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1
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 (FEE REQUIRED)
For the fiscal year ended DECEMBER 31, 1996
---------------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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: (617)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, 1997:
$5,992,180
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of February 28, 1997:
CLASS A COMMON STOCK, $1.00 PAR VALUE 3,461,297 SHARES
CLASS B COMMON STOCK, $1.00 PAR VALUE 2,300,170 SHARES
i
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CENTURY BANCORP INC.
FORM 10-K
TABLE OF CONTENTS
PAGE
PART I
ITEM 1 BUSINESS 1-16
ITEM 2 PROPERTIES 17
ITEM 3 LEGAL PROCEEDINGS 17
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY 17
HOLDERS
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED 17-18
STOCKHOLDER MATTERS
ITEM 6 SELECTED FINANCIAL DATA 18
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL 18
CONDITION AND RESULTS OF OPERATIONS
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 18
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 18
ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 42-44
ITEM 11 EXECUTIVE COMPENSATION AND OTHER INFORMATION 44-48
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS 49
AND MANAGEMENT
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 50
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND 50
REPORTS ON FORM 8-K
SIGNATURES 51
ii
3
PART I
ITEM 1. BUSINESS
THE COMPANY
Century Bancorp, Inc. (together with its subsidiary, unless the context
otherwise requires, the "Company"), is a 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. During November 1992, the Company merged two former banking
subsidiaries, Century North Shore Bank and Trust Company and Century
Bank/Suffolk, into Century Bank and Trust Company. The Company had total assets
of $560.9 million on December 31, 1996. On that date the assets of Century Bank
and Trust Company were $465.3 million. The Company presently operates 15 banking
offices in 14 cities and towns 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 March 26, 1993 the Bank assumed $43.5 million in deposits of the former
Wollaston Credit Union of Quincy, Massachusetts from the Massachusetts Credit
Union Share Insurance Corporation. The Bank also acquired $25.2 million in
residential and consumer loans, $6.2 million in investment securities and $12.9
million in cash. The Bank continues to operate the former branches of Wollaston
and intends to continue to seek similar acquisitions in its market area or
contiguous market areas.
The Company offers a wide range of services to commercial enterprises, state and
local governments and agencies, and individuals. It makes commercial loans, real
estate and construction loans, and 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.
The Company emphasizes service to small and medium-sized businesses and retail
customers in its market area. It provides business and consumer deposit services
and makes commercial loans, real estate and construction loans and consumer
loans. The Company provides full service brokerage through Century Financial
Services in conjunction with Commonwealth Equities.
The Company is 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 the state.
The Company's principal executive offices are located at 400 Mystic Avenue,
Medford, Massachusetts 02155. Its telephone number is (617) 391-4000.
-1-
4
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.
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------
1996 1995
---- ----
Average Interest Rate Average Interest Rate
Balance Income (1) Earned (1) Balance Income (1) Earned (1)
------- ---------- ---------- ------- ---------- ----------
(Dollars In Thousands)
Assets
Interest-earning assets:
Loans(2) $ 281,943 $ 26,429 9.37% $ 279,555 $ 26,490 9.48%
Securities available-for-sale:
Taxable 90,652 5,627 6.21% 70,467 4,218 6.00%
Tax-exempt 872 52 5.96% 1,372 91 6.63%
Securities held-to-maturity:
Taxable 94,335 6,007 6.37% 62,158 3,650 5.87%
Tax-exempt 170 13 7.65% 180 15 8.33%
Federal funds sold 15,090 807 5.35% 29,076 1,723 5.93%
Interest bearing deposits
in other banks 47 2 4.26% 29 1 3.45%
--------- --------- --------- ---------
Total interest-earning assets 483,109 38,937 8.06% 442,837 36,188 8.17%
--------- ----- --------- -----
Non interest-earning assets 61,450 56,127
Allowance for loan losses (4,163) (4,479)
--------- ---------
Total assets $ 540,396 $ 494,485
========= =========
YEAR ENDED DECEMBER 31,
----------------------------------
1994
----
Average Interest Rate
Balance Income (1) Earned (1)
--------- --------- ---------
(Dollars In Thousands)
Assets
Interest-earning assets:
Loans(2) $ 267,123 $ 23,418 8.77%
Securities available-for-sale:
Taxable 52,435 3,121 5.95%
Tax-exempt 68 5 7.35%
Securities held-to-maturity:
Taxable 70,342 2,812 4.00%
Tax-exempt 474 62 13.08%
Federal funds sold 30,462 1,287 4.22%
Interest bearing deposits
in other banks 0 0 0.00%
--------- ---------
Total interest-earning assets 420,904 30,705 7.30%
--------- ------
Non interest-earning assets 56,671
Allowance for loan losses (4,765)
---------
Total assets $ 472,810
=========
- --------------------------------------------------------------------------------
(1) On a fully taxable equivalent basis calculated using a federal tax rate of
34%.
(2) Nonaccrual loans are included in average amounts outstanding.
-2-
5
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------------
1996 1995
---- ----
Average Interest Income Rate Earned Average Interest Income Rate Earned
Balance /Expense (1) /Paid (1) Balance /Expense (1) /Paid (1)
-------- ----------- ---------- -------- --------------- -----------
(Dollars In Thousands)
Liabilities and Stockholders'
Equity
Interest-bearing deposits:
NOW accounts $ 84,620 $ 2,367 2.80% $ 82,628 $ 2,568 3.11%
Savings accounts 55,905 1,439 2.57% 50,916 1,335 2.62%
Money market accounts 70,735 2,084 2.95% 78,029 2,487 3.19%
Time deposits 158,037 9,020 5.71% 134,769 7,612 5.65%
-------- ------- -------- ------
Total interest-bearing
deposits 369,297 14,910 4.04% 346,342 14,002 4.04%
Securities sold under
agreements to repurchase 16,654 713 4.28% 14,390 632 4.39%
Other borrowed funds 3,135 182 5.81% 960 52 5.42%
-------- ------- -------- ------
Total interest-bearing
liabilities 389,086 15,805 4.06% 361,692 14,686 4.06%
------- ---- ------ -----
Non interest-bearing
liabilities
Demand deposits 99,179 86,328
Other liabilities 7,340 6,084
-------- --------
Total liabilities 495,605 454,104
Stockholders' equity 44,791 40,381
-------- --------
Total liabilities &
stockholders' equity $540,396 $494,485
======== ========
Net interest income(1) $23,132 $21,502
======= =======
Net interest spread 4.00% 4.11%
==== ====
Net yield on earnings assets 4.79% 4.86%
==== ====
YEAR ENDED DECEMBER 31,
-----------------------------------
1994
----
Average Interest Income Rate Earned
Balance /Expense (1) /Paid (1)
-------- ------------ -----------
(Dollars In Thousands)
Liabilities and Stockholders'
Equity
Interest-bearing deposits:
NOW accounts $ 75,941 $ 1,721 2.27%
Savings accounts 53,166 1,328 2.50%
Money market accounts 94,820 2,330 2.46%
Time deposits 124,963 5,245 4.20%
-------- -------
Total interest-bearing
deposits 348,890 10,624 3.05%
Securities sold under
agreements to repurchase 10,235 268 2.62%
Other borrowed funds 732 32 4.37%
-------- -------
Total interest-bearing
liabilities 359,857 10,924 3.04%
------- -----
Non interest-bearing
liabilities
Demand deposits 70,994
Other liabilities 5,678
--------
Total liabilities 436,529
Stockholders' equity 36,281
--------
Total liabilities &
stockholders' equity $472,810
========
Net interest income(1) $19,781
=======
Net interest spread 4.26%
====
Net yield on earnings assets 4.70%
====
- --------------------------------------------------------------------------------
(1) On a fully taxable equivalent basis calculated using a federal tax rate of
34%.
-3-
6
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 the
change in rate multiplied by the prior year's volume. Changes due to volume are
the change in volume multiplied 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.
Net interest income improved in 1996. Interest income was affected positively by
improvements in the interest earned in most categories of earning assets. Much
of the Company's earning assets were repriced to improve their respective
returns. Interest expense rose primarily because of a higher level of time
deposit volume. Interest income on securities increased primarily because of
volume.
Year Ended December 31,
-----------------------
1996 Compared with 1995 1995 Compared with 1994
----------------------------------- -----------------------------
Increase/(Decrease) Increase/(Decrease)
Due to Change in Due to Change in
---------------- ----------------
Total Total
Average Average Increase Average Average Increase
Balance Rate (Decrease) Balance Rate (Decrease)
------- ------- ------- ------- ------- -------
(In Thousands)
Interest income:
Loans $ 225 $ (286) $ (61) $ 1,122 $ 1,950 $ 3,072
Securities available-for-sale:
Taxable 1,248 161 1,409 1,079 18 1,097
Tax-exempt (31) (8) (39) 87 (1) 86
Securities held-to-maturity:
Taxable 2,027 330 2,357 (358) 1,196 838
Tax-exempt (1) (1) (2) (30) (17) (47)
Federal funds sold (762) (154) (916) (61) 497 436
Interest-bearing deposits
in other banks 1 0 1 0 1 1
------- ------- ------- ------- ------- -------
Total interest income 2,707 42 2,749 1,840 3,643 5,483
------- ------- ------- ------- ------- -------
Interest expense:
Deposits:
NOW accounts 61 (262) (201) 162 685 847
Savings accounts 129 (25) 104 (57) 64 7
Money market accounts (223) 180 403 (458) 615 157
Time deposits 1,327 81 1,408 438 1,929 2,367
------- ------- ------- ------- ------- -------
Total interest-bearing
deposits 1,294 (386) 908 84 3,294 3,378
Securities sold under
agreements to repurchase 97 (16) 81 136 228 364
Other borrowed funds 126 4 130 11 9 20
------- ------- ------- ------- ------- -------
Total interest expense 1,517 (398) 1,119 232 3,530 3,762
------- ------- ------- ------- ------- -------
Change in net interest income $ 1,190 $ 440 $ 1,630 $ 1,608 $ 113 $ 1,721
======= ======= ======= ======= ======= =======
-4-
7
ASSET/LIABILITY MANAGEMENT
The Company's asset/liability management objective is to insulate the balance
sheet, and therefore the income statement, from excessive risk due to changes in
market interest rates. It is the responsibility of the Company's ALCO committee
to establish long-term strategies with respect to interest rate exposure, and
to monitor that exposure in relation to present and prospective market interest
rates, economic conditions, and balance sheet composition on an on-going basis.
Monitoring techniques include gap management and simulation analysis.
