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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, 1998
[_] Transition Report Under Section 13
or 15(d) of the Exchange Act
For the transition period ended _____________________
Commission File Number 000-21881
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CENTURY BANCORP, INC.
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(Exact name of small business issuer as specified in its charter)
North Carolina 56-1981518
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
22 WINSTON STREET, THOMASVILLE, NC 27360
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(Address of principal executive office)
(336) 475-4663
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
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As of February 2, 1999, 1,231,069 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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Page No.
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Part 1. FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
December 31, 1998 and June 30, 1998............................... 3
Consolidated Statements of Operations
Three Months and Six Months Ended December 31, 1998 and 1997...... 4
Consolidated Statements of Cash Flows
Six Months Ended December 31, 1998 and 1997....................... 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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Part 1. Financial Information
Item 1 - Financial Statements
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Century Bancorp, Inc. and Subsidiary
Consolidated Statements of Financial Condition
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<TABLE>
<CAPTION>
December 31,
1998 June 30,
ASSETS (Unaudited) 1998 *
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(In Thousands)
<S> <C> <C>
Cash on hand and in banks $ 1,377 $ 1,450
Interest-bearing balances in other banks 4,206 5,356
Investment securities available for sale, at fair value 7,618 7,709
Investment securities held to maturity, at amortized cost 7,776 10,217
Loans receivable, net 71,993 69,997
Accrued interest receivable 481 545
Premises and equipment, net 666 687
Real estate acquired in settlement of loans 8 8
Stock in the Federal Home Loan Bank, at cost 653 653
Other assets 351 244
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TOTAL ASSETS $ 95,129 $ 96,866
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LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposit accounts $ 73,470 $ 73,023
Advances from the FHLB 2,000 -
Note payable - 4,200
Accrued interest payable 113 152
Advance payments by borrowers for property taxes and insurance 106 171
Accrued expenses and other liabilities 651 588
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TOTAL LIABILITIES 76,340 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;
1,236,869 and 1,270,869 shares, respectively,
issued and outstanding 9,005 9,224
ESOP loan and unvested stock awards (3,237) (3,519)
Retained earnings, substantially restricted 12,392 12,579
Unrealized holding gains 629 448
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TOTAL STOCKHOLDERS' EQUITY 18,789 18,732
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 95,129 $ 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 Six Months Ended
December 31, December 31,
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1998 1997 1998 1997
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(In Thousands except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans $ 1,446 $ 1,261 $ 2,855 $ 2,561
Investments and deposits in other banks 275 498 572 1,026
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TOTAL INTEREST INCOME 1,721 1,759 3,427 3,587
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INTEREST EXPENSE
Deposit accounts 940 920 1,871 1,817
Borrowings 14 - 14 -
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TOTAL INTEREST EXPENSE 954 920 1,885 1,817
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NET INTEREST INCOME 767 839 1,542 1,770
PROVISION FOR LOAN LOSSES 4 4 9 9
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NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 763 835 1,533 1,761
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OTHER INCOME 11 9 16 15
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GENERAL AND ADMINISTRATIVE
EXPENSES
Compensation and benefits 272 169 517 362
Occupancy 22 26 43 44
Data processing expenses 33 24 69 50
Federal deposit insurance premiums 11 12 22 22
Other expenses 105 85 200 170
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TOTAL GENERAL AND
ADMINISTRATIVE EXPENSES 443 316 851 648
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INCOME BEFORE
INCOME TAXES 331 528 698 1,128
PROVISION FOR INCOME TAXES 112 178 237 382
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NET INCOME $ 219 $ 350 $ 461 $ 746
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NET INCOME PER COMMON SHARE
Basic and diluted $ .20 $ .31 $ .42 $ .66
============= ============ ============ ============
Weighted average shares outstanding 1,095,625 1,128,630 1,110,087 1,128,630
============= ============= ============= =============
DIVIDEND PER COMMON SHARE $ .17 $ .17 $ .34 $ .33
============= ============ ============ ============
</TABLE>
See accompanying notes.
