-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G5P5lEKPJKkjTXid2+P41ji+tYrm5f+irMIXKr0v64rjbT/2pAQVBZuu+UJpwInB glw2P9sRGmqJL0za3p7mQw== 0000950135-02-005022.txt : 20021114 0000950135-02-005022.hdr.sgml : 20021114 20021114125912 ACCESSION NUMBER: 0000950135-02-005022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20020930 FILED AS OF DATE: 20021114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY BANCORP INC CENTRAL INDEX KEY: 0000812348 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 042498617 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15752 FILM NUMBER: 02823445 BUSINESS ADDRESS: STREET 1: 400 MYSTIC AVENUE CITY: MEDFORD STATE: MA ZIP: 01887 BUSINESS PHONE: 6173934606 MAIL ADDRESS: STREET 1: 400 MYSTIC AVE CITY: MEDFORD STATE: MA ZIP: 01887 10-Q 1 b44492cbe10vq.txt CENTURY BANCORP FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2002 ------------------------------------------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from -------------------------------------------------- .. Commission file number 0-15752 ---------------------------------------------------------- CENTURY BANCORP, INC. (Exact name of registrant as specified in its charter) COMMONWEALTH OF MASSACHUSETTS 04-2498617 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 400 MYSTIC AVENUE, MEDFORD, MA 02155 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (781) 391-4000 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15 (d) of the Securities and Exchange Act of 1934 during the preceding 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. X Yes No ----- ------- Indicate the number of shares outstanding of each of the registrant's classes of common stock as of September 30, 2002: CLASS A COMMON STOCK, $1.00 PAR VALUE 3,396,870 SHARES CLASS B COMMON STOCK, $1.00 PAR VALUE 2,120,530 SHARES 1 of 20 Century Bancorp, Inc. Page Index Number ----- ------ PART I FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Consolidated Balance Sheets: September 30, 2002 and December 31, 2001 3 Consolidated Statements of Income: Three (3) and Nine (9) months ended September 30, 2002 and 2001. 4 Consolidated Statements of Changes in Stockholders' Equity: Nine (9) months ended September 30, 2002 and 2001. 5 Consolidated Statements of Cash Flows: Nine (9) months ended September 30, 2002 and 2001. 6 Notes to Consolidated Financial Statements 7-10 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10- 17 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 17 Item 4. CONTROLS AND PROCEDURES 17 Part II. OTHER INFORMATION Item 1 through Item 6 17-18 Signatures 18 Certifications 19-20 2 of 20 PART I - Item 1 Century Bancorp, Inc. - Consolidated Balance Sheets - --------------------------------------------------------------------------------
(000's) Sept. 30, 2002 Dec. 31, ASSETS (unaudited) 2001 ----------- ----------- Cash and due from banks $ 65,475 $ 71,820 Federal funds sold and interest-bearing deposits in other banks 3,514 106,013 ----------- ----------- Total cash and cash equivalents 68,989 177,833 ----------- ----------- Securities available-for-sale, amortized cost $639,230 and $455,575, respectively 650,693 460,833 Securities held-to-maturity, market value $126,375 and $145,237, respectively 123,225 142,608 Loans, net: Commercial & industrial 53,698 59,162 Construction & land development 48,820 39,256 Commercial real estate 268,671 241,419 Residential real estate 94,990 88,450 Consumer & other 8,225 8,469 Home equity 37,557 26,016 ----------- ----------- Total loans, net 511,961 462,772 Less: allowance for loan losses 8,224 7,112 ----------- ----------- Net loans 503,737 455,660 Bank premises and equipment 12,138 11,882 Accrued interest receivable 9,195 7,561 Goodwill 2,717 2,717 Core Deposit Intangible 17 167 Other assets 13,012 11,761 ----------- ----------- Total assets $ 1,383,723 $ 1,271,022 =========== =========== LIABILITIES Deposits: Demand deposits $ 248,165 $ 227,319 Savings and NOW deposits 221,751 187,676 Money market accounts 306,669 242,665 Time deposits 225,969 230,748 ----------- ----------- Total deposits 1,002,554 888,408 Securities sold under agreements to repurchase 58,040 72,840 Federal Home Loan Bank (FHLB) borrowings and other borrowed funds 170,403 143,481 Other liabilities 26,652 52,944 Long term debt 28,750 28,750 ----------- ----------- Total liabilities 1,286,399 1,186,423 Commitments and contingencies STOCKHOLDERS' EQUITY Class A common stock, $1.00 par value per share; authorized 10,000,000 shares; issued 3,780,470 shares and 3,761,020 shares, respectively 3,780 3,761 Class B common stock, $1.00 par value per share; authorized 5,000,000 shares; issued 2,168,080 shares and 2,185,480 shares, respectively 2,168 2,185 Additional paid-in capital 11,122 11,093 Retained earnings 78,785 70,124 Treasury stock, Class A, 383,600 shares, each period, at cost (5,941) (5,941) Treasury stock, Class B, 47,550 shares, each period, at cost (41) (41) ----------- ----------- 89,873 81,181 Accumulated other comprehensive gain, net of taxes 7,451 3,418 ----------- ----------- Total stockholders' equity 97,324 84,599 ----------- ----------- Total liabilities and stockholders' equity $ 1,383,723 $ 1,271,022 =========== ===========
See accompanying Notes to Consolidated Financial Statements. 3 of 20 Century Bancorp, Inc. - Consolidated Statements of Income (unaudited) - --------------------------------------------------------------------------------