The Company attempts to manage its exposure to interest rate risk by closely
monitoring the maturities and interest rate sensitivities of its assets and
liabilities. The following table measures the extent to which interest-sensitive
assets exceed interest-sensitive liabilities (or vice versa) within certain time
periods. This "Gap" analysis is one measure of the Company's sensitivity to
interest rate fluctuations. A Gap is considered positive when the amount of
interest-sensitive assets maturing or repricing within a period exceeds the
amount of interest-sensitive liabilities maturing or repricing within that
period; a Gap is considered negative when the converse occurs. During a
decreasing interest rate environment, a negative Gap would tend to result in an
increase in net interest income while a positive Gap would tend to adversely
affect net interest income. In a rising interest rate environment, an
institution with a positive Gap would generally expect an increase in net
interest income, whereas an institution with a negative Gap would generally be
expected to experience the opposite result.
The Company's targeted Gap range is +/- 10% within 3 months or less and +/- 10%
within 4 to 12 months with a cumulative 1 year Gap at +/- 10%. The table
presents categorical balances based on contractual maturities and repricing
opportunities. The resulting amounts have been modified to reflect a management
adjustment that pertains to NOW and savings accounts. While these core deposit
accounts are subject to immediate withdrawal, the management adjustment is based
on the fact that interest changes on such accounts have been infrequent and have
not coincided with changes in market interest rates. In addition, a management
adjustment has been made in the first maturity interval for the uncollected
portion of cash and due from banks.
Repricing / Maturity Interval Within
---------------------------------------------------------------------------------
December 31, 1996 3 months 4 months One year Over Non-
or less to 12 months to 5 years 5 years Maturing(1) Total
--------- --------- --------- --------- --------- ---------
(Dollars in Thousands)
Interest-earning assets:
Loans $ 111,355 $ 54,950 $ 107,703 $ 12,132 $ 2,140 $ 288,280
Securities available-for-sale:
Taxable 9,369 7,014 63,141 250 0 79,774
Tax exempt 250 991 0 0 0 1,241
Securities held-to-maturity:
Taxable 1,529 1,008 85,684 19,460 0 107,681
Tax exempt 0 11 23 0 0 34
Federal funds sold 21,000 0 0 0 0 21,000
Interest-bearing deposits in other banks 0 0 0 0 0 0
--------- --------- --------- --------- --------- ---------
Total interest-earning assets 143,503 63,974 256,551 31,842 2,140 498,010
--------- --------- --------- --------- --------- ---------
Interest-bearing liabilities:
Deposits:
NOW accounts 75,836 0 0 0 0 75,836
Savings accounts 53,956 0 0 0 0 53,956
Money market deposits 50,470 19,302 0 0 0 69,772
Time deposits 60,569 57,369 46,929 0 0 164,867
--------- --------- --------- --------- --------- ---------
Total interest-bearing deposits 240,831 76,671 46,929 0 0 364,431
Securities sold under agreements
to repurchase 17,790 0 0 0 0 17,790
Other borrowed funds 10,864 0 0 1,489 0 12,353
--------- --------- --------- --------- --------- ---------
Total interest-bearing liabilities 269,485 76,671 46,929 1,489 0 394,574
--------- --------- --------- --------- --------- ---------
Interest-earning assets minus
interest-bearing liabilities(Gap) ($125,982) ($ 12,697) $ 209,622 $ 30,353 $ 2,140 $ 103,436
Management adjustment 112,083 (25,861) (51,721) 0 0 34,501
--------- --------- --------- --------- --------- ---------
Management-adjusted Gap ($ 13,899) ($ 38,558) $ 157,901 $ 30,353 $ 2,140 $ 137,937
Management-adjusted Cumulative Gap (52,457) 105,444 135,797 137,937 --
Management-adjusted Gap / Total Assets -2.46% -6.82% 27.95% 5.37% 0.38% 24.41%
Management-adjusted Cumulative Gap /
Total Assets -9.28% 18.66% 24.03% 24.41% --
(1) Represents loans placed on nonaccrual status.
-5-
8
LENDING ACTIVITIES
The following summary shows the composition of the loan portfolio at the dates
indicated.
December 31,
------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(Dollars In Thousands)
Construction and land
development $ 3,576 1.2% $ 1,444 0.5% $ 1,924 0.7% $ 1,228 0.5% $ 1,647 0.6%
Commercial and industrial 41,006 14.2 37,811 13.2 33,283 12.2 29,664 10.9 35,000 12.2
Industrial revenue bonds 3,030 1.1 3,362 1.2 3,873 1.4 4,186 1.5 5,256 1.8
Commercial real estate 133,757 46.4 130,173 45.6 122,538 44.9 120,064 44.2 132,659 46.2
Residential real estate 76,638 26.6 82,132 28.8 82,028 30.1 85,260 31.3 76,852 26.8
Consumer 12,749 4.4 9,243 3.2 12,017 4.4 15,208 5.6 15,650 5.4
Home equity 17,330 6.0 21,130 7.4 16,826 6.2 16,180 5.9 19,646 6.8
Overdrafts 194 0.1 143 0.1 232 0.1 250 0.1 612 0.2
-------- ----- ------- ----- -------- ----- -------- ---- ------- -----
Loans(net of unearned
discount) $288,280 100.0% $285,438 100.0% $272,721 100.0% $272,040 100.0% $287,322 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
-6-
9
The following table summarizes the remaining maturity distribution of certain
components of the Company's loan portfolio at December 31, 1996. 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, 1996
One Year One to Five Over
or Less Years Five Years Total
-------- -------- ---------- --------
(In Thousands)
Construction and land development $ 3,392 $ 184 $ 0 $ 3,576
Commercial and industrial 31,431 6,520 3,055 41,006
Industrial revenue bonds 85 2,164 781 3,030
Commercial real estate 62,375 68,233 3,149 133,757
-------- -------- -------- --------
Total $ 97,283 $ 77,101 $ 6,985 $181,369
======== ======== ======== ========
The following table indicates the rate variability of the above loans due after
one year.
December 31, 1996
-----------------
One to Five Over
Years Five Years Total
----------- ---------- -------
(In Thousands)
Predetermined interest rates $55,777 $ 6,896 $62,673
Floating or adjustable interest rates 21,324 89 21,413
------- ------- -------
Total $77,101 $ 6,985 $84,086
======= ======= =======
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 the Board of Directors which meets monthly and
ratifies or approves all credits above a specified size. In addition, the
Company has an Executive Management Committee which meets 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;
George F. Swansburg, Executive Vice President; Jonathan G. Sloane, Senior Vice
President; Paul V. Cusick, Jr., Vice President and Treasurer; all of the
Company, and Donald H. Lang and William J. Sloboda, both 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
over the future. The regional economic strength or weakness impacts on 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 to generally include 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 up to 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 the then prevailing interest rates. During recent years, the Bank has
emphasized non-residential type owner-occupied properties. This emphasis
complements the above C&I emphasis placed on the operating business entities and
will be continued. The regional economic environment impacts on the risk to both
non-residential and residential mortgages. Although not robust, the environment
has improved over the recent period and there has been little new construction
for a number of years. Together the above factors have stabilized many sections
of the regional market.
-7-
10
Residential real estate (1-4 family) includes two categories of loans.
Approximately $17,000,000 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 wherein the
collateral mitigates some risk. The collateral position notwithstanding, this
category of loans shares similar risk characteristics as the C&I loans. 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 FNMA but normally only one or three year adjustable variable interest
rates are used. The Bank does utilize mortgage insurance in order to provide
lower down payment products and has provided a "First Time Homebuyer" product to
encourage new home ownership. With rising interest rates, residential real
estate loan volume has declined but nonetheless remains a core consumer product.
The regional environment impacts on the risks to this category. In the recent
period, the environment has improved, and the market has generally been stable.
Further increases to interest rates could negatively impact the risk on
adjustable interest rate loans as they are repriced in the future.
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 value of 75%.
The Bank does intend to maintain a market for construction loans, principally
for smaller local residential projects or an owner occupied commercial project.
Independent appraisals of the project and the costs are obtained and funds are
advanced over the life of the project as inspections of completed work warrant.
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. At December 31, 1996, the
Company was obligated to advance a total of $2.4 million to complete projects
under construction.
At December 31, 1996 approximately 46% of the Company's loan portfolio consisted
of commercial real estate loans. Construction loans had increased to 1.2 % of
the Company's outstanding loans.
At December 31, 1996, the Company's residential mortgage loans amounted to $76.6
million. The Company's consumer loan portfolio amounted to $30.1 million at
December 31, 1996, primarily consisting of home equity loans amounting to $17.3
million and personal lines of credit, motor vehicle loans and other installment
loans amounting to $12.7 million.
-8-
11
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 following table summarizes the Company's nonperforming assets at the dates
indicated.
December 31,
------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(Dollars in Thousands)
Loans on nonaccrual $ 2,140 $ 3,751 $ 2,954 $ 4,676 $11,117
Loans not included above
which are nonperforming
troubled debt restructurings 1,164 1,457 3,113 5,427 1,344
Other real estate owned , net 182 845 3,192 10,388 13,067
------- ------- ------- ------- -------
Total nonperforming assets $ 3,486 $ 6,053 $ 9,259 $20,491 $25,528
======= ======= ======= ======= =======
Percentage of nonperforming
assets to total loans and
other related assets 1.21% 2.11% 3.36% 7.26% 8.50%
======= ======= ======= ======= =======
The lower level of nonperforming assets in 1996 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 and sales of other real estate owned (OREO).
The Company identifies loans renegotiated prior to January 1, 1995 at then below
market rates as troubled debt restructurings. Interest income associated with
the $2,541,000 of troubled debt restructurings and performing impaired loans at
December 31, 1996 amounted to $175,000 for the year then ended. Interest income
for the same period would have amounted to $211,000 under the original terms and
agreements of the notes. As a result of placing loans on non-accrual status, the
Company has foregone $172,000 of interest income during 1996 compared to
$274,000 during 1995.
In addition to the above, the Company is monitoring closely $9.8 million of
loans on which management is concerned with the ability of the borrowers to
perform. The majority of the loans are secured by real estate properties
experiencing higher than expected vacancies and lower than expected rental
revenue. While the properties are considered to have adequate value to cover the
loan balances at December 31, 1996, such values can fluctuate with changes in
the economy and the real estate market.
There were no impaired loans with specific reserves at December 31, 1996 and
1995 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.
The following table summarizes the Company's loans past due 90 days or more and
still accruing and impaired loans at the dates indicated.
