<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, 1997
[ ] 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.
- --------------------------------------------------------------------------------
(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
---- ----
As of January 30, 1998, 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
December 31, 1997 and June 30, 1997.............................. 3
Consolidated Statements of Operations
Three Months and Six Months Ended December 31, 1997 and 1996..... 4
Consolidated Statements of Cash Flows
Six Months Ended December 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 4. Submission of Matters to a Vote of Security Holders..... 11
Item 6. Exhibits and Reports on Form 8-K........................ 11
</TABLE>
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<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
- -----------------------------
CENTURY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
===============================================================================
<TABLE>
<CAPTION>
December 31,
1997 June 30,
ASSETS (Unaudited) 1997 *
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(In Thousands)
<S> <C> <C>
Cash on hand and in banks $ 1,183 $ 1,369
Interest-bearing balances in other banks 1,742 2,788
Investment securities available for sale, at fair value 18,988 20,745
Investment securities held to maturity, at amortized cost 11,961 11,060
Loans receivable, net 65,995 62,333
Accrued interest receivable 846 840
Premises and equipment, net 708 709
Real estate acquired in settlement of loans 47 53
Stock in the Federal Home Loan Bank, at cost 587 587
Other assets 224 156
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TOTAL ASSETS $102,281 $100,640
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposit accounts $ 70,743 $ 69,699
Accrued interest payable 133 108
Advance payments by borrowers for property taxes and insurance 124 126
Accrued expenses and other liabilities 446 404
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TOTAL LIABILITIES 71,446 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 19,483 19,467
ESOP loan receivable (1,556) (1,585)
Retained earnings, substantially restricted 12,508 12,137
Unrealized holding gains 400 284
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TOTAL STOCKHOLDERS' EQUITY 30,835 30,303
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $102,281 $100,640
======== ========
</TABLE>
* Derived from audited financial statements
See accompanying notes.
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<PAGE>
CENTURY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
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<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------- --------------------
1997 1996 1997 1996
------- ------- ------- --------
(In Thousands except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $1,261 $1,158 $2,561 $2,338
Investments and deposits in other banks 498 384 1,026 727
------ ------ ------ ------
TOTAL INTEREST INCOME 1,759 1,542 3,587 3,065
INTEREST EXPENSE ON DEPOSIT
ACCOUNTS 920 920 1,817 1,800
NET INTEREST INCOME ------ ------ ------ ------
839 622 1,770 1,265
PROVISION FOR LOAN LOSSES 4 5 9 8
------ ------ ------ ------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 835 617 1,761 1,257
------ ------ ------ ------
OTHER INCOME 9 - 15 18
------ ------ ------ ------
GENERAL AND ADMINISTRATIVE
EXPENSES
Compensation and benefits 169 167 362 301
Occupancy 26 21 44 39
Data processing expenses 24 24 50 49
Federal deposit insurance premiums 12 11 22 50
FDIC special assessment - - - 409
Other expenses 85 14 170 81
------ ------ ------ ------
TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES 316 237 648 929
------ ------ ------ ------
INCOME BEFORE
INCOME TAXES 528 380 1,128 346
PROVISION FOR INCOME TAXES 178 124 382 112
------ ------ ------ ------
NET INCOME $ 350 $ 256 $ 746 $ 234
====== ====== ====== ======
NET INCOME PER COMMON SHARE
(Note D) $.93 $.12 $1.99 $.12
====== ====== ====== ======
DIVIDEND PER COMMON SHARE $1.00 $ - $2.00 $ -
====== ====== ====== ======
</TABLE>
See accompanying notes.