(000's except share data) Three months ended September 30, Nine months ended September 30, 2002 2001 2002 2001 ---------- ---------- ---------- ---------- Interest income Loans $ 9,168 $ 9,060 $ 26,684 $ 28,084 Securities held-to-maturity 1,759 2,273 5,543 7,239 Securities available-for-sale 6,920 5,047 19,909 14,033 Federal funds sold and interest-bearing deposits in other banks 243 505 522 1,932 ---------- ---------- ---------- ---------- Total interest income 18,090 16,885 52,658 51,288 Interest expense Savings and NOW deposits 684 946 1,920 2,819 Money market accounts 1,293 928 3,488 2,591 Time deposits 1,950 2,628 5,637 9,479 Securities sold under agreements to repurchase 167 368 541 1,445 FHLB borrowings, other borrowed funds and long term debt 2,438 1,943 6,839 5,609 ---------- ---------- ---------- ---------- Total interest expense 6,532 6,813 18,425 21,943 ---------- ---------- ---------- ---------- Net interest income 11,558 10,072 34,233 29,345 Provision for loan losses 300 375 900 1,125 ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 11,258 9,697 33,333 28,220 Other operating income Service charges on deposit accounts 1,096 896 3,286 2,378 Lockbox fees 787 788 2,646 2,592 Brokerage commissions 285 269 872 946 Other income 292 217 1,083 594 ---------- ---------- ---------- ---------- Total other operating income 2,460 2,170 7,887 6,510 ---------- ---------- ---------- ---------- Operating expenses Salaries and employee benefits 5,426 4,603 16,045 13,723 Occupancy 562 524 1,661 1,603 Equipment 563 472 1,640 1,376 Other 1,848 1,847 6,065 5,367 ---------- ---------- ---------- ---------- Total operating expenses 8,399 7,446 25,411 22,069 ---------- ---------- ---------- ---------- Income before income taxes 5,319 4,421 15,809 12,661 Provision for income taxes 1,916 1,626 5,766 4,654 ---------- ---------- ---------- ---------- Net income $ 3,403 $ 2,795 $ 10,043 $ 8,007 ========== ========== ========== ========== - --------------------------------------------------------------------------------------------------------------------------------- Share data: Weighted average number of shares outstanding, basic 5,517,400 5,538,502 5,516,317 5,542,035 Weighted average number of shares outstanding, diluted 5,537,009 5,550,007 5,532,417 5,547,604 Net income per share, basic $0.62 $0.50 $1.82 $1.44 Net income per share, diluted $0.61 $0.50 $1.82 $1.44 Cash dividends declared: Class A common stock $0.1100 $0.1000 $0.3100 $0.2800 Class B common stock $0.0550 $0.0500 $0.1550 $0.1400
See accompanying Notes to Consolidated Financial Statements. 4 of 20
Century Bancorp, Inc. - Consolidated Statements of Changes in Stockholders' Equity (unaudited) - ------------------------------------------------------------------------------------------------------------------------------------ Accumulated Class A Class B Additional Treasury Treasury Other Total Common Common Paid-In Retained Stock Stock Comprehensive Stockholders' Stock Stock Capital Earnings Class A Class B Income (Loss) Equity ------- ------- ------- -------- ------- --------- ------------- ------------- (000's) 2001 Balance at December 31, 2000 $ 3,755 $ 2,192 $11,093 $ 60,916 ($5,242) ($41) ($1,167) $ 71,506 Net income -- -- -- 8,007 -- -- -- 8,007 Other comprehensive income, net of tax: Change in unrealized gain on securities available-for-sale -- -- -- -- -- -- 6,617 6,617 -------- Comprehensive income 14,624 Conversion of Class B common stock to Class A common stock, 6,420 shares 6 (6) -- -- -- -- -- -- Treasury stock repurchases, 35,000 shares -- -- -- -- (699) -- -- (699) Cash dividends, Class A common stock, $.27 per share -- -- -- (920) -- -- -- (920) Cash dividends, Class B common stock, $.135 per share -- -- -- (288) -- -- -- (288) ------- ------- ------- -------- ------- ---- ------- -------- Balance at September 30, 2001 $ 3,761 $ 2,186 $11,093 $ 67,715 ($5,941) ($41) $ 5,450 $ 84,223 ======= ======= ======= ======== ======= ==== ======= ======== 2002 Balance at December 31, 2001 $ 3,761 $ 2,185 $11,093 $ 70,124 ($5,941) ($41) $ 3,418 $ 84,599 Net income -- -- -- 10,043 -- -- -- 10,043 Other comprehensive income, net of tax: Change in unrealized gain on securities available-for-sale -- -- -- -- -- -- 4,033 4,033 -------- Comprehensive income 14,076 Conversion of Class B common stock to Class A common stock, 17,400 shares 17 (17) -- -- -- -- -- -- Stock Options Exercised, 2,050 shares 2 -- 29 -- -- -- -- 31 Cash dividends, Class A common stock, $.31 per share -- -- -- (1,053) -- -- -- (1,053) Cash dividends, Class B common stock, $.155 per share -- -- -- (329) -- -- -- (329) ------- ------- ------- -------- ------- ---- ------- -------- Balance at September 30, 2002 $ 3,780 $ 2,168 $11,122 $ 78,785 ($5,941) ($41) $ 7,451 $ 97,324 ======= ======= ======= ======== ======= ==== ======= ========
See accompanying Notes to Consolidated Financial Statements. 5 of 20