December 31,
------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in Thousands)
Loans past due 90 days or
more and still accruing $ 191 $ 87 $ 114 $ 502 $2,243
Impaired Loans $3,227 $3,356 n/a n/a n/a
-9-
12
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,
-----------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(Dollars in Thousands)
Year end loans outstanding
(net of unearned discount) $288,280 $285,438 $272,721 $272,040 $287,322
======== ======== ======== ======== ========
Average loans outstanding
(net of unearned discount) $281,943 $279,555 $267,123 $289,007 $307,108
======== ======== ======== ======== ========
Balance of allowance for
loan losses at
beginning of year $ 4,193 $ 4,239 $ 5,129 $ 5,644 $ 4,879
-------- -------- -------- -------- --------
Loans charged-off:
Commercial 2 2 781 657 841
Construction and land development 0 0 292 23 111
Commercial real estate 380 1,144 433 2,024 1,758
Residential real estate 801 551 1,016 1,075 652
Consumer 120 131 242 408 425
-------- -------- -------- -------- --------
Total loans charged-off 1303 1,828 2,764 4,187 3,787
-------- -------- -------- -------- --------
Recoveries of loans previously charged-off:
Commercial 78 39 23 32 4
Real estate 163 134 204 297 67
Consumer 28 49 27 43 32
-------- -------- -------- -------- --------
Total recoveries of loans
previously charged-off 269 222 254 372 103
-------- -------- -------- -------- --------
Net loans charged-off 1,034 1,606 2,510 3,815 3,684
-------- -------- -------- -------- --------
Additions to allowance charged to
operating expense 1,020 1,560 1,620 1,800 4,449
Acquired allowance -- -- -- 1,500 --
-------- -------- -------- -------- --------
Balance at end of year $ 4,179 $ 4,193 $ 4,239 $ 5,129 $ 5,644
======== ======== ======== ======== ========
Ratio of net charge-offs during
the year to average loans
outstanding 0.37% .57% .94% 1.32% 1.20%
======== ======== ======== ======== ========
Ratio of allowance for
loan losses to loans
outstanding 1.45% 1.47% 1.55% 1.89% 1.96%
======== ======== ======== ======== ========
For 1992, the provision for loan losses was high because of the deterioration in
the economy. The provision for 1996, which is below the prior four year average,
reflects significant improvements in the quality of the loan portfolio. At
December 31, 1996 nonperforming assets were $5.1 million or 1.75 % of loans and
related assets. Such figures are significantly lower than those at the end of
each of the last four years.
While the Company expects a declining level of charge-offs, the pace of the
improvement depends on many factors including the national and regional economy.
Cyclical lagging factors may result in charge-offs being higher than historical
levels.
-10-
13
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.
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Percent of Percent of Percent of Percent of Percent of
loans in loans in loans in loans in loans in
each category each category each category each category each 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 $ 48 1.2% $ 21 0.5% $ 49 0.7% $ 102 0.5% $ 31 0.6%
Commercial and industrial 660 14.2 595 13.2 530 12.2 958 10.9 796 12.2
Industrial revenue bonds 17 1.1 23 1.2 26 1.4 23 1.5 124 1.8
Commercial real estate 2,201 46.4 2,095 45.6 2,158 44.9 2,422 44.2 3,336 46.2
Residential real estate 830 26.6 1,031 28.8 1,025 30.1 1,023 31.3 842 26.8
Consumer 233 4.4 228 3.2 293 4.4 462 5.6 360 5.4
Home equity 187 6.0 198 7.4 155 6.2 139 5.9 155 6.8
Overdrafts 3 0.1 2 0.1 3 0.1 0 0.1 0 0.2
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$4,179 100.0% $4,193 100.0% $4,239 100.0% $5,129 100.0% $5,644 100.0%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Investment Activities
The following table sets forth certain information regarding the Company's
investment portfolio. Dollar amounts reflect carrying values. The market value
of securities available-for-sale was $81.0 million compared to the amortized
cost of $81.1 million for such securities. At December 31, 1996, the market
value of securities held-to-maturity was $107.3 million, compared to the
amortized cost of $107.7 million of such securities.
Securities available-for-sale Securities held-to-maturity
December 31, December 31,
-------------------------------- --------------------------------
1996 1995 1994 1996 1995 1994
-------- -------- -------- -------- -------- --------
Balance at end of (In Thousands) (In Thousands)
period applicable to
U.S. Government and Agencies $ 77,155 $ 97,482 $ 67,484 $105,582 $ 74,710 $ 44,659
Obligations of states and political
subdivison 1,241 1,510 979 34 179 294
Other 2,619 1,762 1,235 2,099 3,098 3,097
-------- -------- -------- -------- -------- --------
$ 81,015 $100,754 $ 69,698 $107,715 $ 77,987 $ 48,050
======== ======== ======== ======== ======== ========
-11-
14
The following table sets forth the maturities of the Company's investment
securities on the basis of their carrying values at December 31, 1996 and the
weighted average yields of securities, which are based on amortized cost,
calculated on a fully taxable equivalent basis.
Securities Available-for-Sale
After One After Five
Within But Within But Within After
One Year Five Years Ten Years Ten Years Total
-------- ---------- --------- --------- -----
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars In Thousands)
U.S Government and
Agencies $14,013 6.28% $63,142 6.09% $ 0 0.00% $ 0 0.00% $77,155 6.13%
Obligations of states
and political
subdivisions 1,241 3.93% 0 0.00% 0 0.00% 0 0.00% 1,241 3.93%
Other 0 0.00% 0 0.00% 250 7.80% 2,369 6.07% 2,619 6.23%
------- ------- ------- ------- -------
$15,254 6.09% $63,142 6.09% $ 250 7.80% $ 2,369 6.07% $81,015 6.10%
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Securities Held-To-Maturity
After One After Five
Within But Within But Within After
One Year Five Years Ten Years Ten Years Total
-------- ---------- --------- --------- -----
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(Dollars In Thousands)
U.S Government and
Agencies $ 2,511 5.54% $ 83,636 6.43% $ 18,935 6.57% $ 500 6.73% $105,582 6.44%
Obligations of states
and political
subdivisions 11 8.65% 23 8.65% 0 0.00% 0 0.00% 34 8.65%
Other 2 4.00% 2,072 5.21% 25 5.50% 0 0.00% 2,099 5.21%
-------- -------- -------- -------- --------
$ 2,524 5.55% $ 85,731 6.40% $ 18.960 6.57% $ 500 6.73% $107,715 6.38%
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
-12-
15
Obligations of states and political subdivisions consist primarily of
obligations of the Commonwealth of Massachusetts and entities within it having
other relationships with the Company. The Company regularly bids on tax
anticipation notes and other short-term instruments of municipalities who have
depository relationships with it. The Company also writes equipment leases to
finance acquisition of computers, fire trucks, snow plows and other equipment
used by municipalities.
Except for obligations of the United States Government, the portfolio at
December 31, 1996 did not include securities of any single issuer in an amount
in excess of 10% of stockholders' equity.
DEPOSITS
The Company offers savings accounts, NOW accounts, demand deposits, certificates
of deposit 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 weekly by the Treasurer, based on factors
including loan demand, maturities and a review of competing interest rates
offered. Interest rate policies are reviewed periodically by the Executive
Management Committee.
The following table shows the average amount of and average interest rate paid
on various categories of deposits during the years indicated.
1996 1995 1994
---------------------- ---------------------- ----------------------
Average Average Average
Interest Interest Interest
Average Rate Average Rate Average Rate
Amount Paid Amount Paid Amount Paid
--------- --------- --------- --------- --------- ---------
Interest-bearing deposits:
NOW accounts $ 84,620 2.80% $ 82,628 3.11% $ 75,941 2.27%
Savings accounts 55,905 2.57% 50,916 2.62% 53,166 2.50%
Money market accounts 70,735 2.95% 78,029 3.19% 94,820 2.46%
Time deposits of $100,000 or more 34,542 5.19% 26,872 5.50% 19,042 3.97%
Other time deposits 123,495 5.85% 107,897 5.69% 105,921 4.24%
--------- --------- ---------
Total interest-bearing deposits 369,297 4.04% 346,342 4.04% 348,890 3.04%
Non interest-bearing demand deposits 99,179 86,328 70,994
--------- --------- ---------
Total average deposits $ 468,476 3.18% $ 432,670 3.24% $ 419,884 2.53%
========= ========= ========= ========= ========= =========
Total deposits at December 31, 1996 amounted to $476 million, including $46
million of time deposits of $100,000 or more. Traditionally, the Company
experiences a decline in deposits during the first and third quarters of each
year because of the deposit cycles of certain of its customers, notably
municipalities.
The Company's time certificates of deposit in amounts of $100,000 or more at
December 31, 1996 mature as follows.
(In Thousands)
Three months or less $34,639
Three through six months 4,719
Six through twelve months 4,527
Over twelve months 1,761
-------
$45,646
=======
-13-
16
BORROWED FUNDS
The Company sells securities under repurchase agreements and enters into other
borrowings to obtain funds to support asset growth. Pertinent data relating to
borrowed funds is presented below.
1996 1995 1994
---- ---- ----
(Dollars In Thousands)
Securities sold under agreements
to repurchase:
Amount outstanding at year end $17,790 $21,580 $ 9,800
Weighted average interest rate
at end of year 4.34% 4.25% 4.15%
Maximum amount outstanding at
any month end during year $17,790 $21,580 $51,789
Daily average amount outstanding
during year $16,654 $14,390 $10,235
Weighted average interest rate
during year 4.28% 4.39% 2.62%
Other borrowed funds:
Amount outstanding at year end $12,353 $ 1,897 $ 934
Weighted average interest rate
at end of year 7.16% 5.21% 3.38%
Maximum amount outstanding at
any month end during year $17,577 $ 1,897 $ 934
Daily average amount outstanding
during year $ 3,135 $ 960 $ 732
Weighted average interest rate
during year 5.81% 5.42% 4.37%
Securities sold under agreements to repurchase are primarily over-night demand
obligations and are collateralized by U.S. Government and Agency securities.
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., a 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.
-14-
17
Through Commonwealth Equity Services, Inc., the Company provides full service
securities brokerage services under the umbrella of Century Financial Services,
a subsidiary of the Bank. Registered representatives employed by the Company
offer investment advice, execute transactions and assist customers in financial
and retirement planning. Commonwealth Equity Services, Inc., provides research
to and supervises the representatives in exchange for payment by the Company of
a fixed fee and a share in the commission revenues.
EMPLOYEES
As of December 31, 1996, the Company had 206 full-time and 71 part-time
employees. The Company's employees are not represented by any collective
bargaining unit. The Company believes that its employee relations are good.
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 Federal Reserve Board (the "FRB"), which is responsible for administration
of 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. Such activities include
leasing real or personal property under certain conditions; operating as a
mortgage finance or factoring company; servicing loans and other extensions of
credit; acting as a fiduciary; acting as investment or financial advisor under
certain conditions; acting as insurance agent or broker principally in
connection with extension of credit by the bank holding company or any
subsidiary; acting as underwriter for credit life insurance and credit accident
and health insurance which is directly related to extension of credit by the
bank holding company or any subsidiary; arranging commercial real estate equity
financing under certain circumstances; providing securities brokerage and
related services as agent for the account of customers; providing bookkeeping or
data processing services for the bank holding company, its affiliates and other
institutions, with certain limitations; making certain equity and debt
investments in community rehabilitation and development corporations; and
providing certain kinds of management consulting advice to unaffiliated banks.
A bank holding company and its subsidiaries are prohibited from acquiring any
voting shares of, interest in, or all or substantially all of the assets of, any
bank located outside the state in which the operations of the bank holding
company's banking subsidiaries are principally conducted, unless the acquisition
is specifically authorized by the statutes of the state in which the bank to be
acquired is located.
