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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2003.
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from_________________________________________________.
Commission file number 0-15752.
CENTURY BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
COMMONWEALTH OF MASSACHUSETTS 04-2498617
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 MYSTIC AVENUE, MEDFORD, MA 02155
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(Address of principal executive offices) (Zip Code)
(781) 391-4000
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15 (d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of March 31, 2003:
CLASS A COMMON STOCK, $1.00 PAR VALUE 3,402,725 SHARES
CLASS B COMMON STOCK, $1.00 PAR VALUE 2,115,100 SHARES
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Century Bancorp, Inc.
Page
Index Number
----- ------
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets:
March 31, 2003 and December 31, 2002 3
Consolidated Statements of Income:
Three (3) months ended March 31, 2003 and
2002. 4
Consolidated Statements of Changes in Stockholders'
Equity: Three (3) months ended March 31, 2003 and
2002. 5
Consolidated Statements of Cash Flows:
Three (3) months ended March 31, 2003 and 2002. 6
Notes to Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-16
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 16
Item 4. Controls and Procedures 16
Part II. Other Information
Item 1 through Item 6 16-17
Signatures 17
Certifications 18-19
2 of 19
PART I - Item 1
Century Bancorp, Inc. - Consolidated Balance Sheets
(000's) March 31,
2003 Dec. 31,
Assets (unaudited) 2002
- ------ ----------- ----------
Cash and due from banks $ 74,423 $ 63,188
Federal funds sold and interest-bearing deposits in other banks 93,019 59,017
---------- ----------
Total cash and cash equivalents 167,442 122,205
---------- ----------
Securities available-for-sale, amortized cost $868,046 and
$750,129, respectively 878,546 761,531
Securities held-to-maturity, market value $171,825 and
$130,014, respectively 168,969 127,209
Loans, net:
Commercial & industrial 46,360 46,044
Construction & land development 31,404 33,155
Commercial real estate 281,837 291,598
Residential real estate 89,524 92,291
Consumer & other 9,229 9,634
Home equity 39,764 41,527
---------- ----------
Total loans, net 498,118 514,249
Less: allowance for loan losses 8,751 8,506
---------- ----------
Net loans 489,367 505,743
Bank premises and equipment 14,451 12,928
Accrued interest receivable 9,643 9,370
Goodwill 2,717 2,717
Core Deposit Intangible 4,059 0
Other assets 16,220 15,498
---------- ----------
Total assets $1,751,414 $1,557,201
========== ==========
Liabilities
Deposits:
Demand deposits $ 252,972 $ 248,340
Savings and NOW deposits 285,437 275,834
Money market accounts 455,162 357,921
Time deposits 323,180 264,189
---------- ----------
Total deposits 1,316,751 1,146,284
Securities sold under agreements to repurchase 52,710 51,800
Federal Home Loan Bank (FHLB) borrowings and other borrowed funds 126,835 169,420
Other liabilities 127,696 60,691
Long term debt 28,750 28,750
---------- ----------
Total liabilities 1,652,742 1,456,945
Commitments and contingencies
Stockholders' equity
Class A common stock, $1.00 par value per share; authorized
10,000,000 shares; issued 3,786,325 shares and 3,780,915 shares, respectively 3,786 3,781
Class B common stock, $1.00 par value per share; authorized
5,000,000 shares; issued 2,162,650 shares and 2,167,660 shares, respectively 2,163 2,168
Additional paid-in capital 11,128 11,123
Retained earnings 81,469 81,755
Treasury stock, Class A, 383,600 shares, each period, at cost (5,941) (5,941)
Treasury stock, Class B, 47,550 shares, each period, at cost (41) (41)
---------- ----------
92,564 92,845
Accumulated other comprehensive income, net of taxes 6,108 7,411
---------- ----------
Total stockholders' equity 98,672 100,256
---------- ----------
Total liabilities and stockholders' equity $1,751,414 $1,557,201
========== ==========
See accompanying Notes to Consolidated Financial Statements.