Century Bancorp, Inc. - Consolidated Statements of Cash Flows (unaudited) 2002 2001 - ------------------------------------------------------------------------------------------------------------------ For the nine months ended September 30, (000's) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 10,043 $ 8,007 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 900 1,125 Deferred income taxes (1,173) (527) Net depreciation and amortization 1,465 1,633 Increase in accrued interest receivable (1,634) (583) (Increase) decrease in other assets (1,687) 91 Proceeds from sales of loans 73 89 Gain on sales of loans (1) (1) Gain on sales of securities -- (47) Gain on sale of building (359) -- Increase (decrease) in other liabilities 1,193 (1,186) --------- --------- Net cash provided by operating activities 8,820 8,601 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of securities available-for-sale 200,350 163,391 Purchase of securities available-for-sale (383,978) (245,853) Proceeds from maturities of securities held-to-maturity 42,335 76,921 Purchase of securities held-to-maturity (22,967) (56,940) (Decrease) increase in payable for investments purchased (28,976) 1,001 Net increase in loans (48,695) (1,037) Proceeds from sale of building 1,020 -- Capital expenditures (1,670) (3,804) --------- --------- Net cash used in investing activities (242,581) (66,321) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net decrease in time deposits (4,779) (75,484) Net increase in demand, savings, money market and NOW deposits 118,925 124,132 Net proceeds from the exercise of stock options 31 -- Treasury stock repurchases -- (699) Cash dividends (1,382) (1,208) Net decrease in securities sold under agreements to repurchase (14,800) (6,660) Net increase in FHLB borrowings and other borrowed funds 26,922 14,891 --------- --------- Net cash provided by financing activities 124,917 54,972 --------- --------- Net decrease in cash and cash equivalents (108,844) (2,748) Cash and cash equivalents at beginning of year 177,833 175,802 --------- --------- Cash and cash equivalents at end of period $ 68,989 $ 173,054 ========= ========= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 18,381 $ 23,882 Income taxes 6,267 3,938 Change in unrealized gains on securities available-for-sale, net of taxes $ 4,033 $ 6,617
See accompanying Notes to Consolidated Financial Statements. 6 of 20 Century Bancorp, Inc. Notes to Consolidated Financial Statements SUMMARY OF CRITICAL ACCOUNTING POLICIES BASIS OF FINANCIAL STATEMENT PRESENTATION The consolidated financial statements include the accounts of Century Bancorp, Inc. (the "Company") and its wholly-owned subsidiary, Century Bank and Trust Company (the "Bank"). The Company provides a full range of banking services to individual, business and municipal customers in Massachusetts. As a bank holding company, the Company is subject to the regulation and supervision of the Federal Reserve Board. The Bank, a state chartered financial institution, is subject to supervision and regulation by applicable state and federal banking agencies, including the Federal Reserve Board, the Federal Deposit Insurance Corporation (the "FDIC") and the Commonwealth of Massachusetts Commissioner of Banks. The Bank is also subject to various requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on types and amounts of loans that may be granted and the interest that may be charged thereon, and limitations on types of investments that may be made and the types of services that may be offered. Various consumer laws and regulations also affect the operations of the Bank. In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve Board as it attempts to control the money supply and credit availability in order to influence the economy. All aspects of the Company's business are highly competitive. The Company faces aggressive competition from other lending institutions and from numerous other providers of financial services. The Company has one reportable operating segment under Statements of Financial Accounting Standards No. 131. In the opinion of management, the accompanying unaudited interim consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which are necessary to present a fair statement of the results for the interim period presented of the Company and its wholly-owned subsidiary, the Bank. The results of operations for the interim period ended September 30, 2002, are not necessarily indicative of results for the entire year. All significant intercompany accounts and transactions have been eliminated in consolidation. It is suggested that these statements be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Annual Report on Form 10K for the year ended December 31, 2001. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and to general practices within the banking industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ from those estimates. Material estimates that are susceptible to change in the near-term relate to the allowance for losses on loans. Management believes that the allowance for losses on loans is adequate based on independent appraisals and review of other factors associated with the assets. While management uses available information to recognize losses on loans, future additions to the allowance for loans may be necessary based on changes in economic conditions. In addition, regulatory agencies periodically review the Company's allowance for losses on loans. Such Page 7 of 20 agencies may require the Company to recognize additions to the allowance for loans based on their judgments about information available to them at the time of their examination. INVESTMENT SECURITIES Debt securities that the Company has the positive intent and ability to hold to maturity are classified as held-to-maturity and reported at amortized cost; debt and equity securities that are bought and held principally for the purpose of selling are classified as trading and reported at fair value, with unrealized gains and losses included in earnings; and debt and equity securities not classified as either held-to-maturity or trading are classified as available-for-sale and reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholder's equity. The Company has no securities held for trading. Premiums