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 September 30, 1999
[ ] Transition Report Under Section 13
or 15(d) of the Exchange Act
For the transition period ended
--------------
Commission File Number 000-21881
-----------
CENTURY BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
North Carolina 56-1981518
--------------------------------- ------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
22 WINSTON STREET, THOMASVILLE, NC 27360
- --------------------------------------------------------------------------------
(Address of principal executive office)
(336) 475-4663
- --------------------------------------------------------------------------------
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
--- ---
As of November 5, 1999, 1,109,609 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.
-1-
Page No.
Part I. FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
September 30, 1999 and June 30, 1999........................ 3
Consolidated Statements of Operations
Three Months Ended September 30, 1999 and 1998.............. 4
Consolidated Statements of Cash Flows
Three Months Ended September 30, 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................... 10
-2-
Part I. Financial Information
Item 1 - Financial Statements
- -----------------------------
Century Bancorp, Inc. and Subsidiary
Consolidated Statements of Financial Condition
================================================================================
September 30,
1999 June 30,
ASSETS (Unaudited) 1999 *
----------- -------------
(In Thousands)
Cash on hand and in banks $ 2,140 $ 3,273
Interest-bearing balances in other banks 1,750 264
Investment securities available for sale, at fair value 6,168 6,990
Investment securities held to maturity, at amortized cost 5,019 5,571
Loans receivable, net 78,621 75,649
Accrued interest receivable 462 480
Premises and equipment, net 639 648
Stock in the Federal Home Loan Bank, at cost 674 674
Other assets 260 160
------------- -------------
TOTAL ASSETS $ 95,733 $ 93,709
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposit accounts $ 74,468 $ 74,300
Advances from Federal Home Loan Bank 3,000 1,000
Accrued interest payable 91 98
Advance payments by borrowers for property taxes and insurance 59 205
Accrued expenses and other liabilities 592 456
------------- -------------
TOTAL LIABILITIES 78,210 76,059
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 5,000,000 shares
authorized, no shares issued and outstanding -- --
Common stock, 20,000,000 shares authorized;
1,112,669 and 1,133,469 shares, respectively,
issued and outstanding 8,258 8,373
ESOP loan and unearned compensation (2,818) (2,952)
Retained earnings, substantially restricted 11,632 11,719
Accumulated other comprehensive income 451 510
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 17,523 17,650
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 95,733 $ 93,709
============= =============
* Derived from audited financial statements
See accompanying notes.
-3-
Century Bancorp, Inc. and Subsidiary
Consolidated Statements of Operations (Unaudited)
================================================================================
Three Months Ended
September 30,
-----------------------
1999 1998
---------- ----------
(In Thousands
except per share data)
INTEREST INCOME
Loans $ 1,501 $ 1,409
Investments and deposits in other banks 197 297
------------- -------------
TOTAL INTEREST INCOME 1,698 1,706
------------- -------------
INTEREST EXPENSE
Deposit accounts 880 931
Borrowings 17 -
------------- -------------
TOTAL INTEREST EXPENSE 897 931
------------- -------------
NET INTEREST INCOME 801 775
PROVISION FOR LOAN LOSSES 4 5
------------- -------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 797 770
------------- -------------
OTHER INCOME 8 5
------------- -------------
GENERAL AND ADMINISTRATIVE EXPENSES
Compensation and benefits 274 245
Occupancy 21 21
Data processing expenses 30 36
Federal deposit insurance premiums 10 11
Other expenses 89 95
------------- -------------
TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES 424 408
------------- -------------
INCOME BEFORE
INCOME TAXES 381 367
PROVISION FOR INCOME TAXES 139 125
------------- -------------
NET INCOME $ 242 $ 242
============= ============
NET INCOME PER COMMON SHARE
Basic and diluted $ .25 $ .22
============= ============
Weighted average shares outstanding 967,654 1,121,089
============= ============
DIVIDENDS DECLARED PER COMMON SHARE $ .17 $ .17
============= ============
See accompanying notes.
