PER COMMON SHARE $ .17 $ .17
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</TABLE>
See accompanying notes.
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CENTURY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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Three Months Ended
September 30,
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1998 1997
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(In Thousands)
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 242 $ 396
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 12 12
Deferred compensation 6 6
Amortization of discounts and premiums on securities 2 13
Provision for loan losses 5 6
Deferred income taxes (48) -
Amortization of unearned stock compensation 131 20
Gain on sale of real estate acquired in foreclosure - (1)
Change in assets and liabilities
(Increase) decrease in accrued interest receivable (14) 121
Increase (decrease) in accrued interest payable (55) 12
Other 55 45
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 336 630
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CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest-bearing balances in other banks 4,814 1,240
Purchases of:
Held to maturity investment securities - (1,250)
Proceeds from sales, maturities and calls of:
Available for sale investment securities 166 1,239
Held to maturity investment securities 1,000 1,000
Net increase in loans (2,202) (2,278)
Purchases of property and equipment (3) (21)
Proceeds from sale of real estate acquired in settlement of loans - 7
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NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES 3,775 (63)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in demand deposits (542) (544)
Net increase in certificate accounts 145 581
Repayment of note payable (4,200) -
Decrease in advances from borrowers (123) (95)
Cash dividends paid (195) (187)
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NET CASH USED
BY FINANCING ACTIVITIES (4,915) (245)
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NET INCREASE (DECREASE) IN
CASH ON HAND AND IN BANKS (804) 322
CASH ON HAND AND IN BANKS, BEGINNING 1,450 1,369
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CASH ON HAND AND IN BANKS, ENDING $ 646 $ 1,691
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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, 1998 and 1997, 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, 1998 are not necessarily indicative of the
results that may be expected for the fiscal year ending June 30, 1999.
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 - NET INCOME PER SHARE
Net income per share has been computed by dividing net income by the weighted
average number of shares of common stock outstanding during the period. In
accordance with generally accepted accounting principles, management recognition
plan shares and employee stock ownership plan shares are only considered
outstanding for the basic earnings per share calculations when they are earned
or committed to be released. Unearned shares in the management recognition plan
had no dilutive effect for the three months ended September 30, 1998. No
potentially dilutive securities were outstanding during the three months ended
September 30, 1997.
NOTE C - COMPREHENSIVE INCOME
On July 1, 1998, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS No. 130). This pronouncement
establishes standards for the reporting and display of comprehensive income and
its components in a full set of financial statements. Comprehensive income is
defined as the change in equity during a period for non-owner transactions and
is divided into net income and other comprehensive income. Other comprehensive
income includes revenues, expenses, gains and losses that are excluded from
earnings under current accounting standards. This statement does not change or
modify the reporting or display in the statement of operations. SFAS No. 130 is
effective for the Company for interim and annual periods beginning on or after
July 1, 1998. Comparative financial statements for earlier periods are required
to reflect retroactive application of this statement. For the three months ended
September 30, 1998 and 1997, total comprehensive income, consisting of net
income and unrealized securities gains and losses, net of taxes, was $290,000
and $436,000, respectively.
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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, 1998 AND JUNE 30, 1998
Consolidated total assets decreased by $4.6 million during the three months
ended September 30, 1998, from $96.9 million at June 30, 1998 to $92.3 million
at September 30, 1998. This decrease resulted principally from the use of liquid
assets to repay on July 2, 1998 borrowings of $4.2 million that had been
outstanding as of the beginning of the quarter. The borrowings had been obtained
during the prior quarter to provide funding for payment on April 6, 1998 of a
special $10.00 per share return of capital dividend which aggregated $12.7
million.
During the quarter, reductions of $4.8 million and $1.1 million, respectively,
in interest-bearing balances in other banks and investment securities available
for sale were the principal sources of funding for the repayment of borrowings
discussed above and for an increase of $2.2 million in loans receivable, which
grew from $70.0 million at the beginning of the quarter to $72.2 million at
quarter end.
Total stockholders' equity was $19.0 million at September 30, 1998 as compared
with $18.7 million at June 30, 1998, an increase of $224,000 which resulted
principally from net income of $242,000 for the quarter, a net increase of
$46,000 in unrealized holding gains on available for sale investment securities,
and amortization of unearned ESOP and MRP compensation of $131,000, while the
regular quarterly dividend aggregated $195,000 or $.17 per share. At June 30,
1998, both the Holding Company and the Bank continued to significantly exceed
all applicable regulatory capital requirements.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1998 AND 1997
Net Income. Net income for the quarter ended September 30, 1998 was $242,000,
or $.22 per share, as compared with net income of $396,000, or $.35 per share,
for the three months ended September 30, 1997, a decrease of $154,000 or $.13
per share. This decrease resulted principally from a reduction of $10.2 million
in net interest earning assets arising from the payment on April 6, 1998 of a
special dividend that aggregated $12.7 million. Based upon yields currently
available on liquid assets, the reduction in liquid assets for payment of the
special dividend had the effect of reducing net interest income and income
before income taxes during the three months ended June 30, 1998 by approximately
$167,000, while reducing after tax net income by approximately $110,000. The
balance of the decrease in net income results from an increase of $76,000 in
general and administrative expenses.
