-----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, JCLBfMcVL79UBpCchmobMd4eCPBeIXZnro4vwN4OCCeNf72yLD40Y6rzuepDmCBo 0aCCB0MwK65zW0HG/XUHfw== 0000950135-98-003341.txt : 19980518 0000950135-98-003341.hdr.sgml : 19980518 ACCESSION NUMBER: 0000950135-98-003341 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NASD 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: SEC FILE NUMBER: 000-15752 FILM NUMBER: 98622516 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 CENTURY BANCORP, INC. 1 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 MARCH 31, 1998 -------------------------------------------------- or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------------- ---------------------------- 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 incorporation or organization) (I.R.S. Employer 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 March 31, 1998: CLASS A COMMON STOCK, $1.00 PAR VALUE 3,539,897 SHARES CLASS B COMMON STOCK, $1.00 PAR VALUE 2,253,770 SHARES 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: MAY 15, 1998 CENTURY BANCORP, INC. ------------------------------- ------------------------------------- (Registrant) /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 & TRUST COMPANY (CHIEF ACCOUNTING OFFICER) 1 of 16 2 Century Bancorp, Inc.
Page Index Number ----- ------ PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS Consolidated Balance Sheets: March 31, 1998 and December 31, 1997. 3 Consolidated Statements of Income: Three (3) Months Ended March 31, 1998 and 1997. 4 Consolidated Changes in Stockholders Equity: Three (3) Months Ended March 31, 1998 and 1997. 5 Consolidated Statements of Cash Flows: Three (3) Months Ended March 31, 1998 and 1997. 6 Notes to Consolidated Financial Statements 7 - 12 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 13 - 15 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 15 Part II. OTHER INFORMATION Item 1 through Item 6 16
2 of 16 3 PART 1 - Item 1 Century Bancorp, Inc. - Consolidated Balance Sheets (unaudited) - --------------------------------------------------------------------------------
(000's) Mar 31, Dec 31, Assets 1998 1997 - ------ ------- ------- Cash and due from banks $ 31,305 $ 46,868 Federal funds sold and interest-bearing deposits in other banks 7,022 51,024 -------- -------- Total cash and cash equivalents 38,327 97,892 -------- -------- Securities available-for-sale, amortized cost $93,745 and $89,004, respectively 93,701 89,190 Securities held-to-maturity, market value $118,630 and $109,454, respectively 118,804 109,239 Loans, net of unearned discount: Commercial & industrial 54,402 50,560 Construction & land development 10,616 7,549 Commercial real estate 140,084 140,270 Industrial revenue bonds 2,606 2,693 Residential real estate 73,134 76,160 Residential real estate held-for-sale 330 225 Consumer 18,563 19,254 Home equity 19,282 19,031 Overdrafts 379 648 -------- -------- Total loans, net of unearned discount 319,396 316,390 Less allowance for loan losses (4,674) (4,446) -------- -------- Net loans 314,722 311,944 Bank premises and equipment, net 8,828 8,718 Accrued interest receivable 4,588 4,334 Other assets 10,323 9,808 -------- -------- Total assets $589,293 $631,125 ======== ======== Liabilities - ----------- Deposits: Demand deposits $107,657 $123,301 Savings and NOW deposits 150,191 149,808 Money market accounts 67,079 71,061 Time deposits 165,926 171,279 -------- -------- Total deposits 490,853 515,449 Securities sold under agreements to repurchase 31,230 32,850 Federal Home Loan Bank (FHLB) borrowings and other borrowed funds 3,141 13,474 Other liabilities 8,725 15,495 -------- -------- Total liabilities 533,949 577,268 Stockholders' equity Class A common stock, $1.00 par value per share; 3,570 3,541 authorized 10,000,000 shares; issued 3,569,897 Class B common stock, $1.00 par value per share; 2,301 2,327 authorized 5,000,000 shares; issued 2,301,320 Additional paid-in capital 10,886 10,877 Retained earnings 38,790 37,180 Treasury stock, Class A, 30,000 shares (136) (136) Treasury stock, Class B, 47,550 shares (41) (41) -------- -------- Realized stockholders' equity 55,370 53,748 Accumulated other comprehensive income (loss) (26) 109 -------- -------- Total stockholders' equity 55,344 53,857 -------- -------- Total liabilities and stockholders' equity $589,293 $631,125 ======== ========
3 of 16 4 Century Bancorp, Inc. - Consolidated Statements of Income (unaudited) - --------------------------------------------------------------------------------
