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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended DECEMBER 31, 2001
-------------------------------------------------
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 number)
400 MYSTIC AVENUE, MEDFORD, MA 02155
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (781) 391-4000
-----------------------------
Securities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, $1.00 PAR VALUE
-------------------------------------
(Title of class)
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 by check mark if disclosure of delinquent filers pursuant to item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. | |
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant as of February 28, 2002:
$6,447,083
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of February 28,2002:
CLASS A COMMON STOCK, $1.00 PAR VALUE 3,391,020 SHARES
CLASS B COMMON STOCK, $1.00 PAR VALUE 2,124,730 SHARES
i
CENTURY BANCORP INC.
FORM 10-K
TABLE OF CONTENTS
PAGE
PART I
ITEM 1 BUSINESS 1-8
ITEM 2 PROPERTIES 8
ITEM 3 LEGAL PROCEEDINGS 8
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY 9
HOLDERS
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED 9-10
STOCKHOLDER MATTERS
ITEM 6 SELECTED FINANCIAL DATA 10
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 10
CONDITION AND RESULTS OF OPERATIONS
ITEM 7a QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET 10
RISK
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 10
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 10
ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 39-41
ITEM 11 EXECUTIVE COMPENSATION AND OTHER INFORMATION 41-45
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 46
AND MANAGEMENT
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 47
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND 47-48
REPORTS ON FORM 8-K
SIGNATURES 49
ii
PART I
ITEM 1. BUSINESS
THE COMPANY
Century Bancorp, Inc. (together with its bank subsidiary, unless the context
otherwise requires, the "Company"), is a Massachusetts state chartered bank
holding company headquartered in Medford, Massachusetts. The Company is a
Massachusetts corporation formed in 1972 and has one banking subsidiary (the
"Bank"): Century Bank and Trust Company formed in 1969. The Company had total
assets of $1.27 billion on December 31, 2001. The Company presently operates 18
banking offices in 16 cities and towns in Massachusetts ranging from Braintree
to Peabody. The Banks' customers consist primarily of small and medium-sized
businesses and retail customers in these communities and surrounding areas, as
well as local governments throughout Massachusetts.
On June 11, 1998, the Company acquired Haymarket Co-operative Bank
("Haymarket"), headquartered in Boston, Massachusetts, and merged Haymarket into
the Bank. The purchase price paid by the Company to the shareholders of
Haymarket was $21.1 million in cash and the transaction was accounted for using
the purchase method of accounting. The results of operations for 1998 include
the effect of the Haymarket acquisition for the period beginning June 12, 1998.
In May 1998, the Company, through its newly formed subsidiary, Century Bancorp
Capital Trust, issued 2,875,000 shares of Cumulative Trust Preferred Securities
with a liquidation value of $10 per share. These securities pay dividends at an
annualized rate of 8.30%. The Company used the proceeds for general business
purposes.
The Company offers a wide range of services to commercial enterprises, state and
local governments and agencies, and individuals. It emphasizes service to small
and medium-sized businesses and retail customers in its market area. The Company
makes commercial loans, real estate and construction loans, consumer loans, and
accepts savings, time, and demand deposits. In addition, the Company offers to
its corporate customers automated lock box collection services, cash management
services and account reconciliation services, and actively promotes the
marketing of these services to the municipal market. Also, the Company provides
full service securities brokerage services through its subsidiary, Century
Financial Services, Inc. in conjunction with Commonwealth Equity Services, Inc.,
a full service securities brokerage business.
The Company is also a provider of financial services including cash management,
transaction processing, short term financing and intermediate term leasing to
municipalities in Massachusetts. The Company has deposit relationships with
approximately 30% of the 351 cities and towns in Massachusetts.
-1-
The following table summarizes the remaining maturity distribution of certain
components of the Company's loan portfolio on December 31, 2001. The table
excludes loans secured by one-to-four family residential real estate and loans
for household family and other personal expenditures. Maturities are presented
as if scheduled principal amortization payments are due on the last contractual
payment date.
Remaining Maturities of Selected Loans at December 31, 2001
-----------------------------------------------------------
One Year One to Five Over
or Less Years Five Years Total
-------- ----------- ---------- ---------
(In Thousands)
Construction and land development $25,202 $ 8,504 $ 5,550 $ 39,256
Commercial and industrial 10,472 23,715 24,975 59,162
Industrial revenue bonds 0 48 0 48
Commercial real estate 22,857 120,772 97,790 241,419
------- -------- -------- --------
Total $58,531 $153,039 $128,315 $339,885
======= ======== ======== ========
The following table indicates the rate variability of the above loans due after
one year.
December 31, 2001
-----------------
One to Five Over
Years Five Years Total
----------- ---------- --------
(In Thousands)
Predetermined interest rates $127,095 $ 10,753 $137,848
Floating or adjustable interest rates 25,944 117,562 143,506
-------- -------- --------
Total $153,039 $128,315 $281,354
======== ======== ========
Individual loan officers have designated lending authorities established by the
Board of Directors, with larger loans requiring a second approval. The Bank has
an Executive Committee of its Board of Directors which meets monthly and reviews
all credits above a specified size. In addition, the Company has an Executive
Management Committee which meets bi-monthly and monitors the Company's lending
policies and practices. The members of the Executive Management Committee are:
Marshall M. Sloane, Chairman, President and CEO; Jonathan G. Sloane, Executive
Vice President; Paul V. Cusick, Jr., Vice President and Treasurer; all of the
Company, and David B. Woonton, Paul A. Evangelista and William J. Sloboda, all
Executive Vice Presidents of the Bank.
The Company's commercial and industrial (C&I) loan customers represent various
small and middle market established businesses involved in manufacturing,
distribution, retailing and services. Most clients are privately owned with
markets that range from local to national in scope. Many of the loans to this
segment are secured by liens on corporate assets and the personal guarantees of
the principals. The Bank has placed greater emphasis on building its C&I base in
the future. The regional economic strength or weakness impacts the relative
risks in this loan category. There is little concentration to any one business
sector and loan risks are generally diversified among many borrowers.
Commercial real estate loans are extended to finance various manufacturing,
warehouse, light industrial, office, retail and residential properties in the
Banks's market area, which generally includes Eastern Massachusetts and Southern
New Hampshire. Loans are normally extended in amounts up to a maximum of 80% of
appraised value and normally for terms between three to five years. Amortization
schedules are long-term and thus a balloon payment is due at maturity. Under
most circumstances, the Bank will offer to re-write or otherwise extend the loan
at prevailing interest rates. During recent years, the Bank has emphasized
non-residential type owner-occupied properties. This compliments our C&I
emphasis placed on the operating business entities and will be continued. The
regional economic environment affects the risk of both non-residential and
residential mortgages.
Residential real estate (1-4 family) includes two categories of loans.
Approximately $7 million of loans are classified as "Commercial and Industrial"
type loans secured by 1-4 family real estate. Primarily, these are small
businesses with modest capital or shorter operating histories where the
collateral mitigates some risk.
-2-
This category of loans shares similar risk characteristics with the C&I loans,
notwithstanding the collateral position. The balance of loans in this category
are mostly 1-4 family residential properties located in the Bank's market area.
General underwriting criteria are largely the same as those used by Fannie Mae
but normally only one or three year adjustable interest rates are used. The Bank
utilizes mortgage insurance to provide lower down payment products and has
provided a "First Time Homebuyer" product to encourage new home ownership.
Residential real estate loan volume has increased and remains a core consumer
product. The economic environment impacts the risks associated with this
category. This year, the economy has deteriorated, and the market has generally
been volatile.
Home equity loans are extended as both first and second mortgages on owner
occupied residential properties in the Bank's market area. Loans are
underwritten to a maximum loan to property value of 75%.
The Bank intends to maintain a market for construction loans, principally for
smaller local residential projects or an owner occupied commercial project.
Individual consumer residential home construction loans are also extended on a
similar basis.
Bank officers evaluate the feasibility of construction projects, based on
independent appraisals of the project, architects or engineers evaluations of
the cost of construction, and other relevant data. As of December 31, 2001, the
Company was obligated to advance a total of $25.6 million to complete projects
under construction.
On December 31, 2001, approximately 52.2% of the Company's loan portfolio
consisted of commercial real estate loans. Construction loans had increased to
8.5% of the Company's outstanding loans.
At December 31, 2001, the Company's residential mortgage loans amounted to $88.4
million. The Company's consumer and other loan portfolio amounted to $34.4
million at December 31, 2001, primarily consisting of home equity loans of $26
million and personal lines of credit, motor vehicle loans and other installment
loans of $7.7 million.
NONPERFORMING ASSETS AND ALLOWANCE FOR POSSIBLE LOAN LOSSES
Loans are placed on nonaccrual status when any payment of principal and/or
interest is 90 days or more past due, unless the collateral is sufficient to
cover both principal and interest and the loan is in the process of collection.
The Company monitors closely the performance of its loan portfolio. In addition
to internal loan review, the Company has contracted with an independent
organization to review the Company's commercial and commercial real estate loan
portfolios. This independent review was performed in each of the past five
years. The status of delinquent loans, as well as situations identified as
potential problems, are reviewed on a regular basis by senior management and
monthly by the Board of Directors of the Bank.
The relatively low level of nonperforming assets of $423 thousand in 2001 and
$110 thousand in 2000 resulted from a reduction in new additions to
nonperforming assets during the year combined with an improvement in the
resolution of nonperforming assets including payments on nonperforming loans.
In addition to the above, the Company is monitoring closely $4.1 million of
loans for which management has concerns regarding the ability of the borrowers
to perform. The majority of the loans are secured by real estate and are
considered to have adequate collateral value to cover the loan balances at
December 31, 2001, although such values can fluctuate with changes in the
economy and the real estate market.
The balance of impaired loans were $1.1 million at December 31, 2001. There were
no impaired loans with specific reserves at December 31, 2001 and 2000 because,
in the opinion of management, none required a specific reserve. All impaired
loans have been measured using the fair value of the collateral method.
-3-
The Company maintains an allowance for loan losses in an amount determined by
management on the basis of the character of the loans, loan performance, the
financial condition of borrowers, the value of collateral securing loans and
other relevant factors. The following table summarizes the changes in the
Company's allowance for loan losses for the years indicated.
Year Ended December 31,
-----------------------
2001 2000 1999 1998 1997
-------- -------- --------- -------- --------
(Dollars in Thousands)
Year end loans outstanding
(net of unearned discount) $462,772 $439,563 $ 422,725 $395,903 $316,390
======== ======== ========= ======== ========
Average loans outstanding
(net of unearned discount) $443,395 $434,780 $ 405,794 $358,498 $304,147
======== ======== ========= ======== ========
Balance of allowance for
loan losses at
beginning of year $ 5,662 $ 7,646 $ 6,022 $ 4,446 $ 4,179
-------- -------- --------- -------- --------
Loans charged-off:
Commercial 27 3,522 81 316 25
Construction and land development 0 0 0 0 0
Commercial real estate 343 0 61 21 48
Residential real estate 12 0 14 0 363
Consumer 55 139 315 506 253
-------- -------- --------- -------- --------
Total loans charged-off 437 3,661 470 843 689
-------- -------- --------- -------- --------
Recoveries of loans previously
charged-off:
Commercial 154 26 197 21 76
Real estate 184 195 393 367 162
Consumer 49 31 30 37 58
-------- -------- --------- -------- --------
Total recoveries of loans
previously charged-off 387 252 619 425 296
-------- -------- --------- -------- --------
Net loan charge-offs (recoveries) 50 3,409 (149) 418 393
Additions to allowance charged to
operating expense 1,500 1,425 1,475 800 660
Acquired allowance 0 0 0 1,194 0
-------- -------- --------- -------- --------
Balance at end of year $ 7,112 $ 5,662 $ 7,646 $ 6,022 $ 4,446
======== ======== ========= ======== ========
Ratio of net charge-offs during
the year to average loans
outstanding 0.01% 0.78% (0.04%) .12% .13%
======== ======== ========= ======== ========
Ratio of allowance for
loan losses to loans
outstanding 1.54% 1.29% 1.81% 1.52% 1.41%
======== ======== ========= ======== ========
At December 31, 2001, nonperforming assets were $0.4 million or 0.09% of loans
and related assets. The increase ratio of allowance for loan loss to loans for
1999, reflects increased provisions associated with the deterioration of one
borrower's credit quality whose total relationship amounted to $4.1 million.
Management placed this credit to nonaccrual status during the fourth quarter of
1999 and subsequently charged off $3.5 million of this loan during the first
quarter of 2000. These provisions are the result of management's evaluation of
the quality of the loan portfolio considering such factors as loan status,
collateral values, financial condition of the borrower, the state of the economy
and other relevant information.
While the Company expects a similar level of charge-offs in future periods, the
pace of the charge-offs depends on many factors including the national and
regional economy. Cyclical lagging factors may result in charge-offs being
higher than historical levels.
-4-
The allowance for loan losses is an estimate of the amount needed for an
adequate reserve to absorb losses in the existing loan portfolio. This amount is
determined by an evaluation of the loan portfolio including input from an
independent organization engaged to review selected larger loans, a review of
loan loss experience and current economic conditions. At December 31, the
allowance was comprised of the following components.
2001 2000 1999 1998 1997
---------------- ---------------- ---------------- ---------------- ----------------
Percent Percent Percent Percent Percent
of of of of of
loans in loans in loans in loans in loans in
each each each each each
category category category category category
Balance at end of to total to total to total to total to total
period applicable to Amount loans Amount loans Amount loans Amount loans Amount loans
- -------------------- ------ -------- ------ -------- ------ -------- ------ -------- ------ --------
(Dollars in Thousands)
Construction and land development $ 605 8.5% $ 285 5.0% $ 441 5.1% $ 361 5.5% $ 104 2.4%
Commercial and industrial 1,257 12.8 1,200 21.8 2,846 18.3 912 16.4 716 16.0
Industrial revenue bonds 0 0.0 1 0.0 1 0.0 6 0.2 17 0.9
Commercial real estate 3,786 52.2 1,923 47.6 2,951 49.5 2,737 47.3 2,138 44.3
Residential real estate 955 19.1 726 18.5 867 19.6 1,296 22.1 846 24.1
Consumer 173 1.7 1,290 2.2 325 2.9 508 3.6 402 6.1
Home equity 336 5.6 230 4.8 209 4.5 197 4.8 214 6.0
Overdrafts 0 0.1 7 0.1 6 0.1 5 0.1 9 0.2
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
$7,112 100.0% $5,662 100.0% $7,646 100.0% $6,022 100.0% $4,446 100.0%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
-5-
BORROWED FUNDS
Federal Home Loan Bank Borrowings
A summary of borrowings from the Federal Home Loan Bank of Boston ("FHLB") is as
follows:
(Dollars in thousands)
December 31,
---------------------------------------------------------------------------------------------------
2001 2000 1999
-------------------------------- ----------------------------- ----------------------------
Weighted Weighted Weighted
Average Average Average
Amount Rate Amount Rate Amount Rate
------------- -------------- --------- ------------ --------- -------------
Within 1 year $ 48,000 2.11% -- 0.00% $ 60,000 5.60%
Over 1 year to 2 years -- 0.00% $ 2,000 6.76% -- 0.00%
Over 2 years to 3 years 5,000 1.99% -- 0.00% -- 0.00%
Over 3 years to 5 years 1,284 7.20% -- 0.00% -- 0.00%
Over 5 years 86,000 5.53% 72,331 5.87% 54,375 5.32%
-------- ---- ------- ---- -------- ----
Total $140,284 4.22% $74,331 5.89% $114,375 5.47%
======== ======= ========
OTHER SERVICES
In addition to fees derived from traditional banking activities such as loan
origination fees, the Company derives revenues from its automated lock box
collection system and full service securities brokerage offered through
Commonwealth Equity Services, Inc., an unaffiliated registered securities
broker-dealer and investment adviser.
Under the lock-box program, which is not tied to extensions of credit by the
Company, the Company's customer arranges for payments of its accounts receivable
to be made directly to the Company. The Company records on its computer the
amounts paid to its customers, deposits the funds to the customer's account with
the Company and provides computerized records of the amounts received to the
Company's customers. Typical customers for the lock box service are
municipalities, who use it to automate tax collections, cable TV companies, and
other commercial enterprises.