Net Interest Income. Net interest income for the quarter ended September 30,
1998 was $775,000 as compared with $931,000 during the quarter ended September
30, 1997, a decrease of $156,000. The decrease resulted primarily from payment
of the special dividend discussed under the caption "Net Income," offset
somewhat by a larger concentration of interest earning assets in higher yielding
loans during the current quarter.
Provision for Loan Losses. The provision for loan losses was $5,000 and $5,000
for the quarters ended September 30, 1998 and 1997, respectively. There were no
net loan charge-offs during either quarter. At September 30, 1998, nonaccrual
loans aggregated $271,000, while the allowance for loan losses stood at
$555,000.
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General and Administrative Expenses. General and administrative expenses
increased to $408,000 during the quarter ended September 30, 1998 as compared
with $332,000 for the quarter ended September 30, 1997, an increase of $76,000.
The most significant component of this increase relates to personnel costs which
increased by $52,000 principally as a result of costs attributable to awards
previously granted under the Management Recognition Plan.
Provision for Income Taxes. The provision for income taxes, as a percentage of
income before income taxes, was 34.1% and 34.0% for the quarters ended September
30, 1998 and 1997, 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, 1998, as
computed under North Carolina regulations, was approximately 19%. On a
consolidated basis, liquid assets represented 20% 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, 1998, Home Savings exceeded the capital requirements of both the
FDIC and the N. C. Administrator.
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THE YEAR 2000
The Year 2000 issue confronting the Company and its suppliers, customers,
customers' suppliers, and competitors centers on the inability of computer
systems to recognize the Year 2000. Many existing computer programs and systems
were originally programmed with six digit dates that provided only two digits to
identify the calendar year, without considering the upcoming change in the
century. Monitoring and managing the Year 2000 project will result in additional
direct costs. Management presently believes that with modifications to existing
software and conversions to new software, the Year 2000 matter will be mitigated
without causing a material adverse impact on operations. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 issue could have a material impact on the operations of the Company.
Relations with third parties in which electronic data is exchanged exposes the
Company to some risk of loss in the event the other party makes a mistake or is
unable to perform. In the Year 2000 context, the Company is working to identify
where such exposure may exist and is in the process of developing contingency
plans in order to minimize risk of loss due to third parties' Year 2000
vulnerabilities. In addition, the Company has initiated formal communications
with all of its significant suppliers and large customers to determine the
extent to which it is vulnerable to those third parties' failure to remediate
their own Year 2000 issues. There can be no guarantee that the systems of other
companies on which the Company's systems rely will be timely converted, or that
a failure to convert by another company, or a conversion that is incompatible
with the Company's systems, would not have a material adverse effect on the
Company in future periods. The full cost for becoming Year 2000 compliant has
not been determined; however, management believes it will not be material to the
Company's financial statements.
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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.
A report on Form 8-K was filed on August 14, 1998 to announce that
the Company's Board of Directors had on that date adopted a stock
repurchase plan.
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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 9, 1998 By: /s/ James G. Hudson, Jr.
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James G. Hudson, Jr.
Chief Executive Officer
Date: November 9, 1998 By: /s/ Drema A. Michael
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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-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 646
<INT-BEARING-DEPOSITS> 542
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,616
<INVESTMENTS-CARRYING> 9,220
<INVESTMENTS-MARKET> 9,372
<LOANS> 72,749
<ALLOWANCE> 555
<TOTAL-ASSETS> 92,320
<DEPOSITS> 72,626
<SHORT-TERM> 0
<LIABILITIES-OTHER> 738
<LONG-TERM> 0
0
0
<COMMON> 9,215
<OTHER-SE> 9,741
<TOTAL-LIABILITIES-AND-EQUITY> 92,320
<INTEREST-LOAN> 1,409
<INTEREST-INVEST> 297
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<INTEREST-TOTAL> 1,706
<INTEREST-DEPOSIT> 931
<INTEREST-EXPENSE> 931
<INTEREST-INCOME-NET> 775
<LOAN-LOSSES> 5
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 408
<INCOME-PRETAX> 367
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<CHANGES> 0
<NET-INCOME> 242
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
<YIELD-ACTUAL> 3.41
<LOANS-NON> 271
<LOANS-PAST> 0
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<LOANS-PROBLEM> 380
<ALLOWANCE-OPEN> 550
<CHARGE-OFFS> 0
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<ALLOWANCE-CLOSE> 555
<ALLOWANCE-DOMESTIC> 454
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</TABLE>