and discounts on investment securities are amortized or accreted into income by use of the level-yield method. If a decline in fair value below the amortized cost basis of an investment is judged to be other than temporary, the cost basis of the investment is written down to fair value. The amount of the writedown is included as a charge to earnings. Gains and losses on the sale of investment securities are recognized at the time of sale on a specific identification basis. LOANS Interest on loans is recognized based on the daily principal amount outstanding. Accrual of interest is discontinued when loans become 90 days delinquent unless the collateral is sufficient to cover both principal and interest and the loan is in the process of collection. Loans, including impaired loans, on which the accrual of interest has been discontinued, are designated non-accrual loans. When a loan is placed on non-accrual, all income which has been accrued but remains unpaid is reversed against current period income and all amortization of deferred loan fees is discontinued. Non-accrual loans may be returned to an accrual status when principal and interest payments are not delinquent and the risk characteristics of the loan have improved to the extent that there no longer exists a concern as to the collectibility of principal income. Income received on non-accrual loans is either recorded in income or applied to the principal balance of the loan depending on management's evaluation as to the collectibility of principal. Loans held for sale are carried at the lower of aggregate amortized cost or market value. When loans are sold with servicing rights retained the Company allocates the carrying amount of the loans between the underlying asset sold and the servicing rights retained on the basis of the relative fair values of the assets sold and rights retained. The value of the servicing rights retained is amortized against mortgage banking income based on the estimated servicing period. When actual prepayments exceed the estimated prepayments, the balance of the mortgage servicing rights is reduced. Periodically the mortgage servicing rights are assessed for impairment based on the fair value of such rights using market prices. Loan origination fees and related direct incremental loan origination costs are offset and the resulting net amount is deferred and amortized over the life of the related loans using the level-yield method. The Bank accounts for impaired loans, except those loans that are accounted for at fair value or at lower of cost or fair value, at the present value of the expected Page 8 of 20 future cash flows discounted at the loan's effective interest rate. This method applies to all loans, uncollateralized as well as collateralized, except large groups of smaller-balance homogenous loans that are collectively evaluated for impairment, loans that are measured at fair value and leases. Management considers the payment status, net worth and earnings potential of the borrower, and the value and cash flow of the collateral as factors to determine if a loan will be paid in accordance with its contractual terms. Management does not set any minimum delay of payments as a factor in reviewing for impaired classification. Impaired loans are charged-off when management believes that the collectibility of the loan's principal is remote. In addition, criteria for classification of a loan as in-substance foreclosure have been modified so that such classification need be made only when a lender is in possession of the collateral. The Bank measures the impairment of troubled debt restructurings using the pre-modification rate of interest. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is based on management's evaluation of the quality of the loan portfolio and is used to provide for losses resulting from loans which ultimately prove uncollectible. In determining the level of allowance, periodic evaluations are made of the loan portfolio which take into account such factors as the character of loans, loan status, financial posture of the borrowers, value of collateral securing the loans and other relevant information sufficient to reach an informed judgment. The allowance is increased by provisions charged to income and reduced by loan charge-offs, net of recoveries. Management maintains an allowance for credit losses to absorb losses inherent in the loan portfolio. The allowance is based on assessments of the probable estimated losses inherent in the loan portfolio. Management's methodology for assessing the appropriateness of the allowance consists of several key elements, which include the formula allowance, specific allowances for identified problem loans and the unallocated allowance. The formula allowance is calculated by applying loss factors to outstanding loans, in each case based on the internal risk grade of such loans. Changes in risk grades affect the amount of the formula allowance. Loss factors are based on the Company's historical loss experience as well as regulatory guidelines. Specific allowances are established in cases where management has identified significant conditions related to a credit that management believes that the probability that a loss has been incurred in excess of the amount determined by the application of the formula allowance. The unallocated allowance recognizes the model and estimation risk associated with the formula allowance and specific allowances as well as management's evaluation of various conditions, the effects of which are