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 1996.
-15-
18
The regulatory standard for capital adequacy assigns risk factors to asset
categories and certain off-balance sheet commitments. The fully-phased in 1992
standard requires a tier-1 capital to risk assets ratio of 4.00% and a total
capital to risk assets ratio of 8.00%. At December 31, 1996, the Company's
ratios were 15.49% and 16.74%, respectively. The Bank also exceeded these
risk-weighted capital measures at December 31, 1996. In addition to these risk
based capital requirements, federal banking regulators have leverage guidelines.
The minimum leverage requirement is 4% as measured by the ratio of core capital,
net of intangible assets, to total assets. At December 31, 1996 the Company's
ratio was 8.58%. The Bank also exceeded the leverage requirement at December 31,
1996.
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 seeks to recapitalize the Bank Insurance Fund of the
FDIC ("BIF") so that the BIF can continue to resolve its caseload of failed
banks. The recapitalization will be funded through, among other things,
increased deposit insurance assessments payable by BIF-insured institutions,
which will increase the cost of doing business by all BIF-insured institutions,
including the Company's subsidiary. 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 Company's subsidiary.
Provisions of the 1991 Act relating to the activities of state-chartered banks
may significantly impact the way the Company conducts its business. In this
regard, the 1991 Act provides that, effective one year from date of enactment,
insured state banks, such as the Company's subsidiary, 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.
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.
-16-
19
ITEM 2. PROPERTIES
The Company owns its main banking office, headquarters, and operations center in
Medford, and 11 of the 14 other facilities in which its branch offices are
located. The remaining offices are occupied under leases expiring on various
dates from 1997 to 2026. The Company has renovated its Medford operations center
to provide space for its Executive and Lending staff.
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, when resolved, will have a material
adverse effect on the Company's consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Security Holders during the fourth
quarter of the fiscal year ended December 31, 1996.
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 system. The price range of the Company's common stock
since January 1, 1995 is shown on page 19.
The shares of Class A Common Stock are not entitled to vote in
the election of Company Directors but, in limited
circumstances, are 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
Board of Directors of the Company has power to prevent any
takeover of the Company not approved by them in their capacity
as Class B stockholders.
(b) Approximate number of equity security holders as of December
31, 1996.
Approximate Number
Title of Class of Record Holders
Class A Common Stock 367
Class B Common Stock 83
(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.(cont.)
-17-
20
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
------- -------
1994
First quarter $ .025 $ .0035
Second quarter .025 .0035
Third quarter .025 .0035
Fourth quarter .025 .0035
1995
First quarter $ .030 $ .0042
Second quarter .030 .0042
Third quarter .030 .0042
Fourth quarter .030 .0042
1996
First quarter $ .040 $ .0056
Second quarter .040 .0056
Third quarter .040 .0056
Fourth quarter .040 .0056
As a bank holding company, the Company's ability to pay
dividends is dependent in part upon the dividend payments it
receives from the Bank, which are 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 liability, 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 19 and 20.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information required herein is shown on pages 21 through
23.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required herein is shown on pages 24 through
41.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
-18-
21
FINANCIAL HIGHLIGHTS
1996 1995 1994
- -----------------------------------------------------------------------------------------
(dollars in thousands except share data)
YEAR-END
Total assets $ 560,857 $ 531,928 $ 465,419
Total net loans 284,101 281,245 268,482
Total deposits 476,135 458,615 409,542
Total stockholders' equity 47,489 42,935 37,553
YEARLY AVERAGES
Total assets $ 540,396 $ 494,485 $ 472,810
Total earning assets 483,109 442,837 420,904
Total securities available - for - sale 91,524 71,839 52,503
Total securities held - to - maturity 94,505 62,338 70,816
Total loans 281,943 279,555 267,123
Total deposits 468,476 432,670 419,884
Total borrowed funds 19,789 15,350 10,967
Total stockholders' equity 44,791 40,381 36,281
EARNINGS
Net income $ 5,434 $ 4,574 $ 3,304
Net interest income, taxable equivalent 23,132 21,502 19,781
Other operating income 4,761 4,722 5,420
Operating expenses 17,874 18,224 19,265
PERFORMANCE MEASURES
Earnings per share based
on average shares outstanding $ .95 $ .80 $ .58
Return on average stockholders' equity 12.13% 11.33% 9.11%
Book value per share at December 31 $ 8.25 $ 7.50 $ 6.56
Return on average assets 1.01% .92% .70%
COMMON SHARE DATA
Average shares outstanding 5,736,230 5,722,646 5,722,450
Shares outstanding at year-end 5,758,467 5,724,117 5,722,450
PER SHARE DATA
1996, Quarter Ended December 31, September 30, June 30, March 31,
- -----------------------------------------------------------------------------------------
Market price range (Class A)
High $ 14.50 $ 13.00 $ 12.875 $ 11.375
Low 12.25 11.50 11.00 10.00
Dividends class A .04 .04 .04 .04
Dividends class B .0056 .0056 .0056 .0056
1995, Quarter Ended December 31, September 30, June 30, March 31,
- -----------------------------------------------------------------------------------------
Market price range (Class A)
High $ 10.375 $ 10.625 $ 8.75 $ 9.125
Low 9.50 10.00 7.625 8.25
Dividends class A .03 .03 .03 .03
Dividends class B .0042 .0042 .0042 .0042
-19-
22
SELECTED FINANCIAL DATA
1996 1995 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
(dollars in thousands except share data)
FOR THE YEAR
Interest income $ 38,777 $ 35,988 $ 30,461 $ 29,262 $ 32,152
Interest expense 15,805 14,686 10,924 11,813 14,911
------------------------------------------------------------------------
Net interest income 22,972 21,302 19,537 17,449 17,241
Provision for loan losses 1,020 1,560 1,620 1,800 4,449
------------------------------------------------------------------------
Net interest income after
provision for loan losses 21,952 19,742 17,917 15,649 12,792
Other operating income 4,761 4,722 5,420 6,833 6,099
Operating expenses 17,874 18,224 19,265 20,654 20,567
------------------------------------------------------------------------
Income (loss) before income taxes
and cumulative effect of change
in accounting principle 8,839 6,240 4,072 1,828 (1,676)
Provision for income taxes 3,405 1,666 768 605 1,012
------------------------------------------------------------------------
Income (loss) before cumulative effect
of change in accounting principle 5,434 4,574 3,304 1,223 (2,688)
Cumulative effect of change in method
of accounting for income taxes -- -- -- -- 568
------------------------------------------------------------------------
Net income (loss) $ 5,434 $ 4,574 $ 3,304 $ 1,223 $ (2,120)
========================================================================
Average shares outstanding 5,736,230 5,722,646 5,722,450 5,722,450 5,722,450
Per share amounts:
Income (loss) before cumulative effect
of change in accounting principle $ .95 $ .80 $ .58 $ .21 $ (.47)
Cumulative effect of change in method
of accounting for income taxes -- -- -- -- .10
------------------------------------------------------------------------
Net income (loss) $ .95 $ .80 $ .58 $ .21 $ (.37)
========================================================================
Dividend payout ratio 10.9% 9.6% 10.9% 28.9% *n/m
AT YEAR-END
Assets $ 560,857 $ 531,928 $ 465,419 $ 469,823 $ 440,607
Net loans 284,101 281,245 268,482 266,911 281,678
Deposits 476,135 458,615 409,542 421,395 385,385
Stockholders' equity 47,489 42,935 37,553 35,505 34,635
Book value per share $ 8.25 $ 7.50 $ 6.56 $ 6.20 $ 6.05
SELECTED FINANCIAL PERCENTAGES
Return on average assets 1.01% .92% .70% .25% (.45)%
Return on average stockholders' equity 12.13% 11.33% 9.11% 3.48% (5.82)%
Net yield on average earning assets,
taxable equivalent 4.79% 4.86% 4.70% 4.16% 4.26%
Net charge-offs as a percent of
average loans .37% .57% .94% 1.32% 1.20%
Average stockholders' equity to
average assets 8.29% 8.17% 7.67% 7.30% 7.72%
*not meaningful
-20-
23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
Century Bancorp, Inc. (the "Company") had net income of $5,434,000
for the year ended December 31, 1996, compared with net income of
$4,574,000 for year ended December 31, 1995 and net income of
$3,304,000 for the year ended December 31, 1994. Earnings per share
were $0.95 in 1996 compared to $0.80 in 1995 and $0.58 in 1994.
Total assets were $560,857,000 at December 31, 1996, an
increase of 5.4% from total assets of $531,928,000 on December 31,
1995, which, in turn, were 14.3% higher than total assets of
$465,419,000 on December 31, 1994.
On December 31, 1996, stockholders' equity totaled $47,489,000
compared with $42,935,000 on December 31, 1995, and $37,553,000 on
December 31, 1994. Book value increased to $8.25 at December 31,
1996 from $7.50 on December 31, 1995, which had increased from $6.56
on December 31, 1994.
On January 25, 1995, the Bank purchased the assets of Nexus
Integrated Service Corporation, a lockbox processing company, and
negotiated the right to service its customers.
On November 18, 1995, Century Bank and Trust Company (the
"Bank") purchased The Co-operative Bank of Concord's branch office
located at 55 High Street in Medford. The agreement called for the
Bank to acquire approximately $20 million of deposits along with the
real estate in which the branch is located. The Bank continues to
seek similar acquisitions in its market area or contiguous market
areas.
RESULTS OF OPERATIONS
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 7.6% in 1996 to
$23,132,000 compared with $21,502,000 in 1995. Interest income was
affected positively by improvements in the interest earned in most
categories of earning assets. Much of the Company's earning assets
were repriced to improve their respective returns. Net interest
income is affected by the level of interest rates, the ability of
the Company's earning assets and deposits to adjust to changes in
interest rates and the mix of the Company's earning assets and
deposits. The net yield on earning assets on a fully taxable
equivalent basis decreased to 4.79% in 1996 from 4.86% in 1995
which, in turn, had improved from 4.70% in 1994.
Average earning assets were $483,109,000 in 1996, an increase
of $40,272,000 or 9.1% from the average in 1995, which was 5.2%
higher than the average in 1994. Total securities, including
securities available for sale and securities held to maturity,
increased 38.6% to $186,029,000. The increase in securities volume
combined with a slight lengthening in the maturity of the portfolios
and resulted in higher securities income, which increased 47.1% to
$11,677,000. Total loans increased 0.9% to $281,943,000 after
increasing $12,432,000 in 1995. The increase in loan volume combined
with a lower level of interest rates resulted in lower loan income,
which decreased by 0.1% or $35,000 to $26,291,000. Total loan income
was $23,203,000 in 1994.
The Company's sources of funds include deposits and borrowed
funds. On average, deposits showed an increase of 8.3% in 1996 after
increasing by 3.0% in 1995. On average, borrowed funds increased by
28.9% in 1996 following an increase of 40.0% in 1995. The majority
of the Company's borrowed funds are in repurchase agreements.