Through Commonwealth Equity Services, Inc., the Bank provides full service
securities brokerage services. Registered representatives employed by the Bank
offer investment advice, execute transactions and assist customers in financial
and retirement planning. Commonwealth Equity Services, Inc. provides research to
and supervises representatives in exchange for payment by the Bank for a fixed
fee and a share in the commission revenues.
-6-
EMPLOYEES
As of December 31, 2001, the Company had 261 full-time and 109 part-time
employees. The Company's employees are not represented by any collective
bargaining unit. The Company believes that its employee relations are good.
FINANCIAL SERVICES MODERNIZATION
On November 12, 1999, President Clinton signed into law The Gramm-Leach-Bliley
Act ("Gramm-Leach") which significantly altered banking laws in the United
States. Gramm Leach enables combinations among banks, securities firms and
insurance companies beginning March 11, 2000. As a result of Gramm Leach, many
of the depression-era laws which restricted these affiliations and other
activities which may be engaged in by banks and bank holding companies, were
repealed. Under Gramm-Leach, bank holding companies are permitted to offer their
customers virtually any type of financial service that is financial in nature or
incidental thereto, including banking, securities underwriting, insurance (both
underwriting and agency) and merchant banking.
In order to engage in these new financial activities, a bank holding company
must qualify and register with the Federal Reserve Board as a "financial holding
company" by demonstrating that each of its bank subsidiaries is "well
capitalized," "well managed," and has at least a "satisfactory" rating under the
Community Reinvestment Act of 1977 ("CRA"). The Company has not elected to
become a financial holding company under Gramm-Leach.
These new financial activities authorized by Gramm-Leach may also be engaged in
by a "financial subsidiary" of a national or state bank, except for insurance or
annuity underwriting, insurance company portfolio investments, real estate
investment and development and merchant banking, which must be conducted in a
financial holding company. In order for the new financial activities to be
engaged in by a financial subsidiary of a national or state bank, Gramm-Leach
requires each of the parent bank (and its sister-bank affiliates) to be well
capitalized and well managed; the aggregate consolidated assets of all of that
bank's financial subsidiaries may not exceed the lesser of 45% of its
consolidated total assets or $50 billion; the bank must have at least a
satisfactory CRA rating; and, if that bank is one of the 100 largest banks, it
must meet certain financial rating or other comparable requirements.
Gramm-Leach establishes a system of functional regulation, under which the
federal banking agencies will regulate the banking activities of financial
holding companies and banks' financial subsidiaries, the U.S. Securities and
Exchange Commission will regulate their securities activities, and state
insurance regulators will regulate their insurance activities. Gramm-Leach also
provides new protections against the transfer and use by financial institutions
of consumers' nonpublic, personal information.
HOLDING COMPANY REGULATION
The Company is a bank holding company as defined by the Bank Holding Company Act
of 1956, as amended (the "Holding Company Act") and is registered as such with
the Board of Governors of the Federal Reserve System (the "FRB"), which is
responsible for administration of the Holding Company Act. Although the Company
may meet the qualifications for electing to become a financial holding company
under Gramm-Leach, the Company has elected to retain its pre-Gramm-Leach status
for the present time under the Holding Company Act. As required by the Holding
Company Act, the Company files with the FRB an annual report regarding its
financial condition and operations, management and intercompany relationships of
the Company and the Bank. It is also subject to examination by the FRB and must
obtain FRB approval before ( i ) acquiring direct or indirect ownership or
control of more than 5% of the voting stock of any bank, unless it already owns
or controls a majority of the voting stock of that bank, (ii) acquiring all or
substantially all of the assets of a bank, except through a subsidiary which is
a bank, or (iii) merging or consolidating with any other bank holding company. A
bank holding company must also give the FRB prior written notice before
purchasing or redeeming its equity securities, if the gross consideration for
the purchase or redemption, when aggregated with the net consideration paid by
the company for all such purchases or redemptions during the preceding 12
months, is equal to 10% or more of the Company's consolidated net worth.
The Holding Company Act prohibits a bank holding company, with certain
exceptions, from (i ) acquiring direct or indirect ownership or control of any
voting shares of any company which is not a bank or a bank holding company, or
(ii) engaging in any activity other than managing or controlling banks, or
furnishing services to or performing services for its subsidiaries. A bank
holding company may own, however, shares of a company engaged in activities
which the FRB has determined are so closely related to banking or managing or
controlling banks as to be a proper incident thereto.
-7-
The Company and its subsidiaries are examined by federal and state regulators.
The FRB has responsibility for holding company activities and performed a review
in 2001.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
On December 19, 1991, the FDIC Improvement Act of 1991 (the "1991 Act") was
enacted. This legislation sought to recapitalize the Bank Insurance Fund of the
FDIC ("BIF"), which had been severely depleted as a result of the larger members
of failed banks. The recapitalization continues to be funded through, among
other things, increased deposit insurance assessments payable by BIF-insured
institutions, which increases the cost of doing business by all BIF-insured
institutions, including the Bank. The 1991 Act also provides for, among other
things: enhanced federal supervision of depository institutions, including
greater authority for the appointment of a conservator or receiver for
undercapitalized institutions; the establishment of risk-based deposit insurance
premiums; a requirement that the federal banking agencies amend their risk-based
capital requirements to include components for interest-rate risk, concentration
of credit risk, and the risk of nontraditional activities; expanded authority
for cross-industry mergers and acquisitions; mandated consumer protection
disclosures with respect to deposit accounts; and imposed restrictions on the
activities of state-chartered banks, including the Bank.
Provisions of the 1991 Act relating to the activities of state-chartered banks
significantly impact the way the Company conducts its business. In this regard,
the 1991 Act provides that insured state banks, such as the Bank, may not engage
as principal in any activity that is not permissible for a national bank, unless
the FDIC has determined that the activity would pose no significant risk to the
BIF and the state bank is in compliance with applicable capital standards.
Activities of subsidiaries of insured state banks are similarly restricted to
those activities permissible for subsidiaries of national banks, unless the FDIC
has determined that the activity would pose no significant risk to the BIF and
the state bank is in compliance with applicable capital standards.
INTERSTATE BANKING
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, as
amended (the "Interstate Banking Act") generally permits bank holding companies
to acquire banks in any state and preempts all state laws restricting the
ownership by a bank holding company of banks in more than one state. The
Interstate Banking Act also permits a bank to merge with an out-of-state bank
and convert any offices into branches of the resulting bank if both states have
not opted out of interstate branching; permits a bank to acquire branches from
an out-of-state bank if the law of the state where the branches are located
permits the interstate branch acquisition; and operated de novo interstate
branches whenever the host state opts-in to de novo branching. Bank holding
companies and banks seeking to engage in transactions authorized by the
Interstate Banking Act must be adequately capitalized and managed.
COMPETITION
The Company experiences substantial competition in attracting deposits and
making loans from commercial banks, thrift institutions and other enterprises
such as insurance companies and mutual funds. These competitors include several
major commercial banks whose greater resources may afford them a competitive
advantage by enabling them to maintain numerous branch offices and mount
extensive advertising campaigns. A number of these competitors are not subject
to the regulatory oversight that the Company is subject to, which increases
these competitors' flexibility.
ITEM 2. PROPERTIES
The Company owns its main banking office, headquarters, and operations center in
Medford, and 12 of the 17 other facilities in which its branch offices are
located. The remaining offices are occupied under leases expiring on various
dates from 2002 to 2026.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are parties to various claims and lawsuits
arising in the course of their normal business activities. Although the ultimate
outcome of these suits cannot be ascertained at this time, it is the opinion of
management that none of these matters, even if it resolved adversely to the
Company, will have a material adverse effect on the Company's consolidated
financial position.
-8-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's Stockholders during the
fourth quarter of the fiscal year ended December 31, 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) The Class A Common Stock of the Company is traded on the NASDAQ
National Market system under the symbol "CNBKA." The price range of
the Company's Class A common stock since January 1, 2000 is shown on
page 11. The Class B Common Stock is not traded on NASDAQ or any
other national securities exchange.
Generally speaking, the shares of Class A Common Stock are not
entitled to vote on any matter, including in the election of Company
Directors, but, in limited circumstances, may be entitled to vote as
a class on certain extraordinary transactions, including any merger
or consolidation (other than one in which the Company is the
surviving corporation or one which by law may be approved by the
directors without any stockholder vote) or the sale, lease, or
exchange of all or substantially all of the property and assets of
the Company. Since the vote of a majority of the shares of Class B
Common Stock, voting as a class, is required to approve certain
extraordinary corporate transactions, the holders of Class B Common
Stock have power to prevent any takeover of the Company not approved
by them.
(b) Approximate number of equity security holders as of December 31,
2001.
Approximate Number
Title of Class of Record Holders
Class A Common Stock 314
Class B Common Stock 47
(c) Under the Company's Articles of Organization, the holders of the
Class A Common Stock are entitled to receive dividends per share
equal to at least 200% of that paid, if any, from time to time, on
each share of Class B Common Stock.
-9-
The following table shows the dividends paid by the Company on
the Class A and Class B Common Stock for the periods
indicated.
Dividends Per Share
Class A Class B
------- -------
1999
First quarter $ .060 $ .0170
Second quarter .080 .0370
Third quarter .080 .0370
Fourth quarter .080 .0370
2000
First quarter $ .080 $ .0370
Second quarter .080 .0370
Third quarter .080 .0370
Fourth quarter .090 .0450
2001
First quarter $ .090 $ .0450
Second quarter .090 .0450
Third quarter .090 .0450
Fourth quarter .100 .0500
As a bank holding company, the Company's ability to pay dividends is
dependent in part upon the receipt of dividends from the Bank, which
is subject to certain restrictions on the payment of dividends. A
Massachusetts trust company may pay dividends out of net profits
from time to time, provided that either (i) the trust company's
capital stock and surplus account equal an aggregate of at least 10%
of its deposit liabilities, or (ii) the amount of its surplus
account is equal to at least the amount of its capital account.
ITEM 6. SELECTED FINANCIAL DATA
The information required herein is shown on page 11 and 12.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information required herein is shown on pages 13 through 18.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required herein is shown on page 17 and 18.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required herein is shown on pages 19 through 38.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-10-
FINANCIAL HIGHLIGHTS
2001 2000 1999
---------- ---------- ----------
(dollars in thousands, except share data)
YEAR-END
Total assets $1,271,022 $1,083,830 $ 925,533
Total loans 462,772 439,563 422,725
Total deposits 888,408 793,796 643,673
Total stockholders' equity 84,599 71,506 60,296
YEARLY AVERAGES
Total assets $1,058,924 $ 949,015 $ 860,501
Total earning assets 978,371 882,545 801,092
Total securities available-for-sale 330,217 267,633 229,739
Total securities held-to-maturity 151,975 165,970 157,706
Total loans 443,395 434,780 405,794
Total deposits 767,574 681,486 624,428
Total borrowed funds 166,083 163,944 134,625
Total stockholders' equity 79,279 63,424 61,610
EARNINGS
Net income $ 10,859 $ 10,205 $ 9,105
Net interest income, taxable equivalent 39,800 35,488 32,561
Other operating income 8,863 7,234 5,603
Operating expenses 30,025 25,638 22,655
PERFORMANCE MEASURES
Earnings per share, basic $ 1.96 $ 1.82 $ 1.57
Earnings per share, diluted $ 1.96 $ 1.82 $ 1.56
Return on average stockholders' equity 13.70% 16.09% 14.78%
Book value per share at December 31 $ 15.34 $ 12.88 $ 10.63
Return on average assets 1.03% 1.08% 1.06%
Efficiency ratio 61.7% 60.6% 59.4%
COMMON SHARE DATA
Average shares outstanding, basic 5,535,309 5,597,136 5,791,858
Average shares outstanding, diluted 5,541,745 5,597,629 5,818,633
Shares outstanding at year-end 5,515,350 5,550,350 5,670,600
PER SHARE DATA
2001, QUARTER ENDED DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
- ------------------- ------------ ------------- -------- ---------
Market price range (Class A)
High $ 21.79 $ 24.30 $ 20.60 $ 19.125
Low 19.20 18.55 17.10 14.625
Dividends Class A 0.10 0.09 0.09 0.09
Dividends Class B 0.05 0.045 0.045 0.045
2000, QUARTER ENDED DECEMBER 31, SEPTEMBER 30, JUNE 30, MARCH 31,
- ------------------- ------------ ------------- -------- ---------
Market price range (Class A)
High $ 15.00 $ 14.87 $ 14.75 $ 16.50
Low 13.438 11.875 12.00 12.938
Dividends Class A 0.09 0.08 0.08 0.08
Dividends Class B 0.045 0.037 0.037 0.037
-11-
FINANCIAL HIGHLIGHTS
2001 2000 1999 1998 1997
---------- ---------- ----------- ---------- ----------
(dollars in thousands except share data)
FOR THE YEAR
Interest income $ 67,459 $ 66,554 $ 58,819 $ 51,878 $ 41,216
Interest expense 27,701 31,092 26,284 22,015 15,922
---------- ---------- ----------- ---------- ----------
Net interest income 39,758 35,462 32,535 29,863 25,294
Provision for loan losses 1,500 1,425 1,475 800 660
---------- ---------- ----------- ---------- ----------
Net interest income after
provision for loan losses 38,258 34,037 31,060 29,063 24,634
Other operating income 8,863 7,234 5,603 5,230 4,994
Operating expenses 30,025 25,638 22,655 21,326 18,600
---------- ---------- ----------- ---------- ----------
Income before income taxes 17,096 15,633 14,008 12,967 11,028
Provision for income taxes 6,237 5,428 4,903 4,862 4,205
---------- ---------- ----------- ---------- ----------
Net income $ 10,859 $ 10,205 $ 9,105 $ 8,105 $ 6,823
---------- ---------- ----------- ---------- ----------
Average shares outstanding, basic 5,535,309 5,597,136 5,791,858 5,806,445 5,772,135
Average shares outstanding, diluted 5,541,745 5,597,629 5,818,633 5,847,444 5,830,910
Earnings per share:
Basic $ 1.96 $ 1.82 $ 1.57 $ 1.40 $ 1.18
Diluted $ 1.96 $ 1.82 $ 1.56 $ 1.39 $ 1.17
Dividend payout ratio 15.2% 14.5% 15.0% 10.3% 11.1%
AT YEAR-END
Assets $1,271,022 $1,083,830 $ 925,533 $ 853,326 $ 631,125
Loans 462,772 439,563 422,725 395,903 316,390
Deposits 888,408 793,796 643,673 643,425 515,449
Stockholders' equity 84,599 71,506 60,296 61,051 53,857
Book value per share $ 15.34 $ 12.88 $ 10.63 $ 10.49 $ 9.30
SELECTED FINANCIAL PERCENTAGES
Return on average assets 1.03% 1.08% 1.06% 1.13% 1.20%
Return on average stockholders' equity 13.70% 16.09% 14.78% 14.09% 13.56%
Net yield on average earning assets,
taxable equivalent 4.06% 4.02% 4.07% 4.52% 4.99%
Net charge-offs (recoveries) as a percent
of average loans 0.01% 0.78% (0.04%) 0.12% 0.13%
Average stockholders' equity to
average assets 7.49% 6.68% 7.16% 7.99% 8.88%
-12-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
OVERVIEW
Century Bancorp, Inc. (the "Company") had net income of $10,859,000 for the year
ended December 31, 2001, compared with net income of $10,205,000 for year ended
December 31, 2000 and net income of $9,105,000 for the year ended December 31,
1999. Basic earnings per share were $1.96 in 2001 compared to $1.82 in 2000 and
$1.57 in 1999. Diluted earnings per share were $1.96 in 2001 compared to $1.82
in 2000 and $1.56 in 1999.
Total assets were $1,271,022,000 at December 31, 2001, an increase of 17.3% from
total assets of $1,083,830,000 on December 31, 2000, which, in turn, were 17.1%
higher than total assets of $925,533,000 on December 31, 1999.
On December 31, 2001, stockholders' equity totaled $84,599,000 compared with
$71,506,000 on December 31, 2000, and $60,296,000 on December 31, 1999. Book
value per share increased to $15.34 at December 31, 2001 from $12.88 on December
31, 2000, which had increased from $10.63 on December 31, 1999.