not directly measured in the determination of the formula and specific allowances. The evaluation of inherent loss with respect to these conditions is subject to a higher degree of uncertainty because they are not identified with specific problem credits. While management uses available information in establishing the allowance for loan losses, future adjustments to the allowance may be necessary if economic conditions differ substantially from the assumptions used in making the evaluations. Loans are charged-off in whole or in part when, in management's opinion, collectibility is not probable. Page 9 of 20 BANK PREMISES AND EQUIPMENT Bank premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the assets or the term of leases, if shorter. It is general practice to charge the cost of maintenance and repairs to operations when incurred; major expenditures for improvements are capitalized and depreciated. INCOME TAXES The Company uses the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which temporary differences are expected to be recovered or settled. Under this method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW For the quarter ended and year-to-date ended September 30, 2002. Earnings for the third quarter ended September 30, 2002 were $3.4 million, an increase of 21.8% when compared with the third quarter 2001 earnings of $2.8 million. Diluted earnings per share for the third quarter 2002 were $0.61 versus $0.50 for the third quarter of 2001. The increase was mainly attributable to average balance sheet growth. Earnings for the nine months ended September 30, 2002 were $10.0 million, an increase of 25.4% when compared with the same period last year earnings of $8.0 million. Diluted earnings per share for the first nine months were $1.82 versus $1.44 for the first nine months of 2001. The increase was mainly attributable to average balance sheet growth, as well as a pretax realized gain of $359,000 associated with the sale of bank premises. On October 30, 2002 the Bank and Capital Crossing Bank announced the signing of a definitive agreement under which the Bank will acquire Capital Crossing's branch office at 1220 Boylston Street, Chestnut Hill, Massachusetts, and substantially all of its retail deposits in its main office at 101 Summer Street, Boston, Massachusetts. The agreement includes the acquisition of approximately $233.0 million in deposits and $4.0 million of related loans. The transaction is subject to customary conditions, including regulatory approval, and is expected to close in the first quarter of 2003. Page 10 of 20 Management's Discussion and Analysis of Financial Condition and Results of Operation (con't.) FINANCIAL CONDITION LOANS On September 30, 2002, total loans outstanding, net of unearned discount, were $512.0 million, an increase of 10.6% from the total on December 31, 2001. At September 30, 2002 commercial real estate loans accounted for 52.5% and residential real estate loans, including home equity credit lines, accounted for 25.9% of total loans. Construction loans increased to $48.8 million at September 30, 2002 from $39.3 million on December 31, 2001. The increase in loans was partly attributable to commercial real estate loans and residential real estate loans, including home equity credit lines. Also, originations of corporate loans reflect the Company's interest for this type of loan. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses was 1.61% of total loans on September 30, 2002 compared with 1.54% on December 31, 2001. Net recoveries for the nine-month period ended September 30, 2002 were $212 thousand compared with net recoveries of $264 thousand for the same period in 2001. Additional provisions have been made to due to growth in the loan portfolio. At the current time management believes that the allowance for loan losses is adequate. NONPERFORMING LOANS September 30, 2002 December 31, 2001 ------------------ ----------------- (Dollars in Thousands) Nonaccruing loans $688 $423 Loans past due 90 days or more $ 0 $ 9 Nonaccuring loans as a Percentage of total loans .13% .09% INVESTMENTS Management continually evaluates its investment alternatives in order to properly manage the overall balance sheet mix. The timing of purchases, sales and reinvestments, if any, will be based on various factors including expectation of movements in market interest rates, deposit flows and loan demand. Notwithstanding these events, it is the intent of management to grow the earning asset base through loan originations, loan purchases or investment acquisitions while funding this growth through a mix of retail deposits, FHLB advances, and retail repurchase agreements. Page 11 of 20 Management's Discussion and Analysis of Financial Condition and Results of Operation (con't.) September 30, 2002 December 31, 2001 ------------------ ----------------- (Dollars in Thousands) SECURITIES AVAILABLE-FOR-SALE U.S. Government and Agencies $597,684 $411,004 Other Bonds and Equity Securities 18,071 19,668 Mortgage-backed Securities 34,938 30,161 -------- -------- Total Securities Available-for-Sale $650,693 $460,833 ======== ======== SECURITIES HELD-TO-MATURITY U.S. Government and Agencies $ 84,372 $ 85,386 Other Bonds and Equity Securities 25 25 Mortgage-backed Securities 38,828 57,197 -------- -------- Total Securities Held-to-Maturity $123,225 $142,608 ======== ======== SECURITIES AVAILABLE-FOR-SALE The securities available-for-sale portfolio totaled $650.7 million at September 30, 2002, an increase of 41.2% from December 31, 2001. The