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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 MARCH 31, 1999
[_] 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)
(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 _______
As of May 10, 1999, 1,138,669 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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PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Financial Condition
March 31, 1999 and June 30, 1998.............................. 3
Consolidated Statements of Operations
Three Months and Nine Months Ended March 31, 1999 and 1998.... 4
Consolidated Statements of Cash Flows
Nine Months Ended March 31, 1999 and 1998..................... 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..................... 11
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PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
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CENTURY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
================================================================================
<TABLE>
<CAPTION>
March 31,
1999 June 30,
ASSETS (Unaudited) 1998 *
----------- ---------
(In Thousands)
<S> <C> <C>
Cash on hand and in banks $ 837 $ 1,450
Interest-bearing balances in other banks 657 5,356
Investment securities available for sale, at fair value 7,681 7,709
Investment securities held to maturity, at amortized cost 8,278 10,217
Loans receivable, net 72,096 69,997
Accrued interest receivable 532 545
Premises and equipment, net 654 687
Real estate acquired in settlement of loans 8 8
Stock in the Federal Home Loan Bank, at cost 674 653
Other assets 341 244
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TOTAL ASSETS $91,758 $96,866
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposit accounts $72,543 $73,023
Note payable - 4,200
Accrued interest payable 107 152
Advance payments by borrowers for property taxes and insurance 162 171
Accrued expenses and other liabilities 626 588
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TOTAL LIABILITIES 73,438 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;
1,194,719 and 1,270,869 shares, respectively,
issued and outstanding 8,746 9,224
ESOP loan and unvested stock awards (3,076) (3,519)
Retained earnings, substantially restricted 12,100 12,579
Unrealized holding gains 550 448
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TOTAL STOCKHOLDERS' EQUITY 18,320 18,732
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $91,758 $96,866
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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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<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
--------------------- ---------------------
1999 1998 1999 1998
---------- --------- ---------- ---------
(In Thousands except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 1,396 $ 1,350 $ 4,251 $ 3,911
Investments and deposits in other banks 275 497 847 1,523
---------- ---------- --------- -----------
TOTAL INTEREST INCOME 1,671 1,847 5,098 5,434
---------- ---------- --------- -----------
INTEREST EXPENSE
Deposit accounts 876 894 2,747 2,711
Borrowings 12 - 26 -
---------- ---------- --------- -----------
TOTAL INTEREST EXPENSE 888 894 2,773 2,711
---------- ---------- --------- -----------
NET INTEREST INCOME 783 953 2,325 2,723
PROVISION FOR LOAN LOSSES 5 5 14 14
---------- ---------- --------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 778 948 2,311 2,709
---------- ---------- --------- -----------
OTHER INCOME 9 7 25 22
---------- ---------- --------- -----------
GENERAL AND ADMINISTRATIVE
EXPENSES
Compensation and benefits 277 550 794 912
Occupancy 22 23 65 67
Data processing expenses 43 29 112 79
Federal deposit insurance premiums 10 11 32 33
Other expenses 99 73 299 243
---------- ---------- --------- -----------
TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES 451 686 1,302 1,334
---------- ---------- --------- -----------
INCOME BEFORE
INCOME TAXES 336 269 1,034 1,397
PROVISION FOR INCOME TAXES 110 115 347 497
---------- ---------- --------- -----------
NET INCOME $ 226 $ 154 $ 687 $ 900
========== ========== ========= ===========
NET INCOME PER COMMON SHARE
Basic and diluted $ .21 $ .14 $ .63 $ .79
========== ========== ========= ===========
Weighted average shares outstanding 1,060,867 1,141,716 1,098,009 1,135,842
========== ========== ========= ===========
DIVIDENDS DECLARED PER
COMMON SHARE $ .17 $ 10.17 $ .51 $ 10.50
========== ========== ========= ===========
</TABLE>
See accompanying notes.
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CENTURY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
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<TABLE>
<CAPTION>
Nine Months Ended
March 31,
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1999 1998
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(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 687 $ 900
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 36 37
Deferred compensation 16 17
Amortization of discounts and premiums on securities 6 13
Provision for loan losses 14 14
Amortization of unearned stock compensation 416 423
Change in assets and liabilities
Decrease in accrued interest receivable 13 246
Decrease in accrued interest payable (45) (1)
Other (140) (127)
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 1,003 1,522
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CASH FLOWS FROM INVESTING ACTIVITIES
Net (increase) decrease in interest-bearing balances in other banks 4,699 (202)
Purchases of:
Available for sale investment securities (505) (8,950)
Held to maturity investment securities (500) (3,100)
Proceeds from sales, maturities and calls of:
Available for sale investment securities 683 11,372
Held to maturity investment securities 2,450 3,200
Net increase in loans (2,113) (5,534)
Purchases of property and equipment (3) (24)
Purchase of stock in FHLB (21) (66)
Proceeds from sale of real estate acquired in settlement of loans - 6
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NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES 4,690 (3,298)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand deposits (988) 1,032
Net increase in certificate accounts 508 1,547
Increase (decrease) in advances from borrowers (9) 54
Repayment of note payable (4,200) -
Repurchase of common stock (1,048) -
Cash dividends paid (569) (562)
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NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES (6,306) 2,071
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NET INCREASE (DECREASE) IN
CASH ON HAND AND IN BANKS (613) 295
CASH ON HAND AND IN BANKS, BEGINNING 1,450 1,369
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CASH ON HAND AND IN BANKS, ENDING $ 837 $ 1,664
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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 and
nine month periods ended March 31, 1999 and 1998, 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 months ended March 31, 1999 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. Outstanding options and unearned shares in the
management recognition plan had no dilutive effect for the three and nine months
ended March 31, 1999.