Interest expense totaled $15,805,000 in 1996, an increase of
$1,119,000 or 7.6% from 1995 when interest expense increased 34.4%
from 1994. This increase in interest expense is due primarily to an
increase in deposits and borrowed funds volume.
PROVISION FOR LOAN LOSS
The provision for loan losses was $1,020,000 in 1996 compared with
$1,560,000 in 1995 and $1,620,000 in 1994. 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 $4,179,000 at December 31,
1996 compared with $4,193,000 at December 31, 1995 and $4,239,000 at
December 31, 1994. Expressed as a percentage of outstanding loans at
year-end, the allowance was 1.45% in 1996, 1.47% in 1995 and 1.55%
in 1994.
Management believes that the allowance for loan losses is
adequate. Management uses available information to provide for
losses but recognizes that changes in economic conditions may result
in additional losses and additional loss provisions. Also, the
allowance is reviewed in conjunction with regulatory examinations.
These reviews may require the Company to make additional provisions
to the allowance based on judgements made by the regulators.
The Company experienced a decrease in net charge-offs in 1996
with net charge-offs as a percent of average loans outstanding at
0.37%. The comparable figures for 1995 and 1994 were 0.57% and 0.94%
respectively.
-21-
24
Non-performing loans, which include all non-accruing loans and certain
restructured, accruing loans, totaled $3,304,000 on December 31, 1996, compared
with $5,208,000 on December 31,1995.
OTHER OPERATING INCOME
The Company continued to experience good results in its fee-based services in
1996. These fee-based services include deposit related services, lock-box
processing, mortgage origination services and securities brokerage services.
Total other operating income in 1996, was $4,761,000 an increase of $39,000
or 0.8%. This increase followed a decrease of $968,000 or 17.0% in 1995. Service
charge income, which continues to be the largest area of other operating income
with $1,627,000 in 1996, saw an increase of $68,000 in 1996 as more customers
paid demand deposit fees. Lock-box revenues totaled $1,280,000 down $141,000 in
1996, primarily as a result of a decrease in the lock-box customer base. The
Company sold both sections of its credit card business in 1994 and recorded a
gain of $156,000 in other income for the merchant card business and a gain of
$85,000 for the consumer credit business. Merchant discount fees totaled
$545,000 in 1994. Brokerage commissions increased slightly to $1,072,000 in 1996
from $1,027,000 in 1995, which, in turn, saw a decline of $20,000 from 1994.
Revenues from mortgage sales increased to $290,000 in 1996 from $217,000 in 1995
and $255,000 in 1994. There were no security transactions in 1996 and 1995 but
there was a net loss on sales of securities available-for-sale of $270,000 in
1994.
OPERATING EXPENSES
Total operating expenses excluding other real estate owned (OREO) expenses and
writedowns were $17,894,000 in 1996 compared to $18,007,000 in 1995 and
$17,521,000 in 1994. Total OREO expenses were $(20,000) in 1996, $217,000 in
1995 and $1,744,000 in 1994.
Salaries and employee benefits expenses increased by $347,000 or 3.0% in
1996 after increasing 8.7% in 1995. Nearly all of the increase was in the
salaries category and was caused by an increase in the wage base. The majority
of the 1995 increase resulted from increased accruals for incentive
compensation, increased staff as a result of the Nexus acquisition and additions
to our lending staff.
Occupancy expense decreased by $91,000 or 6.4% in 1996 primarily because of
a decrease in building depreciation. Occupancy expense increased by 7.3% in 1995
primarily because of costs associated with branch relocations. Equipment expense
increased by $54,000 in 1996 primarily because of increased equipment
depreciation. Equipment expense increased by $213,000 or 24.5% in 1995 primarily
because of higher depreciation and service contract expenses associated with the
Nexus purchase and other related lock-box items.
Other operating expenses decreased by $423,000 in 1996, which followed a
$733,000 decrease in 1995. In 1996 decreases in FDIC insurance expense and legal
expense were offset by increased marketing and amortization of the core deposit
intangible associated with a branch acquisition during November, 1995. During
1995, decreases in FDIC insurance, credit card processing and general insurance
expenses were offset by increased expenses in marketing, supplies and postage.
Total OREO expense decreased to $(20,000) from $217,000 in 1995. At
year-end the Company had $182,000 of OREO compared with $845,000 at December 31,
1995.
PROVISION FOR INCOME TAXES
Income tax expense was $3,405,000 in 1996, $1,666,000 in 1995 and $768,000 in
1994. Income tax expense in 1996 included reductions in the valuation reserve
for deferred income taxes. The relatively low tax expense for 1995 and 1994 is a
result of the recognition of benefits relating to a portion of the provision for
loan losses and OREO writedowns which were not deductible for income tax
purposes in prior periods and reductions in the valuation reserve for deferred
income taxes. The effective tax rate was 38.5% in 1996, 26.7% in 1995 and 18.9%
in 1994.
-22-
25
LIQUIDITY AND ASSET LIABILITY MANAGEMENT
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 $67,681,000 on
December 31, 1996 compared with $51,114,000 on December 31, 1995,
and $57,144,000 on December 31, 1994. In each of the three years
deposit activity has 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.
The Company manages the mix, maturity and pricing of its assets
and liabilities so that changes in interest rates will not impact
earnings adversely. The interest rate gap is used to measure the
Company's exposure. At December 31, 1996 the gap was:
Subject to Interest Rate Changes Within Three Months Three to Twelve Months
- -----------------------------------------------------------------------------------
(in thousands)
Assets $ 178,004 $ 63,974
- -----------------------------------------------------------------------------------
Liabilities 191,903 102,532
- -----------------------------------------------------------------------------------
Gap $ (13,899) $ (38,558)
- -----------------------------------------------------------------------------------
CAPITAL ADEQUACY
Total stockholders' equity was $47,489,000 at December 31, 1996,
compared with $42,935,000 at December 31,1995 and $37,553,000 at
December 31, 1994. The increases in all years reported were
primarily the result of earnings less dividends paid, although there
was a $133,000 increase in 1996 and $6,000 increase in 1995 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-1
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 15.49%
and 13.49% respectively, and total capital-to-risk assets ratio of
16.74% and 14.74%, respectively at December 31, 1996. 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, 1996, the Company and the Bank exceeded this
requirement with leverage ratios of 8.58% and 7.46%, respectively.
-23-
26
CONSOLIDATED BALANCE SHEETS
December 31, 1996 1995
- -------------------------------------------------------------------------------------------------------------------
(in thousands)
ASSETS
Cash and due from banks (note 2) $ 46,681 $ 41,061
Federal funds sold and interest-bearing deposits in other banks 21,000 10,053
-----------------------
Total cash and cash equivalents 67,681 51,114
-----------------------
Securities available-for-sale, amortized cost $81,140,000 in 1996
and $100,159,000 in 1995 (note 3) 81,015 100,754
Securities held-to-maturity, market value $107,331,000 in 1996
and $78,410,000 in 1995 (notes 4 and 10) 107,715 77,987
Loans, net (note 5) 288,280 285,438
Less: allowance for loan losses (note 6) 4,179 4,193
-----------------------
Net loans 284,101 281,245
-----------------------
Bank premises and equipment (note 7) 8,265 8,716
Accrued interest receivable 4,283 4,292
Other real estate owned, net of allowance for losses (note 8) 182 845
Other assets (note 13) 7,615 6,975
-----------------------
Total assets $ 560,857 $ 531,928
=======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits $ 111,704 $ 99,953
Savings and NOW deposits 129,792 131,181
Money market accounts 69,772 72,463
Time deposits (note 9) 164,867 155,018
-----------------------
Total deposits 476,135 458,615
-----------------------
Securities sold under agreements to repurchase (note 10) 17,790 21,580
Other borrowed funds (note 11) 12,353 1,897
Other liabilities 7,090 6,901
-----------------------
Total liabilities 513,368 488,993
========================
Commitments and contingencies (notes 7, 15 and 16)
Stockholders' equity (note 12):
Class A common stock,
$1.00 par value per share; authorized 10,000,000 shares;
issued 3,488,297 shares in 1996 and 3,405,747 in 1995 3,488 3,406
Class B common stock,
$1.00 par value per share; authorized 5,000,000 shares;
issued 2,347,720 shares in 1996 and 2,395,920 in 1995 2,348 2,396
Additional paid-in-capital 10,786 10,687
Retained earnings 31,117 26,278
Treasury stock, 77,550 shares in 1996 and 1995, at cost (177) (177)
-----------------------
Realized stockholders' equity 47,562 42,590
Unrealized gains (losses) on securities available-for-sale, net of taxes (note 3) (73) 345
-----------------------
Total stockholders' equity 47,489 42,935
-----------------------
Total liabilities and stockholders' equity $ 560,857 $ 531,928
=======================
See accompanying Notes to Consolidated Financial Statements.
-24-
27
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
(in thousands except share data)
INTEREST INCOME
Loans $ 26,291 $ 26,326 $ 23,203
Securities held-to-maturity 6,016 3,660 2,847
Securities available-for-sale 5,661 4,278 3,124
Federal funds sold and interest-bearing deposits in other banks 809 1,724 1,287
-----------------------------------------
Total interest income 38,777 35,988 30,461
-----------------------------------------
INTEREST EXPENSE
Savings and NOW deposits 3,806 3,903 3,049
Money market accounts 2,084 2,487 2,330
Time deposits (note 9) 9,020 7,612 5,245
Securities sold under agreements to repurchase 713 632 268
Other borrowed funds 182 52 32
-----------------------------------------
Total interest expense 15,805 14,686 10,924
-----------------------------------------
Net interest income 22,972 21,302 19,537
PROVISION FOR LOAN LOSSES (NOTE 6) 1,020 1,560 1,620
Net interest income after provision for loan losses 21,952 19,742 17,917
-----------------------------------------
OTHER OPERATING INCOME
Service charges on deposit accounts 1,627 1,559 1,733
Lockbox fees 1,280 1,421 1,087
Merchant discount fees -- 41 545
Brokerage commissions 1,072 1,027 1,047
Gain on sales of loans 290 217 255
Net loss on sales of securities available-for-sale (note 3) -- -- (270)
Other income 492 457 1,023
-----------------------------------------
Total other operating income 4,761 4,722 5,420
-----------------------------------------
OPERATING EXPENSES
Salaries and employee benefits (note 14) 11,741 11,394 10,484
Occupancy 1,322 1,413 1,317
Equipment 1,135 1,081 868
Other real estate owned (20) 217 1,744
Other (note 17) 3,696 4,119 4,852
-----------------------------------------
Total operating expenses 17,874 18,224 19,265
-----------------------------------------
Income before income taxes 8,839 6,240 4,072
PROVISION FOR INCOME TAXES (NOTE 13) 3,405 1,666 768
-----------------------------------------
Net income $ 5,434 $ 4,574 $ 3,304
=========================================
SHARE DATA (NOTE 12)
Weighted average number of shares outstanding 5,736,230 5,722,646 5,722,450
Net income per share $ .95 $ .80 $ .58
See accompanying Notes to Consolidated Financial Statements.