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<PAGE>
CENTURY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
===============================================================================
<TABLE>
<CAPTION>
Six Months Ended
December 31,
--------------------
1997 1996
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(In thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 746 $ 234
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 24 23
Deferred compensation 11 11
Amortization of discounts and premiums on securities 12 27
Provision for loan losses 9 8
Release of ESOP shares 45 -
Loss on sale of investment securities - 8
Gain on sale of real estate acquired in foreclosure (1) -
Change in assets and liabilities
(Increase) decrease in accrued interest receivable (6) 19
Increase in accrued interest payable 25 12
Other (110) 109
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 755 451
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CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest-bearing balances in other banks 1,046 (13,603)
Purchases of:
Available for sale investment securities - (2,948)
Held to maturity investment securities (2,100) (2,200)
Proceeds from sales, maturities and calls of:
Available for sale investment securities 1,934 2,378
Held to maturity investment securities 1,200 1,300
Net increase in loans (3,671) (2,305)
Purchases of property and equipment (23) (7)
Proceeds from sale of real estate acquired in settlement of loans 6 55
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NET CASH USED BY
INVESTING ACTIVITIES (1,608) (17,330)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in demand deposits (297) (157)
Net increase (decrease) in certificate accounts 1,341 (1,333)
Decrease in advances from borrowers (2) (43)
Decrease in stock conversion costs incurred - 40
Net proceeds from issuance of common stock - 19,505
Loan to ESOP for purchase of common stock - (1,629)
Cash dividends paid (375) -
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NET CASH PROVIDED
BY FINANCING ACTIVITIES 667 16,383
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NET DECREASE IN CASH
ON HAND AND IN BANKS (186) (496)
CASH ON HAND AND IN BANKS, BEGINNING 1,369 1,342
------- --------
CASH ON HAND AND IN BANKS, ENDING $ 1,183 $ 846
======= ========
</TABLE>
See accompanying notes.
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<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
month and six month periods ended December 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 six month periods ended December 31, 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
================================================================================
NOTE D - NET INCOME PER SHARE
Net income per share for the three and six month periods ended December 31, 1997
was computed based on the weighted average number of shares outstanding of
376,210 during both periods.
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).
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<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
-------------
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND JUNE 30, 1997
Total assets increased by $1.7 million during the six months ended December 31,
1997, from $100.6 million at June 30, 1997 to $102.3 million at December 31,
1997. 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 $3.7 million during the six
months ended December 31, 1997, from $62.3 million to $66.0 million. This
represents an annualized rate of growth of 11.7%. Customer deposits increased
from $69.7 million at June 30, 1997 to $70.7 million at December 31, 1997.
Total stockholders' equity was $30.8 million at December 31, 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 DECEMBER 31, 1997
AND 1996
Net Income. Consolidated net income during the quarter ended December 31, 1997
was $350,000 as compared with net income of $256,000 during the three months
ended December 31, 1996, an increase of $94,000. 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 the December 1996 issuance of
the Company's common stock.
Net Interest Income. Net interest income was $839,000 during the quarter ended
December 31, 1997 as compared with $622,000 during the corresponding quarter of
the previous fiscal year, an increase of $217,000. 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 $6.5 million and $8.2 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 $5,000
for the quarters ended December 31, 1997 and 1996, respectively. There were no
loan charge-offs during either of the quarters ended December 31, 1997 and 1996.
General and Administrative Expenses. General and administrative expenses
increased to $316,000 during the quarter ended December 31, 1997 as compared
with $237,000 during the quarter ended December 31, 1996, an increase of $79,000
relating principally to the additional costs arising from operation as a
publicly held company.
Provision for Income Taxes. The provision for income taxes, as a percentage of
income before income taxes, was 33.7% and 32.6% for the three months ended
December 31, 1997 and 1996, respectively.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
-------------
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED DECEMBER 31, 1997
AND 1996
Net Income. Consolidated net income during the six months ended December 31,
1997 was $746,000 as compared with net income of $234,000 during the six months
ended December 31, 1996, an increase of $512,000. 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 six months
ended December 31, 1996 by $260,000.
Net Interest Income. Net interest income was $1.8 million during the six months
ended December 31, 1997 as compared with $1.3 million during the corresponding
quarter of the previous fiscal year, an increase of $505,000. 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 $9.0 million and $7.8 million,
respectively, higher during the current six months than during the corresponding
period of the previous fiscal year.