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Century Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows (Unaudited)
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Six Months Ended
December 31,
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1998 1997
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(In Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 461 $ 746
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 24 24
Deferred compensation 11 11
Amortization of discounts and premiums on securities 2 12
Provision for loan losses 9 9
Deferred income taxes (48) -
Amortization of unearned stock compensation 265 45
Gain on sale of real estate acquired in foreclosure - (1)
Change in assets and liabilities
(Increase) decrease in accrued interest receivable 64 (6)
Increase (decrease) in accrued interest payable (39) 25
Other (124) (110)
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NET CASH PROVIDED BY
OPERATING ACTIVITIES 625 755
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CASH FLOWS FROM INVESTING ACTIVITIES
Net decrease in interest-bearing balances in other banks 1,150 1,046
Purchases of:
Held to maturity investment securities - (2,100)
Proceeds from sales, maturities and calls of:
Available for sale investment securities 377 1,934
Held to maturity investment securities 2,450 1,200
Net increase in loans (2,005) (3,671)
Purchases of property and equipment (3) (23)
Proceeds from sale of real estate acquired in settlement of loans - 6
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NET CASH PROVIDED (USED)
BY INVESTING ACTIVITIES 1,969 (1,608)
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CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in demand deposits (168) (297)
Net increase in certificate accounts 615 1,341
Proceeds from FHLB advances 2,000 -
Repayment of note payable (4,200) -
Decrease in advances from borrowers (65) (2)
Repurchase of common shares (464) -
Cash dividends paid (385) (375)
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NET CASH PROVIDED (USED)
BY FINANCING ACTIVITIES (2,667) 667
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NET DECREASE IN CASH
ON HAND AND IN BANKS (73) (186)
CASH ON HAND AND IN BANKS, BEGINNING 1,450 1,369
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CASH ON HAND AND IN BANKS, ENDING $ 1,377 $ 1,183
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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 month periods ended December 31, 1998 and 1997, in conformity with generally
accepted accounting principles. The financial statements include the accounts of
Century Bancorp, Inc. (the "Company") and its wholly-owned subsidiary, Home
Savings, Inc., SSB ("Home Savings" or the "Bank"). Operating results for the
three and six months ended December 31, 1998 are not necessarily indicative of
the results that may be expected for the fiscal year ending June 30, 1999.
The organization and business of the Company, accounting policies followed by
the Company and other information are contained in the notes to the consolidated
financial statements filed as part of the Company's annual report on Form
10-KSB. This quarterly report should be read in conjunction with such annual
report.
NOTE B - NET INCOME PER SHARE
Net income per share has been computed by dividing net income by the weighted
average number of shares of common stock outstanding during the period. In
accordance with generally accepted accounting principles, management recognition
plan shares and employee stock ownership plan shares are only considered
outstanding for the basic earnings per share calculations when they are earned
or committed to be released. Unearned shares in the management recognition plan
had no dilutive effect for the three and six months ended December 31, 1998. No
potentially dilutive common equivalent shares were outstanding during the three
and six months ended December 31, 1997.
NOTE C - COMPREHENSIVE INCOME
On July 1, 1998, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS No. 130). This pronouncement
establishes standards for the reporting and display of comprehensive income and
its components in a full set of financial statements. Comprehensive income is
defined as the change in equity during a period for non-owner transactions and
is divided into net income and other comprehensive income. Other comprehensive
income includes revenues, expenses, gains and losses that are excluded from
earnings under current accounting standards. This statement does not change or
modify the reporting or display in the statement of operations. SFAS No. 130 is
effective for the Company for interim and annual periods beginning on or after
July 1, 1998. Comparative financial statements for earlier periods are required
to reflect retroactive application of this statement. For the three months ended
December 31, 1998 and 1997, total comprehensive income, consisting of net income
and unrealized securities gains and losses, net of taxes, was $352,000 and
$426,000, respectively. For the six months ended December 31, 1998 and 1997,
total comprehensive income was $642,000 and $862,000, 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 December 31, 1998 and June 30, 1998
Consolidated total assets decreased by $1.7 million during the six months ended
December 31, 1998, from $96.9 million at June 30, 1998 to $95.1 million at
December 31, 1998. This decrease resulted principally from the use of liquid
assets to repay on July 2, 1998 borrowings of $4.2 million that had been
outstanding as of the beginning of the 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 six month period, reductions of $1.2 million and $2.4 million,
respectively, in interest-bearing balances in other banks 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 repayment
of borrowings discussed above and for an increase of $2.0 million in loans
receivable, which grew from $70.0 million at June 30, 1998 to $72.2 million at
December 31, 1998.
Total stockholders' equity was $18.8 million at December 31, 1998 as compared
with $18.7 million at June 30, 1998, an increase of $57,000 which resulted from
net income of $461,000 for the six month period, a net increase of $181,000 in
unrealized holding gains on available for sale investment securities, and
amortization of unearned ESOP and MRP compensation of $265,000, while the
regular quarterly dividends aggregated $385,000 or $.34 per share for the six
month period. In addition, during the six months ended December 31, 1998 the
Company repurchased 34,000 of its outstanding common shares at an aggregate cost
of $464,000. At December 31, 1998, both the Holding Company and the Bank
continued to significantly exceed all applicable regulatory capital
requirements.
Comparison of Results of Operations for the Three Months Ended December 31, 1998
and 1997
Net Income and Net Interest Income. Net income for the quarter ended December
31, 1998 was $219,000, or $.20 per share, as compared with net income of
$350,000, or $.31 per share, for the three months ended December 31, 1997, a
decrease of $131,000 or $.11 per share. Net interest income for the three months
ended December 31, 1998 was $767,000 as compared with $839,000 for the three
months ended December 31, 1997, a decrease of $72,000. This decrease resulted
principally from a reduction of $11.8 million in net interest earning assets
arising from the payment on April 6, 1998 of a special dividend that aggregated
$12.7 million. The effects of this decrease in net interest earning assets was
offset somewhat by a higher level of loans receivable which yield a higher rate
of interest. Loans receivable averaged $72.6 million during the current three
month period as compared with $65.3 million during the corresponding period of
the prior fiscal year, an increase of $7.3 million. The balance of the decrease
in net income results from an increase of $127,000 in general and administrative
expenses.