portfolio increased mainly because of increases in deposits and borrowed funds. The portfolio is concentrated in United States Treasury and Agency securities and has an estimated weighted average maturity of 3.0 years. SECURITIES HELD-TO-MATURITY The securities held-to-maturity portfolio totaled $123.2 million on September 30, 2002, a decrease of 13.6% from the total on December 31, 2001. The portfolio is concentrated in United States Treasury and Agency securities, including Mortgage Backed Securities and has an estimated weighted average maturity of 3.2 years. DEPOSITS AND BORROWED FUNDS On September 30, 2002 deposits totaled $1,002.6 million, representing a 12.8% increase in total deposits from December 31, 2001. Total deposits increased primarily as a result of increases in savings and money market accounts. Borrowed funds totaled $228.4 million compared to $216.3 million at December 31, 2001. Page 12 of 20 Management's Discussion and Analysis of Financial Condition and Results of Operation (con't.) RESULTS OF OPERATIONS NET INTEREST INCOME For the three-month period ended September 30, 2002 net interest income totaled $11.6 million, an increase of 14.8% from the comparable period in 2001. For the nine-month period ended September 30, 2002 net interest income totaled $34.2 million, an increase of 16.7% from the comparable period in 2001. The increase in net interest income, for the three and nine month periods, was primarily attributable to an increase in the average balances of earning assets combined with a similar increase in deposits and borrowed funds. For the nine-month period, the increase in volume was partially offset by a twenty-one point decrease in the net interest margin. The net yield on average earning assets on a fully taxable equivalent basis decreased to 3.83% in the first nine months of 2002 from 4.04% during the same period in 2001. Page 13 of 20 Management's Discussion and Analysis of Financial Condition and Results of Operation (con't.) The following table sets forth the distribution of the Company's average assets, liabilities and stockholders' equity, and average rates earned or paid on a fully taxable equivalent basis for each of the nine-month periods indicated.
September 30, 2002 September 30, 2001 --------------------------------------------------------------------------------------- Average Interest Rate Average Interest Rate Balance Income/ Earned/ Balance Income/ Earned/ Expense(1) Paid Expense(1) Paid - ----------------------------------------------------------------------------------------------------------------------------------- (dollars in thousands) ASSETS Interest-earning assets: Loans (2) $ 482,025 26,684 7.40% $ 439,637 28,084 8.54% Securities available-for-sale 538,765 19,921 4.93% 314,690 14,048 5.95% Securities held-to-maturity 129,621 5,543 5.70% 154,919 7,239 6.23% Temporary funds 41,706 522 1.65% 58,779 1,932 4.33% ----------- ----------- ---- ---------- ------- ---- Total interest earning Assets $ 1,192,117 $ 52,670 5.90% $ 968,025 $51,303 7.07% Non interest-earning assets 98,349 84,383 Allowance for loan losses (7,643) (6,377) ---------- ---------- Total assets $ 1,282,823 $1,046,031 =========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Interest bearing deposits: NOW account $ 169,942 $ 1,438 1.13% $134,938 $ 2,090 2.07% Savings accounts 72,002 482 .90% 62,871 729 1.55% Money market accounts 255,116 3,488 1.83% 122,954 2,591 2.82% Time deposits 206,309 5,637 3.65% 237,485 9,479 5.34% ----------- ----------- ---- ---------- ------- ---- Total interest-bearing Deposits 703,369 11,045 2.10% 558,248 14,889 3.57% Securities sold under Agreements to Repurchase 63,561 541 1.14% 61,746 1,445 3.13% Other borrowed funds and Long term debt 182,619 6,839 5.01% 129,427 5,609 5.80% ----------- ----------- ---- ---------- ------- ---- Total interest-bearing Liabilities 949,549 18,425 2.59% 749,421 21,943 3.92% Non interest-bearing Liabilities Demand deposits 225,813 203,056 Other liabilities 17,232 16,150 ---------- ---------- Total liabilities 1,192,594 968,627 Stockholders' equity 90,229 77,404 ========== ========== Total liabilities & Stockholders Equity $1,282,823 $1,046,031 =========== ========== Net interest income $ 34,245 $29,360 ----------------------------------------------------------------------------------------------------- Net interest spread 3.31% 3.15% ----------------------------------------------------------------------------------------------------- Net yield on earnings Assets 3.83% 4.04% -----------------------------------------------------------------------------------------------------
(1) On a fully taxable equivalent basis calculated using a federal tax rate of 35%. (2) Nonaccrual loans are included in average amounts outstanding. Page 14 of 20 Management's Discussion and Analysis of Financial Condition and Results of Operation (con't.) 2002 Compared with 2001 -------------------------------------------------- Increase/(Decrease) Due to Change in --------------------------------------------------
Income Increase Volume Rate (Decrease) ---------------------------------------------------------------------------------- (dollars in thousands) Interest Income: Loans $ 2,729 $(4,129) $(1,400) Securities available-for-sale 10,010 (4,127) 5,873 Securities held-to-maturity (1,182) (514) (1,696) Temporary funds (561) (849) (1,410) -------- ------- ------- Total interest income 10,986 (9,619) 1,367 ======== ======= ======= Interest expense: Deposits: NOW accounts 650 (1,302) (652) Savings accounts 106 (353) (247) Money market accounts 2,819 (1,922) 897 Time deposits (1,236) (2,606) (3,842) -------- ------- ------- Total interest-bearing deposits 2,339 (6,183) (3,844) Securities sold under agreements to repurchase 42 (946) (904) Other borrowed funds and long term debt 2,306 (1,076) 1,230 -------- ------- ------- Total interest expense 4,687 (8,205) (3,518) -------- ------- ------- Change in net interest income $ 6,299 (1,414) 4,885 ======== ======= =======