During the year the Company opened two new branch locations in Brookline and
Newton, Massachusetts. The Brookline branch was opened during January 2001 and
the Newton branch was opened during April 2001. The Company also opened a second
lockbox processing center in Worcester, Massachusetts in October 2001. The new
lockbox facility has added capacity and has begun to contribute to the
operations of the Company.
During the third quarter of 2001, the Company announced plans to continue its
stock repurchase plan. Under the program, the Company is authorized to
repurchase up to 300,000 shares, or less than 9%, of Century Bancorp Class A
Common Stock. Through December 31, 2001, 25,000 shares have been repurchased
under this program. The program expires on July 15, 2002.
On June 11, 1998, the Company acquired Haymarket Co-operative Bank
("Haymarket"), headquartered in Boston, Massachusetts, and merged Haymarket into
Century Bank and Trust Company (the "Bank"). The purchase price paid by the
Company to the shareholders of Haymarket was $21.1 million in cash and the
transaction was accounted for using the purchase method of accounting. The
results of operations include the effect of the Haymarket acquisition for the
period beginning June 12, 1998.
In May 1998 the Company, through its newly formed subsidiary, Century Bancorp
Capital Trust, issued 2,875,000 shares of Cumulative Trust Preferred Securities
with a liquidation value of $10 per share. These securities pay dividends at an
annualized rate of 8.30%. The Company is using the proceeds for general business
purposes.
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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 years indicated.
December 31, 2001 December 31, 2000 December 31, 1999
------------------------------- ------------------------------ ------------------------------
Rate Rate Rate
Average Interest Earned Average Interest Earned Average Interest Earned
Balance Income(1) (1) Balance Income(1) (1) Balance Income(1) (1)
---------- -------- ------ -------- -------- ------ -------- -------- ------
(dollars in thousands)
ASSETS
Interest-earning assets:
Loans(2) $ 443,395 $36,853 8.31% $434,780 $39,206 9.02% $405,794 $35,720 8.80%
Securities
available-for-sale:
Taxable 328,351 19,040 5.80% 266,759 16,050 6.02% 229,015 13,441 5.87%
Tax-exempt 1,866 111 5.95% 874 57 6.52% 724 34 4.70%
Securities
held-to-maturity:
Taxable 151,975 9,381 6.17% 165,970 10,379 6.25% 157,696 9,261 5.87%
Tax-exempt -- -- 0.00% -- -- 0.00% 10 1 10.00%
Federal funds sold 52,768 2,116 4.01% 14,156 888 6.27% 7,786 385 4.94%
Interest bearing deposits
in other banks 16 -- 3.12% 6 -- 0.00% 67 3 4.48%
---------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-
earning assets $ 978,371 $67,501 6.90% $882,545 $66,580 7.54% $801,092 $58,845 7.35%
Non interest-earning
assets 87,135 72,151 65,903
Allowance for loan losses (6,582) (5,681) (6,494)
---------- ------- ---- -------- ------- ---- -------- ------- ----
Total assets $1,058,924 $949,015 $860,501
---------- ------- ---- -------- ------- ---- -------- ------- ----
(1) On a fully taxable equivalent basis calculated using a federal tax rate of
35%.
(2) Nonaccrual loans are included in average amounts outstanding.
-13-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
December 31, 2001 December 31, 2000 December 31, 1999
----------------------------- ------------------------------ -----------------------------
Interest Rate Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/ Average Income/ Earned/
Balance Expense(1) Paid(1) Balance Expense(1) Paid(1) Balance Expense(1) Paid(1)
------- -------- ------ -------- -------- ------ -------- -------- ------
(dollars in thousands)
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest-bearing deposits:
NOW accounts $134,535 $ 2,531 1.88% $127,809 $ 2,926 2.29% $116,753 $ 2,541 2.18%
Savings accounts 63,064 882 1.40% 60,373 1,167 1.93% 58,733 1,283 2.18%
Money market accounts 130,717 3,334 2.55% 82,686 2,306 2.79% 82,292 2,149 2.61%
Time deposits 230,070 11,727 5.10% 242,061 13,642 5.64% 228,157 11,326 4.96%
Total
interest-bearing
deposits 558,386 18,474 3.31% 512,929 20,041 3.91% 485,935 17,299 3.56%
Securities sold under
agreements to
repurchase 71,826 1,647 2.29% 68,808 2,919 4.24% 48,782 1,863 3.82%
Other borrowed funds and
long term debt 123,007 7,580 6.16% 123,886 8,132 6.56% 114,593 7,122 6.22%
---------- ------- ---- -------- ------- ---- -------- -------- ----
Total
interest-bearing
liabilities 753,219 27,701 3.68% 705,623 31,092 4.41% 649,310 26,284 4.05%
Non interest-bearing
liabilities
Demand deposits 209,188 168,557 138,493
Other liabilities 17,238 11,411 11,088
---------- ------- ---- -------- ------- ---- -------- -------- ----
Total liabilities 979,645 885,591 798,891
Stockholders' equity 79,279 63,424 61,610
---------- ------- ---- -------- ------- ---- -------- -------- ----
Total liabilities &
stockholders'
equity $1,058,924 $949,015 $860,501
---------- ------- ---- -------- ------- ---- -------- -------- ----
Net interest income (1) $39,800 $35,488 $ 32,561
---------- ------- ---- -------- ------- ---- -------- -------- ----
Net interest spread 3.22% 3.14% 3.30%
Net yield on earnings
assets 4.06% 4.02% 4.07%
---------- ------- ---- -------- ------- ---- -------- -------- ----
(1) On a fully taxable equivalent basis calculated using a federal tax rate of
35%.
-14-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The following table summarizes the year-to-year changes in the Company's net
interest income resulting from fluctuations in interest rates and volume changes
in earning assets and interest bearing liabilities. Changes due to rate are
computed by multiplying the change in rate by the prior year's volume. Changes
due to volume are computed by multiplying the change in volume by the prior
year's rate. Changes in volume and rate that cannot be separately identified
have been allocated in proportion to the relationship of the absolute dollar
amounts of each change. Year Ended December 31,
Year Ended December 31,
-----------------------------------------------------------------------------------
2001 Compared With 2000 2000 Compared With 1999
--------------------------------------- -------------------------------------
Increase/(decrease) Increase/(decrease)
Due to Change in Due to Change in
--------------------------------------- -------------------------------------
Income Income
Increase Average Average Increase
Volume Rate (Decrease) Balance Rate (Decrease)
------- ------- ---------- ------- ------- ----------
(in thousands)
Interest income:
Loans $ 765 $(3,118) $(2,353) $2,598 $ 887 $ 3,485
Securities available-for-sale:
Taxable 3,590 (600) 2,990 2,264 345 2,609
Tax-exempt 59 (5) 54 8 15 23
Securities held-to-maturity:
Taxable (865) (133) (998) 500 618 1,118
Tax-exempt -- -- -- -- (1) (1)
Federal funds sold 1,650 (422) 1,228 379 124 503
Interest-bearing deposits in other
banks -- -- -- (4) 1 (3)
------- ------- ------- ------ ------- -------
Total interest income 5,199 (4,278) 921 5,745 1,989 7,734
------- ------- ------- ------ ------- -------
Interest expense:
Deposits:
NOW accounts 148 (543) (395) 249 136 385
Savings accounts 50 (335) (285) 35 (151) (116)
Money market accounts 1,240 (212) 1,028 10 147 157
Time deposits (654) (1,261) (1,915) 719 1,597 2,316
------- ------- ------- ------ ------- -------
Total interest-bearing deposits 784 (2,351) (1,567) 1,013 1,729 2,742
Securities sold under agreements to 1,395) 32 24
repurchase 123 ( (1,272) 8 2 1,056
Other borrowed funds and long term debt (57) (495) (552) 597 413 1,010
------- ------- ------- ------ ------- -------
Total interest expense 850 (4,241) (3,391) 2,442 2,366 4,808
------- ------- ------- ------ ------- -------
Change in net interest income $ 4,349 $ (37) $ 4,312 $3,303 $ (377) $ 2,926
------- ------- ------- ------ ------- -------
The Company's operating results depend primarily on net interest income and fees
received for providing services. Net interest income on a fully taxable
equivalent basis increased 12.2% in 2001 to $39,800,000 compared with
$35,488,000 in 2000. The increase in net interest income was mainly due to a
10.9% increase in the average balances of earning assets, combined with a
similar increase in deposits and borrowed funds. The level of interest rates,
the ability of the Company's earning assets and liabilities to adjust to changes
in interest rates and the mix of the Company's earning assets and liabilities
affect net interest income.
The net yield on earning assets on a fully taxable equivalent basis increased to
4.06% in 2001 from 4.02% in 2000, which had decreased from 4.07% in 1999. The
increase was mainly attributable to rates paid on liability products, such as
deposits, repricing sooner than rates earned on asset products, such as loans
and investments, in a declining interest rate environment.
Average earning assets were $978,371,000 in 2001, an increase of $95,826,000 or
10.9% from the average in 2000, which was 10.2% higher than the average in 1999.
Total average securities, including securities available for sale and securities
held to maturity, increased 11.2% to $482,192,000. The increase in securities
volume was mainly attributable to both deposit and borrowings growth. This
increase in securities volume offset by lower level of interest rates resulted
in higher securities income, which increased 7.7% to $28,532,000. Total average
loans increased 2.0% to $443,395,000 after increasing $28,986,000 or 7.1% in
2000. Total loans increased primarily as a result of internal loan growth. The
increase in loan volume combined with a lower level of interest rates resulted
in lower loan income, which decreased by 6.0% or $2,353,000 to $36,853,000.
Total loan income was $35,720,000 in 1999.
-15-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
The Company's sources of funds include deposits and borrowed funds. On average,
deposits showed an increase of 12.6% in 2001 after increasing by 9.1% in 2000.
Deposits increased in 2001 primarily as a result of internal deposit growth.
Borrowed funds increased by 1.3% in 2001 following an increase of 21.8% in 2000.
The majority of the Company's borrowed funds are borrowings from the Federal
Home Loan Bank (FHLB) and retail repurchase agreements. Retail repurchase
agreements contributed approximately $3,018,000 to the Company's increased
year-to-date average. Interest expense totaled $27,701,000 in 2001, a decrease
of $3,391,000 or 10.9% from 2000 when interest expense increased 18.3% from
1999. This decrease in interest expense is due primarily to increases in
deposits offset by decreases in deposit rates and a more favorable mix of
deposits.
PROVISION FOR LOAN LOSS
The provision for loan losses was $1,500,000 in 2001 compared with $1,425,000 in
2000 and $1,475,000 in 1999. These provisions are the result of management's
evaluation of the quality of the loan portfolio considering such factors as loan
status, collateral values, financial condition of the borrower, the state of the
economy and other relevant information.
The allowance for loan losses was $7,112,000 at December 31, 2001 compared with
$5,662,000 at December 31, 2000 and $7,646,000 at December 31, 1999. Expressed
as a percentage of outstanding loans at year-end, the allowance was 1.54% in
2001, 1.29% in 2000 and 1.81% in 1999. The increased ratio, for 1999, reflects
increased provisions associated with the deterioration with one borrower's
credit quality whose total relationship amounted to $4.1 million. Management
placed this credit to nonaccrual loans during the fourth quarter of 1999 and
subsequently charged off $3,500,000 of this loan during the first quarter of
2000.
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 where management believes that the
probability that a loss has been incurred is 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
the inherent loss with respect to these conditions is subject to a higher degree
of uncertainty because they are not identified with specific problem credits.
Management believes that the allowance for loan losses is adequate. In addition,
various regulatory agencies, as part of the examination process, periodically
review the Company's allowance for loan losses. These 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.
The Company experienced net charge-offs in 2001 with net charge-offs as a
percent of average loans outstanding at 0.01%. The comparable net charge-offs
(recoveries) figures for 2000 and 1999 were 0.78% and (0.04)% respectively.
Non-performing loans, which include all non-accruing loans and certain
restructured, accruing loans, totaled $423,000 on December 31, 2001, compared
with $110,000 on December 31, 2000.
OTHER OPERATING INCOME
The Company continued to experience good results in its fee-based services in
2001. These fee-based services include deposit related services, lockbox
processing, and securities brokerage services.
Total other operating income in 2001 was $8,863,000 an increase of $1,629,000 or
22.5% compared to 2000. This increase followed an increase of $1,631,000 or
29.1% in 2000, compared to 1999. Service charge income, which continues to be a
major area of other operating income with $3,379,000 in 2001, saw an increase of
$1,119,000 compared to 2000. Lockbox revenues totaled $3,439,000 up $933,000 in
2001, primarily as a result of an increase in the lockbox customer base and a
new facility. Brokerage commissions decreased to $1,248,000 in 2001 from
$1,511,000 in 2000, primarily as a result of adverse market conditions.
-16-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
OPERATING EXPENSES
Total operating expenses were $30,025,000 in 2001 compared to $25,638,000 in
2000 and $22,655,000 in 1999.
Salaries and employee benefits expenses increased by $2,853,000 or 17.9% in 2001
after increasing 11.3% in 2000. Most of the increase for 2001 was in
compensation expense associated with increased staff levels, primarily as a
result of the two new branches and the new lockbox facility, as well as merit
increases in salaries and employee benefits. Nearly all of the increase, for
2000 was in the salaries category and was caused by an increase in the wage base
and increased accruals for incentive compensation.
Occupancy expense increased by $535,000 or 33.7% in 2001, this followed an
increase of $49,000 or 3.2% in 2000. The increase in 2001 was mainly
attributable to full-year costs associated with the opening of two new branches.
In 2001 equipment expense increased by $236,000. Equipment expense increased
primarily because of increased equipment depreciation.
Other operating expenses increased by $763,000 in 2001, which followed a
$1,028,000 increase in 2000. The increase for 2001 was primarily the result of
increased check processing charges, consultants expense, postage expense and
other processing services. The increase for 2000 was primarily the result of
increased marketing expense, check processing charges, legal expense and
supplies expense.
PROVISION FOR INCOME TAXES
Income tax expense was $6,237,000 in 2001, $5,428,000 in 2000 and $4,903,000 in
1999. The effective tax rate was 36.5% in 2001, 34.7% in 2000 and 35.0% in 1999.
The Company is continuing to realize savings in this area as a result of
strategic tax savings initiatives.
MARKET RISK AND ASSET LIABILITY MANAGEMENT
Market risk is the risk of loss from adverse changes in market prices and rates.
The Company's market risk arises primarily from interest rate risk inherent in
its lending, investment and deposit taking activities. To that end, management
actively monitors and manages its interest rate risk exposure.
The Company's profitability is affected by fluctuations in interest rates. A
sudden and substantial increase in interest rates may adversely impact the
Company's earnings to the extent that the interest rates borne by assets and
liabilities do not change at the same speed, to the same extent, or on the same
basis. The Company monitors the impact of changes in interest rates on its net
interest income using several tools. One measure of the Company's exposures to
differential changes in interest rates between assets and liabilities is an
interest rate risk management test. This test measures the impact on net
interest income of an immediate change in interest rates in 100 basis point
increments.
- --------------------------------------------------------------------------------------------
Change in Interest Rates (in Basis Points) Percentage Change in Net Interest Income(1)
- --------------------------------------------------------------------------------------------
+200 1.6%
+100 1.1%
-100 (1.0%)
-200 (2.1%)
(1) The percentage change in this column represents net interest income for 12
months in various rate scenarios versus the net interest income in a
stable interest rate environment.
The Company's primary objective in managing interest rate risk is to minimize
the adverse impact of changes in interest rates on the Company's net interest
income and capital, while structuring the Company's asset-liability structure to
obtain the maximum yield-cost spread on that structure. The Company relies
primarily on its asset-liability structure to control interest rate risk.
LIQUIDITY
Liquidity is provided by maintaining an adequate level of liquid assets that
include cash and due from banks, federal funds sold and other temporary
investments. Liquid assets totaled $177,833,000 on December 31, 2001 compared
with $175,802,000 on December 31, 2000 and $66,528,000 on December 31, 1999. In
each of the three years, deposit activity has generally been adequate to support
asset activity.