(000's except share data) Three months ended March 31, 1998 1997 ---------- --------- Interest income Loans $ 7,306 $ 6,665 Securities held-to-maturity 1,810 1,813 Securities available-for-sale 1,457 1,243 Federal funds sold and interest-bearing deposits in other banks 361 175 --------- --------- Total interest income 10,934 9,896 Interest expense Savings and NOW deposits 1,049 945 Money market accounts 493 484 Time deposits 2,147 2,130 Securities sold under agreements to repurchase 320 201 FHLB borrowings and other borrowed funds 71 85 --------- --------- Total interest expense 4,080 3,845 --------- --------- Net interest income 6,854 6,051 Provision for loan losses 165 255 --------- --------- Net interest income after provision for loan losses 6,689 5,796 Other operating income Service charges on deposit accounts 441 411 Lockbox fees 382 309 Brokerage commissions 285 294 Gain on sales of loans 22 21 Other income 117 109 --------- --------- Total other operating income 1,247 1,144 --------- --------- Operating expenses Salaries and employee benefits 3,237 3,013 Occupancy 345 319 Equipment 316 273 Other 1,174 1,025 --------- --------- Total operating expenses 5,072 4,630 --------- --------- Income before income taxes 2,864 2,310 Provision for income taxes 1,062 934 --------- --------- Net income $ 1,802 $ 1,376 ========= ========= - ------------------------------------------------------------------------------------------------- Share data: Weighted average number of shares outstanding, basic 5,792,160 5,761,278 Weighted average number of shares outstanding, diluted 5,853,993 5,835,391 Net income per share, basic $0.31 $0.24 Net income per share, diluted $0.31 $0.24 Cash dividends declared: Class A common stock $0.0500 $0.0500 Class B common stock $0.0070 $0.0070
4 of 16 5
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' Three months ended March 31, Stock Stock Capital Earnings Class A Class B Income (Loss) Equity ------------------------------------------------------------------------------------------- (000's) 1997 Balance at December 31, 1996 $3,488 $ 2,348 $10,786 $ 31,117 ($136) ($41) ($ 73) $ 47,489 Net income -- -- -- 1,376 -- -- -- 1,376 Other comprehensive income, net of tax: Decrease in unrealized gain on securities available-for-sale -- -- -- -- -- -- (329) (329) -------- Comprehensive income 1,047 Conversion of Class B common stock to Class A common stock, 7,700 shares 8 (8) -- -- -- -- -- -- Stock options exercised, 7,000 shares 7 -- 20 -- -- -- -- 27 Cash dividends, Class A common stock, $.050 per share -- -- -- (173) -- -- -- (173) Cash dividends, Class B common stock, $.0070 per share -- -- -- (16) -- -- -- (16) --------------------------------------------------------------------------------------- Balance at March 31, 1997 $3,503 $ 2,340 $10,806 $ 32,304 ($136) ($41) ($402) $ 48,374 ======================================================================================= 1998 Balance at December 31, 1997 $3,541 $ 2,327 $10,877 $ 37,180 ($136) ($41) $ 109 $ 53,857 Net income -- -- -- 1,802 -- -- -- 1,802 Other comprehensive income, net of tax: Decrease in unrealized gain on securities available-for-sale -- -- -- -- -- -- (135) (135) -------- Comprehensive income 1,667 Conversion of Class B common stock to Class A common stock, 25,200 shares 26 (26) -- -- -- -- -- -- Stock options exercised, 3,250 shares 3 -- 9 -- -- -- -- 12 Cash dividends, Class A common stock, $.050 per share -- -- -- (176) -- -- -- (176) Cash dividends, Class B common stock, $.0070 per share -- -- -- (16) -- -- -- (16) --------------------------------------------------------------------------------------- Balance at March 31, 1998 $3,570 $ 2,301 $10,886 $ 38,790 ($136) ($41) ($ 26) $ 55,344 =======================================================================================
5 of 16 6
Century Bancorp, Inc. - Consolidated Statements of Cash Flows (unaudited) 1998 1997 - ---------------------------------------------------------------------------------------------------------------- For the three months ended March 31, (000's) CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,802 $ 1,376 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 165 255 Deferred income taxes (195) (110) Net depreciation and amortization 133 147 Increase in accrued interest receivable (254) (591) Increase in other assets (146) (265) Loans originated for sale (1,283) (1,006) Proceeds from sales of loans 1,449 1,410 Gain on sales of loans (22) (21) Loss on sales of real estate owned 0 4 (Decrease) increase in other liabilities (6,770) 354 -------- -------- Net cash (used in) provided by operating activities (5,121) 1,553 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of