3 of 19
Century Bancorp, Inc. - Consolidated Statements of Income (unaudited)
(000's except share data) Three months ended March 31,
2003 2002
---------- ----------
Interest income
Loans $ 8,533 $ 8,587
Securities held-to-maturity 1,519 1,959
Securities available-for-sale 7,618 6,095
Federal funds sold and interest-bearing deposits in other banks 69 141
---------- ----------
Total interest income 17,739 16,782
Interest expense
Savings and NOW deposits 494 585
Money market accounts 1,153 1,025
Time deposits 1,907 1,909
Securities sold under agreements to repurchase 140 189
FHLB borrowings, other borrowed funds and long term debt 2,366 2,098
---------- ----------
Total interest expense 6,060 5,806
---------- ----------
Net interest income 11,679 10,976
Provision for loan losses 225 300
---------- ----------
Net interest income after provision
for loan losses 11,454 10,676
Other operating income
Service charges on deposit accounts 1,145 1,077
Lockbox fees 801 887
Brokerage commissions 135 267
Other income 227 217
---------- ----------
Total other operating income 2,308 2,448
---------- ----------
Operating expenses
Salaries and employee benefits 5,363 5,223
Occupancy 650 571
Equipment 288 539
Other 2,039 2,035
---------- ----------
Total operating expenses 8,340 8,368
---------- ----------
Income before income taxes 5,422 4,756
Provision for income taxes 5,218 1,752
---------- ----------
Net income $ 204 $ 3,004
========== ==========
Share data:
Weighted average number of shares outstanding, basic 5,517,616 5,515,350
Weighted average number of shares outstanding, diluted 5,537,151 5,526,697
Net income per share, basic $ 0.04 $ 0.54
Net income per share, diluted $ 0.04 $ 0.54
Cash dividends declared:
Class A common stock $ 0.1100 $ 0.1000
Class B common stock $ 0.0550 $ 0.0500
See accompanying Notes to Consolidated Financial Statements.
4 of 19
Century Bancorp, Inc. - Consolidated Statements of Changes in Stockholders'
Equity (unaudited)
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Class A Class B Additional
Common Common Paid-In Retained
Stock Stock Capital Earnings
--------- --------- --------- ---------
(000's)
2002
Balance at December 31, 2001 $ 3,761 $ 2,186 $ 11,093 $ 70,123
Net income - - - 3,004
Other comprehensive income, net of tax:
Change in unrealized (loss) gain on
securities available-for-sale - - - -
Comprehensive income
Conversion of Class B common stock to
Class A common stock, 13,200 shares 13 (13) - -
Stock Options Exercised, 550 shares 1 - 8 -
Cash dividends, Class A common stock,
$.10 per share - - - (340)
Cash dividends, Class B common stock,
$.05 per share - - - (107)
--------- --------- --------- ---------
Balance at March 31, 2002 $ 3,775 $ 2,173 $ 11,101 $ 72,680
================================================
2003
Balance at December 31, 2002 $ 3,781 $ 2,168 $ 11,123 $ 81,755
Net income - - - 204
Other comprehensive income, net of tax:
Change in unrealized gain on
securities available-for-sale - - - -
Comprehensive loss
Conversion of Class B common stock to
Class A common stock, 5,010 shares 5 (5) - -
Stock Options Exercised, 400 shares - - 5 -
Cash dividends, Class A common stock,
$.11 per share - - - (374)
Cash dividends, Class B common stock,
$.055 per share - - - (116)
--------- --------- --------- ---------
Balance at March 31, 2003 $ 3,786 $ 2,163 $ 11,128 $ 81,469
================================================
- -------------------------------------------------------------------------------------------------
Accumulated
Treasury Treasury Other Total
Stock Stock Comprehensive Stockholders'
Class A Class B Income (Loss) Equity
--------- --------- ------------- -------------
(000's)
2002
Balance at December 31, 2001 ($ 5,941) ($ 41) $ 3,418 $ 84,599
Net income - - - 3,004
Other comprehensive income, net of tax:
Change in unrealized (loss) gain on
securities available-for-sale - - (4,253) (4,253)
---------
Comprehensive income (1,249)
Conversion of Class B common stock to
Class A common stock, 13,200 shares - - - -
Stock Options Exercised, 550 shares - - - 9
Cash dividends, Class A common stock,
$.10 per share - - - (340)
Cash dividends, Class B common stock,
$.05 per share - - - (107)
--------- --------- --------- ---------
Balance at March 31, 2002 ($ 5,941) ($ 41) ($ 835) $ 82,912
=====================================================
2003
Balance at December 31, 2002 ($ 5,941) ($ 41) $ 7,411 $ 100,256
Net income - - - 204
Other comprehensive income, net of tax:
Change in unrealized gain on
securities available-for-sale - - (1,303) (1,303)
---------
Comprehensive loss (1,099)
Conversion of Class B common stock to
Class A common stock, 5,010 shares - - - -
Stock Options Exercised, 400 shares - - - 5
Cash dividends, Class A common stock,
$.11 per share - - - (374)
Cash dividends, Class B common stock,
$.055 per share - - - (116)
--------- --------- --------- ---------
Balance at March 31, 2003 ($ 5,941) ($ 41) $ 6,108 $ 98,672
=====================================================
See accompanying Notes to Consolidated Financial Statements.