The source of funds for dividends paid by the Company is dividends received from
the Bank. The Company and the Bank are regulated enterprises and their abilities
to pay dividends are subject to regulatory review and restriction. Certain
regulatory and statutory restrictions exist regarding dividends, loans and
advances from the Bank to the Company. Generally, the Bank has the ability to
pay dividends to the Company subject to minimum regulatory capital requirements.
-17-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
CAPITAL ADEQUACY
Total stockholders' equity was $84,599,000 at December 31, 2001, compared with
$71,506,000 at December 31, 2000 and $60,296,000 at December 31, 1999. The
increase in 2001 was primarily the result of retained earnings less dividends
paid and an increase in net unrealized gains on securities available-for-sale
offset by treasury stock repurchases. The increase in 2000 was primarily the
result of retained earnings less dividends paid which were offset by a decrease
in net unrealized losses on securities available-for-sale and treasury stock
repurchases. Also, there was a $104,000 increase in 2000 and a $71,000 increase
in 1999 from the execution of certain stock options.
Federal banking regulators have issued risk-based capital guidelines, which
assign risk factors to asset categories and off-balance sheet items. The current
guidelines require a Tier I capital-to-risk assets ratio of 4.00% and a total
capital-to-risk assets ratio of 8.00%. The Company and the Bank exceeded these
requirements with a Tier 1 capital-to-risk assets ratio of 17.29% and 12.14%
respectively, and total capital-to-risk assets ratio of 18.74% and 13.31%,
respectively at December 31, 2001. Additionally, federal banking regulators have
issued leverage ratio guidelines, which supplement the risk-based capital
guidelines. The minimum leverage ratio requirement applicable to the Company is
4.00% and at December 31, 2001, the Company and the Bank exceeded this
requirement with leverage ratios of 9.68% and 6.79%, respectively.
FORWARD-LOOKING STATEMENTS
Certain statements contained herein are not based on historical facts and are
"forward-looking statements" within the meaning of Section 21A of the Securities
Exchange Act of 1934. Forward-looking statements, which are based on various
assumptions (some of which are beyond the Company's control), may be identified
by reference to a future period or periods, or by the use of forward-looking
terminology, such as "may," "will," "believe," "expect," "estimate,"
"anticipate," "continue," or similar terms or variations on those terms, or the
negative of these terms. Actual results could differ materially from those set
forth in forward-looking statements due to a variety of factors, including, but
not limited to, those related to the economic environment, particularly in the
market areas in which the Company operates, competitive products and pricing,
fiscal and monetary policies of the U.S. Government, changes in government
regulations affecting financial institutions, including regulatory fees and
capital requirements, changes in prevailing interest rates, acquisitions and the
integration of acquired businesses, credit risk management, asset/liability
management, the financial and securities markets and the availability of and
costs associated with sources of liquidity.
The Company does not undertake, and specifically disclaims any obligation, to
publicly release the result of any revisions which may be made to any
forward-looking statements to reflect the occurrence of anticipated or
unanticipated events or circumstances after the date of such statements.
-18-
CONSOLIDATED BALANCE SHEETS
December 31, 2001 2000
- ---------------------------------------- ----------- -----------
(dollars in thousands except share data)
ASSETS
Cash and due from banks (note 2) $ 71,820 $ 63,790
Federal funds sold and interest-bearing deposits in other banks 106,013 112,012
----------- -----------
Total cash and cash equivalents 177,833 175,802
Securities available-for-sale, amortized cost $455,575 in 2001
and $274,939 in 2000 (note 3) 460,833 273,144
Securities held-to-maturity, market value $145,237 in 2001
and $168,462 in 2000 (notes 4 and 9) 142,608 169,186
Loans, net (note 5) 462,772 439,563
Less: allowance for loan losses (note 6) 7,112 5,662
----------- -----------
Net loans 455,660 433,901
Bank premises and equipment (note 7) 11,882 8,819
Accrued interest receivable 7,561 7,612
Other assets (note 12) 14,645 15,366
----------- -----------
Total assets $ 1,271,022 $ 1,083,830
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits $ 227,319 $ 198,914
Savings and NOW deposits 187,676 175,655
Money market accounts 242,665 131,159
Time deposits (note 8) 230,748 288,068
----------- -----------
Total deposits (note 8) 888,408 793,796
Securities sold under agreements to repurchase (note 9) 72,840 71,450
Other borrowed funds (note 10) 143,481 97,328
Other liabilities 52,944 21,000
Long term debt (note 10) 28,750 28,750
----------- -----------
Total liabilities 1,186,423 1,012,324
Commitments and contingencies (notes 7, 14 and 15)
Stockholders' equity (note 11):
Common stock, Class A,
$1.00 par value per share; authorized 10,000,000 shares;
issued 3,761,020 shares in 2001 and 3,754,600 shares in 2000 3,761 3,755
Common stock, Class B,
$1.00 par value per share; authorized 5,000,000 shares;
issued 2,185,480 shares in 2001 and 2,191,900 shares in 2000 2,186 2,192
Additional paid-in-capital 11,093 11,093
Retained earnings 70,123 60,916
Treasury stock, Class A, 383,600 shares in 2001 and 348,600
shares in 2000, at cost (5,941) (5,242)
Treasury stock, Class B, 47,550 shares in 2001 and 2000, at cost (41) (41)
----------- -----------
81,181 72,673
Accumulated other comprehensive income (loss), net of taxes
(note 3) 3,418 (1,167)
----------- -----------
Total stockholders' equity 84,599 71,506
----------- -----------
Total liabilities and stockholders' equity $ 1,271,022 $ 1,083,830
----------- -----------
See accompanying Notes to Consolidated Financial Statements.
-19-
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, 2001 2000 1999
- ---------------------------------------- ---------- ---------- ----------
(dollars in thousands except share data)
INTEREST INCOME
Loans $ 36,849 $ 39,199 $ 35,620
Securities held-to-maturity 9,381 10,379 9,262
Securities available-for-sale 19,113 16,088 13,463
Federal funds sold and interest-bearing deposits in other banks 2,116 888 474
---------- ---------- ----------
Total interest income 67,459 66,554 58,819
INTEREST EXPENSE
Savings and NOW deposits 3,413 4,093 3,824
Money market accounts 3,334 2,306 2,149
Time deposits (note 8) 11,727 13,642 11,326
Securities sold under agreements to repurchase 1,647 2,919 1,863
Other borrowed funds and long term debt 7,580 8,132 7,122
---------- ---------- ----------
Total interest expense 27,701 31,092 26,284
---------- ---------- ----------
Net interest income 39,758 35,462 32,535
Provision for loan losses (note 6) 1,500 1,425 1,475
Net interest income after provision for loan losses 38,258 34,037 31,060
OTHER OPERATING INCOME
Service charges on deposit accounts 3,379 2,260 1,811
Lockbox fees 3,439 2,506 1,736
Brokerage commissions 1,248 1,511 1,460
Other income 797 957 596
---------- ---------- ----------
Total other operating income 8,863 7,234 5,603
OPERATING EXPENSES
Salaries and employee benefits (note 13) 18,770 15,917 14,307
Occupancy 2,121 1,586 1,537
Equipment 1,871 1,635 1,339
Other (note 16) 7,263 6,500 5,472
---------- ---------- ----------
Total operating expenses 30,025 25,638 22,655
---------- ---------- ----------
Income before income taxes 17,096 15,633 14,008
Provision for income taxes (note 12) 6,237 5,428 4,903
---------- ---------- ----------
NET INCOME $ 10,859 $ 10,205 $ 9,105
---------- ---------- ----------
SHARE DATA (NOTE 11)
Weighted average number of shares outstanding, basic 5,535,309 5,597,136 5,791,858
Weighted average number of shares outstanding, diluted 5,541,745 5,597,629 5,818,633
Net income per share, basic $ 1.96 $ 1.82 $ 1.57
Net income per share, diluted $ 1.96 $ 1.82 $ 1.56
See accompanying Notes to Consolidated Financial Statements.
-20-
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
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
------- ------- ---------- -------- -------- -------- ------------- -------------
(dollars in thousands
except share data)
BALANCE, DECEMBER 31, 1998 $ 3,673 $ 2,227 $ 10,965 $ 44,451 $ (136) $ (41) $ (88) $ 61,051
Net income -- -- -- 9,105 -- -- -- 9,105
Other comprehensive income,
net of tax:
Increase in unrealized
losses on securities
available-for-sale
net of $3,050 in taxes -- -- -- -- -- -- (5,577) (5,577)
-------------
Comprehensive income 3,528
Conversion of Class B common
stock to Class A common
stock, 29,420 shares 30 (30) -- -- -- -- -- --
Stock options exercised,
19,033 shares 19 -- 52 -- -- -- -- 71
Treasury stock repurchases,
170,600 shares -- -- -- -- (2,986) -- -- (2,986)
Cash dividends, Class A common
stock, $0.30 per share -- -- -- (1,093) -- -- -- (1,093)
Cash dividends, Class B common
stock, $0.128 per share -- -- -- (276) -- -- -- (276)
BALANCE, DECEMBER 31, 1999 3,722 2,197 11,017 52,188 (3,122) (41) (5,665) 60,296
------- ------- ---------- -------- -------- -------- ------------- -------------
Net income -- -- -- 10,205 -- -- -- 10,205
Other comprehensive income,
net of tax:
Decrease in unrealized losses on
securities available-for-sale
net of $628 in taxes -- -- -- -- -- -- 4,498 4,498
--------
Comprehensive income 14,703
Conversion of Class B common
stock to Class A common
stock, 5,000 shares 5 (5) -- -- -- -- -- --
Stock options exercised,
27,750 shares 28 -- 76 -- -- -- -- 104
Treasury stock repurchases,
148,000 shares -- -- -- -- (2,120) -- -- (2,120)
Cash dividends, Class A common
stock, $0.33 per share -- -- -- (1,142) -- -- -- (1,142)
Cash dividends, Class B common
stock, $0.156 per share -- -- -- (335) -- -- -- (335)
BALANCE, DECEMBER 31, 2000 3,755 2,192 11,093 60,916 (5,242) (41) (1,167) 71,506
------- ------- ---------- -------- -------- -------- ------------- -------------
Net income -- -- -- 10,859 -- -- -- 10,859
Other comprehensive income,
net of tax:
Increase in unrealized gains on
securities available-for-sale
net of $1,840 in taxes -- -- -- -- -- -- 4,585 4,585
--------
Comprehensive income 15,444
Conversion of Class B common
stock to Class A common
stock, 6,420 shares 6 (6) -- -- -- -- -- --
Treasury stock repurchases,
35,000 shares -- -- -- -- (698) -- -- (698)
Cash dividends, Class A common
stock, $0.37 per share -- -- -- (1,257) -- -- -- (1,257)
Cash dividends, Class B common
stock, $0.185 per share -- -- -- (396) -- -- -- (396)
------- ------- ---------- -------- -------- -------- ------------- -------------
BALANCE, DECEMBER 31, 2001 $ 3,761 $ 2,186 $ 11,093 $ 70,123 $ (5,941) $(41) $ 3,418 $ 84,599
------- ------- ---------- -------- -------- -------- ------------- -------------
See accompanying Notes to Consolidated Financial Statements.
-21-
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 2001 2000 1999
- ----------------------- --------- --------- ---------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,859 $ 10,205 $ 9,105
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,500 1,425 1,475
Deferred income taxes (101) 4,455 (1,269)
Net depreciation and amortization 2,066 1,939 2,225
Decrease (increase) in accrued interest receivable 51 (988) (106)
Increase in other assets (948) (2,902) (728)
Proceeds from sales of loans 89 61 153
Gain on sales of loans (1) (1) (2)
Gain on calls of securities (47) -- --
Gain on sale of building -- (386) --
(Decrease) increase in other liabilities (8,771) 3,261 (6,331)
--------- --------- ---------
Net cash provided by operating activities 4,697 17,069 4,522
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from calls/maturities of securities
available-for-sale 215,708 20,396 61,312
Purchase of securities available-for-sale (396,285) (31,611) (114,711)
Proceeds from calls/maturities of securities
held-to-maturity 95,904 14,269 58,425
Purchase of securities held-to-maturity (69,340) (30,934) (51,730)
Increase (decrease) in investments purchased payable 38,976 1,999 (5,493)
Net increase in loans (22,875) (19,906) (26,545)
Proceeds from sale of building -- 1,342 --
Capital expenditures (4,558) (1,684) (994)
--------- --------- ---------
Net cash used in investing activities (142,470) (46,129) (79,736)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in time deposit accounts (57,320) 17,493 28,667
Net increase (decrease) in demand, savings,
money market and NOW deposits 151,932 132,630 (28,198)
Net proceeds from the issuance of common stock -- 104 71
Treasury stock repurchases (698) (2,120) (2,986)
Cash dividends (1,653) (1,477) (1,369)
Net increase in securities sold
under agreements to repurchase 1,390 11,970 1,790
Net increase (decrease) in other borrowed funds 46,153 (20,266) 82,748
--------- --------- ---------
Net cash provided by financing activities 139,804 138,334 80,723
--------- --------- ---------
Net increase in cash and cash equivalents 2,031 109,274 5,509
Cash and cash equivalents at beginning of year 175,802 66,528 61,019
--------- --------- ---------
Cash and cash equivalents at end of year $ 177,833 $ 175,802 $ 66,528
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 30,351 $ 29,549 $ 25,566
Income taxes 5,588 2,424 6,911
Change in unrealized gains (losses)
on securities available-for-sale, net of taxes $ 4,585 $ 4,498 $ (5,577)
See accompanying Notes to Consolidated Financial Statements.
-22-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. 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 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 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. The Company has one reportable
operating segment under FASB 131.
BASIS OF FINANCIAL STATEMENT PRESENTATION
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
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.
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 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.
-23-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 are
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 future cash flows discounted at the loan's effective interest rate.
This method applies to all loans, uncollat-eralized 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.
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 provide for 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.
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 indentified
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
the 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.
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.
-24-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
2. CASH AND DUE FROM BANKS
The Company is required to maintain a portion of its cash and due from banks as
a reserve balance under the Federal Reserve Act. Such reserve is calculated
based upon deposit levels and amounted to $437,000 at December 31, 2001 and
$12,000 at December 31, 2000.
3. SECURITIES AVAILABLE-FOR-SALE
December 31, 2001 December 31, 2000
------------------------------------------------- ------------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
--------- ---------- ---------- --------- --------- ---------- ---------- ---------
(in thousands)
U.S. Government and Agencies $ 435,796 $ 6,459 $ 1,089 $ 441,166 $ 256,390 $ 137 $ 1,689 $ 254,838
Obligations of states
and political subdivisions 2,005 -- -- 2,005 1,000 -- -- 1,000
FHLB Stock 13,084 -- -- 13,084 13,084 -- -- 13,084
Other 4,690 48 160 4,578 4,465 19 262 4,222
--------- ---------- ---------- --------- --------- ---------- ---------- ---------
$ 455,575 $ 6,507 $ 1,249 $ 460,833 $ 274,939 $ 156 $ 1,951 $ 273,144
--------- ---------- ---------- --------- --------- ---------- ---------- ---------
December 31, 1999
-------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
(in thousands)
U.S. Government and Agencies $ 247,289 $ 10 $ 8,521 $ 238,778
Obligations of states
and political subdivisions 250 -- -- 250
FHLB Stock 13,084 -- -- 13,084
Other 3,067 14 218 2,863
--------- ---------- ---------- ---------
$ 263,690 $ 24 $ 8,739 $ 254,975
--------- ---------- ---------- ---------
Included in U.S. Government and Agency securities are securities pledged to
secure public deposits and repurchase agreements amounting to $81,332,000 at
December 31, 2001, $79,464,000 at December 31, 2000 and $141,679,000 at December
31, 1999.
The following tables show the maturity distribution of the Company's securities
available-for-sale at December 31, 2001, 2000 and 1999 and the weighted average
yields of securities, which are based on the amortized cost, calculated on a
fully taxable equivalent basis.
