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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 December 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.
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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
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No ______
As of January 31, 2000, 1,107,019 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>
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Page No.
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Part I. FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
December 31, 1999 and June 30, 1999..................................................... 3
Consolidated Statements of Operations
Three Months and Six Months Ended December 31, 1999 and 1998............................ 4
Consolidated Statements of Cash Flows
Six Months Ended December 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 4. Submission of Matters to a Vote of Security Holders............................ 11
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
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<TABLE>
<CAPTION>
December 31,
1999 June 30,
ASSETS (Unaudited) 1999 *
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(In Thousands)
<S> <C> <C>
Cash on hand and in banks $ 991 $ 3,273
Interest-bearing balances in other banks 1,376 264
Investment securities available for sale, at fair value 5,812 6,990
Investment securities held to maturity, at amortized cost 4,490 5,571
Loans receivable, net 79,517 75,649
Accrued interest receivable 469 480
Premises and equipment, net 630 648
Stock in the Federal Home Loan Bank, at cost 674 674
Other assets 235 160
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TOTAL ASSETS $94,194 $93,709
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposit accounts $72,900 $74,300
Advances from Federal Home Loan Bank 3,000 1,000
Accrued interest payable 113 98
Advance payments by borrowers for property taxes and insurance 117 205
Accrued expenses and other liabilities 483 456
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TOTAL LIABILITIES 76,613 76,059
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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;
1,107,019 and 1,133,469 shares, respectively,
issued and outstanding 8,233 8,373
ESOP loan and unearned compensation (2,687) (2,952)
Retained earnings, substantially restricted 11,650 11,719
Accumulated other comprehensive income 385 510
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TOTAL STOCKHOLDERS' EQUITY 17,581 17,650
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $94,194 $93,709
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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 Six Months Ended
December 31, December 31
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1999 1998 1999 1998
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(In Thousands Except
Per Share Amounts)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 1,515 $ 1,446 $ 3,016 $ 2,855
Investments and deposits in other banks 196 275 393 572
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TOTAL INTEREST INCOME 1,711 1,721 3,409 3,427
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INTEREST EXPENSE
Deposit accounts 894 940 1,774 1,871
Borrowings 41 14 58 14
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TOTAL INTEREST EXPENSE 935 954 1,832 1,885
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NET INTEREST INCOME 776 767 1,577 1,542
PROVISION FOR LOAN LOSSES 5 4 9 9
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 771 763 1,568 1,533
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OTHER INCOME 12 11 20 16
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GENERAL AND ADMINISTRATIVE EXPENSES
Compensation and benefits 284 272 558 517
Occupancy 21 22 42 43
Data processing expenses 30 33 60 69
Federal deposit insurance premiums 11 11 21 22
Other expenses 84 105 173 200
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TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES 430 443 854 851
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INCOME BEFORE
INCOME TAXES 353 331 734 698
PROVISION FOR INCOME TAXES 127 112 266 237
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NET INCOME $ 226 $ 219 $ 468 $ 461
======== ========== ======== ==========
NET INCOME PER COMMON SHARE
Basic and diluted $.24 $.20 $.48 $.42
======== ========== ======== ==========
Weighted average shares outstanding 937,877 1,095,625 965,305 1,110,087
======== ========== ======== ==========
DIVIDENDS DECLARED PER COMMON
SHARE $.17 $.17 $.34 $.34
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</TABLE>
See accompanying notes.
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Century Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
December 31,
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1999 1998
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(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 468 $ 461
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 20 24
Deferred compensation 11 11
Amortization of discounts and premiums on securities 3 2
Provision for loan losses 9 9
Deferred income taxes - (48)
Amortization of unearned stock compensation 282 265
Change in assets and liabilities
Decrease in accrued interest receivable 11 64
Increase (decrease) in accrued interest payable 15 (39)
Other 18 (124)
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 837 625
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of available-for-sale investment securities (500) -
Proceeds from sales, maturities and calls of:
Available for sale investment securities 1,466 377
Held to maturity investment securities 1,085 2,450
Net increase in loans (3,877) (2,005)
Purchases of property and equipment (2) (3)
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NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES (1,828) 819
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CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in demand deposits (843) (168)
Net increase (decrease) in certificate accounts (557) 615
Increase in advances from FHLB 2,000 2,000
Decrease in advances from borrowers (88) (65)
Repayment of note payable - (4,200)
Repurchase of common stock (363) (464)
Cash dividends paid (328) (385)
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NET CASH USED BY
FINANCING ACTIVITIES (179) (2,667)
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NET DECREASE IN CASH
AND CASH EQUIVALENTS (1,170) (1,223)
CASH AND CASH EQUIVALENTS, BEGINNING 3,537 6,806
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CASH AND CASH EQUIVALENTS, ENDING $ 2,367 $ 5,583
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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
six months ended December 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 six months ended December 31, 1999 are not necessarily indicative of
the results that may be expected for the fiscal year ending June 30, 2000.