5 of 19
Century Bancorp, Inc. - Consolidated Statements of Cash Flows (unaudited) 2003 2002
- ---------------------------------------------------------------------------------------------------------
For the three months ended
March 31,
(000's)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 204 $ 3,004
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 225 300
Deferred income taxes (1,050) (234)
Net depreciation and amortization 229 481
Increase in accrued interest receivable (273) (1,417)
(Increase) decrease in other assets (4,289) (2,168)
Loans originated for sale (180) ---
Proceeds from sales of loans 177 6
Gain on sales of loans 3 ---
Increase (decrease) in other liabilities 5,078 1,713
--------- ---------
Net cash provided by operating activities 124 1,685
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available-for-sale 187,062 54,014
Purchase of securities available-for-sale (304,926) (150,693)
Proceeds from maturities of securities held-to-maturity 31,102 22,582
Purchase of securities held-to-maturity (72,877) (7,970)
Increase (decrease) in payable for investments purchased 61,926 (33,976)
Net decrease in loans 16,269 (4,768)
Capital expenditures (1,750) (295)
--------- ---------
Net cash used in investing activities (83,194) (121,106)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in time deposits 58,991 (46,846)
Net increase in demand, savings, money market and NOW deposits 111,476 27,284
Net proceeds from the exercise of stock options 5 9
Cash dividends (490) (447)
Net increase (decrease) in securities sold under agreements to repurchase 910 (6,400)
Net (decrease) increase in FHLB borrowings and other borrowed funds (42,585) 14,193
--------- ---------
Net cash provided by (used in) financing activities 128,307 (12,207)
--------- ---------
Net decrease in cash and cash equivalents 45,237 (131,628)
Cash and cash equivalents at beginning of year 122,205 177,833
--------- ---------
Cash and cash equivalents at end of period $ 167,442 $ 46,205
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 6,015 $ 5,375
Income taxes 4,928 175
Change in unrealized gains on securities available-for-sale, net of taxes ($ 1,303) ($ 4,253)
See accompanying Notes to Consolidated Financial Statements.
6 of 19
Century Bancorp, Inc.
Notes to Consolidated Financial Statements
SUMMARY OF CRITICAL ACCOUNTING POLICIES
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements include the accounts of
Century Bancorp, Inc. (the "Company") and its wholly-owned
subsidiary, Century Bank and Trust Company (the "Bank"). The
Company provides a full range of banking services to
individual, business and municipal customers in Massachusetts.
As a bank holding company, the Company is subject to the
regulation and supervision of the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board"). The
Bank, a state chartered financial institution, is subject to
supervision and regulation by applicable state and federal
banking agencies, including the Federal Reserve Board, the
Federal Deposit Insurance Corporation (the "FDIC") and the
Commonwealth of Massachusetts Commissioner of Banks. The Bank
is also subject to various requirements and restrictions under
federal and state law, including requirements to maintain
reserves against deposits, restrictions on types and amounts
of loans that may be made and the interest that may be charged
thereon, and limitations on types of investments that may be
made and the types of services that may be offered. Various
consumer laws and regulations also affect the operations of
the Bank. In addition to the impact of regulation, commercial
banks are affected significantly by the actions of the Federal
Reserve Board as it attempts to control the money supply and
credit availability in order to influence the economy. All
aspects of the Company's business are highly competitive. The
Company faces aggressive competition from other lending
institutions and from numerous other providers of financial
services. The Company has one reportable operating segment
under Statements of Financial Accounting Standards No. 131.
In the opinion of management, the accompanying unaudited
interim consolidated financial statements reflect all
adjustments, consisting of normal recurring adjustments, which
are necessary to present a fair statement of the results for
the interim period presented of the Company and its
wholly-owned subsidiary, the Bank. The results of operations
for the interim period ended March 31, 2003, are not
necessarily indicative of results for the entire year. All
significant intercompany accounts and transactions have been
eliminated in consolidation. It is suggested that these
statements be read in conjunction with the consolidated
financial statements and the notes thereto included in the
Company's Annual Report on Form 10K for the year ended
December 31, 2002.