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Provision for Loan Losses. The provision for loan losses was $4,000 for each of
the quarters ended December 31, 1998 and 1997. There were no net loan
charge-offs during either quarter. At December 31, 1998, nonaccrual loans
aggregated $115,000, while the allowance for loan losses stood at $559,000.
General and Administrative Expenses. General and administrative expenses
increased to $443,000 during the quarter ended December 31, 1998 as compared
with $316,000 for the quarter ended December 31, 1997, an increase of $127,000.
The most significant component of this increase relates to personnel costs which
increased by $103,000 principally as a result of costs attributable to awards
previously granted under the Management Recognition Plan
Provision for Income Taxes. The provision for income taxes, as a percentage of
income before income taxes, was 33.8% and 33.7% for the quarters ended December
31, 1998 and 1997, respectively.
Comparison of Results of Operations for the Six Months Ended December 31, 1998
and 1997
Net Income and Net Interest Income. Net income for the six months ended December
31, 1998 was $461,000, or $.42 per share, as compared with net income of
$746,000, or $.66 per share, for the six months ended December 31, 1997, a
decrease of $285,000 or $.24 per share. Net interest income for the six months
ended December 31, 1998 was $1.5 million as compared with $1.8 million for the
six months ended December 31, 1997, a decrease of $228,000. This decrease
resulted principally from a reduction of $10.8 million in net interest earning
assets arising from the payment on April 6, 1998 of a special dividend that
aggregated $12.7 million. The effects of this decrease in net interest earning
assets was offset somewhat by a higher level of loans receivable which yield a
higher rate of interest. Loans receivable averaged $71.6 million during the
current six month period as compared with $64.2 million during the corresponding
period of the prior fiscal year, an increase of $7.4 million. The balance of the
decrease in net income results from an increase of $203,000 in general and
administrative expenses.
Provision for Loan Losses. The provision for loan losses was $9,000 for each of
the six months ended December 31, 1998 and 1997. There were no net loan
charge-offs during either of the six month periods ended December 31, 1998 and
1997.
General and Administrative Expenses. General and administrative expenses
increased to $851,000 during the six months ended December 31, 1998 as compared
with $648,000 for the six months ended December 31, 1997, an increase of
$203,000. The most significant component of this increase relates to personnel
costs which increased by $155,000 principally as a result of costs attributable
to awards previously granted under the Management Recognition Plan
Provision for Income Taxes. The provision for income taxes, as a percentage of
income before income taxes, was 34.0% and 33.9% for the six months ended
December 31, 1998 and 1997, 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, 1998, as
computed under North Carolina regulations, was approximately 17%. On a
consolidated basis, liquid assets represented 22% 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, 1998, Home Savings exceeded the capital requirements of both the
FDIC and the N. C. Administrator.
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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 1997, 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 planned for early 1999.
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 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 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Stockholders was held on November 17, 1998. Of
1,270,869 shares entitled to vote at the meeting, 1,134,355 shares voted. The
following matters were voted on at the meeting:
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<CAPTION>
Number of Votes
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For Against Withheld Abstain
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1. Election of directors:
Henry H. Darr 1,113,573 - 20,782 -
James G. Hudson, Jr. 1,113,773 - 20,582 -
John R. Hunnicutt 1,111,473 - 22,882 -
F. Stewart Kennedy 1,113,573 - 20,782 -
Milton T. Riley, Jr. 1,113,573 - 20,782 -
2. Ratification of Dixon Odom
PLLC to serve as independent
auditor for the year ending
June 30, 1999 1,127,742 1 - 6,612
</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, 1998.
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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 4, 1999 By: /s/ James G. Hudson, Jr.
------------------------------------
James G. Hudson, Jr.
Chief Executive Officer
Date: February 4, 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> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,377
<INT-BEARING-DEPOSITS> 4,206
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,618
<INVESTMENTS-CARRYING> 7,776
<INVESTMENTS-MARKET> 7,901
<LOANS> 72,552
<ALLOWANCE> 559
<TOTAL-ASSETS> 95,129
<DEPOSITS> 73,470
<SHORT-TERM> 2,000
<LIABILITIES-OTHER> 870
<LONG-TERM> 0
0
0
<COMMON> 9,005
<OTHER-SE> 9,784
<TOTAL-LIABILITIES-AND-EQUITY> 95,129
<INTEREST-LOAN> 2,855
<INTEREST-INVEST> 572
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,427
<INTEREST-DEPOSIT> 1,871
<INTEREST-EXPENSE> 1,885
<INTEREST-INCOME-NET> 1,542
<LOAN-LOSSES> 9
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 851
<INCOME-PRETAX> 698
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 461
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
<YIELD-ACTUAL> 3.39
<LOANS-NON> 115
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 838
<ALLOWANCE-OPEN> 550
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 559
<ALLOWANCE-DOMESTIC> 424
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 135
</TABLE>