December 31, 2001
--------------------------------------------------------------------------------------------------
Obligations
U.S. of States
Government and Estimated
and Political Market
Agencies Yield Subdivision Yield Other Yield Total Yield Value
---------- ----- ----------- ----- ------- ----- -------- ----- ---------
(in thousands)
Within one year $ 15,945 6.26% $ 2,005 5.12% $ -- 0.00 $ 17,950 6.14% $ 18,329
After one but within five years 324,081 5.00 -- 0.00% 700 6.81% 324,781 5.00% 328,654
After five but within ten years 65,969 5.56% -- 0.00% -- 0.00% 65,969 5.56% 66,777
More than ten years 29,801 6.14% -- 0.00% -- 0.00% 29,801 6.14% 30,161
Non-maturing -- 0.00% -- 0.00% 17,074 6.80% 17,074 6.80% 16,962
---------- ----- ----------- ----- ------- ----- -------- ----- ---------
$ 435,796 5.21% $ 2,005 5.12% $17,774 6.80% $455,575 5.27% $ 460,883
---------- ----- ----------- ----- ------- ----- -------- ----- ---------
-25-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted average remaining life of investment securities available-for-sale
at December 31, 2001, 2000 and 1999 was 4.9, 3.8 and 4.7 years, respectively.
Included in the weighted average remaining life calculation at December 31, 2001
and 2000 were 268.7 million and 60.1 million respectively of U.S. agency
obligations that are callable at the discretion of the issuer. These call dates
were not utilized in computing the weighted average remaining life.
4. INVESTMENT SECURITIES HELD-TO-MATURITY
December 31, 2001 December 31, 2000
------------------------------------------------- ------------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
--------- ---------- ---------- --------- --------- ---------- ---------- ---------
(in thousands)
U.S. Government and Agencies $125,054 $ 2,662 $ 228 $ 127,488 $ 146,962 $ 485 $ 1,003 $ 146,444
Other 17,554 207 12 17,749 22,224 -- 206 22,018
--------- ---------- ---------- --------- --------- ---------- ---------- ---------
$142,608 $ 2,869 $ 240 $ 145,237 $ 169,186 $ 485 $ 1,209 $ 168,462
--------- ---------- ---------- --------- --------- ---------- ---------- ---------
December 31, 1999
-------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
(in thousands)
U.S. Government and Agencies $ 127,719 $ -- $ 5,036 $ 122,683
Other 24,880 -- 960 23,920
--------- ---------- ---------- ---------
$ 152,599 $ -- $ 5,996 $ 146,603
--------- ---------- ---------- ---------
Included in U.S. Government and Agency securities are securities pledged to
secure public deposits and repurchase agreements amounting to $0 at December 31,
2001, $1,999,000 at December 31, 2000 and $1,999,000 at December 31, 1999.
The following table shows the maturity distribution of the Company's securities
held-to-maturity at December 31, 2001 and the weighted average yields of
securities, which are based on the amortized cost, calculated on a fully taxable
equivalent basis.
December 31, 2001
--------------------------------------------------------------------------------------------------
Obligations
U.S. of States
Government and Estimated
and Political Market
Agencies Yield Subdivision Yield Other Yield Total Yield Value
---------- ----- ----------- ----- ------- ----- -------- ----- ---------
(in thousands)
Within one year $ 11,000 6.03% $ -- 0.00% $ -- 0.00% $ 11,000 6.03% $ 11,238
After one but within five years 53,388 5.43% -- 0.00% 25 5.50% 53,413 5.43% 54,739
After five but within ten years 21,105 5.86% -- 0.00% -- 0.00% 21,105 5.86% 21,515
More than ten years 39,561 6.49% -- 0.00% 17,529 6.47% 57,090 6.48% 57,745
---------- ----- ----------- ----- ------- ----- -------- ----- ---------
$ 125,054 5.89% $ -- 0.00% $17,554 6.47% $142,608 5.96% $ 145,237
---------- ----- ----------- ----- ------- ----- -------- ----- ---------
The weighted average remaining life of investment securities held-to-maturity at
December 31, 2001, 2000 and 1999 was 3.2, 4.9 and 7.2 years, respectively.
Included in the weighted average remaining life calculation at December 31, 2001
and 2000 were 53.4 million and 21.0 million respectively of U.S. agency
obligations that are callable at the discretion of the issuer. These call dates
were not utilized in computing the weighted average remaining life.
5. LOANS
The Company's lending activities are conducted principally in Massachusetts. The
Company makes single and multi-family residential loans, commercial and
commercial real estate loans, and a variety of consumer loans. To a lesser
extent, the Company makes loans for the construction of residential homes,
multi-family properties, commercial real estate properties, and land
development. Most loans made by the Company are secured by real estate
collateral. The ability and willingness of commercial real estate, commercial,
construction, residential and consumer loan borrowers to honor their repayment
commitments is generally dependent on the health of the real estate market in
the borrowers' geographic areas and the general economy.
-26-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following summary shows the composition of the loan portfolio at the dates
indicated.
December 31,
------------------------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
------------------------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
-------- -------- --------- -------- -------- -------- -------- -------- -------- --------
(in thousands)
Construction and land
development $ 39,256 8.5% $ 21,840 5.0% $ 21,682 5.1% $ 21,691 5.5% $ 7,549 2.4%
Commercial and industrial 59,162 12.8% 95,957 21.8% 77,166 18.3% 64,822 16.4% 50,560 16.0%
Industrial revenue bonds 48 0.0% 119 0.0% 190 0.0% 1,034 0.3% 2,693 0.9%
Commercial real estate 241,419 52.2% 209,233 47.6% 209,332 49.5% 187,285 47.3% 140,270 44.3%
Residential real estate 88,450 19.1% 81,526 18.5% 82,968 19.6% 87,518 22.1% 76,385 24.1%
Consumer 7,701 1.7% 9,226 2.1% 11,678 2.8% 14,355 3.6% 19,254 6.1%
Home equity 26,016 5.6% 21,107 4.8% 19,227 4.5% 18,839 4.8% 19,031 6.0%
Overdrafts 720 0.2% 555 0.1% 482 0.1% 359 0.1% 648 0.2%
-------- -------- --------- -------- -------- -------- -------- -------- -------- --------
$462,772 100.0% $ 439,563 100.0% $422,725 100.0% $395,903 100.0% $316,390 100.0%
-------- -------- --------- -------- -------- -------- -------- -------- -------- --------
At December 31, 2001, 2000, 1999, 1998, and 1997, loans were carried net of
discounts of $969,000, $1,446,000, $1,923,000, $2,399,000, and $2,875,000
respectively. Included in these amounts at December 31, 2001, 2000, 1999, 1998
and 1997, residential real estate loans were carried net of discounts of
$959,000, $1,431,000, $1,903,000, $2,375,000 and $2,847,000 respectively,
associated with the acquisition of loans from another financial institution.
The composition of non-accrual loans, impaired loans and troubled debt
restructuring agreements is as follows:
2001 2000 1999 1998 1997
------ ------ ------ ------ ------
(in thousands)
Loans on non-accrual $ 423 $ 110 $4,621 $1,281 $1,705
Impaired loans on non-accrual included above $ 292 $ 41 $4,378 $1,131 $1,235
Total recorded investment in impaired loans $1,118 $1,535 $6,019 $2,992 $3,515
Average recorded value of impaired loans $2,016 $2,444 $3,806 $3,048 $3,157
Loans 90 days past due and still accruing $ 9 $ 19 $ 188 $ 698 $ 7
Interest income on non-accrual loans
according to
their original terms $ 43 $ 19 $ 463 $ 166 $ 202
Interest income on non-accrual loans
actually recorded $ 32 $ 9 $ 331 $ 27 $ 84
Interest income recognized on impaired loans $ 116 $ 160 $ 458 $ 142 $ 216
The composition of impaired loans at December 31, is as follows:
2001 2000 1999 1998 1997
------ ------ ------ ------ ------
(in thousands)
Residential real estate:
1 to 4 family $ 29 $ 41 $ 341 $ 330 $ 250
Multi-family 656 681 702 729 771
Commercial real estate 433 782 950 1,662 2,323
Commercial and industrial -- 31 4,026 271 171
Total $1,118 $1,535 $6,019 $2,992 $3,515
------ ------ ------ ------ ------
Specific valuation allowance -- -- -- -- --
------ ------ ------ ------ ------
Total impaired loans $1,118 $1,535 $6,019 $2,992 $3,515
------ ------ ------ ------ ------
There were no impaired loans with specific reserves from December 31, 1997
through December 31, 2001 and in the opinion of management, none of the above
listed impaired loans required a specific reserve. All of the impaired loans
listed above have been measured using the fair value of the collateral method.
The Company was servicing mortgage loans sold to others without recourse of
approximately $7,226,000, $10,678,000, $13,033,000, $16,123,000 and $18,053,000
at December 31, 2001, 2000, 1999, 1998 and 1997. Additionally, the Company was
servicing mortgage loans sold to others with limited recourse. The outstanding
balance of these loans with limited recourse was approximately $338,000,
$479,000, $490,000, $501,000, and $753,000 at December 31, 2001, 2000, 1999,
1998, and 1997.
-27-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Directors and officers of the Company and their associates are customers of, and
have other transactions with, the Company in the normal course of business. All
loans and commitments included in such transactions were made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons and do not involve more
than normal risk of collection or present other unfavorable features.
The following table shows the aggregate amount of loans to directors and
officers of the Company and their associates during 2001.
Balance At Repayments Balance At
December 31, 2000 Additions and Deletions December 31, 2001
----------------- --------- ------------- -----------------
(in thousands)
$ 1,538 $ 725 $ 912 $ 1,351
----------------- --------- ------------- -----------------
6. ALLOWANCE FOR LOAN LOSSES
2001 2000 1999 1998 1997
------- ------- ------- ------- -------
(in thousands)
Balance at beginning of year $ 5,662 $ 7,646 $ 6,022 $ 4,446 $ 4,179
Acquired allowance -- -- -- 1,194 --
Provision charged to operating expense 1,500 1,425 1,475 800 660
Loans charged-off (437) (3,661) (470) (843) (689)
Loan recoveries 387 252 619 425 296
------- ------- ------- ------- -------
Balance at end of year $ 7,112 $ 5,662 $ 7,646 $ 6,022 $ 4,446
------- ------- ------- ------- -------
7. BANK PREMISES AND EQUIPMENT
December 31, 2001 2000
- ------------ -------- --------
(in thousands)
Land $ 3,633 $ 1,839
Bank premises 6,533 6,533
Furniture and equipment 15,330 12,566
Leasehold improvements 1,888 1,888
-------- --------
27,384 22,826
Accumulated depreciation and amortization (15,502) (14,007)
-------- --------
$ 11,882 $ 8,819
======== ========
The Company and its subsidiaries are obligated under a number of noncancelable
operating leases for premises and equipment expiring in various years through
the year 2026. Total lease expense approximated $589,000, $199,000 and $148,000
for the years ended December 31, 2001, 2000 and 1999, respectively.
Future minimum rental commitments for noncancelable operating leases with
initial or remaining terms of one year or more at December 31, 2001 were as
follows:
Year Amount
---- ------
(in thousands)
2002 $ 605
2003 605
2004 606
2005 557
2006 476
Thereafter 2,130
------
$4,979
------
The Company offers savings accounts, NOW accounts, demand deposits, time
deposits and money market accounts. The Company offers cash management accounts
which provide either automatic transfer of funds above a specified level from
the customer's checking account to a money market account or short-term
borrowings. Also, an account reconciliation service is offered whereby the
Company provides a computerized report balancing the customer's checking
account.
Interest rates on deposits are set bi-monthly by the Bank's rate-setting
committee, based on factors including loan demand, maturities and a review of
competing interest rates offered. Interest rate policies are reviewed
periodically by the Company`s Asset/Liability Committee and Executive Management
Committee.
-28-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Time Deposits as of December 31, are as follows:
2001 2000 1999
-------- -------- --------
(in thousands)
Three months or less $102,004 $153,958 $134,010
Three months through twelve months 111,150 106,222 106,782
Over twelve months 17,594 27,888 29,783
-------- -------- --------
$230,748 $288,068 $270,575
-------- -------- --------
Time Deposits of $100,000 or more as of December 31, are as follows:
2001 2000 1999
-------- -------- --------
(in thousands)
Three months or less $ 54,873 $108,783 $ 87,363
Three months through twelve months 22,425 31,382 31,468
Over twelve months 770 1,688 2,938
-------- -------- --------
$ 78,068 $141,853 $121,769
-------- -------- --------
The following table shows the average amount of and average rate paid on various
deposits during the years indicated.
2001 2000 1999
-------------------------- -------------------------- ---------------------------
Average Average Average
Average Interest Rate Average Interest Rate Average Interest Rate
Amount Paid Amount Paid Amount Paid
-------- ------------- -------- ------------- -------- -------------
(In Thousands)
Interest-bearing deposits:
Interest-bearing transaction accounts $134,535 1.88% $127,809 2.29% $116,753 2.18%
Savings accounts 63,064 1.40% 60,373 1.93% 58,733 2.18%
Money Market Deposits 130,717 2.55% 82,686 2.79% 82,292 2.61%
Time Deposits of $100,000 or more 65,676 4.73% 91,378 6.00% 64,698 5.05%
Other Time Deposits 164,394 5.24% 150,683 5.41% 163,459 4.93%
-------- ------------- -------- ------------- -------- -------------
Total Interest-bearing deposits 558,386 3.31% 512,929 3.91% 485,935 3.56%
Non Interest-bearing deposits 209,188 168,557 138,493
-------- ------------- -------- ------------- -------- -------------
Total average deposits $767,574 2.41% $681,486 2.94% $624,428 2.77%
-------- ------------- -------- ------------- -------- -------------
9. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
2001 2000 1999
------- ------- -------
(dollars in thousands)
Amount outstanding at December 31, $72,840 $71,450 $59,480
Weighted average rate at December 31, 1.12% 4.04% 3.68%
Maximum amount outstanding at any month end $75,950 $77,426 $59,480
Daily average balance outstanding
during the year $71,826 $68,808 $48,782
Weighted average rate during the year 2.29% 4.24% 3.82%
Amounts outstanding at December 31, 2001, 2000, and 1999 carried maturity dates
of the next business day. U.S. Government and Agency securities with a total
book value of $71,629,000, $72,974,000, and $62,121,000 were pledged as
collateral and held by custodians to secure the agreements at December 31, 2001,
2000, and 1999, respectively. The approximate market value of the collateral at
those dates was $73,262,000, $72,552,000, and $59,486,000, respectively.
10. OTHER BORROWED FUNDS AND LONG TERM DEBT
2001 2000 1999
------- -------- --------
(dollars in thousands)
Amount outstanding at December 31, $172,231 $126,078 $146,344
Weighted average rate at December 31, 5.30% 6.73% 6.08%
Maximum amount outstanding at any month end $172,231 $161,838 $159,545
Daily average balance outstanding
during the year $123,007 $123,886 $114,593
Weighted average rate during the year 6.16% 6.56% 6.22%
The Bank serves as a Treasury Tax and Loan depository under a note option with
the Federal Reserve Bank of Boston. This open-ended interest bearing borrowing
carries an interest rate equal to the daily Federal funds rate less 0.25%. Also,
the bank borrowed seventeen long-term loans with the Federal Home Loan Bank.
These loans total $140,284,000, bear a weighted average interest rate of 4.22%
and mature between January 2, 2002 and April 12, 2010.
-29-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In May 1998 the Company, through its newly formed subsidiary, Century Bancorp
Capital Trust, issued 2,875,000 shares of Cumulative Trust Preferred Securities
with a liquidation value of $10 per share. These securities pay dividends at an
annualized rate of 8.30% and mature on June 30, 2029. The Company is using the
proceeds primarily for general business purposes.
11. STOCKHOLDERS' EQUITY
DIVIDENDS
Holders of the Class A common stock may not vote in the election of directors,
but may vote as a class to approve certain extraordinary corporate transactions.
Class A common stockholders are entitled to receive dividends per share equal to
at least 200% per share of that paid, if any, on each share of Class B common
stock. Class A common stock is publicly traded. Class B common stock is not
publicly traded, however, it can be converted on a share for share basis to
Class A common stock at any time. Dividend payments by the Company are dependent
in part on the dividends it receives from its bank subsidiary, which are subject
to certain regulatory restrictions.
EARNINGS PER SHARE (EPS)
Diluted EPS includes the dilutive effect of common stock equivalents; basic EPS
excludes all common stock equivalents. The only common stock equivalents for the
Company are the stock options discussed below. The dilutive effect of these
stock options for 2001, 2000 and 1999 was an increase of 6,436, 493 and 26,775
shares, respectively.