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
Page 7 of 19
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
judgments about information available to them at the time of
their examination.
Accounting policies involving significant judgments and
assumptions by management, which have, or could have, a
material impact on the carrying value of certain assets and
impact income, are considered critical accounting policies.
The Company considers the following to be its critical
accounting policies: allowance for loan losses, impaired
investment securities and deferred income taxes. There have
been no significant changes in the methods or assumptions used
in the accounting policies that require material estimates and
assumptions.
ALLOWANCE FOR LOAN LOSSES
Arriving at an appropriate level of allowance for loan losses
involves a high degree of judgment. 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. Risk grades are determined by
reviewing current collateral value, financial information,
cash flow, payment history and other relevant facts
surrounding the particular credit. Provisions for losses on
the remaining commercial and commercial real estate loans are
based on pools of similar loans using a combination of
historical loss experience and qualitative adjustments. For
the residential real estate and consumer loan portfolios, the
reserves are calculated by applying historical charge-off and
recovery experience and qualitative adjustments to the current
outstanding balance in each loan category. Loss factors are
based on the Company's historical loss experience as well as
regulatory guidelines.
Specific allowances are established in cases where management
has identified significant conditions related to a credit that
management believes that the probability that a loss has been
incurred in excess of the amount determined by the application
of the formula allowance
The unallocated allowance recognizes the model and estimation
risk associated with the formula allowance and specific
allowances as well as management's evaluation of various
conditions, including the business and economic conditions,
delinquency trends, charge-off experience and other asset
quality factors, 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. Such agencies may require the
Company to recognize additions to the allowance based on their
judgments about information available to them at the time of
their examination.
Page 8 of 19
DEFERRED INCOME TAXES
The Company uses the asset and liability method of accounting
for income taxes. Under the asset and liability method,
deferred tax assets and liabilities are recognized for future
tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which
temporary differences are expected to be recovered or settled.
Under this method, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
IMPAIRED INVESTMENT SECURITIES
If a material decline in fair value below the amortized cost
basis of an investment security is judged to be "other than
temporary," generally six months or longer, the cost basis of
the investment is written down to fair value. The amount of
the write-down is included as a charge to earnings. An "other
than temporary" impairment exists for debt securities if it is
probable that the Company will be unable to collect all
amounts due according to contractual terms of the security.
Some factors considered for "other than temporary" impairment
related to a debt security include an analysis of yield which
results in a decrease in expected cash flows, whether an
unrealized loss is issuer specific, whether the issuer has
defaulted on scheduled interest and principal payments,
whether the issuer's current financial condition hinders its
ability to make future scheduled interest and principal
payments on a timely basis or whether there was downgrade in
ratings by rating agencies.
STOCK OPTION ACCOUNTING
The Company currently accounts for employee stock options
using the intrinsic value method. Under the intrinsic value
method, no compensation cost is recognized related to options
if the exercise price of the option is greater than or equal
to the fair market value of the underlying stock on the date
of grant. Under an alternative method, the fair value method,
the "cost" of the option at the grant date is estimated using
an option valuation model and recognized as compensation
expense over the vesting period of the option. Any change from
the intrinsic value method to the fair value method of
accounting for stock options is required to be applied
prospectively for options granted after the date of change in
method which must be as of the beginning of a fiscal year. The
Company generally awards stock options annually with a grant
date in January.