-25-
28
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Unrealized
Treasury Treasury Gains (losses)
Stock Stock on Securities
Class A Class B Additional Class A Class B available- Total
Years Ended December 31, Common Common Paid-In Retained (30,000 (47,550 for-sale, Stockholders'
1996, 1995 and 1994 Stock Stock Capital Earnings shares) shares) net of taxes Equity
- ------------------------------------------------------------------------------------------------------------------------------------
(in thousands)
BALANCE, DECEMBER 31, 1993 $3,231 $ 2,569 $10,683 $ 19,199 $(136) $(41) $ -- $ 35,505
--------------------------------------------------------------------------------------------
Conversion of Class B common
stock to Class A common
stock, 80,780 shares 81 (81) -- -- -- -- -- --
Net income -- -- -- 3,304 -- -- -- 3,304
Cash dividends, Class A common
stock $.10 per share -- -- -- (327) -- -- -- (327)
Cash dividends, Class B common
stock $.014 per share -- -- -- (34) -- -- -- (34)
Change in unrealized gains (losses)
on securities available-for-sale,
net of taxes -- -- -- -- -- -- (895) (895)
--------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 $3,312 $ 2,488 $10,683 $ 22,142 $(136) $(41) $ (895) $ 37,553
--------------------------------------------------------------------------------------------
Conversion of Class B common
stock to Class A common
stock, 91,698 shares 92 (92) -- -- -- -- -- --
Stock options exercised,
1,667 shares 2 -- 4 -- -- -- -- 6
Net income -- -- -- 4,574 -- -- -- 4,574
Cash dividends, Class A common
stock $.12 per share -- -- -- (397) -- -- -- (397)
Cash dividends, Class B common
stock $.0168 per share -- -- -- (41) -- -- -- (41)
Change in unrealized gains (losses)
on securities available-for-sale,
net of taxes -- -- -- -- -- -- 1,240 1,240
--------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995 $3,406 $ 2,396 $10,687 $ 26,278 $(136) $(41) $ 345 $ 42,935
--------------------------------------------------------------------------------------------
Conversion of Class B common
stock to Class A common
stock, 48,200 shares 48 (48) -- -- -- -- -- --
Stock options exercised,
34,350 shares 34 -- 99 -- -- -- -- 133
Net income -- -- -- 5,434 -- -- -- 5,434
Cash dividends, Class A common
stock $.16 per share -- -- -- (543) -- -- -- (543)
Cash dividends, Class B common
stock $.0224 per share -- -- -- (52) -- -- -- (52)
Change in unrealized gains (losses)
on securities available-for-sale,
net of taxes -- -- -- -- -- -- (418) (418)
--------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 $3,488 $ 2,348 $10,786 $ 31,117 $(136) $(41) $ (73) $ 47,489
--------------------------------------------------------------------------------------------
See accompanying Notes to Consolidated Financial Statements.
-26-
29
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
(in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,434 $ 4,574 $ 3,304
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 1,020 1,560 1,620
Deferred income taxes (616) (82) 423
Net depreciation and amortization 668 548 (145)
Decrease (increase) in accrued interest receivable 9 (1,001) (729)
Decrease (increase) in other assets 72 1,382 (1,398)
Loss on sales of securities available-for-sale -- -- 270
Loans originated for sale (18,033) (16,407) (16,170)
Proceeds from sales of loans 19,317 16,016 17,806
Gain on sales of loans (290) (217) (255)
(Gain) loss on sales of real estate owned (82) (27) 75
Provision for losses on other real estate owned -- 70 1,100
Increase (decrease) in other liabilities 189 (690) 1,956
----------------------------------
Net cash provided by operating activities 7,688 5,726 7,857
----------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available-for-sale -- -- 11,092
Proceeds from maturities of securities available-for-sale 49,193 27,860 38,750
Purchase of securities available-for-sale (29,999) (56,543) (96,096)
Proceeds from maturities of securities held-to-maturity 53,946 38,447 59,083
Purchase of securities held-to-maturity (83,675) (68,575) (13,875)
Net cash and cash equivalents received from acquisitions -- 17,877 --
Net increase in loans (4,823) (13,618) (5,819)
Proceeds from sales of real estate owned 1,121 2,744 7,816
Capital expenditures (608) (1,416) (900)
----------------------------------
Net cash (used in) provided by investing activities (14,845) (53,224) 51
----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in time deposits 9,849 17,658 627
Net increase (decrease) in demand, savings,
money market and NOW deposits 7,671 11,499 (12,455)
Net proceeds from the issuance of common stock 133 6 --
Cash dividends (595) (438) (361)
Net (decrease) increase in securities sold
under agreements to repurchase (3,790) 11,780 3,660
Net increase (decrease) in other borrowed funds 10,456 963 (215)
----------------------------------
Net cash provided by (used in) financing activities 23,724 41,468 (8,744)
----------------------------------
Net increase (decrease) in cash and cash equivalents 16,567 (6,030) (836)
Cash and cash equivalents at beginning of year 51,114 57,144 57,980
----------------------------------
Cash and cash equivalents at end of year $ 67,681 $ 51,114 $ 57,144
==================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 16,170 $ 13,884 $ 11,393
Income taxes 3,644 1,512 689
Noncash transactions:
Property acquired through foreclosure $ 376 $ 440 $ 1,795
Change in unrealized (losses) gain
on securities available-for-sale, net of taxes $ (418) $ 1,240 $ (895)
Assets acquired and liabilities assumed through acquisitions:
Assets acquired, net of cash and cash equivalents received -- $ 2,040 --
Cash and cash equivalents received -- 17,877 --
Liabilities assumed -- 19,917 --
See accompanying Notes to Consolidated Financial Statements.
-27-
30
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 Office of the Comptroller of the
Currency (the "Comptroller") and the Federal Deposit Insurance Corporation (the
"FDIC"). The Bank is also subject to various requirements and restrictions under
federal and state law, including requirements to maintain reserves against
deposits, restrictions on the types and amounts of loans that may be granted and
the interest that may be charged thereon, and limitations on the types of
investments that may be made and the types of services that may be offered.
Various consumer laws and regulations also affect the operations of the Bank. In
addition to the impact of regulation, commercial banks are affected
significantly by the actions of the Federal Reserve Board as it attempts to
control the money supply and credit availability in order to influence the
economy. All aspects of the Company's business are highly competitive. The
Company faces aggressive competition from other lending institutions and from
numerous other providers of financial services.
BASIS OF FINANCIAL STATEMENT PRESENTATION
The financial statements have been prepared in conformity with generally
accepted accounting principles and to general practices within the banking
industry. In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ from those estimates.
Material estimates that are susceptible to change in the near-term relate to
the allowance for losses on loans. Management believes that the allowance for
losses on loans is adequate based on independent appraisals and review of other
factors associated with the assets. While management uses available information
to recognize losses on loans, future additions to the allowance for loans may be
necessary based on changes in economic conditions. In addition, regulatory
agencies periodically review the Company's allowance for losses on loans. Such
agencies may require the Company to recognize additions to the allowance for
loans based on their judgements about information available to them at the time
of their examination.
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.
Loans held for sale are carried at the lower of aggregate cost or market
value. Gain or loss on sales of loans is recognized at the time of sale when the
sales proceeds exceed or are less than the Bank's investment in the loans.
Additionally,
- 28 -
31
gains and losses are recognized when the average interest rate on the loans
sold, adjusted for normal servicing fee, differs from the agreed yield to the
buyer. The resulting excess service fee receivables, if any, are amortized using
the interest method over the estimated life of the loans, adjusted for estimated
prepayments.
Discounts and premiums on loans purchased from failed financial institutions
that represent market yield adjustments are accreted or amortized to interest
income over the estimated lives of the loans using the level-yield method.
Loan origination fees and related direct incremental loan origination costs
are offset and the resulting net amount is deferred and amortized over the life
of the related loans using the level-yield method.
The Bank accounts for impaired loans, except those loans that are accounted
for at fair value or at lower of cost or fair value, at the present value of the
expected future cash flows discounted at the loan's effective interest rate.
This method applies to all loans, uncollateralized as well as collateralized,
except large groups of smaller-balance homogeneous loans that are collectively
evaluated for impairment, loans that are measured at fair value and leases and
debt securities. Management considers the payment status, net worth and earnings
potential of the borrower, and the value and cash flow of the collateral as
factors to determine if a loan will be paid in accordance with its contractual
terms. Management does not set any minimum delay of payments as a factor in
reviewing for impaired classification. Impaired loans are charged-off when
management believes that the collectibility of the loan's principal is remote.
In addition, criteria for classification of a loan as in-substance foreclosure
has been modified so that such classification need be made only when a lender is
in possession of the collateral. The Bank measures the impairment of troubled
debt restructurings using the pre-modification rate of interest.
Effective January 1, 1996, the Company adopted Financial Accounting
Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS")
No. 122, "Accounting for Mortgage Servicing Rights." This statement requires
that the rights to service mortgage loans for others be recognized as an asset,
including rights acquired through both purchases and originations. Capitalized
mortgage servicing rights are amortized over the period of estimated net
servicing income and are periodically evaluated for impairment based on their
fair value. The adoption of this pronouncement did not have a significant effect
on the Company's financial position or results of operations.
In June 1996 the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." This
statement provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities based on
consistent application of a financial-components approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Under the financial-components approach,
after a transfer of financial assets, an entity recognizes all financial and
servicing assets it controls and liabilities it has incurred and derecognizes
financial assets it no longer controls and liabilities that have been
extinguished. The financial-components approach focuses on the assets and
liabilities that exist after the transfer. Many of these assets and liabilities
are components of financial assets that existed prior to the transfer. If a
transfer does not meet the criteria for a sale, the transfer is accounted for as
a secured borrowing with a pledge of collateral. The statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and will be applied prospectively. However,
SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of SFAS No.
125," requires the deferral of implementation as it relates to repurchase
agreements, dollar-rolls, securities lending and similar transactions until
after December 31, 1997. Earlier or retroactive applications of this statement
is not permitted. The Company has determined that the adoption of this statement
will not have a material impact on its consolidated financial statements.
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.
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.