STOCK OPTION PLAN
During 2001 common stockholders of the Company approved a stock option plan (the
"Option Plan") that provides for granting of options for not more than 150,000
shares of Class A common stock. Under the Option Plan, all officers and key
employees of the Company are eligible to receive non-qualified and incentive
stock options to purchase shares of Class A common stock. The Option Plan is
administered by the Compensation Committee whose members are ineligible to
participate in the Option Plan. Based on management's recommendations, the
Committee submits its recommendations to the Board of Directors as to persons to
whom options are to be granted, the number of shares granted to each, the option
price (which may not be less than 85% of the fair market value for non-qualified
stock options, or the fair market value for incentive stock options, of the
shares on the date of grant) and the time period over which the options are
exercisable (no more than ten years from the date of grant). There were no
options exercisable at December 31, 2001.
The Company measures compensation cost for its stock option plans using the
intrinsic value based method of accounting. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant date, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
December 31, 2001
- ------------ -------
(in thousands, except per share data)
Net income:
As reported $10,859
Pro forma and diluted $10,719
Basic earning per share
As reported $ 1.96
Pro forma $ 1.94
In determining the pro forma amounts, the fair value of each option grant was
estimated as of the date of grant using Black-Scholes option-pricing model with
the following weighted-average assumptions:
December 31, 2001
- ------------ --------
Dividend yields 2.65%
Expected life 10 YEARS
Expected volatility 36%
Risk-free interest rate 4.94%
-30-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Stock option activity under the plan is as follows:
DECEMBER 31, 2001
----------------------------------
WEIGHTED AVERAGE
AMOUNT EXERCISE PRICE
------- ----------------
Shares under option:
Outstanding at beginning of year -- --
Granted 36,500 $ 15.56
Cancelled -- --
Exercised -- --
Outstanding at end of year 36,500 $ 15.56
------- ----------------
Exercisable at end of year -- --
-------
Weighted average fair value of
options granted during the year $ 5.92
-------
At December 31, 2001 the 36,500 options outstanding have exercise prices between
$15.063 and $16.57, with a weighted average exercise price at $15.56 and a
weighted average remaining contractual life of 9 years. There were no options
granted in 1999 or 2000.
CAPITAL AND OTHER REGULATORY REQUIREMENTS
The Bank is subject to various regulatory requirements administered by federal
banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory and possibly additional discretionary actions by regulators
that, if undertaken, could have a direct material affect on the Company's
financial statements. Under capital adequacy guidelines and regulatory framework
for prompt corrective action, the Bank must meet specific capital guidelines
that involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also qualitative
judgements by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital (as defined in the regulation) to risk
weighted assets (as defined), and Tier 1 capital (as defined) to average assets
(as defined). Management believes, as of December 31, 2001, that the Bank meets
all capital adequacy requirements to which it is subject.
As of December 31, 2001, the most recent notification from the FDIC categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain
minimum total risk-based, Tier risk-based, and Tier 1 leverage ratios as set
forth in the table. There are no conditions or events since that notification
that management believes would cause a change in the Bank's categorization.
The Bank's actual capital amounts and ratios are presented in the following
table.
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- -------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------- ----- ------- ----- -------- ------
(dollars in thousands)
As of December 31, 2001:
Total capital (to risk-weighted assets) $80,895 13.31% $48,630 8.00% $60,788 10.00%
Tier 1 capital (to risk-weighted assets) 73,783 12.14% 24,315 4.00% 36,473 6.00%
Tier 1 capital (to 4th qtr. average assets) 73,783 6.79% 43,449 4.00% 54,312 5.00%
As of December 31, 2000:
Total capital (to risk-weighted assets) $71,240 12.84% $44,384 8.00% $55,480 10.00%
Tier 1 capital (to risk-weighted assets) 65,578 11.82% 22,192 4.00% 33,288 6.00%
Tier 1 capital (to 4th qtr. average assets) 65,578 6.69% 39,195 4.00% 48,994 5.00%
-31-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. INCOME TAXES
The current and deferred components of income tax expense for the years ended
December 31 are as follows:
2001 2000 1999
------- ------- -------
(in thousands)
Current expense:
Federal $ 6,161 $ 883 $ 5,883
State 177 90 289
------- ------- -------
Total current expense 6,338 973 6,172
------- ------- -------
Deferred expense:
Federal (101) 4,534 (1,269)
State -- -- --
Valuation allowance -- (79) --
------- ------- -------
Total deferred expense (101) 4,455 (1,269)
------- ------- -------
Provision for income taxes $ 6,237 $ 5,428 $ 4,903
------- ------- -------
Income tax accounts included in other assets and other liabilities at December
31 are as follows:
2001 2000
------- -------
(in thousands)
Currently receivable (payable) $ 328 $ 1,078
Deferred income tax (liability) asset, net (3,137) (769)
------- -------
$(2,809) $ 309
------- -------
Income tax expense for the years presented is different from the amounts
computed by applying the statutory Federal income tax rate of 35% for 2001, 2000
and 1999 to income before Federal income taxes. The following tabulation
reconciles Federal income tax expense based on statutory rates to the actual
income tax expense for the years ended December 31:
2001 2000 1999
------- ------- -------
(in thousands)
Federal income tax expense
at statutory rates $ 5,984 $ 5,471 $ 4,903
State income taxes, net of Federal
income tax benefit 115 59 188
Effect of tax-exempt interest (27) (17) (17)
Other 165 (85) (171)
------- ------- -------
$ 6,237 $ 5,428 $ 4,903
------- ------- -------
Effective Tax Rate 36.5% 34.7% 35.0%
The following table sets forth the Company's gross deferred income tax assets
and gross deferred income tax liabilities at December
2001 2000
------- -------
(in thousands)
Deferred income tax assets:
Allowance for loan losses $ 2,640 $ 2,806
Deferred compensation 2,169 1,892
Unrealized loss on securities 28
available-for-sale -- 6
Acquisition premium 441 340
Investments writedown 51 51
Other 49 72
------- -------
Gross deferred income tax asset 5,350 5,789
Deferred income tax liabilities:
Deferred income (4,879) (4,949)
Unrealized gain on securities
available-for-sale (1,841) --
Accrued dividends (66) (73)
Purchase accounting -- (26)
Depreciation (358) (246)
Limited partnerships (1,263) (1,205)
Other (80) (59)
------- -------
Gross deferred income tax liability (8,487) (6,558)
------- -------
Deferred income tax liability, net $(3,137) $ (769)
-32-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. EMPLOYEE BENEFITS
The Company has a qualified Defined Benefit Pension Plan (the "Plan"), which is
offered to all employees reaching minimum age and service requirements. An
increase in the size of the work force and increased compensation expense in
2001 resulted in an increase in pension cost.
The Company has a Supplemental Insurance/Retirement Plan (the "Supplemental
Plan"), which is limited to certain officers and employees of the Company. The
Supplemental Plan is voluntary and participants are required to contribute to
its cost. Under the Supplemental Plan, each participant will receive a
retirement benefit based on compensation and length of service. Individual life
insurance policies, which are owned by the Company, are purchased covering the
lives of each participant. Increased compensation expense and the addition of
participants resulted in increased cost for the Supplemental Plan.
Supplemental Insurance/
Defined Benefit Pension Plan Retirement Plan
2001 2000 2001 2000
--------- ---------- -------- -------
(in thousands)
Change in benefit obligation:
Benefit obligation at beginning of year $ 9,240 $ 7,628 $ 8,067 $ 6,272
Service cost 493 427 53 32
Interest cost 624 553 545 455
Actuarial (gain)/loss 396 917 1,139 1,321
Benefits paid (220) (285) (13) (13)
-------- ------- ------- -------
Benefit obligation at end of year $ 10,533 $ 9,240 $ 9,791 $ 8,067
-------- ------- ------- -------
Change in plan assets:
Fair value of plan assets at beginning of year $ 6,446 $ 5,625
Actual return on plan assets 158 506
Employer contributions 675 600
Benefits paid (220) (285)
-------- -------
Fair value of plan assets at end of year $ 7,059 $ 6,446
-------- -------
Funded status $ (3,474) $(2,794) $(9,791) $(8,067)
Unrecognized transition obligation -- (1) -- (103)
Unrecognized prior service cost (324) (424) 368 407
Unrecognized net actuarial loss (2,345) (1,646) (3,958) (2,963)
-------- ------- ------- -------
Accrued benefit cost $ (805) $ (723) $(6,201) $(5,408)
-------- ------- ------- -------
Weighted average assumptions as of December 31:
Discount rate 6.75% 6.75% 6.75% 6.75%
Expected return on plan assets 8.00% 8.00% N/A N/A
Rate of compensation increase 5.00% 5.00% 5.00% 5.00%
Components of net periodic benefit cost:
Service cost $ 493 $ 427 $ 53 $ 32
Interest cost 624 553 545 455
Expected return on plan assets (508) (443) -- --
Amortization of unrecognized
transition obligation 1 1 103 103
Recognized prior service cost 99 99 (39) (39)
Recognized net losses 48 2 144 72
-------- ------- ------- -------
Net periodic cost $ 757 $ 639 $ 806 $ 623
-------- ------- ------- -------
The Company offers a 401(k) defined contribution plan for all employees reaching
minimum age and service requirements. The plan is voluntary and employee
contributions are matched by the Company at a rate of 25% for the first 4% of
compensation contributed by each employee. The match was increased to a 33.3%
match for the first 6% of compensation on October 1, 2001. The Company's match
totaled $70,000 for 2000 and $112,000 for 2001. Administrative costs associated
with the plan are absorbed by the Company.
The Company does not offer any post retirement programs other than pensions.
14. COMMITMENTS AND CONTINGENCIES
A number of legal claims against the Company arising in the normal course of
business were outstanding at December 31, 2001. Management, after reviewing
these claims with legal counsel, is of the opinion that their resolution will
not have a material adverse affect on the Company's consolidated financial
position.
-33-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company is party to financial instruments with off-balance sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments primarily include commitments to originate and sell loans,
standby letters of credit, unused lines of credit and unadvanced portions of
construction loans. The instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated balance sheet. The contract or notional amounts of those
instruments reflect the extent of involvement the Company has in these
particular classes of financial instruments.
The Company's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for loan commitments and standby letters
of credit is represented by the contractual amount of those instruments. The
Company uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. Financial instruments
with off-balance sheet risk at December 31 are as follows:
Contract or Notional Amount 2001 2000
- --------------------------- ------- -------
(in thousands)
Financial instruments whose contract amount
represents credit risk:
Commitments to originate 1- 4 family mortgages $ 2,305 $ 1,344
Standby letters of credit 1,738 991
Unused lines of credit 86,556 88,679
Unadvanced portions of construction loans 25,547 24,476
Commitments to originate loans, unadvanced portions of construction loans and
unused lines of credit are generally agreements to lend to a customer provided
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained, if deemed
necessary by the Company upon extension of credit, is based on management's
credit evaluation of the borrower.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance by a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.
In addition to general commitments, the Company has originated 1- 4 family
mortgages for sale in the secondary markets. These loans were sold with and
without recourse and no loan was originated without its sale having been
pre-arranged. The Company was servicing mortgage loans sold to others with a
maximum recourse provision of 10% of the outstanding balance of approximately
$338,000 at December 31, 2001 and $479,000 at December 31, 2000.
16. OTHER OPERATING EXPENSES
Year Ended December 31, 2001 2000 1999
- ----------------------- ------ ------ ------
(in thousands)
Marketing $1,064 $1,286 $ 947
Supplies 587 595 479
Telephone 312 268 240
Postage and delivery 621 492 470
Legal and audit 508 546 462
Consulting 419 278 180
Software maintenance/amortization 584 539 421
Processing services 1,013 764 436
Insurance 200 164 179
Director's fees 208 181 109
FDIC assessment 150 141 82
Core deposit intangible amortization 200 200 200
Goodwill amortization 267 267 327
Capital expense amortization 311 224 257
Other 819 555 683
------ ------ ------
$7,263 $6,500 $5,472
-34-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
fair values of its financial instruments.
Excluded from this disclosure are certain financial instruments for which it is
not practical to estimate their value and all nonfinancial instruments.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
CASH AND CASH EQUIVALENTS: The carrying amounts reported in the balance sheet
for cash and cash equivalents approximate the fair values of these assets
because of the short-term nature of these financial instruments.
SECURITIES HELD-TO-MATURITY AND SECURITIES AVAILABLE-FOR-SALE: The fair value of
these securities, excluding certain state and municipal securities whose fair
value is estimated at book value because they are not readily marketable, is
estimated based on bid prices published in financial newspapers or bid
quotations received from securities dealers.
LOANS: For variable-rate loans that reprice frequently and with no significant
change in credit risk, fair values are based on carrying amounts. The fair value
of other loans is estimated using discounted cash flow analysis, based on
interest rates currently being offered for loans with similar terms to borrowers
of similar credit quality. Incremental credit risk for non-performing loans has
been considered.
ACCRUED INTEREST RECEIVABLE AND PAYABLE: The carrying amounts for accrued
interest receivable and payable approximate fair values because of the
short-term nature of these financial instruments.
DEPOSITS: The fair value of demand deposits, savings, NOW and money market
accounts is based on the estimated discounted value of cash flows. The discount
rate used is estimated based on similar rates currently offered for deposits of
similar remaining estimated maturities. The fair value of certificates of
deposit is based on the discounted value of contractual cash flows. The discount
rate used is estimated based on the rates currently offered for deposits of
similar remaining maturities.
REPURCHASE AGREEMENTS AND OTHER BORROWED FUNDS: The fair value of repurchase
agreements and other borrowed funds is based on the discounted value of
contractual cash flows. The discount rate used is estimated based on the rates
currently offered for other borrowed funds of similar remaining maturities.
OFF-BALANCE SHEET INSTRUMENTS: The fair values of the Company's unused lines of
credit, commitments to originate and sell loans and standby letters of credit
are estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the
counterparties' credit standing. The fair value of the Company's commitments to
sell mortgage loans approximates the estimated cost to terminate or otherwise
settle the obligations with the counterparties. Therefore, at December 31, 2001
and 2000, there was no fair value adjustment.
The carrying amounts and fair values of the Company's financial instruments at
December 31 are as follows:
2001 2000
----------------------------- --------------------------
Carrying Carrying
Amounts Fair Value mounts Fair Value
-------- ---------- -------- ----------
(in thousands)
Financial assets:
Cash and cash equivalents $177,833 $ 177,833 $175,802 $ 175,802
Securities available-for-sale 460,833 460,833 273,144 273,144
Investment securities held-to-maturity 142,608 145,237 169,186 168,462
Net loans 455,660 460,302 433,901 422,040
Accrued interest receivable 7,561 7,561 7,612 7,612
Financial liabilities:
Deposits 888,408 848,147 793,796 754,559
Repurchase agreements
and other borrowed funds 216,321 227,655 168,778 167,786
Long term debt 28,750 28,750 28,750 26,234
Accrued interest payable 1,204 1,204 3,854 3,854
LIMITATIONS
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the type of financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Bank's entire holdings of a particular financial
instrument. Because no active market exists for some of the Bank's financial
instruments, fair value estimates are based on judgements regarding future
expected loss experience, cash flows, current economic conditions, risk
characteristics and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgement and
-35-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
therefore cannot be determined with precision. Changes in assumptions and
changes in the loan, debt and interest rate markets could significantly affect
the estimates. Further, the income tax ramifications related to the realization
of the unrealized gains and losses can have a significant effect on the fair
value estimates and have not been considered.