securities available-for-sale 16,500 9,250 Purchase of securities available-for-sale (21,198) (11,299) Proceeds from maturities of securities held-to-maturity 26,500 1,500 Purchase of securities held-to-maturity (35,987) (6,925) Net increase in loans (3,114) (9,254) Proceeds from sales of real estate owned 0 180 Capital expenditures (416) (532) -------- -------- Net cash used in investing activities (17,715) (17,080) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net decrease in time deposits (5,353) (12,419) Net decrease in demand, savings, money market and NOW deposits (19,243) (12,513) Net proceeds from the issuance of common stock 12 27 Cash Dividends (192) (189) Net (decrease) increase in securities sold under agreements to repurchase (1,620) 2,190 Net (decrease) increase in FHLB borrowings and other borrowed funds (10,333) 9,121 -------- -------- Net cash used in financing activities (36,729) (13,783) -------- -------- Net decrease in cash and cash equivalents (59,565) (29,310) Cash and cash equivalents at beginning of year 97,892 67,681 -------- -------- Cash and cash equivalents at end of period $ 38,327 $ 38,371 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest $4,982 $3,708 Income taxes 332 602 Noncash transactions: Property acquired through foreclosure $130 $136 Change in unrealized losses on securities available-for-sale, net of taxes ($135) ($329)
6 of 16 7 Century Bancorp Inc. Notes to Consolidated Financial Statements BASIS OF PRESENTATION 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 Century Bancorp, Inc. (the "Company") and its wholly owned subsidiary, Century Bank and Trust Company (the "Bank"). The results of operations for the interim period ended March 31, 1998, are not necessarily indicative of results for the entire year. 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. The financial statements have been prepared in conformity with generally accepted accounting principles 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 agencies may require the Company to recognize additions to the allowance for loans based on their judgements about information available to them at the time of their examination. RECENT ACCOUNTING DEVELOPMENTS As of January 1, 1997, the Bank adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." This statement provides accounting and reporting standards for transfers and servicing of financial assets and extinguishment of liabilities based on consistent application of a financial-components approach that focuses on control. It distinguishes transfers of financial assets that are sales from transfers that are secured borrowings. Under the financial-components approach, after a transfer of financial assets, an entity recognizes all financial and servicing assets it controls and liabilities it has incurred and derecognizes financial assets it no longer controls and liabilities that have been extinguished. The financial-components approach focuses on assets and liabilities that exist after the transfer. Many of these assets and liabilities are components of financial assets that existed prior to the transfer. If a transfer does not meet the criteria for a sale, the transfer is accounted for as a secured borrowing with pledge of collateral. SFAS No. 127, "Deferral of the effective Date of Certain Provisions of SFAS No. 125," requires the deferral of 7 of 16 8 implementation as it relates to repurchase agreements, dollar-rolls, securities lending and similar transactions until after December 31, 1997. Earlier or retroactive applications of this statement is not permitted. The adoption of these statements did not have a material impact on its consolidated financial statements. In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting and displaying comprehensive income, which is defined as all changes to equity except investments by and distributions to shareholders. Net income is a component of comprehensive income, with all other components referred to in the aggregate as other comprehensive income. The Bank has adopted SFAS No. 130 effective for the current quarter. Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which establishes standards for reporting information about operating segments. An operating segment is defined as a component of a business for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and evaluate performance. This statement requires a company to disclose certain income statement and balance sheet information by operating segment, as well as provide a reconciliation of operating segment information to the company's consolidated balances. The Company has determined that the adoption of this statement did not have a significant impact on its consolidated financial statements. In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits--an amendment of FASB Statements No. 87, 88, and 106." This Statement revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. It standardizes the disclosure requirements for pensions and other postretirement benefits to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis, and eliminates certain disclosures that are no longer as useful as they were when FASB Statements No. 87, "Employers'Accounting for Pensions," No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits," and No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," were issued. The Statement suggests combined formats for presentation of pension and other postretirement benefit disclosures. This statement is effective for 1998 annual financial statements. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 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 8 of 16 9 regulation by applicable state and federal banking agencies, including the Federal Reserve Board, the Office of the Comptroller of the Currency (the "Comptroller") and the Federal Deposit Insurance Corporation (the "FDIC"). The Bank is also subject to various requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon, and limitations on the 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. 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 stockholders' equity, net of estimated related income taxes. 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 9 of 16 10 exists a concern as to the collectibility of principal and 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 cost or market value. Gain or loss on sales of loans is recognized at the time of sale when the sales proceeds exceed or are less than the Bank's investment in the loans. Additionally, gains and losses are recognized when the average interest rate on the loans sold, adjusted for normal servicing fee, differs from the agreed yield to the buyer. The resulting excess service fee receivables, if any, are amortized using the interest method over the estimated life of the loans, adjusted for estimated prepayments. Discounts and premiums on loans purchased from failed financial institutions that represent market yield adjustments are accreted or amortized to interest income over the estimated lives of the loans using the level-yield method. 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 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 homogeneous loans that are collectively evaluated for impairment, loans that are measured at fair value and leases and debt securities. 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 has 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 absorb losses resulting from loans which ultimately prove uncollectible. In determining the level of the allowance, periodic evaluations are made of the loan portfolio which take into account such factors as the character of the loans, loan status, financial posture of the borrowers, value of collateral securing the loans and other relevant information sufficient to reach an informed judgement. The allowance is increased by provisions charged to income and reduced by loan charge-offs, net of recoveries. While management uses available information in establishing the allowance for loan losses, future adjustments to the allowance may be 10 of 16 11 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. Management believes that the allowance for loan losses is adequate. In addition, various regulatory agencies, as part of their examination process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to recognize additions to the allowance based on their judgements about information available to them at the time of their examination. OTHER REAL ESTATE OWNED Other real estate owned ("OREO") includes real estate acquired by foreclosure and real estate substantively repossessed. Real estate acquired by foreclosure is comprised of properties acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure. Real estate substantively repossessed includes only those loans for which the Company has taken possession of the collateral, but has not completed legal foreclosure proceedings. Both in-substance foreclosures and real estate formally acquired in settlement of loans are recorded at the lower of the carrying value of the loan or the fair value of the property constructively or actually received. Loan losses from the acquisition of such properties are charged against the allowance for loan losses. After foreclosure, if the fair value of an asset minus its estimated cost to sell is less than the carrying value of the asset, such amount is recognized as a valuation allowance. If the fair value of an asset less its estimated cost to sell subsequently increases so that the resulting amount is more than the asset's current carrying value, the valuation allowance is reversed by the amount of the increase. Increases or decreases in the valuation allowance are charged or credited to income. Gains upon disposition of OREO are reflected in the statement of income as realized. Realized losses are charged to the valuation allowance. 