PROVISION FOR LOAN LOSSES For the three-month period ended September 30, 2002, the loan loss provision totaled $300 thousand compared to $375 thousand for the same period last year. For the nine-month period ended September 30, 2002, the loan loss provision totaled $900 thousand compared to $1,125 thousand for the same period last year. Loan loss provision decreased because of management's determination of the relative adequacy in the loan loss reserve. The Company's loan loss allowance as a percentage of total loans outstanding has increased from 1.54% at December 31, 2001 to 1.61% at September 30, 2002. NON-INTEREST INCOME AND EXPENSE Other operating income for the quarter ended September 30, 2002 was $2.5 million compared to $2.2 million for the third quarter of 2001. The increase was mainly attributable to an increase of $200 thousand in service charges on deposit accounts. For the nine-month period ending September 30, 2002 other operating income totaled $7.9 million compared to $6.5 million for the same period in 2001. The increase was mainly attributable to a $908 thousand increase in service charges on deposit accounts as well as a pretax gain of $359 thousand associated with the sale of bank premises. Service charges on deposit accounts increased mainly because of an increase in deposits. This increase was partially offset by a decrease of $74 thousand from brokerage commissions, which decreased because of market conditions. Page 15 of 20 Management's Discussion and Analysis of Financial Condition and Results of Operation (con't.) During the three-month period ended September 30, 2002, operating expenses increased by $1.0 million to $8.4 million or 12.8% from the same period last year. Most of the increase was in compensation expense associated with increased staff levels as well as merit increases in salaries and employee benefits with the remainder in equipment and all other expenses. For the nine-month period ended September 30, 2002 operating expenses totaled $25.4 million compared to $22.1 million for the same period in 2001. Most of the increase was in staff levels as well as merit increases in salaries and employee benefits with the remainder in equipment and all other expenses. INCOME TAXES For the third quarter of 2002, the Company's income taxes totaled $1.9 million on pretax income of $5.3 million for an effective tax rate of 36.0%. For last year's corresponding quarter, the Company's income taxes totaled $1.6 million on pretax income of $4.4 million for an effective tax rate of 36.8%. For the nine-month period ended September 30, 2002 the Company's income taxes totaled $5.8 million on pretax income of $15.8 million for an effective tax rate of 36.5%. For last year's corresponding period, the Company's income taxes totaled $4.7 million on pretax income of $12.7 million for an effective rate of 36.8%. The Company has received from the Commonwealth of Massachusetts Department of Revenue (DOR) notice that dividend distributions by the Bank's subsidiary real estate investment trust (REIT) are fully taxable in Massachusetts and therefore not subject to the dividends received deduction (DRD). The Notice of Assessment to change additional state excise taxes totaled $1.3 million plus interest for the two years ended December 31, 1999 and 2000. As of the date of this notice, interest amounted to $322 thousand. The Company has received additional state tax benefits of approximately $2.6 million for the twenty-one months ended September 30, 2002. The Company intends to vigorously defend its position. FORWARD LOOKING STATEMENTS Except for the historical information contained herein, this Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Investors are cautioned that forward-looking statements are inherently uncertain. Actual performance and results of operations may differ materially from those projected or suggested in the forward-looking statements due to certain risks and uncertainties, including, without limitation, (i) the fact that the Company's success is dependent to a significant extent upon general economic conditions in New England, (ii) the fact that the Company's earnings depend to a great extent upon the level of net interest income (the difference between interest income earned on loans and investments and the interest expense paid on deposits and other borrowings) generated by the Bank and thus the Bank's results of operations may be adversely affected by increases or decreases in interest rates, (iii) the fact that the banking business is highly competitive and Page 16 of 20 Management's Discussion and Analysis of Financial Condition and Results of Operation (con't.) the profitability of the Company depends upon the Bank's ability to attract loans and deposits within its market area, where the Bank competes with a variety of traditional banking and nontraditional institutions such as credit unions and finance companies, and (iv) the fact that a significant portion of the Company's loan portfolio was comprised of commercial loans, exposing the Company to the risks inherent in loans