18. QUARTERLY RESULT OF OPERATIONS (UNAUDITED)
2001 Quarters Fourth Third Second First
- ------------- ---------- ---------- ---------- ----------
(in thousands, except per share data)
Interest income $ 16,171 $ 16,885 $ 17,128 $ 17,275
Interest expense 5,758 6,813 7,353 7,777
---------- ---------- ---------- ----------
Net interest income 10,413 10,072 9,775 9,498
Provision for loan losses 375 375 375 375
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 10,038 9,697 9,400 9,123
Other operating income 2,353 2,170 2,259 2,081
Operating expenses 7,956 7,446 7,441 7,182
---------- ---------- ---------- ----------
Income before income taxes 4,435 4,421 4,218 4,022
Provision for income taxes 1,583 1,626 1,552 1,476
---------- ---------- ---------- ----------
Net income $ 2,852 $ 2,795 $ 2,666 $ 2,546
---------- ---------- ---------- ----------
Share Data:
Average shares outstanding, basic 5,515,350 5,538,502 5,540,350 5,547,350
Average shares outstanding, diluted 5,524,578 5,550,007 5,548,550 5,547,350
Earnings per share, basic $ 0.52 $ 0.50 $ 0.48 $ 0.46
Earnings per share, diluted $ 0.52 $ 0.50 $ 0.48 $ 0.46
---------- ---------- ---------- ----------
2000 Quarters Fourth Third Second First
- ------------- ---------- ---------- ---------- ----------
(in thousands, except per share data)
Interest income $ 17,207 $ 16,943 $ 16,592 $ 15,812
Interest expense 8,040 7,958 7,768 7,326
---------- ---------- ---------- ----------
Net interest income 9,167 8,985 8,824 8,486
Provision for loan losses 375 375 375 300
---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 8,792 8,610 8,449 8,186
Other operating income 1,943 1,772 2,060 1,459
Operating expenses 6,799 6,549 6,303 5,987
---------- ---------- ---------- ----------
Income before income taxes 3,936 3,833 4,206 3,658
Provision for income taxes 1,304 1,307 1,510 1,307
---------- ---------- ---------- ----------
Net income $ 2,632 $ 2,526 $ 2,696 $ 2,351
---------- ---------- ---------- ----------
Share Data:
Average shares outstanding, basic 5,553,720 5,560,350 5,603,086 5,672,269
Average shares outstanding, diluted 5,553,720 5,560,350 5,603,086 5,674,306
Earnings per share, basic $ 0.47 $ 0.45 $ 0.48 $ 0.41
Earnings per share, diluted $ 0.47 $ 0.45 $ 0.48 $ 0.41
---------- ---------- ---------- ----------
19. PARENT COMPANY FINANCIAL STATEMENTS
The balance sheets of Century Bancorp, Inc. ("Parent Company") as of December
31, 2001 and 2000 and the statements of income and cash flows for each of the
years in the three-year period ended December 31, 2001 are presented below. The
statements of changes in stockholders' equity are identical to the consolidated
statements of changes in stockholders' equity and are therefore not presented
here.
BALANCE SHEETS
December 31, 2001 2000
- -------------- -------- --------
(in thousands)
Assets:
Cash $ 33,014 $ 32,172
Investment in subsidiary, at equity 80,144 67,955
Other assets 859 1,329
-------- --------
Total assets $114,017 $101,456
-------- --------
Liabilities and Stockholders' Equity:
Liabilities $ 668 $ 1,200
Long term debt 28,750 28,750
Stockholders' equity 84,599 71,506
-------- --------
Total liabilities and stockholders' equity $114,017 $101,456
-------- --------
-36-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF INCOME
Year Ended December 31, 2001 2000 1999
- ----------------------- -------- -------- --------
(in thousands)
Income:
Dividends from subsidiary $ 4,251 $ 3,193 $ 1,678
Interest income from deposits in bank 1,297 1,835 1,714
Other income 73 79 86
-------- -------- --------
Total income 5,621 5,107 3,478
Interest expense 2,460 2,460 2,460
Operating expenses 448 283 390
-------- -------- --------
Income before income taxes and equity in
undistributed income of subsidiary 2,713 2,364 628
Provision for income taxes (542) (293) (373)
-------- -------- --------
Income before equity in undistributed
income of subsidiary 3,255 2,657 1,001
Equity in undistributed income of subsidiary 7,604 7,548 8,104
-------- -------- --------
Net income $ 10,859 $ 10,205 $ 9,105
-------- -------- --------
STATEMENTS OF CASH FLOWS
Year Ended December 31, 2001 2000 1999
-------- -------- --------
(in thousands)
Cash flows from operating activities:
Net income $ 10,859 $ 10,205 $ 9,105
Adjustments to reconcile net income to
net cash provided by operating activities:
Undistributed income of subsidiary (7,604) (7,548) (8,104)
Depreciation and amortization 317 230 234
Decrease (increase) in other assets 153 (133) 14
(Decrease) increase in liabilities (532) 507 277
-------- -------- --------
Net cash provided by
operating activities 3,193 3,261 1,526
-------- -------- --------
Cash flows from financing activities:
Stock options exercised -- 104 71
Cash dividends paid (1,653) (1,477) (1,369)
Treasury stock repurchases (698) (2,120) (2,986)
Net cash (used in) provided by
financing activities (2,351) (3,493) (4,284)
-------- -------- --------
Net increase (decrease) in cash 842 232 (2,758)
Cash at beginning of year 32,172 32,404 35,162
-------- -------- --------
Cash at end of year $ 33,014 $ 32,172 $ 32,404
-------- -------- --------
-37-
INDEPENDENT AUDITORS' REPORT
KPMG LLP
Certified Public Accountants
99 High Street
Boston, Massachusetts 02110
THE BOARD OF DIRECTORS CENTURY BANCORP, INC.:
We have audited the accompanying consolidated balance sheets of Century Bancorp,
Inc. and subsidiary (the Company) as of December 31, 2001 and 2000, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the years in the three-year period ended December 31,
2001. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Century Bancorp,
Inc. and subsidiary as of December 31, 2001 and 2000, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States of America.
/s/ KPMG LLP
January 9, 2002
-38-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors of the Company and their ages as of December 31, 2001 are as
follows:
NAME AGE POSITION
George R. Baldwin 58 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Roger S. Berkowitz 49 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Karl E. Case, Ph. D. 55 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Henry L. Foster, D.V.M. 76 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Marshall I. Goldman, Ph. D. 71 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Russell B. Higley, Esquire 62 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Jonathan B. Kay 42 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Fraser Lemley 61 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Joseph P. Mercurio 53 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Joseph J. Senna, Esquire 62 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Barry R. Sloane 46 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Jonathan G. Sloane 43 Director and Executive Vice President, Century Bancorp, Inc.;
President and Chief Operating Officer, Century Bank and Trust Company
Marshall M. Sloane 75 Chairman, President and Chief Executive Officer, Century Bancorp, Inc.;
Chairman and Chief Executive Officer, Century Bank and Trust Company
Stephanie Sonnabend 48 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
George F. Swansburg 59 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Jon Westling 59 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
-39-
Mr. Baldwin became a director of the Company in 1996. He has been a Director of
Century Bank and Trust Company since 1995. Mr. Baldwin is President and CEO of
Baldwin & Co. He was formerly President and Chief Executive Officer of Arthur J.
Gallagher & Co.
Mr. Berkowitz became a director of the Company in 1996. He was elected a
director of Century Bank/Suffolk in 1989 and has been a director of Century Bank
and Trust Company since the banks merged in 1992. Mr. Berkowitz is President and
CEO of Legal SeaFoods, Inc.
Dr. Case became a director of the Company in 1996. Dr. Case has been a director
of Century Bank and Trust Company since 1995. He is a Professor of Economics at
Wellesley College and a Visiting Scholar at the Federal Reserve Bank of Boston.
Dr. Foster has been a director of the Company since its organization in 1972. He
was a founding director of Century Bank and Trust Company in 1969. He is founder
and Chairman Emeritus of Charles River Laboratories, Inc. Formerly, he was
Chairman of the Board of Charles River Laboratories, Inc.
Dr. Goldman has been a director of the Company since its organization in 1972.
He was also a founding director of Century Bank and Trust Company in 1969. He is
a Professor of Economics at Wellesley College and Associate Director of the
Davis Center for Russian Studies at Harvard University.
Mr. Higley became a director of the Company in 1996. He has been a director of
Century Bank and Trust Company since 1986. Mr. Higley is an attorney in private
practice.
Mr. Kay became a director of the Company in 1997. He was also elected a director
of Century Bank and Trust Company in 1997. Mr. Kay is President of The Kay
Companies.
Mr. Lemley became a director of the Company in 1996. He has been a director of
Century Bank and Trust Company since 1988. Mr. Lemley is Chairman of the Board
and CEO of Sentry Ford, Inc., Sentry Lincoln-Mercury, Inc., and Sentry South
Lincoln-Mercury, Inc.
Mr. Mercurio became a director of the Company in 1990. He has been a director of
Century Bank and Trust Company since 1995. He is an Executive Vice President of
Boston University.
Mr. Senna became a director of the Company in 1986. He has been a director of
Century Bank and Trust Company since 1979. Mr. Senna is an attorney in private
practice.
Mr. Barry R. Sloane became a director of the Company in 1997. He was also
elected a director of Century Bank and Trust Company in 1997. Mr. Sloane is
managing director of Steinberg, Priest & Sloane Capital Management, LLC.
Formerly, he was the Regional Head for the Southeastern United States at The
CitiBank Private Bank and, prior to that, he was a member of Senior Management,
Head of North America at Credit Suisse Private Bank.
Mr. Jonathan G. Sloane became a director of the Company in 1986. He has been a
Director of Century Bank and Trust Company since 1992. Mr. Sloane is currently
Executive Vice President of Century Bancorp Inc. and President and Chief
Operating Officer of Century Bank and Trust Company. From 1992 to 1998 he was
Senior Executive Vice President of Century Bank and Trust Company.
Mr. Marshall M. Sloane is the founder of the Company and has been Chairman,
President and Chief Executive Officer since its organization in 1972. He founded
Century Bank and Trust Company in 1968 and is currently its Chairman and Chief
Executive Officer.
Ms. Sonnabend became a director of the Company in 1997. She has been a director
of Century Bank and Trust Company since 1997. Ms. Sonnabend is President of
Sonesta International Hotels Corporation.
Mr. Swansburg became a director of the Company in 1986. He has been a director
of Century Bank and Trust since 1992. From 1992 to 1998 he was President and
Chief Operating Officer of Century Bank and Trust Company. He is now retired
from Century Bank and Trust Company.
Mr. Westling became a director of the Company in 1996. He has been a director of
Century Bank and Trust Company since 1995. Mr. Westling is President of Boston
University.
All of the Company's directors are elected annually and hold office until their
successors are duly elected and qualified. There are no family relationships
between any of the directors or executive officers, except that Barry R. Sloane
and Jonathan G. Sloane are the sons of Marshall M. Sloane and Jonathan B. Kay is
the son-in-law of Marshall M. Sloane.
-40-
The Audit Committee meets with KPMG LLP, the independent certified public
accountants, in connection with the annual audit of the Company's financial
statements. The Audit Committee reviews the findings and recommendations of the
FRB, FDIC, and Massachusetts Bank Commissioner's staff in connection with their
examinations and the internal audit reports and procedures for the Company and
its subsidiary. The Audit Committee met four times during 2001.
AUDIT COMMITTEE REPORT
The Audit Committee of the Company's Board of Directors is responsible for
providing independent, objective oversight of the Company's accounting functions
and internal controls. The Audit Committee is composed of five directors, each
of whom is independent as defined by the National Association of Securities
Dealers' current listing standards. The Audit Committee operates under a written
charter first adopted and approved by the Board of Directors in 2000. A copy of
this Charter was last published in the 10-K for the period ending December 31,
2000.
Management is responsible for the Company's internal controls and financial
reporting process. The independent accountants are responsible for performing an
independent audit of the Company's consolidated financial statements in
accordance with generally accepted auditing standards and to issue a report
thereon. The Audit Committee's responsibility is to monitor and oversee these
processes.
The Audit Committee has reviewed and discussed the audited financial statements
with management. The Audit Committee has also discussed with KPMG LLP, the
independent accounting firm for the Company, the matters required to be
discussed by Codification of Statements on Auditing Standards No. 61
(Communication with Audit Committees). The Audit Committee has received the
written disclosures and the letter from the independent accountants as required
by Independence Standards Board Standard No. 1 (Independence Discussions with
Audit Committees). Additionally, the Audit Committee has discussed with KPMG LLP
the firm's independence. Fees paid to KPMG LLP for audit fees and other fees
were $102,000 and $55,425, respectively. The other fees were mainly for tax
services performed.
Based on the review and discussions referred to in the paragraph above, the
Audit Committee recommended to the Board of Directors that the audited financial
statements be included in the Company's Annual Report on Form 10-K for the last
fiscal year for filing with the Securities and Exchange Commission.
Joseph J. Senna, Chair, George R. Baldwin, Henry L. Foster,
Russell B. Higley, Jon Westling
DIRECTOR COMPENSATION
Directors not employed by the Company receive a $6,000 retainer per year, $250
per Century Bancorp, Inc. Board meeting attended, $500 per Century Bank and
Trust Company Board and $450 per committee meeting attended.
ITEM 11. EXECUTIVE COMPENSATION AND OTHER INFORMATION
Executive officers are elected annually by the Board prior to the Annual Meeting
of Shareholders to serve for a one year term and until their successors are
elected and qualified. The following table sets forth the name of each executive
officer of the Company and the principal positions and offices he holds with the
Company
Marshall M. Sloane Chairman, President and Chief Executive Officer;
Chairman and Chief Executive Officer, Century Bank
and Trust Company. Mr. Sloane is 75 years old.
Jonathan G. Sloane Director and Executive Vice President; Director,
President and Chief Operating Officer, Century Bank
and Trust Company. Mr. Sloane is 43 years old.
Paul V. Cusick, Jr. Vice President and Treasurer; Executive Vice
President, Chief Financial Officer and Treasurer,
Century Bank and Trust Company. Mr. Cusick is 57
years old.
Paul A. Evangelista Executive Vice President, Century Bank and Trust
Company with responsibility for retail, cash
management and fee income. Mr. Evangelista is 38
years old. He joined the Company in 1999. Formerly,
he was Senior Vice President at U.S. Trust.
Kenneth M. Johnson President, Century Financial Services, Inc. Mr.
Johnson is 41 years old.
-41-
William J. Sloboda Executive Vice President, Century Bank and Trust
Company with responsibility for operations.
Mr. Sloboda is 59 years old.
David B. Woonton Executive Vice President, Century Bank and Trust
Company with responsibility for lending. Mr. Woonton
is 46 years old. He joined the Company in 1999.
Formerly, he was Regional President of Citizens Bank.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee is a committee of the Board of Directors composed of
Joseph P. Mercurio as Chairman, Fraser Lemley and Roger S. Berkowitz. It reviews
the salaries of the Company's officers and administers the Company's
Supplemental Executive Insurance/Retirement Income Plan and Incentive
Compensation Plan.
Decisions on compensation of the Company's executives are generally made by the
Compensation Committee of the Board of Directors. Each member of the
Compensation Committee is a non-employee director. The goal of the Committee is
to provide competitive levels of compensation in order to attract and retain
qualified executive personnel. The Compensation Committee believes that the
actions of each executive officer have the potential to affect the short and
long term profitability of the Company. Accordingly, the Compensation Committee
places considerable importance on the design and administration of the executive
compensation program.
The Company has an executive compensation program that is driven by the overall
performance of the Company, the increase in shareholder value, the performance
of the business unit directly affected by the executive and by the performance
of the individual executive. The three primary components of the executive
compensation program are base salary, cash incentive plan and stock based
incentive plans.
BASE SALARY
Base salary levels are set so that the Company has the management talent to meet
the challenges in the financial services industry. Several factors are included
in setting base salaries including the responsibilities of the executive
officer, the scope of the executive's position, individual performance and
salary levels at peer banks. Historically, the Company's executive compensation
practices have been designed to provide total compensation in the middle range
of compensation levels at similar banking institutions. Salary increases for the
senior management group have averaged 5% to 9% during the last several years.
CASH INCENTIVE PLANS
The Company has a cash incentive compensation plan which provides for the award
of bonuses up to a percentage of base salary to officers of the Company or its
subsidiaries. Recipients of incentive compensation are selected by the
Compensation Committee, upon the recommendation of management, as eligible to
participate in the plan. Awards are based upon the attainments of established
objectives including profitability, expense control, sales volume and overall
job performance. No bonuses are paid unless actual earnings are of budgeted net
income. Upon recommendation of the Compensation Committee, the Board of
Directors determines the amounts, if any, to be awarded. Earned bonuses for
2001, 2000 and 1999 are shown in the Summary Compensation Table.