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 terms 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 the 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 11 of 16 12 deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. RECENT DEVELOPMENTS In December 1997, the Company announced an agreement to acquire Haymarket Co-operative Bank ("Haymarket") and merge Haymarket into the Bank. This acquisition is expected to be completed during the second quarter of 1998. Haymarket operates two banking offices and is headquartered in Boston, Massachusetts. Haymarket is engaged principally in the business of attracting deposits from the general public and investing those deposits in residential real estate, consumer and small business loans. Total assets of Haymarket were approximately $142 million at December 31, 1997. Under the terms of the agreement, the Bank will pay approximately $20 million in cash for Haymarket. The transaction will be accounted for using the purchase method of accounting. In April 1998, the Company filed a registration statement with the Securities and Exchange Commission for a trust preferred stock offering that will raise approximately $25 million of capital. The Company will use the proceeds primarily for general business purposes. ======================================================== 12 of 16 13 ITEM 2 MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW For the quarter ended and year-to-date ended March 31, 1998. Earnings for the first quarter ended March 31, 1998 were $1.8 million, an increase of 31.0% when compared with the first quarter 1997 earnings of $1.4 million. Earnings per share for the first quarter 1998 were $0.31 versus $0.24 for the first quarter of 1997. FINANCIAL CONDITION LOANS On March 31, 1998 total loans outstanding, net of unearned discount, were $319.4 million, an increase of 1.0% from the total on December 31, 1997. At March 31, 1998 commercial real estate loans accounted for 43.9% and residential real estate loans and real estate loans held-for-sale accounted for 23.0% of total loans. Construction loans increased to $10.6 million at March 31, 1998 from $7.5 million at the end of the previous quarter. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses was 1.46% of total loans on March 31, 1998 compared with 1.41% on December 31, 1997. Net recoveries for the three month period ended March 31, 1998, were $63 thousand, compared with net charge-offs of $86 thousand for the same period in 1997. The allowance for loan losses is based on management's overview of the quality of the loan portfolio, previous loan loss experience and current economic conditions. As of March 31, 1998, loans on non-accrual status totaled $1.5 million or .48% of loans; loans past due 90 days or more totaled $130 thousand; restructured performing loans totaled $1.0 million. SECURITIES HELD-TO-MATURITY The securities held-to-maturity portfolio totaled $118.8 million on March 31, 1998, an increase of 8.8% from the total on December 31, 1997. The portfolio is concentrated in United States Treasury and Agency securities and had a weighted average maturity of 4.0 years. SECURITIES AVAILABLE-FOR-SALE The securities available-for-sale portfolio totaled $93.7 million at March 31, 1998, an increase of 5.1 % from December 31, 1997. The portfolio is concentrated in United States Treasury and Agency securities and had a weighted average maturity of 2.5 years. OTHER ASSETS On March 31 1998 other real estate owned totaled $130 thousand compared to $0 at December 31, 1997. 