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 six months
ended December 31, 1999.
NOTE C - COMPREHENSIVE INCOME
For the three months ended December 31, 1999 and 1998, total comprehensive
income, consisting of net income and unrealized securities gains and losses, net
of taxes, was $160,000 and $352,000, respectively, and for the six months ended
December 31, 1999 and 1998, $343,000 and $642,000, 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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This Quarterly Report on Form 10-QSB may contain certain forward-looking
statements consisting of estimates with respect to the financial condition,
results of operations and business of the Company that are subject to various
factors which could cause actual results to differ materially from these
estimates. These factors include, but are not limited to, general economic
conditions, changes in interest rates, deposit flows, loan demand, real estate
values, and competition; changes in accounting principles, policies, or
guidelines; changes in legislation or regulation; and other economic,
competitive, governmental, regulatory, and technological factors affecting the
Company's operations, pricing, products and services.
Comparison of Financial Condition at December 31, 1999 and June 30, 1999
Consolidated total assets remained stable during the six months, increasing by
$485,000 from $93.7 million at June 30, 1999 to $94.2 million at December 31,
1999. Loan growth, however, has been strong, as net loans have grown by $3.9
million, from $75.6 million at June 30, 1999 to $79.5 million at December 31,
1999. During the six month period, reductions of $1.2 million and $1.1 million,
respectively, in investment securities available for sale and investment
securities held to maturity, together with proceeds of $2.0 million from Federal
Home Loan Bank advances, were the principal sources of funding for the growth in
loans.
Total stockholders' equity was $17.6 million at December 31, 1999, as compared
with $17.7 million at June 30, 1999, a decrease of $69,000. Stockholders'
equity was increased during the six months as a result of net income of $468,000
and amortization of unearned compensation aggregating $282,000. These increases
were offset, however, by the regular quarterly dividends aggregating $328,000 or
$.34 per share, share repurchases aggregating $363,000, and a decrease of
$128,000 in the net unrealized gain on available for sale investment securities.
At December 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 December 31, 1999
and 1998
Net Income. Net income for the quarter ended December 31, 1999 was $226,000 or
$.24 per share, as compared with net income of $219,000, or $.20 per share, for
the three months ended December 31, 1998. While net income did not increase
significantly, net income per share increased by $.04 as a result of a lower
level of weighted average shares outstanding during the current quarter. This
decrease in shares outstanding is attributable to a share repurchase plan that
commenced during the second quarter of the fiscal year that ended June 30, 1999.
Net Interest Income. Net interest income was $776,000 for the quarter ended
December 31, 1999 as compared with $767,000 for the corresponding quarter of the
previous fiscal year, an increase of $9,000. Principally as a result of
repurchases of the Company's common stock, the average balance of net interest
earning assets (average interest earning assets minus average interest bearing
liabilities) decreased from approximately $16.6 during the three months ended
December 31, 1998 to approximately $15.0 during the three months ended December
31, 1999. However, this decrease in net interest earning assets was offset by
an increase of 20 basis points in the Company's net interest margin, producing
the net interest income increase set forth above.
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Provision for Loan Losses. The provision for loan losses was $5,000 and $4,000,
respectively, for the quarters ended December 31, 1999 and 1998. There were no
loan charge-offs during either period. Nonaccrual loans aggregated $238,000 at
December 31, 1999, while the allowance for loan losses totaled $577,000 at that
date.
General and Administrative Expenses. General and administrative expenses
decreased to $430,000 for the quarter ended December 31, 1999 as compared with
$443,000 for the quarter ended December 31, 1998, a reduction of $13,000. An
increase of $12,000 in compensation costs was offset by reductions of $3,000 and
$21,000, respectively, in data processing and other expenses.
Provision for Income Taxes. The provision for income taxes, as a percentage of
income before income taxes, was 36.0% and 33.8% for the three months ended
December 31, 1999 and 1998, respectively.
Comparison of Results of Operations for the Six Months Ended December 31, 1999
and 1998
Net Income. Net income for the six months ended December 31, 1999 was $468,000
or $.48 per share, as compared with net income of $461,000, or $.42 per share,
for the six months ended December 31, 1998. While net income did not increase
significantly, net income per share increased by $.06 as a result of a lower
level of weighted average shares outstanding during the current six months.
This decrease in shares outstanding is attributable to a share repurchase plan
that commenced during the second six months of the fiscal year that ended June
30, 1999.