EXECUTIVE BENEFITS
The Company's executive compensation package includes a special benefits
component in addition to base salary and cash and stock incentive plans. These
special benefits are viewed as less important than the above. Where such
benefits are provided, they are intended to support other business purposes
including facilitating business development efforts.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Marshall Sloane is eligible to participate in the same executive
compensation plans available to other executive officers described above. The
2001 cash compensation for Mr. Sloane was $911,500, of which $643,500 was base
salary.
CONCLUSION
The Compensation Committee believes that the executive compensation package will
motivate the management team to produce the results the Company has historically
achieved.
-42-
COMPARISON OF FIVE-YEAR
CUMULATIVE TOTAL RETURN*
[FIVE-YEAR PERFORMANCE GRAPH]
Value of $100 Invested on December 31, 1996 at:
12/31/97 12/31/98 12/31/99 12/31/00 12/31/01
-------- -------- -------- -------- --------
Century 138.00 142.37 128.94 119.40 165.62
Nasdaq Banks 167.41 166.33 159.89 182.38 197.44
Nasdaq U.S. 122.48 172.68 320.89 193.01 153.15
* Assumes that the value of the investment in the Company's Common Stock and
each index was $100 on December 31, 1996 and that all dividends were
reinvested.
-43-
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for fiscal years ending December 31, 1999, 2000 and
2001, the cash compensation paid by the Company and its subsidiaries, as well as
certain other compensation paid, accrued or granted for those years to the five
most highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
-------------------------------
Annual Compensation Awards Payouts
------------------------ ---------------------- -------
Restricted Securities All Other
Name Stock Underlying LTIP Compensation
And Salary Bonus(1) Other Awards Options/ Payouts ($)
Principal Position Year ($) ($) ($) ($) SARs (#) ($) (2)
- -----------------------------------------------------------------------------------------------------------------
Marshall M. Sloane 2001 643,500 295,600 0 0 12,000 0 58,863
Chairman, President and CEO, 2000 585,000 268,000 0 0 0 0 49,955
Century Bancorp, Inc. 1999 520,000 242,200 0 0 0 0 46,102
Chairman and CEO,
Century Bank and
Trust Company
- -----------------------------------------------------------------------------------------------------------------
Jonathan G. Sloane 2001 316,000 119,700 0 0 6,000 0 5,762
Executive Vice President 2000 295,000 108,800 0 0 0 0 5,379
Century Bancorp, Inc. 1999 250,000 96,900 0 0 0 0 3,950
President and COO,
Century Bank and
Trust Company
- -----------------------------------------------------------------------------------------------------------------
Paul V. Cusick, Jr. 2001 209,000 76,500 0 0 3,000 0 8,466
Executive Vice President 2000 195,000 69,500 0 0 0 0 6,218
Century Bank and Trust 1999 160,000 60,600 0 0 0 0 5,108
Company
- -----------------------------------------------------------------------------------------------------------------
Kenneth M. Johnson 2001 222,999 0 0 0 0 0 1,896
President 2000 251,128 0 0 0 0 0 1,700
Century Financial 1999 240,454 0 0 0 0 0 1,600
Services, Inc.
- -----------------------------------------------------------------------------------------------------------------
David B. Woonton 2001 200,000 76,500 0 0 2,000 0 2,851
Executive Vice President 2000 187,200 69,500 0 0 0 0 1,280
Century Bank and 1999 123,914 40,400 0 0 0 0 0
Trust Company
- -----------------------------------------------------------------------------------------------------------------
(1) Bonus amounts are based on performance for the years shown.
(2) Term insurance premiums paid for Supplemental Executive Insurance/Retirement
Income Plan and matching contribution for the 401(k) plan.
OPTIONS/SAR GRANTS IN 2001
The following table provides information relating to option grants pursuant to
our stock option plans during 2001 to our named executive officers.
Potential Realizable Value
INDIVIDUAL GRANTS at Assumed Rates of
Stock Price Appreciation
Percentage of for Option Term
Options Total Options Exercise Expiration --------------------------
Executive Officer Granted Granted to Price Date 5% 10%
- ----------------- ------- ------------- -------- ---------- --------------------------
Marshall M. Sloane 12,000 8.00% $16.057 January 16, 2006 $53,235 $117,636
Jonathan G. Sloane 6,000 4.00% 15.063 January 16, 2011 56,838 144,039
Paul V. Cusick, Jr. 3,000 2.00% 15.063 January 16, 2011 28,419 72,020
Kenneth M. Johnson -- -- -- -- -- --
David B. Woonton 2,000 1.33% 15.063 January 16, 2011 18,946 48,013
-44-
(1) Options vest and become exercisable 50% per year commencing on the first
anniversary of the date of grant. None of the indicated awards were
accompanied by stock appreciation rights.
(2) Percentage of options to purchase an aggregate of 150,000 shares of Common
Stock to all Officers during 2001.
(3) The exercise price was based on the market price of the Common Stock on
the date of grant.
(4) Assumes future stock prices of $20.49 and $25.86 for options granted on
January 16, 2001 to Marshall M. Sloane at compounded rates of return of 5%
and 10% respectively.
(5) Assumes future stock prices of $24.54 and $39.07 for options granted on
January 16, 2001 to all other Officers at compounded rates of return of 5%
and 10% respectively.
(6) There were no exercises of stock options in 2001.
SUPPLEMENTAL EXECUTIVE INSURANCE/RETIREMENT INCOME PLAN
Executive officers of the Company or its subsidiaries who have at least one year
of service may participate in the Supplemental Executive Insurance/Retirement
Income Plan (the "Supplemental Plan").
The Company maintains split dollar life insurance policies for participants, in
addition to the group term life insurance, which provides life insurance equal
to twice the individual's salary with a maximum of $200,000, which they receive
under a policy the Company maintains for its employees generally. The split
dollar insurance provides death benefits if the participant dies while in the
employ of the Company, equal to $3,218,000, $1,500,000, $1,045,000, $1,000,000
for Messrs. Marshall M. Sloane, Jonathan G. Sloane, Cusick and Woonton.
Premiums paid by the Company in 2001 amounted to $87,800, $63,500, $27,200,
$65,000, for policies on the lives of Messrs. Marshall M. Sloane, Jonathan G.
Sloane, Cusick, and Woonton. The policies are on an "insurance bonus" basis,
which means that the Company pays the full amount of all premiums on the
policies but an amount equal to the one-year term cost of the insurance is
treated for tax purposes as a bonus to the insured. The Company is the owner of
these policies and each participating employee has received an assignment of a
portion of each policy's proceeds. Upon the death of a participant, the Company
will receive benefits equal to the difference between the death benefits payable
to the named beneficiary under the Supplemental Plan and the face amount of the
policy (less any policy loans then in force).
A participant in the Supplemental Plan is also entitled to retirement benefits.
Participants, upon retirement at age 65, after a specified number of years of
service, are entitled to receive for life, with ten years certain, 75% of their
highest 36 months compensation for certain executives, or 66% of such
compensation if the participants are senior officers (as determined by the
Compensation Committee), less the primary social security benefits and the
benefit received from the defined benefit retirement plan. If a participant
retires or terminates employment prior to age 65 such person is entitled to a
reduced benefit. Five years of service are required for any benefits to become
vested. Thereafter benefits vest incrementally.
The following table illustrates representative annual retirement benefits at
various compensation levels for executive management employees under the
Supplemental Plan who retire at age 65 and with 15 years of service, without
reflecting the required offset of benefits from social security and the defined
benefit retirement plan.
Five Year Executive Officer Senior Officer
Average Compensation Annual Benefit Annual Benefit
-------------------- ----------------- --------------
$ 100,000 $ 75,000 $ 66,666
150,000 112,500 100,000
200,000 150,000 133,300
250,000 187,500 166,700
300,000 225,000 200,000
400,000 300,000 266,700
600,000 450,000 400,000
800,000 600,000 533,300
As of January 1, 2002, Messrs. Marshall M. Sloane, Jonathan G. Sloane, Cusick,
and Woonton were 100%, 100%, 85%, and 0%, vested, respectively, under the
Supplemental Plan.
-45-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as to the number and
percentage of shares of Class A and Class B Common Stock beneficially owned as
of December 31, 2001 (i) by each person known by the Company to own beneficially
more than 5% of the Company's outstanding shares of Class A or Class B Common
Stock (ii) by each of the Company's directors and certain officers; and (iii) by
all directors and officers of the Company as a group. As of December 31, 2001,
there were shares of Class A Common Stock and shares of Class B Common Stock
outstanding.
NUMBER OF BENEFICIAL
OWNER & ADDRESS OR NUMBER CLASS A % A CLASS B % B
OF PERSONS IN GROUP OWNED OWNED OWNED OWNED
- ------------------- ----- ----- ----- -----
Charles J. Moore (11) 251,300 7.44%
The Banc Funds
208 South LaSalle Street
Chicago, IL 60604
Gary G. Campbell (12)
Kennedy Capital Management, Inc. 225,400 6.67%
10829 Olive Boulevard
St. Louis, MO 63141
Marshall M. Sloane (a)(b) 17,198(1) 0.51% 1,682,690(2) 78.71%
400 Mystic Ave.
Medford, MA 02155
George R. Baldwin (a) 2,990 0.09%
Roger S. Berkowitz (a) 2,250 0.07%
Karl E. Case (a) 1,481 0.04%
Paul V. Cusick, Jr. (b) 15,200 0.45%
Paul A. Evangelista(b) 500 0.01%
Henry L. Foster, D.V.M. (a) 19,574 0.58% 1,000 0.05%
Marshall I. Goldman (a) 1,443(3) 0.04% 30,000(4) 1.40%
Russell B. Higley, Esquire (a) 4,750 0.14%
Jonathan B. Kay (a) 5,709(7) 0.17% 60,000(6) 2.81%
Donald H. Lang (a) 12,100 0.36%
Fraser Lemley (a) 8,123(9) 0.24%
Joseph P. Mercurio (a) 3,603 0.11%
Joseph J. Senna (a) 46,169(5) 1.37%
Barry R. Sloane (a) 2,130(10) 0.06%
Jonathan G. Sloane (a)(b) 17,852(8) 0.53% 60,000 2.81%
William J. Sloboda (b) 10,009 0.30% 500 0.02%
Stephanie Sonnabend (a) 1,211 0.04%
George F. Swansburg (a) 30,040 0.89%
Jon Westling (a) 1,622 0.05%
David B. Woonton (b) -- 00.0%
(a) Denotes director of the Company.
(b) Denotes officer of the Company.
All directors and officers as a group
(20 in number) (iii) 203,954 6.04% 1,834,190 85.79%
(1) Includes 2,500 shares owned by Mr. Sloane's spouse and also includes
13,979 shares held in trust for Mr. Sloane's grandchildren.
(2) Includes 1,500 shares owned by Mr. Sloane's spouse, and does not include
120,000 shares owned by Mr. Sloane's children. Mr. Sloane disclaims
beneficial ownership of such 120,000 shares.
(3) Does not include 9,000 shares held of record by Mr. Goldman's children;
Mr. Goldman disclaims beneficial ownership of such shares.
(4) Does not include 9,000 shares held of record by Mr. Goldman's children;
Mr. Goldman disclaims beneficial ownership of such shares.
(5) Includes 34,800 shares owned by Mr. Senna's spouse.
(6) Entire 60,000 shares are owned by Mr. Kay's spouse who is also Marshall
Sloane's daughter.
(7) Includes 71 shares owned by Mr. Kay's spouse.
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(8) Includes 81.86 shares owned by Mr. Sloane's spouse and includes 339 shares
owned by Mr. Jonathan Sloane's children.
(9) Includes 500 shares owned by Mr. Lemley's spouse and 610 shares held by
son, Noah Lemley.
(10) Includes 30 shares owned by son and 61 shares owned by partner Candace
Lapidus.
(11) The Company has relied upon the information set forth in the Schedule 13G
filed with the SEC by the Banc Funds on February 14, 2002.
(12) The Company has relied upon the information set forth in the Schedule 13G
filed with the SEC by Kennedy Capital Management, Inc. on February 15,
2002.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's Executive Officers and
Directors, and any persons who own more than 10% of a registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership of securities with the SEC and NASDAQ. Executive Officers, Directors,
and greater than 10% stockholders (of which, to the Company's knowledge, there
currently are none) are required by SEC regulation to furnish the Company's with
copies of all Section 16(a) forms they file. Based solely on a review of the
copies of such reports received by it or written representations from certain
reporting persons that no other reports were required, the Company believes
that, during 2001, all Section 16(a) filing requirements applicable to its
Executive Officers and Directors were complied with.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Directors and Officers of the Company and Bank and members of their
immediate family are at present, as in the past, customers of the Bank have
transactions with the Bank in the ordinary course of business. In addition,
certain of the Directors are at present, as in the past, also Directors,
Officers or Stockholders of Corporations or members of partnerships that are
customers of the Bank and have transactions with the Bank in the ordinary course
of business. Such transactions with Directors and Officers of the Company and
the bank and their families and with such corporations and partnerships were
made in the ordinary course of business, were made on substantially the same
terms, including interest rates and collateral on loans, as those prevailing at
the time for comparable transactions with other persons, and did not involve
more than the normal risk of collectibility or present other features
unfavorable to the Bank.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements.
The following financial statements of the company and its
subsidiaries are presented in Item 8:
Independent Auditors' Report
Consolidated Balance Sheets -- December 31, 2001 and 2000
Consolidated Statements of Income -- Years Ended December 31,
2001, 2000 and 1999
Consolidated Statements of Changes in Stockholders' Equity --
Years ended December 31, 2001, 2000 and 1999
Consolidated Statements of Cash Flows-Years Ended December 31,
2001, 2000 and 1999
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
All schedules are omitted because either the required
information is shown in the financial statements or notes
incorporated by reference, or they are not applicable, or the
data is not significant.
(3) Exhibits
Exhibit number 23.1, the Independent Auditors Consent, is
attached.
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(b) Reports on Form 8K.
There were no items reported on Form 8K during the last quarter of
the period covered by this Form.
(c) Exhibits required by Item 601 of Regulation S-K.
See (a)(3) above for exhibits filed herewith.
(d) Financial Statement required by Regulation S-X.
Schedules to Consolidated Financial Statements required by
Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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, on this 12th day of March
2002.
Century Bancorp, Inc.
/s/ Marshall M. Sloane
-----------------------------------------------
By: Marshall M. Sloane, Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated and on the date indicated.
/s/ George R. Baldwin /s/ Barry R. Sloane
- ------------------------------------ --------------------------------------
George R. Baldwin, Director Barry R. Sloane, Director
/s/ Stephanie Sonnabend
- ------------------------------------ --------------------------------------
Roger S. Berkowitz, Director Stephanie Sonnabend, Director
/s/ Karl E. Case /s/ George F. Swansburg
- ------------------------------------ --------------------------------------
Karl E. Case, Ph.D., Director George F. Swansburg, Director
/s/ Jon Westling
- ------------------------------------ --------------------------------------
Henry L. Foster, D.V.M., Director Jon Westling, Director
/s/ Marshall I. Goldman /s/ Marshall M. Sloane
- ------------------------------------ --------------------------------------
Marshall I. Goldman, Ph.D., Director Marshall M. Sloane, Chairman,
President and Chief Executive Officer
/s/ Russell B. Higley
- ------------------------------------ /s/ Jonathan G. Sloane
Russell B. Higley, Esquire, Director --------------------------------------
Jonathan G. Sloane, Director and
Executive Vice President
/s/ Jonathan B. Kay
- ------------------------------------
Jonathan B. Kay, Director /s/ Paul V. Cusick, Jr.
--------------------------------------
Paul V. Cusick, Jr., Vice President
/s/ Fraser Lemley and Treasurer, Principal
- ------------------------------------ Financial Officer
Fraser Lemley, Director
/s/ Kenneth A. Samuelian
/s/ Joseph P. Mercurio --------------------------------------
- ------------------------------------ Kenneth A. Samuelian,
Joseph P. Mercurio, Director Vice President and Controller,
Century Bank and Trust Company,
Principal Accounting Officer
/s/ Joseph J. Senna
- ------------------------------------
Joseph J. Senna, Esquire, Director
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