based upon analyses of credit risk, the value of underlying collateral, including real estate, and other more intangible factors, which are considered in making commercial loans. Accordingly, the Company's profitability may be negatively impacted by errors in risk analyses, by loan defaults, and the ability of certain borrowers to repay such loans may be adversely affected by any downturn in general economic conditions. These factors, as well as general economic and market conditions, may materially and adversely affect the market price of shares of the Company's common stock. Because of these and other factors, past financial performance should not be considered an indicator of future performance. The forward- looking statements contained herein represent the Company's judgment as of the date of this Form 10-Q, and the Company cautions readers not to place undue reliance on such statements. ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The response is incorporated herein by reference from the discussion under the sub caption "Market Risk and Asset Liability Management" of the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" on page 12 of the Annual Report which is incorporated herein by reference. ITEM 4 CONTROLS AND PROCEDURES The principal executive officer and principal financial officer have evaluated the disclosure controls and procedures as of a date within 90 days before the filing date of this quarterly report. Based on this evaluation, the principal executive officer and principal financial officer have concluded that the disclosure controls and procedures effectively ensure that information required to be disclosed in the Company's filings and submissions with the Securities and Exchange Commission under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. In addition, the Company has reviewed its internal controls and there have been no significant changes in its internal controls or in other factors that could significantly affect those controls subsequent to the date of its last evaluation. PART II - OTHER INFORMATION Item 1 Legal proceedings - At the present time, the Company is not engaged in any legal proceedings which, if adversely determined to the Company, would have a material adverse impact on the Company's financial condition or results of operations. From time to time, the Company is party to routine legal proceedings within the normal course of business. Such routine legal proceedings, in the aggregate, are believed by management to be immaterial to the Company's financial condition and results of operation. Item 2 Change in securities - Not applicable Page 17 of 20 Item 3 Defaults upon senior securities - Not applicable Item 4 Submission of matters to a vote - Not applicable Item 5 Other information - Not Applicable Item 6 Exhibits and reports on form 8-K (a) Exhibits 99.1 Certification of Chief Executive Officer and Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K On October 30, 2002, the Company filed a Current Report on Form 8-K with respect to the Company's execution of a Purchase and Assumption Agreement with Capital Crossing Bank pursuant to which the Company will acquire Capital Crossing's branch office at 1220 Boylston Street, Chestnut Hill, Massachusetts, and substantially all of its retail deposits in its main office at 101 Summer Street, Boston, Massachusetts. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATE: NOVEMBER 12, 2002 CENTURY BANCORP, INC -------------------------------- ------------------------------------ /s/ Paul V. Cusick, Jr. /s/ Kenneth A. Samuelian - --------------------------------- ------------------------------------ PAUL V. CUSICK, JR. KENNETH A. SAMUELIAN VICE PRESIDENT AND TREASURER VICE PRESIDENT AND CONTROLLER (PRINCIPAL FINANCIAL OFFICER) CENTURY BANK AND TRUST COMPANY (CHIEF ACCOUNTING OFFICER) Page 18 of 20 CERTIFICATIONS I, Marshall M. Sloane, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Century Bancorp, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant, and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors; (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 12, 2002 /s/ Marchall M. Sloane ------------------------------- Marshall M. Sloane Chairman and Chief Executive Officer (Principal Executive Officer) Page 19 of 20 I, Paul V. Cusick, Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Century Bancorp, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the period presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant, and we have: (a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors; (a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. /s/ Paul V. Cusick, Jr. Date: November 12, 2002 ------------------------------------- Paul V. Cusick, Jr. Vice President and Treasurer (Principal Financial Officer) EX-99.1 3 b44492cbexv99w1.txt SECTION 906 CERTIFICATION Exhibit 99.1 CERTIFICATION PURSUANT TO 18 U.S.C. Section 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report on Form 10-Q of Century Bancorp, Inc. (the "Company") for the quarter ended September 30, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned, certifies, to the best knowledge and belief of the signatory, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Marshall M. Sloane /s/ Paul V. Cusick, Jr. - ----------------------------- ---------------------------- Marshall M. Sloane Paul V. Cusick, Jr. Chairman, President and CEO Vice President and Treasurer (Chief Financial Officer) Date: November 12, 2002 Date: November 12, 2002 -----END PRIVACY-ENHANCED MESSAGE-----