Net Interest Income. Net interest income was $1.6 million for the six months
ended December 31, 1999 as compared with $1.5 million for the corresponding six
months of the previous fiscal year, an increase of $35,000. Principally as a
result of repurchases of the Company's common stock, the average balance of net
interest earning assets (average interest earning assets minus average interest
bearing liabilities) decreased from approximately $17.3 during the six months
ended December 31, 1998 to approximately $15.2 during the six months ended
December 31, 1999. However, this decrease in net interest earning assets was
offset by an increase of 24 basis points in the Company's net interest margin,
producing the net interest income increase set forth above.
Provision for Loan Losses. The provision for loan losses was $9,000 and $9,000,
respectively, for the six months ended December 31, 1999 and 1998. There were
no loan charge-offs during either period. Nonaccrual loans aggregated $238,000
at December 31, 1999, while the allowance for loan losses totaled $577,000 at
that date.
General and Administrative Expenses. General and administrative expenses
increased to $854,000 for the six months ended December 31, 1999 as compared
with $851,000 for the six months ended December 31, 1998, an increase of $3,000.
An increase of $41,000 in compensation costs was offset by reductions of $9,000
and $27,000, respectively, in data processing and other expenses.
Provision for Income Taxes. The provision for income taxes, as a percentage of
income before income taxes, was 36.2% and 34.0 % for the six months ended
December 31, 1999 and 1998, respectively.
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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, 1999, as
computed under North Carolina regulations, was approximately 12.3%. On a
consolidated basis, liquid assets represented 13.4% 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, 1999, Home Savings exceeded the capital requirements of both the
FDIC and the N. C. Administrator.
Year 2000 Compliance Issues
The Year 2000 issue has posed business risks to most business organizations,
including the Company. In response, the Company 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 attained
Year 2000 compliance. All date sensitive systems were evaluated for Year 2000
compliance, with complete upgrading and testing of systems completed well in
advance of the Year 2000 date change. The Company also developed contingency
plans for its computer processes, including the use of alternative systems and
the manual processing of certain critical operations. In addition, the Company
had undertaken extensive efforts to ensure that significant vendor and customer
relationships are Year 2000 compliant. The Company's management is pleased, but
not surprised, that business continued as normal without adverse impact to the
Company during the critical date change. In coming months, the Bank will
continue monitoring external entities to assure that they have not experienced
any Year 2000 problems that could impact their relationship with the Company.
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The Company estimates that its total Year 2000 compliance costs have aggregated
approximately $28,000, including capital expenditures of approximately $5,000
and other expenses charged to operations of approximately $23,000. 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 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Stockholders was held on November 16, 1999. Of
1,119,669 shares entitled to vote at the meeting, 958,955 shares voted. The
following matters were voted on at the meeting:
<TABLE>
<CAPTION>
Number of Votes
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For Against Withheld Abstain
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<S> <C> <C> <C> <C>
1. Election of directors:
Henry H. Darr 930,305 - 28,650 -
James G. Hudson, Jr. 930,305 - 28,650 -
John R. Hunnicutt 930,305 - 28,650 -
F. Stewart Kennedy 930,285 - 28,670 -
Milton T. Riley, Jr. 930,305 - 28,650 -
2. Ratification of Dixon Odom
PLLC to serve as independent
auditor for the year ending
June 30, 2000 953,804 4,101 - 1,050
</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, 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: February 2, 2000 By: /s/ James G. Hudson, Jr.
------------------------
James G. Hudson, Jr.
Chief Executive Officer
Date: February 2, 2000 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-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 991
<INT-BEARING-DEPOSITS> 1,376
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,812
<INVESTMENTS-CARRYING> 4,490
<INVESTMENTS-MARKET> 4,470
<LOANS> 80,095
<ALLOWANCE> 578
<TOTAL-ASSETS> 94,194
<DEPOSITS> 72,900
<SHORT-TERM> 3,000
<LIABILITIES-OTHER> 713
<LONG-TERM> 0
0
0
<COMMON> 8,233
<OTHER-SE> 9,348
<TOTAL-LIABILITIES-AND-EQUITY> 94,194
<INTEREST-LOAN> 3,016
<INTEREST-INVEST> 393
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,409
<INTEREST-DEPOSIT> 1,774
<INTEREST-EXPENSE> 1,832
<INTEREST-INCOME-NET> 1,577
<LOAN-LOSSES> 9
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 854
<INCOME-PRETAX> 734
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 468
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.48
<YIELD-ACTUAL> 3.43
<LOANS-NON> 238
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 622
<ALLOWANCE-OPEN> 569
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 578
<ALLOWANCE-DOMESTIC> 478
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 100
</TABLE>