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:
March 31, 2003 March 31, 2002
-------------- --------------
(Dollars in Thousands)
Net income
As reported $204 $3,004
Pro forma and diluted 163 2,963
Pro forma stock based
Compensation (net of tax) 41 41
Page 9 of 19
Basic earning per share
As reported 0.04 0.54
Pro forma 0.03 0.54
Diluted earnings per share
As reported 0.04 0.54
Pro forma 0.03 0.54
In determining the pro forma amounts, the fair value of each
option grant was estimated as of the date of grant using the
Black-Scholes option-pricing model with the following weighted
average assumptions:
Dividend yields 1.67% 2.25%
Expected life 7 years 8 years
Expected volatility 25% 25%
Risk-free interest rate 3.83% 4.01%
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
FORWARD LOOKING STATEMENTS
Except for the historical information contained herein, this
Quarterly Report on Form 10-Q may contain forward-looking
statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of
1934. Investors are cautioned that forward-looking statements
are inherently uncertain. Actual performance and results of
operations may differ materially from those projected or
suggested in the forward-looking statements due to certain
risks and uncertainties, including, without limitation, (i)
the fact that the Company's success is dependent to a
significant extent upon general economic conditions in New
England, (ii) the fact that the Company's earnings depend to a
great extent upon the level of net interest income (the
difference between interest income earned on loans and
investments and the interest expense paid on deposits and
other borrowings) generated by the Bank and thus the Bank's
results of operations may be adversely affected by increases
or decreases in interest rates, (iii) the fact that the
banking business is highly competitive and the profitability
of the Company depends upon the Bank's ability to attract
loans and deposits within its market area, where the Bank
competes with a variety of traditional banking and
nontraditional institutions such as credit unions and finance
companies, and (iv) the fact that a significant portion of the
Company's loan portfolio comprised of commercial loans,
exposing the Company to the risks inherent in loans based upon
analyses of credit risk, the value of underlying collateral,
including real estate, and other more intangible factors,
which are considered in making commercial loans. Accordingly,
the Company's profitability may be negatively impacted by
errors in risk analyses, by loan defaults, and the ability of
certain borrowers to repay such loans may be adversely
affected by any downturn in general economic conditions. These
factors, as well as general economic and market conditions,
may materially and adversely affect the market price of shares
of the Company's common stock. Because of these and other
factors, past financial performance should not be considered
an indicator of future performance. The forward-looking
statements contained herein represent the Company's judgment
as of the date of this Form 10-Q, and the Company cautions
readers not to place undue reliance on such statements.
Page 10 of 19
Management's Discussion and Analysis of Financial Condition
and Results of Operation (con't.)
OVERVIEW For the quarter ended March 31, 2003.
Earnings for the first quarter ended March 31, 2003 were
$204.4 thousand, a decrease of 93.2% when compared with the
first quarter 2002 earnings of $3.0 million. Diluted earnings
per share for the first quarter 2003 were $0.04 versus $0.54
for the first quarter of 2002. Included in income for the
quarter ended March 31, 2003 is the previously announced net
tax charge of $3,229,000 associated with recent Massachusetts
legislation that disallows the dividend received deduction for
dividends received from a real estate investment trust, or
"REIT". The tax charge includes additional state excise taxes,
including interest (net of the federal tax deduction
associated with such taxes and interest), relating to periods
1999 to 2002. As a result of the new legislation, the Company
has ceased recording the future tax benefits of the deduction.
On March 21, 2003, the Company completed the acquisition of
Capital Crossing Bank's branch office at 1220 Boylston Street,
Chestnut Hill, Massachusetts, and substantially all of the
retail deposits at Capital Crossing's main office at 101
Summer Street, Boston, Massachusetts. Century closed the
Chestnut Hill branch and transferred all customers of the
branch to its nearby branch office at 1184 Boylston Street,
Brookline, Massachusetts. In addition, Century transferred all
of the retail deposits from Capital Crossing's Summer Street
branch to its branch at 24 Federal Street, Boston,
Massachusetts. The acquisition included $192.7 million in
deposits. The acquisition also included a premium paid to
Capital Crossing for approximately $4.1 million. The premium
paid is subject to a rebate from Capital Crossing if acquired
deposits from the Boston office are closed within 90 days.
FINANCIAL CONDITION
Loans On March 31, 2003, total loans outstanding, net of unearned
discount, were $498.1 million, a decrease of 3.1% from the
total on December 31, 2002. At March 31, 2003 commercial real
estate loans accounted for 56.6% and residential real estate
loans, including home equity credit lines, accounted for 26.0%
of total loans. Construction loans decreased to $31.4 million
at March 31, 2003 from $33.2 million on December 31, 2002.
The decrease in loans was mainly attributable to a decrease in
commercial real estate loans and residential real estate
loans, including home equity credit lines.
Allowance for Loan Losses
The allowance for loan losses was 1.76% of total loans on
March 31, 2003 compared with 1.65% on December 31, 2002. Net
recoveries for the three-month period ended March 31, 2003
were $20 thousand compared with net recoveries of $32 thousand
for the same period in 2002. Additional provisions have been
made due to the mix of the loan portfolio. At the current
time, management believes that the allowance for loan losses
is adequate.
Page 11 of 19
Management's Discussion and Analysis of Financial Condition
and Results of Operation (con't.)