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
March 31, 1999 and 1998, total comprehensive income, consisting of net income
and unrealized securities gains and losses, net of taxes, was $147,000 and
$212,000, respectively. For the nine months ended March 31, 1999 and 1998, total
comprehensive income was $789,000 and $1,074,000, 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 MARCH 31, 1999 AND JUNE 30, 1998
Consolidated total assets decreased by $5.1 million during the nine months ended
March 31, 1999, from $96.9 million at June 30, 1998 to $91.8 million at March
31, 1999. 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 current period. The borrowings had been obtained during the
second calendar quarter of 1998 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 nine month period, reductions of $4.7 million and $1.9 million,
respectively, in interest-bearing balances in other banks and investment
securities held to maturity, were the principal sources of funding for the
repayment of borrowings discussed above and for an increase of $2.1 million in
loans receivable, which grew from $70.0 million at June 30, 1998 to $72.1
million at March 31, 1999.
Total stockholders' equity was $18.3 million at March 31, 1999 as compared with
$18.7 million at June 30, 1998, a decrease of $412,000 which resulted from net
income of $687,000 for the nine month period, a net increase of $102,000 in
unrealized holding gains on available for sale investment securities, and
amortization of unearned ESOP and MRP compensation of $416,000, while the
regular quarterly dividends aggregated $569,000 or $.51 per share for the nine
month period. In addition, during the nine months ended March 31, 1999, the
Company repurchased 76,150 of its outstanding common shares at an aggregate cost
of $1,048,000. At March 31, 1999, 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 MARCH 31, 1999
AND 1998
Net Income. Net income for the quarter ended March 31, 1999 was $226,000 or $.21
per share, as compared with net income of $154,000, or $.14 per share, for the
three months ended March 31, 1998, an increase of $72,000 or $.07 per share. In
March 1998, the Company awarded grants of 43,995 shares of common stock under
the Management Recognition Plan ("MRP") which was approved by the shareholders
at a special meeting held on February 17, 1998. The total value of shares
granted was $1,308,000, of which $354,000 was reflected in compensation expense
during the three months ended March 31, 1998. The corresponding expense
provision for the quarter ended March 31, 1999 was $82,000, a reduction of
$272,000. This expense reduction was partially offset by a decrease of $170,000
in net interest income.
Net Interest Income. Net interest income was $783,000 for the quarter ended
March 31, 1999 as compared with $953,000 for the corresponding quarter of the
previous fiscal year, a decrease of $170,000. This reduction occurred as a
result of the payment in April of 1998 of a special dividend aggregating $12.7
million. Principally as a result of this special dividend, average net interest-
earning assets for the quarter ended March 31, 1999 were approximately $11.9
lower than during the quarter ended March 31, 1998.
Provision for Loan Losses. The provision for loan losses was $5,000 for each of
the quarters ended March 31, 1999 and 1998. There were no loan charge-offs
during either of the quarters
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ended March 31, 1999 and 1998. Nonaccrual loans aggregated $180,000 at March 31,
1999, while the allowance for loan losses totaled $564,000 at that date.
General and Administrative Expenses. General and administrative expenses
decreased to $451,000 for the quarter ended March 31, 1999 as compared with
$686,000 for the quarter ended March 31, 1998, a decrease of $235,000 relating
principally to the reduction in costs associated with the Company's Management
Recognition Plan (See "Net Income").
Provision for Income Taxes. The provision for income taxes, as a percentage of
income before income taxes, was 32.7% and 42.3% for the three months ended March
31, 1999 and 1998, respectively.
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED MARCH 31, 1999 AND
1998
Net Income. Net income for the nine months ended March 31, 1999 was $687,000,
or $.63 per share, as compared with net income of $900,000, or $.79 per share,
during the nine months ended March 31, 1998, a decrease of $213,000 or $.16 per
share. The principal reason for this decrease was a decrease of $398,000 in net
interest income. This reduction occurred as a result of the payment in April of
1998 of a special dividend aggregating $12.7 million, with a corresponding
decrease in average net interest-earning assets for the nine months ended March
31, 1999 as compared with the nine months ended March 31, 1999.