13 of 16 14 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION (con't.) DEPOSITS AND BORROWED FUNDS On March 31, 1998 deposits totaled $490.9 million, representing a 4.8% decrease in total deposits from December 31, 1997. Borrowed funds totaled $34.4 million compared to $46.3 million at December 31, 1997. The majority of the decrease was a decrease in borrowings from the Federal Home Loan Bank, partially offset by an increase in securities sold under agreements to repurchase. RESULTS OF OPERATIONS NET INTEREST INCOME For the three month period ended March 31, 1998 net interest income totaled $6.9 million, an increase of 13.3% from the comparable period in 1997. Interest income was affected positively by improvements in the interest earned in most categories of earning assets. This, in addition to a higher level of non-interest bearing transaction accounts, on average, and a continued low level of market deposit rates, compared to historical levels, has combined to improve the performance of the Company's balance sheet. The net yield on average earning assets on a fully taxable equivalent basis increased to 5.07% in the first quarter of 1998 from 4.90% during the same period in 1997. PROVISION FOR LOAN LOSSES Loan loss provision for the three months ended March 31, 1998 was $165 thousand compared with $255 thousand for the same period in 1997. Loan loss provision decreased because of continued improvement in the Company's loan portfolio. The lower provision reflects the Company's recent charge-off and recovery experience as well as the overall continued improvement in the measured quality of the loan portfolio. Despite the decrease in provision for loan losses and an increase in total loans outstanding from March 31, 1997 to March 31, 1998, the Company's loan loss allowance as a percentage of total loans outstanding has increased from 1.41% to 1.46%, respectively. NON-INTEREST INCOME AND EXPENSE Other operating income for the quarter ended March 31, 1998 was $1.2 million, compared to $1.1 million for the first quarter of 1997. Service charges on deposit accounts, gains on sales of loans and other income showed modest increases while brokerage commissions showed a modest decrease. Lockbox fees increased 26.6% due to an increase in lockbox volume relating to new customers. During the first quarter 1998, operating expenses increased by $442 thousand or 9.5% from the same quarter last year. Approximately half of 14 of 16 15 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION (con't.) The increase was in salaries and employee benefits with the remaining half in all other expenses. The Company has incurred expenses relating to increased professional fees for certain strategic initiatives. INCOME TAXES For the first quarter of 1998, the Company's income taxes totaled $1,062 thousand on pretax income of $2,864 thousand for an effective tax rate of 37.1%. For last year's corresponding quarter, the Company's income taxes totaled $934 thousand on pretax income of $2,310 thousand for an effective rate of 40.4%. The Company has begun to realize savings in this area as the result of strategic tax savings initiatives. ======================================================== ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The response is incorporated herein by reference from the discussion under the subcaption "Interest Rate Sensitivity" of the caption "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" on pages 7 through 10 of the Annual Report which is incorporated herein by reference. 15 of 16 16 PART II - OTHER INFORMATION Item 1 Legal proceedings - The Company is not engaged in any legal proceedings of a material nature at the present time. 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 Item 3 Defaults upon senior securities - Not applicable Item 4 Submission of matters to a vote - There was an annual meeting of the stockholders of the Company on April 14, 1998. The stockholders voted to elect the following individuals as directors of the Company for the ensuing year: George R. Baldwin; Roger S. Berkowitz; Karl E. Case, Ph.D.; Henry L. Foster, D.V.M.; Marshall I. Goldman, Ph.D.; Russell B. Higley, Esq.; Jonathan B. Kay; Fraser Lemley; Joseph P. Mercurio; Joseph J. Senna, Esq.; Barry R. Sloane; Jonathan G. Sloane; Marshall M. Sloane; Stephanie Sonnabend; George F. Swansburg; and Jon Westling. In addition, the stockholders of the Company voted to confirm KPMG Peat Marwick LLP as external auditors for the ensuing year. Item 5 Other information - Not applicable Item 6 Exhibits and reports on form 8-K - Not applicable 16 of 16 EX-27 2 FINANCIAL DATA SCHEDULE
9 0000812348 CENTURY BANCORP, INC. 1,000 U.S. DOLLARS 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 1 31,305 22 7,000 0 93,701 118,804 118,630 319,396 4,674 589,293 490,853 34,371 8,725 0 0 0 5,871 49,473 589,293 7,306 3,267 361 10,934 3,689 4,080 6,854 165 0 5,072 2,864 2,864 0 0 1,802 .31 .31 5.07 1,520 130 1,021 3,199 4,446 85 148 4,674 4,674 0 0
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