Nonperforming Loans
March 31, 2003 December 31, 2002
-------------- -----------------
(Dollars in Thousands)
Nonaccruing loans $533 $511
Loans past due 90 days
or more $ 1 $ 0
Nonaccruing loans as a
Percentage of total loans .11% .10%
Investments Management continually evaluates its investment alternatives
in order to properly manage the overall balance sheet mix. The
timing of purchases, sales and reinvestments, if any, will be
based on various factors including expectation of movements in
market interest rates, deposit flows and loan demand.
Notwithstanding these events, it is the intent of management
to grow the earning asset base through loan originations, loan
purchases or investment acquisitions while funding this growth
through a mix of retail deposits, FHLB advances, and retail
repurchase agreements.
March 31, 2003 December 31, 2002
-------------- -----------------
(Dollars in Thousands)
Securities Available-for-Sale
U.S. Government and
Agencies $834,132 $712,596
Other Bonds and Equity Securities 17,530 18,117
Mortgage-backed Securities 26,884 30,818
-------- --------
Total Securities Available-for-Sale $878,546 $761,531
======== ========
Securities Held-to-Maturity
U.S. Government and
Agencies $ 53,386 $ 73,373
Other Bonds and Equity Securities 25 25
Mortgage-backed Securities 115,558 53,811
-------- --------
Total Securities Held-to-Maturity $168,969 $127,209
======== ========
Securities Available-for-Sale
The securities available-for-sale portfolio totaled $878.5
million at March 31, 2003, an increase of 15.4% from December
31, 2002. The portfolio increased mainly because of increases
in deposits and borrowed funds. The portfolio is concentrated
in United States Government and Agency securities and has an
estimated weighted average maturity of 3.2 years.
Page 12 of 19
Management's Discussion and Analysis of Financial Condition
and Results of Operation (con't.)
Securities Held-to-Maturity
The securities held-to-maturity portfolio totaled $169.0
million on March 31, 2003, an increase of 32.8% from the total
on December 31, 2002. The portfolio increased mainly because
of increases in deposits and borrowed funds. The portfolio is
concentrated in United States Government and Agency
securities, including Mortgage Backed Securities and has an
estimated weighted average maturity of 5.3 years.
Deposits and Borrowed Funds
On March 31, 2003, deposits totaled $1,316.8 million,
representing a 14.9% increase in total deposits from December
31, 2002. Total deposits increased primarily as a result of
increases in money market accounts and time deposits acquired
from Capital Crossing. Borrowed funds totaled $179.5 million
compared to $221.2 million at December 31, 2002. Borrowed
funds decreased because of the liquidity received from the
Capital Crossing transaction.
RESULTS OF OPERATIONS
Net Interest Income
For the three-month period ended March 31, 2003, net interest
income totaled $11.7 million, an increase of 6.4% from the
comparable period in 2002. The increase in net interest
income, for the three month period, was primarily attributable
to a 27.5% increase in the average balances of earning assets
combined with a similar increase in deposits and borrowed
funds. The increase in volume was partially offset by a
sixty-three basis point decrease in the net interest margin.
Since the Capital Crossing transaction occurred on March 21,
2003, the results were not materially affected by this
transaction.
The net yield on average earning assets on a fully taxable
equivalent basis decreased to 3.33% in the first three months
of 2003 from 3.96% during the same period in 2002. The
decrease in the net interest margin was mainly attributable to
assets continuing to reprice at historically low levels
without a corresponding decrease in rates paid on deposits.
The Company believes that the net interest margin will
continue to be challenged.
Page 13 of 19
Management's Discussion and Analysis of Financial
Condition and Results of Operation (con't.)
The following table sets forth the distribution of
the Company's average assets, liabilities and
stockholders' equity, and average rates earned or
paid on a fully taxable equivalent basis for each of
the nine-month periods indicated.