-4-
Century Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
================================================================================
Three Months Ended
September 30,
1999 1998
------------- --------------
(In Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 242 $ 242
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 10 12
Deferred compensation 5 6
Amortization of discounts and premiums on securities 2 2
Provision for loan losses 4 5
Deferred income taxes -- (48)
Amortization of unearned stock compensation 143 131
Change in assets and liabilities
(Increase) decrease in accrued interest receivable 18 (14)
Decrease in accrued interest payable (7) (55)
Other 69 55
------------- -------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 486 336
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales, maturities and calls of:
Available for sale investment securities 721 166
Held to maturity investment securities 554 1,000
Net increase in loans (2,976) (2,202)
Purchases of property and equipment (1) (3)
------------- -------------
NET CASH USED BY
INVESTING ACTIVITIES (1,702) (1,039)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in demand deposits (262) (542)
Net increase in certificate accounts 430 145
Increase in advances form FHLB 2,000 --
Decrease in advances from borrowers (146) (123)
Repayment of note payable -- (4,200)
Repurchase of common stock (286) --
Cash dividends paid (167) (195)
------------- -------------
NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES 1,569 (4,915)
------------- -------------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 353 (5,618)
CASH AND CASH EQUIVALENTS, BEGINNING 3,537 6,806
------------- -------------
CASH AND CASH EQUIVALENTS, ENDING $ 3,890 $ 1,188
============= =============
See accompanying notes.
-5-
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
months ended September 30, 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 months
ended September 30, 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 months ended
September 30, 1999.
NOTE C - COMPREHENSIVE INCOME
For the three months ended September 30, 1999 and 1998, total comprehensive
income, consisting of net income and unrealized securities gains and losses, net
of taxes, was $183,000 and $290,000, respectively.
-6-
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations
-------------
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 September 30, 1999 and June 30, 1999
Consolidated total assets increased by $2.0 million during the three months
ended September 30, 1999, from $93.7 million at June 30, 1999 to $95.7 million
at September 30, 1999. This growth resulted from growth of $3.0 million in loans
receivable, which increased from $75.6 million at June 30, 1999 to $78.6 million
at September 30, 1999. During the three month period, reductions of $822,000 and
$552,000, 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 $17.5 million at September 30, 1999, as compared
with $17.7 million at June 30, 1999, a decrease of $127,000. Stockholders'
equity was increased during the quarter as a result of net income of $242,000
and amortization of unearned compensation of $134,000. These increases were
offset, however, by the regular quarterly dividend aggregating $167,000 or $.17
per share, share repurchases aggregating $286,000, and a decrease of $59,000 in
the net unrealized gain on available for sale investment securities. At
September 30, 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 September 30,
1999 and 1998
Net Income. Net income for the quarter ended September 30, 1999 was $242,000 or
$.25 per share, as compared with net income of $242,000, or $.22 per share, for
the three months ended September 30, 1998. While net income was unchanged, net
income per share increased by $.03 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 $801,000 for the quarter ended
September 30, 1999 as compared with $775,000 for the corresponding quarter of
the previous fiscal year, an increase of $26,000. 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 $18.2 during the three months ended
September 30, 1998 to approximately $15.3 during the three months ended
September 30, 1999. However, a reduction of 43 basis points in the average cost
of interest bearing liabilities reduced interest expense sufficiently to produce
the net interest income increase set forth above.
-7-
Provision for Loan Losses. The provision for loan losses was $4,000 and $5,000,
respectively, for the quarters ended September 30, 1999 and 1998. There were no
loan charge-offs during either period. Nonaccrual loans aggregated $372,000 at
September 30, 1999, while the allowance for loan losses totaled $573,000 at that
date.
General and Administrative Expenses. General and administrative expenses
increased to $424,000 for the quarter ended September 30, 1999 as compared with
$408,000 for the quarter ended September 30, 1998, an increase of $16,000. An
increase of $29,000 in compensation costs was partially offset by reductions of
$6,000 in both data processing and other expenses.
Provision for Income Taxes. The provision for income taxes, as a percentage of
income before income taxes, was 36.5% and 34.1% for the three months ended
September 30, 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 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 30,1999, as
computed under North Carolina regulations, was approximately 11.5%. On a
consolidated basis, liquid assets represented 15.7% 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, 1999, Home Savings exceeded the capital requirements of both the
FDIC and the N. C. Administrator.
-8-
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 was completed in early 1999.
The Company has 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 is undertaking efforts to ensure
that significant vendor and customer relationships are 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 relies will be timely converted, or
otherwise function properly, or that a conversion or systems failure 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 any material
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.
-9-
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 September 30, 1999.
-10-
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, 1999 By: /s/ James G. Hudson, Jr.
---------------------------------------
James G. Hudson, Jr.
Chief Executive Officer
Date: November 9, 1999 By: /s/ Drema A. Michael
---------------------------------------
Drema A. Michael
Chief Financial Officer
-11-