Net Interest Income. Net interest income was $2.3 million during the nine
months ended March 31, 1999 as compared with $2.7 million during the
corresponding period of the previous fiscal year, a decrease of $398,000. This
decrease resulted from the decrease in net interest-earning assets arising from
the payment in April of 1998 of a special $10 per share dividend that aggregated
$12.7 million.
Provision for Loan Losses. The provision for loan losses was $14,000 for each
of the nine months ended March 31, 1999 and 1998, respectively. There were no
loan charge-offs during either of the nine month periods ended March 31, 1999
and 1998.
General and Administrative Expenses. General and administrative expenses
decreased by $32,000 for the nine months ended March 31, 1999 as compared with
the nine months ended March 31, 1998. An overall decrease of $118,000 in
compensation and benefits relating principally to reduced costs under the
Company's MRP was offset by increases of $33,000 and $56,000, respectively, in
data processing expenses and other general and administrative expenses. The
increase in data processing costs relates principally to additional costs
incurred for Year 2000 compliance.
Provision for Income Taxes. The provision for income taxes, as a percentage of
income before income taxes, was 33.6% and 35.6% for the nine months ended March
31, 1999 and 1998, 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
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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, 1999, as
computed under North Carolina regulations, was approximately 14%. On a
consolidated basis, liquid assets represented 19% 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, 1999, Home Savings exceeded the capital requirements of both the FDIC
and the N. C. Administrator.
YEAR 2000 COMPLIANCE ISSUES
All levels of the Company's management and its Board of Directors are aware of
the issues presented by the Year 2000 century change and the serious effects it
may have on the Company and its customers. In May 1998, the Federal Financial
Institutions Examination Council ("FFIEC") issued an Interagency Statement,
"Year 2000 Project Management Awareness", to emphasize the critical issues that
need to be addressed to implement an effective Year 2000 project management
plan. The FFIEC Statement identifies five phases of the Year 2000 project
management process. The Company has formed a Year 2000 project team, consisting
of senior officers within the Company's operations, information systems,
financial and management areas, to ensure that the Company will be Year 2000
compliant. Although the Company relies entirely upon outside vendors and service
providers for its computer hardware and software and its security and
communications equipment, all date sensitive systems are being evaluated for
Year 2000 compliance. During 1998, the Company completed upgrading and testing
of systems that have been identified as critical to conducting its banking
business. Testing of systems with lower priorities is currently under way. The
Company is also developing contingency plans for its computer processes,
including the use of alternative systems and the manual processing of certain
critical operations. In addition, the Company is undertaking efforts to ensure
that significant vendor and customer relationships are
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or will be Year 2000 compliant. There can be no guarantee that the systems of
other entities on which the Company either directly or indirectly rely will be
timely converted, or that a failure to convert by another entity, or a
conversion that is incompatible with the Company's systems, would not have a
material adverse effect on the Company in future periods. However, the Company's
management believes that all of its systems will be verified Year 2000 compliant
and that the Company will be able to process without interruption into the next
millennium. The Company estimates that its total Year 2000 compliance costs will
aggregate approximately $28,000, including capital expenditures of approximately
$5,000 and other expenses of approximately $23,000 that have been or will be
charged to operations. In addition to the estimated costs of its Year 2000
compliance, the Company routinely makes annual investments in technology in its
efforts to improve customer service and to efficiently manage its product and
service delivery systems.
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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 by the Bank during the quarter ended March 31,
1999.
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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: May 10, 1999 By: /s/ James G. Hudson, Jr.
---------------------------
James G. Hudson, Jr.
Chief Executive Officer
Date: May 10, 1999 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-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 837
<INT-BEARING-DEPOSITS> 657
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,681
<INVESTMENTS-CARRYING> 8,278
<INVESTMENTS-MARKET> 8,360
<LOANS> 72,660
<ALLOWANCE> 564
<TOTAL-ASSETS> 91,758
<DEPOSITS> 72,543
<SHORT-TERM> 0
<LIABILITIES-OTHER> 895
<LONG-TERM> 0
0
0
<COMMON> 8,746
<OTHER-SE> 9,574
<TOTAL-LIABILITIES-AND-EQUITY> 91,758
<INTEREST-LOAN> 4,251
<INTEREST-INVEST> 847
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,098
<INTEREST-DEPOSIT> 2,747
<INTEREST-EXPENSE> 2,773
<INTEREST-INCOME-NET> 2,325
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<EXPENSE-OTHER> 1,302
<INCOME-PRETAX> 1,034
<INCOME-PRE-EXTRAORDINARY> 0
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<NET-INCOME> 687
<EPS-PRIMARY> .63
<EPS-DILUTED> .63
<YIELD-ACTUAL> 3.41
<LOANS-NON> 180
<LOANS-PAST> 0
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<LOANS-PROBLEM> 740
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