March 31, 2003 March 31, 2002
----------------------------------------------------------------
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense(1) Paid Balance Expense(1) Paid
- ------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Assets
Interest-earning assets:
Loans (2) $ 501,831 8,533 6.90% $ 457,774 8,587 7.61%
Securities available-for-sale 756,161 7,619 4.03% 481,552 6,100 5.07%
Securities held-to-maturity 121,768 1,519 4.99% 135,332 1,959 5.79%
Temporary funds 23,720 69 1.16% 34,690 141 1.63%
----------- -------- ---- ---------- ----------- ----
Total interest earning
Assets $ 1,403,480 $ 17,740 5.06% $1,109,348 $ 16,787 6.05%
Non interest-earning assets 109,722 96,167
Allowance for loan losses (8,629) (7,278)
----------- ----------
Total assets $ 1,504,573 $1,198,237
=========== ==========
Liabilities and Stockholders' Equity
Interest bearing deposits:
NOW account $ 212,303 $ 407 0.78% $ 153,689 $ 445 1.17%
Savings accounts 76,825 87 .46% 67,121 140 0.85%
Money market accounts 318,958 1,153 1.47% 225,963 1,025 1.84%
Time deposits 265,454 1,907 2.91% 198,973 1,909 3.89%
----------- -------- ---- ---------- ----------- ----
Total interest-bearing
Deposits 873,540 3,554 1.65% 645,746 3,519 2.21%
Securities sold under
Agreements to
Repurchase 54,612 140 1.04% 67,399 189 1.14%
Other borrowed funds and
Long term debt 201,076 2,366 4.77% 161,809 2,098 5.26%
----------- -------- ---- ---------- ----------- ----
Total interest-bearing
Liabilities 1,129,228 6,060 2.18% 874,954 5,806 2.69%
Non interest-bearing
Liabilities
Demand deposits 250,413 220,135
Other liabilities 24,041 17,793
----------- ----------
Total liabilities 1,403,682 1,112,882
Stockholders' equity 100,891 85,355
----------- ----------
Total liabilities &
Stockholders
Equity $ 1,504,573 $1,198,237
=========== ==========
Net interest income $ 11,680 $10,981
---------------------------------------------------------------------------
Net interest spread 2.88% 3.36%
---------------------------------------------------------------------------
Net yield on earnings
Assets 3.33% 3.96%
---------------------------------------------------------------------------
(1) On a fully taxable equivalent basis calculated using a tax rate of 41.825%.
(2) Nonaccrual loans are included in average amounts outstanding.
Page 14 of 19
Management's Discussion and Analysis of Financial
Condition and Results of Operation (con't.)
2003 Compared with 2002
Increase/(Decrease)
Due to Change in
Income
Increase
Volume Rate (Decrease)
- ------------------------------------------------------------------------------
(dollars in thousands)
Interest Income:
Loans $ 787 $ (841) $ (54)
Securities available-for-sale 2,955 (1,436) 1,519
Securities held-to-maturity (185) (255) (440)
Temporary funds (38) (34) (72)
------- ------ -------
Total interest income 3,519 (2,566) 953
======= ====== =======
Interest expense:
Deposits:
NOW accounts 140 (178) (38)
Savings accounts 18 (71) (53)
Money market accounts 364 (236) 128
Time deposits 546 (548) (2)
------- ------ -------
Total interest-bearing deposits 1,068 (1,033) 35
Securities sold under agreements to
repurchase (34) (15) (49)
Other borrowed funds and long term
debt 475 (207) 268
------- ------ -------
Total interest expense 1,509 (1,255) 254
------- ------ -------
Change in net interest income 2,010 (1,311) 699
======= ====== =======
Provision for Loan Losses
For the three-month period ended March 31, 2003, the
loan loss provision totaled $225 thousand compared to
$300 thousand for the same period last year. Loan
loss provision decreased because of management's
determination of the relative adequacy in the loan
loss reserve. The Company's loan loss allowance as a
percentage of total loans outstanding has increased
from 1.65% at December 31, 2002 to 1.76% at March 31,
2003. The loan loss reserve percentage of total loans
increased mainly because paydowns and the mix in the
loan portfolio.
Non-Interest Income and Expense
Other operating income for the quarter ended March
31, 2003 was $2.3 million compared to $2.4 million
for the first quarter of 2002. The decrease was
mainly attributable to a decrease of $132 thousand in
brokerage commissions and an $86 thousand decrease in
lockbox fees. This was partially offset by a $68
thousand increase in service charges on deposit
accounts. The decrease in brokerage commissions can
be attributable to stock market conditions. Lockbox
income decreased mainly because of a decrease in
volume and service charges on deposit accounts
increased mainly because of an increase in deposits.
Page 15 of 19
Management's Discussion and Analysis of Financial Condition
and Results of Operation (con't.)
During the three-month period ended March 31, 2003, operating
expenses decreased by $28 thousand to $8.3 million or 0.3%
from the same period last year. Although compensation expense
is up slightly, most of the overall decrease in operating
expenses is associated with the reduction of accruals for
incentive compensation for the quarter; this was more than
offset by increased staff levels as well as merit increases in
salaries and employee benefits. Incentive compensation
accruals were decreased because of a decrease in the Company's
performance. Equipment expense decreased mainly because of a
decrease in depreciation expense and was partially offset by
an increase in occupancy expense.