Provision for Loan Losses. The provision for loan losses was $9,000 and $8,000
for the six months ended December 31, 1997 and 1996, respectively. There were no
loan charge-offs during either of the six month periods ended December 31, 1997
and 1996.
General and Administrative Expenses. General and administrative expenses
decreased to $648,000 during the six months ended December 31, 1997 as compared
with $929,000 during the six months ended December 31, 1996, a decrease of
$281,000. An overall decrease of $437,000 in deposit insurance costs was offset
by increases of $61,000 and $89,000 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 six months ended
December 31, 1997 is the principal reason for the increase in compensation and
benefits. Other expenses have increased principally as a result of additional
costs arising from operation as a publicly held company.
Provision for Income Taxes. The provision for income taxes, as a percentage of
income before income taxes, was 33.9% and 32.4% for the six months ended
December 31, 1997 and 1996, respectively.
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<PAGE>
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, 1997, as
computed under North Carolina regulations, was approximately 24%. On a
consolidated basis, liquid assets represented 33% 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
December 31, 1997, Home Savings exceeded the capital requirements of both the
FDIC and the N. C. Administrator.
THE YEAR 2000
At the turn of the century, computer-based information systems will be faced
with the problems potentially affecting hardware, software, networks, processing
platforms, as well as customer and vendor interdependencies. The Company has
established a committee and is in the process of assessing the effect of Year
2000 on the Bank's operating plans and systems. The Company is developing a plan
for identifying, renovating, testing and implementing its systems for Year 2000
processing and internal control requirements. The cost for becoming Year 2000
compliant has not been determined; however, management feels it will not be
material to the Company's financial statements.
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<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of the Stockholders was held on October 23, 1997. Of 407,330
shares entitled to vote at the meeting, 336,960 shares voted. The following
matters were voted on at the meeting:
<TABLE>
<CAPTION>
Number of Votes
---------------------------------------------
For Against Withheld Abstain
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<S> <C> <C> <C> <C>
1. Election of directors:
Henry H. Darr 338,360 - 600 -
James G. Hudson, Jr. 338,360 - 600 -
John R. Hunnicutt 338,360 - 600 -
F. Stewart Kennedy 338,360 - 600 -
Milton T. Riley, Jr. 338,360 - 600 -
2. Ratification of Dixon Odom
PLLC to serve as independent
auditor for the year ending
June 30, 1998 337,660 200 - 1,100
</TABLE>
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 December 31, 1997.
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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: February 2, 1998 By: /s/ James G. Hudson, Jr.
------------------------
James G. Hudson, Jr.
Chief Executive Officer
Date: February 2, 1998 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,183
<INT-BEARING-DEPOSITS> 1,742
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,988
<INVESTMENTS-CARRYING> 11,961
<INVESTMENTS-MARKET> 12,075
<LOANS> 66,554
<ALLOWANCE> 559
<TOTAL-ASSETS> 102,281
<DEPOSITS> 70,743
<SHORT-TERM> 0
<LIABILITIES-OTHER> 703
<LONG-TERM> 0
0
0
<COMMON> 19,483
<OTHER-SE> 11,352
<TOTAL-LIABILITIES-AND-EQUITY> 102,281
<INTEREST-LOAN> 2,561
<INTEREST-INVEST> 1,026
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,587
<INTEREST-DEPOSIT> 1,817
<INTEREST-EXPENSE> 1,817
<INTEREST-INCOME-NET> 1,770
<LOAN-LOSSES> 9
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 648
<INCOME-PRETAX> 1,128
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 746
<EPS-PRIMARY> 1.99
<EPS-DILUTED> 1.99
<YIELD-ACTUAL> 3.61
<LOANS-NON> 548
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 96
<ALLOWANCE-OPEN> 550
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 559
<ALLOWANCE-DOMESTIC> 448
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 111
</TABLE>