Income Taxes
For the first quarter of 2003, the Company's income taxes
totaled $5.2 million on pretax income of $5.4 million for an
effective tax rate of 96.2%. For last year's corresponding
quarter, the Company's income taxes totaled $1.8 million on
pretax income of $4.8 million for an effective tax rate of
36.8%. The effective tax rate increased because of the
previously announced net tax charge of $3,229,000 associated
with recent Massachusetts legislation that disallows the
dividend received deduction from a REIT. The tax charge
includes additional state excise taxes, including interest
(net of the federal tax deduction associated with such taxes
and interest), relating to prior periods from and after 1999.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The response is incorporated herein by reference from the
discussion under the sub caption "Market Risk and Asset
Liability Management" of the caption "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS"
on page 12 of the Annual Report which is incorporated herein
by reference.
ITEM 4 CONTROLS AND PROCEDURES
The principal executive officer and principal financial
officer have evaluated the disclosure controls and procedures
as of a date within 90 days before the filing date of this
quarterly report. Based on this evaluation, the principal
executive officer and principal financial officer have
concluded that the disclosure controls and procedures
effectively ensure that information required to be disclosed
in the Company's filings and submissions with the Securities
and Exchange Commission under the Exchange Act, is recorded,
processed, summarized and reported within the time periods
specified by the Securities and Exchange Commission. In
addition, the Company has reviewed its internal controls and
there have been no significant changes in its internal
controls or in other factors that could significantly affect
those controls subsequent to the date of its last evaluation.
PART II - OTHER INFORMATION
Item 1 Legal proceedings - At the present time, the Company is not
engaged in any legal proceedings which, if adversely
determined to the Company, would have a material adverse
impact on the Company's financial condition or results of
operations. From time to time, the Company is party to routine
legal proceedings within the normal course of business. Such
routine legal proceedings, in the aggregate, are
Page 16 of 19
believed by management to be immaterial to the Company's
financial condition and results of operation.
Item 2 Change in securities - Not applicable
Item 3 Defaults upon senior securities - Not applicable
Item 4 Submission of matters to a vote - Not applicable
Item 5 Other information - Not Applicable
Item 6 Exhibits and reports on form 8-K
(a) Exhibits
99.1 Certification of Chief Executive Officer and
Chief Financial Officer of the Company pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
On January 23, 2003, the Company filed a Form 8-K in
connection with its issuance of a press release on
January 21, 2003 announcing the company's results for
the year ended December 31, 2002.
On February 26, 2003, the Company filed a form 8-K to issue
financial statements relating to its fiscal year ended
December 31, 2002.
On March 7, 2003, the Company filed a form 8-K in connection
with the issuance of a press release on March 6, 2003
announcing the effect on the Company of changes in
Massachusetts tax law.
On March 25, 2003, the Company filed a form 8-K in connection
with the issuance of a press release on March 21, 2003
announcing that the Bank had completed its acquisition of
Capital Crossing Bank's branch office at 1220 Boylston Street,
Chestnut Hill, Massachusetts, and substantially all of its
retail deposits in its main office at 101 Summer Street,
Boston, Massachusetts.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: MAY 9, 2003 CENTURY BANCORP, INC
/s/ Paul V. Cusick, Jr. /s/ Kenneth A. Samuelian
- ----------------------------------- ------------------------------
PAUL V. CUSICK, JR. KENNETH A. SAMUELIAN
VICE PRESIDENT AND TREASURER VICE PRESIDENT AND CONTROLLER
(PRINCIPAL FINANCIAL OFFICER) CENTURY BANK AND TRUST COMPANY
(CHIEF ACCOUNTING OFFICER)
Page 17 of 19
CERTIFICATIONS
I, Marshall M. Sloane, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Century
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the period presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant,
and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors;
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 9, 2003 /s/ Marshall M. Sloane
------------------------------------
Marshall M. Sloane
Chairman and Chief Executive Officer
(Principal Executive Officer)
Page 18 of 19
I, Paul V. Cusick, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Century
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the period presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant,
and we have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
(c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and
the audit committee of registrant's board of directors;
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: May 9, 2003 /s/ Paul V. Cusick, Jr.
------------------------------
Paul V. Cusick, Jr.
Vice President and Treasurer
(Principal Financial Officer)
Page 19 of 19