- 29 -
32
OTHER REAL ESTATE OWNED
Other real estate owned ("OREO") includes real estate acquired by foreclosure
and real estate substantively repossessed. Real estate acquired by foreclosure
is comprised of properties acquired through foreclosure proceedings or
acceptance of a deed in lieu of foreclosure. Real estate substantively
repossessed includes only those loans for which the Company has taken possession
of the collateral, but has not completed legal foreclosure proceedings. Both
in-substance foreclosures and real estate formally acquired in settlement of
loans are recorded at the lower of the carrying value of the loan or the fair
value of the property constructively or actually received. Loan losses from the
acquisition of such properties are charged against the allowance for loan
losses. After foreclosure, if the fair value of an asset minus its estimated
cost to sell is less than the carrying value of the asset, such amount is
recognized as a valuation allowance. If the fair value of an asset less its
estimated cost to sell subsequently increases so that the resulting amount is
more than the asset's current carrying value, the valuation allowance is
reversed by the amount of the increase. Increases or decreases in the valuation
allowance are charged or credited to income. Gains upon disposition of OREO are
reflected in the statement of income as realized. Realized losses are charged to
the valuation allowance.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets or the terms of leases, if shorter.
It is general practice to charge the cost of maintenance and repairs to
operations when incurred; major expenditures for improvements are capitalized
and depreciated.
INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which temporary differences are expected to be recovered or settled. Under this
method, the effect on 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 $10,768,000 at December 31,1996 and
$10,743,000 at December 31,1995.
3. SECURITIES AVAILABLE-FOR-SALE
December 31,1996 December 31,1995
---------------------------------------------- ------------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
---------------------------------------------- ------------------------------------------------
(in thousands) (in thousands)
U.S. Government and Agencies $77,283 $ 93 $ 221 $ 77,155 $ 96,889 $622 $ 29 $ 97,482
Obligations of states
and political subdivisions 1,241 -- -- 1,241 1,510 -- -- 1,510
FHLB Stock 2,364 -- -- 2,364 1,399 -- 1,399
Other 252 3 -- 255 361 2 -- 363
-------------------------------------------- -----------------------------------------------
$81,140 $ 96 $ 221 $ 81,015 $100,159 $624 $ 29 $100,754
============================================ ===============================================
The following tables show the maturity distribution of the Company's securities
available-for-sale at December 31, 1996 and 1995:
December 31,1996
-------------------------------------------------------------
Obligations FHLB
U.S. of States Stock Estimated
Government and Political and Market
and Agencies Subdivisions Other Total Value
-------------------------------------------------------------
(in thousands)
Within one year $13,988 $1,241 $ -- $15,229 $15,254
After one but within five years 63,295 -- -- 63,295 63,142
After five but within ten years -- -- 250 250 250
Non-maturing -- -- 2,366 2,366 2,369
--------------------------------------------------------
$77,283 $1,241 $ 2,616 $81,140 $81,015
========================================================
December 31,1995
---------------------------------------------------------------
Obligations FHLB
U.S. of States stock Estimated
Government and Political and Market
and Agencies Subdivisions Other Total Value
---------------------------------------------------------------
(in thousands)
Within one year $33,495 $1,510 $ -- $ 35,005 $ 35,144
After one but within five years 63,394 -- -- 63,394 63,849
After five but within ten years -- -- 250 250 250
Non-maturing -- -- 1,510 1,510 1,511
----------------------------------------------------------
$96,889 $1,510 $ 1,760 $100,159 $100,754
==========================================================
- 30 -
33
Proceeds from sales of securities available-for-sale totaled $11,092,000 during
1994. Gross gains of $13,000 and gross losses of $283,000 were realized on those
sales in 1994. There were no sales of securities available-for-sale in 1996 and
1995.
4. SECURITIES HELD-TO-MATURITY
December 31,1996 December 31,1995
----------------------------------------------- ----------------------------------------------
Gross Gross Estimated Gross Gross Estimated
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
----------------------------------------------- ----------------------------------------------
(in thousands) (in thousands)
U.S. Government and Agencies $105,582 $211 $ 574 $105,219 $74,710 $510 $ 69 $75,151
Obligations of states
and political subdivisions 34 -- -- 34 179 -- -- 179
Other 2,099 -- 21 2,078 3,098 -- 18 3,080
---------------------------------------------- --------------------------------------------
$107,715 $211 $ 595 $107,331 $77,987 $510 $ 87 $78,410
============================================== ============================================
Included in U.S. Government and Agency securities are securities pledged to
secure public deposits and repurchase agreements amounting to $24,746,000 at
December 31, 1996 and $29,286,000 at December 31, 1995.
The following tables show the maturity distribution of the Company's
securities held-to-maturity at December 31, 1996 and 1995:
December 31,1996
----------------------------------------------------------------
Obligations
U.S. of States Estimated
Government and Political Market
and Agencies Subdivisions Other Total Value
----------------------------------------------------------------
(in thousands)
Within one year $ 2,511 $ 11 $ 2 $ 2,524 $ 2,516
After one but within five years 83,636 23 2,072 85,731 85,562
After five but within ten years 18,935 -- 25 18,960 18,759
After ten years 500 -- -- 500 494
------------------------------------------------------------
$105,582 $ 34 $ 2,099 $107,715 $107,331
============================================================
December 31,1995
----------------------------------------------------------------
Obligations
U.S. of States Estimated
Government and Political Market
and Agencies Subdivisions Other Total Value
----------------------------------------------------------------
(in thousands)
Within one year $15,385 $ 145 $ 1,000 $16,530 $16,502
After one but within five years 51,307 34 2,073 53,414 53,805
After five but within ten years 8,018 -- 25 8,043 8,103
After ten years -- -- -- -- --
-----------------------------------------------------------
$74,710 $ 179 $ 3,098 $77,987 $78,410
===========================================================
There were no sales of securities held-to-maturity in 1996, 1995 or 1994.
5. LOANS
The Company's lending activities are conducted principally in Massachusetts. The
Company grants single and multi-family residential loans, commercial and
commercial real estate loans, and a variety of consumer loans. To a lesser
extent, the Company grants loans for the construction of residential homes,
multi-family properties, commercial real estate properties, and land
development. Most loans granted 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.
The composition of the loan portfolio at December 31, 1996 and 1995 is as
follows:
1996 1995
--------------------
(in thousands)
Construction and land development $ 3,576 $ 1,444
Commercial and industrial 41,006 37,811
Industrial revenue bonds 3,030 3,362
Commercial real estate 133,757 130,173
Residential real estate 76,081 80,899
Residential real estate held for sale 557 1,233
Consumer 12,749 9,243
Home equity 17,330 21,130
Overdrafts 194 143
--------------------
$288,280 $285,438
====================
At December 31, 1996 and 1995, loans were carried net of discounts of
$3,360,000 and $3,844,000, respectively. Included in these amounts at December
31, 1996 and 1995, residential real estate loans were carried net of discounts
of $3,319,000 and $3,791,000 respectively, associated with the acquisition of
Wollaston.
At December 31, 1996 and 1995, total impaired loans were $3,227,000 and
$3,356,000, respectively. There were no impaired loans with specific reserves at
December 31, 1996 and 1995. In the opinion of management, none of the $3,227,000
and $3,356,000 of impaired loans at December 31, 1996 and 1995, respectively,
required a specific reserve. All of the $3,227,000 and $3,356,000 of impaired
loans at December 31, 1996 and 1995, respectively, have been measured using the
fair value of the collateral method. During the twelve months ended December 31,
1996 and 1995, the average
- 31 -
34
recorded value of the impaired loans was $3,029,000 and $3,431,000,
respectively. Interest income of $149,000 and $17,000 was recognized on these
loans during 1996 and 1995, respectively, all of which was recorded on a cash
basis. Interest income of $333,000 and $450,000 would have been recorded under
the original terms of the loans during 1996 and 1995, respectively.
The composition of impaired loans at December 31, is as follows:
1996 1995
------------------
(in thousands)
Residential real estate:
1 to 4 family $ 471 $ 727
Multi - family 1,201 497
Construction and land development -- 21
Commercial real estate 1,248 1,816
Commercial and industrial 307 295
------------------
Total $3,227 3,356
Specific valuation allowance -- --
------------------
Total impaired loans $3,227 $3,356
==================
At December 31, 1996 there were $2,140,000 of loans on non-accrual, of which
$1,676,000 were classified as impaired. Interest income of $270,000 would have
been recorded in 1996 had these loans performed according to their original
terms during the period. Interest income actually recorded on these loans was
$98,000. At December 31, 1995 there were $3,751,000 of loans on non-accrual, of
which $2,290,000 were classified as impaired. Interest income of $341,000 would
have been recorded in 1995 had these loans performed according to their original
terms during the period. Interest income actually recorded on these loans was
$67,000. Additionally at December 31, 1996 and December 31, 1995, there were
$192,000 and $87,000 respectively, of loans which were past due 90 days or more
and still accruing, none of which were classified as impaired. At December 31,
1996, management had entered into troubled debt restructuring agreements
totaling $2,541,000, of which $1,377,000 were classified as impaired. Troubled
debt restructuring agreements at December 31, 1995 totaled $2,524,000, of which
$1,067,000 were classified as impaired. The effect of interest foregone on these
restructuring agreements is not material.
The Company was servicing mortgage loans sold to others without recourse of
approximately $20,359,000 at December 31, 1996 and $24,380,000 at December 31,
1995. Additionally, the Company was servicing mortgage loans sold to others with
limited recourse. The outstanding balance of those loans sold to others with
limited recourse was approximately $1,092,000 at December 31, 1996 and
$1,110,000 at December 31, 1995.
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 1996.
Balance at Repayments Balance at
December 31, 1995 Additions and Deletions December 31, 1996
-------------------------------------------------------------------
(in thousands)
$1,794 $ 487 $1,353 $ 928
========================================================
6. ALLOWANCE FOR LOAN LOSSES
1996 1995 1994
-----------------------------------
(in thousands)
Balance at beginning of year $ 4,193 $ 4,239 $ 5,129
Provision charged to operating expense 1,020 1,560 1,620
Loans charged-off (1,303) (1,828) (2,764)
Loan recoveries 269 222 254
-----------------------------------
Balance at end of year $ 4,179 $ 4,193 $ 4,239
===================================
7. BANK PREMISES AND EQUIPMENT
December 31, 1996 1995
- -----------------------------------------------------------------------
(in thousands)
Land $ 1,839 $ 1,839
Bank premises 6,254 6,254
Furniture and equipment 8,261 7,689
Leasehold improvements 1,888 1,860
-----------------------
18,242 17,642
Accumulated depreciation and amortization (9,977) (8,926)
-----------------------
$ 8,265 $ 8,716
=======================
- 32 -
35
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 $144,000, $168,000 and $189,000
for the years ended December 31, 1996, 1995 and 1994, respectively.
Future minimum rental commitments for noncancelable operating leases with
initial or remaining terms of one year or more at December 31, 1996 were as
follows:
YEAR Amount
-----------------------------
(in thousands)
1997 $ 81
1998 62
1999 64
2000 64
2001 28
Thereafter 574
-----------------------------
$873
=============================
8. ALLOWANCE FOR LOSSES ON OTHER REAL ESTATE OWNED
1996 1995 1994
------------------------------
(in thousands)
Balance at beginning of year $ 60 $ 238 $ 620
Valuation writedowns (41) (248) (1,482)
Provision charged to expense -- 70 1,100
------------------------------
Balance at end of year $ 19 $ 60 $ 238
==============================
9. DEPOSITS
Time deposits as of December 31, are as follows:
1996 1995
----------------------
(in thousands)
Three months or less $ 60,569 $ 47,253
Three through twelve months 57,369 87,151
Over twelve months 46,929 20,614
----------------------
$164,867 $155,018
======================
Time deposits in denominations of $100,000 or more totaled $45,646,000 and
$42,933,000 at December 31, 1996 and 1995, respectively. Interest expense
associated with deposits in denominations of $100,000 or more was
$2,124,000, $1,749,000, and $930,000 for the years ended 1996, 1995 and
1994, respectively.
10. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
1996 1995 1994
-----------------------------------
(dollars in thousands)
Average rate at December 31, 4.34% 4.25% 4.15%
Average balance outstanding during the year $16,654 $14,390 $10,235
Average rate during the year 4.28% 4.39% 2.62%
Maximum amount outstanding
at any month-end $17,790 $21,580 $51,789
Amount outstanding at December 31, $17,790 $21,580 $ 9,800
Amounts outstanding at December 31, 1996, 1995 and 1994 carried maturity
dates of the next business day. U.S. Government and Agency securities with a
total book value of $17,762,000, $21,497,000, and $9,850,000 were pledged as
collateral and held by custodians to secure the agreements at December 31,
1996, 1995 and 1994, respectively. The approximate market value of the
collateral at those dates was $17,605,000, $21,715,000, and $9,638,000,
respectively.
11. OTHER BORROWED FUNDS
December 31, 1996 1995
---------------------------------------------------------------
(in thousands)
Treasury tax and loan note $ 726 $1,759
Federal Home Loan Bank - IDEAL Advance 10,000 --
Federal Home Loan Bank - Advance 1,489 --
Other 138 138
-------------------
$12,353 $1,897
===================
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%. The Bank has a credit line with the Federal Home Loan Bank for
$10,000,000, which was fully advanced on December 31, 1996. The interest
rate on this line was 7.32%. The Bank also borrowed $1,500,000 during 1996
from Federal Home Loan Bank. The borrowing bears interest at a fixed rate of
7.20% and matures on July 24, 2006.
- 33 -
36
12. 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.
STOCK OPTION PLAN
On March 10, 1987, the 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 other 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 to be 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). Options exercisable at December
31, 1996 totaled 61,657 with a weighted average option price of $3.76.
Information with regard to the stock option plan is as follows:
Number of Weighted Average
Option Shares Option Price Per Share
------------- ----------------------
Outstanding at December 31, 1993 -- --
Granted 146,500 3.80
Exercised -- --
Cancelled -- --
----------- -----------
Outstanding at December 31, 1994 146,500 3.80
Granted -- --
Exercised (1,667) 3.75
Cancelled -- --
----------- -----------
Outstanding at December 31, 1995 144,833 3.80
Granted -- --
Exercised (34,350) 3.89
Cancelled -- --
----------- -----------
Outstanding at December 31, 1996 110,483 3.78
=========== ===========
A summary of options by maturity is as follows:
Expiring During the Number of Weighted average
Year Ended December 31, Shares Option Price Per Share
- ----------------------- --------- ----------------------
1997 - -
1998 - -
1999 7,500 4.13
2000 102,983 3.75
2001 - -
-------- --------
110,483 3.78
======== ========
As allowed under SFAS No. 123, "Accounting for Stock Based Compensation",
the Company will continue to measure compensation cost for stock-based
compensation plans using the intrinsic value based method prescribed by
Accounting Principles Board Opinion No. 25. SFAS No. 123, which is effective
January 1, 1996, requires pro forma disclosure of net income and earnings
per share computed as if the fair value based method had been applied. The
Company granted no stock options during 1996 or 1995 and, therefore, no
disclosures under SFAS No. 123 are provided. The new disclosures will be
provided when additional stock options are granted.
-34-
37
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 judgments 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 I capital (as defined in the
regulations) to risk weighted assets (as defined), and Tier I capital (as
defined) to average assets (as defined). Management believes, as of December
31, 1996 that the Bank meets all capital adequacy requirements to which it
is subject.
As of December 31, 1996, 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 I
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
Under Prompt Corrective
Actual For Capital Adequacy Purposes Action Provisions
------------------- ----------------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------- ------- ------- ------- ------- -------
As of December 31, 1996: (dollars in thousands)
Total capital (to risk-weighted assets) $44,004 14.74% $23,882 8.0% $29,852 10.0%
Tier I capital (to risk-weighted assets) 40,267 13.49% 11,941 4.0% 17,911 6.0%
Tier I capital (to average assets) 40,267 7.46% 21,577 4.0% 26,971 5.0%
As of December 31, 1995:
Total capital (to risk-weighted assets) 39,802 14.18% 22,460 8.0% 28,075 10.0%
Tier I capital (to risk-weighted assets) 36,284 12.92% 11,230 4.0% 16,845 6.0%
Tier I capital (to average assets) 36,284 7.11% 20,407 4.0% 25,509 5.0%
13. INCOME TAXES
- --------------------------------------------------------------------------------
The current and deferred components of income tax expense for the years
ended December 31, are as follows:
1996 1995 1994
------- ------- -----
(in thousands)
Current expense:
Federal $ 2,959 $ 1,302 $ 300
State 1,062 446 45
------- ------- -----
Total current expense 4,021 1,748 345
------- ------- -----
Deferred expense:
Federal (238) 716 865
State (78) 337 433
Change in valuation reserve (300) (1,135) (875)
------- ------- -----
Total deferred expense (616) (82) 423
------- ------- -----
Provision for income taxes $ 3,405 $ 1,666 $ 768
======= ======= =====
Income tax accounts included in other assets and other liabilities at
December 31, 1996, and included in other assets at December 31, 1995, are as
follows:
1996 1995
------- -------
(in thousands)
Currently (payable) refundable $ (287) $ 92
Deferred income tax asset, net 1,655 736
------- -------
$ 1,368 $ 828
======= =======
-35-
38
Income tax expense for the years presented is different from the amounts
computed by applying the statutory Federal income tax rate of 34% 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:
1996 1995 1994
------- ------- -------
(in thousands)
Federal income tax expense
at statutory rates $ 3,005 $ 2,121 $ 1,385
State income taxes, net of Federal
income tax benefit 649 517 315
Effect of tax-exempt interest (105) (132) (106)
Change in valuation reserve (300) (1,135) (875)
Other 156 295 49
------- ------- -------
$ 3,405 $ 1,666 $ 768
======= ======= =======
Effective Tax Rate 38.5% 26.7% 18.9%
Management believes that it is more likely than not that the net deferred
income tax asset of $1,655,000 at December 31, 1996 will be realized. This
amount is entirely supported by the availability of federal income taxes
paid in prior carryback years.
The valuation reserve was reduced by $300,000 in 1996 in recognition of
the operating results achieved and the increase in recoverable federal
income taxes paid in prior years.
The following table sets forth the Company's gross deferred income tax
assets and gross deferred income tax liabilities at December 31:
1996 1995
------- -------
(in thousands)
Deferred income tax assets:
Allowance for loan losses $ 722 $ 653
Other real estate owned writedowns 8 53
Deferred compensation 1,340 1,248
Unrealized loss on securities available-for-sale 52 --
Leveraged leases -- 11
Acquisition premium 50 --
Other 79 --
------- -------
Gross deferred income tax asset 2,251 1,965
Valuation reserve -- (300)
------- -------
Net deferred income tax asset 2,251 1,665
------- -------
Deferred income tax liabilities:
Unrealized gain on securities available-for-sale -- (250)
Purchase accounting (388) (413)
Depreciation (183) (187)
Other (25) (79)
------- -------
Deferred income tax asset, net $ 1,655 $ 736
======= =======
14. EMPLOYEE BENEFITS
- --------------------------------------------------------------------------------
The Company has a qualified defined benefit retirement plan (the "Plan")
which is offered to all employees reaching minimum age and service
requirements. A decrease in the discount rate and a stable work force in
1996 resulted in an increase in pension cost. The following table sets forth
the Plan's funding status and amounts recognized in the Company's
consolidated financial statements at December 31:
1996 1995
------- -------
(in thousands)
Actuarial value of benefit obligations:
Vested $ 3,360 $ 2,873
------- -------
Non-vested 82 71
------- -------
Total accumulated benefit obligation $ 3,442 $ 2,944
======= =======
Actuarial present value of projected benefit
obligation for services rendered to date $ 4,859 $ 4,397
------- -------
Plan assets at fair value 3,341 2,882
------- -------
Projected benefit obligation in excess
of plan assets 1,518 1,515
------- -------
Unrecognized net transition obligation being
recognized over 15 years (4) (5)
------- -------
Unrecognized prior service cost being
recognized over 15 years (821) (920)
------- -------
Unrecognized (loss)/gain (388) (423)
------- -------
Accrued pension cost
(included in other liabilities) $ 305 $ 167
======= =======
-36-
39
Net periodic pension cost for the years ended December 31, 1996, 1995 and
1994 included the following components:
1996 1995 1994
----- ----- -----
(in thousands)
Service costs-benefits earned
during the period $ 318 $ 256 $ 299
Interest cost on projected benefit obligation 308 260 244
Actual return on plan assets (208) (181) (73)
Net amortization and accrual 120 117 63
----- ----- -----
$ 538 $ 452 $ 533
----- ----- -----
Pension expense was computed using a discount rate of 7.0% in 1996 and 1994
and 8.0% in 1995, an expected long-term return of 8.0% and assumed salary
increases of 5.0% in 1996, 1995 and 1994 respectively. A discount rate of
7.0% was used in determining benefit obligations in 1996 and 1995; a rate of
8.0% was used in 1994.
In 1996, the Company offered a 410-k defined contribution plan for all
employees reaching minimum age and service requirements. The plan is
voluntary with no matching contributions. Administrative costs associated
with the plan are absorbed by the Company.
The Company has a Supplemental Insurance/Retirement Plan which is
limited to certain officers and employees of the Company. The plan is
voluntary and participants are required to contribute to its cost. Under the
plan, each participant will receive a retirement benefit based on
compensation and length of service. Individual life insurance policies are
purchased covering the lives of each participant. The Company is the owner
of these policies and is also the beneficiary of a portion of each policy's
proceeds; The net cost to the Company for this plan was $306,000 in 1996,
$247,000 in 1995 and $247,000 in 1994.
The Company does not offer any post retirement benefits other than
pensions.
15. COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------
A number of legal claims against the Bank arising in the normal course of
business were outstanding at December 31, 1996. 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.
16. 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 1996 1995
--------------------------- ------- -------
(in thousands)
Financial instruments whose contract amount
represents credit risk:
Commitments to originate 1-4 family mortgages $ 106 $ 615
Standby letters of credit 945 1,056
Unused lines of credit 66,696 51,554
Unadvanced portions of construction loans 2,190 656
Financial instruments whose contract amount
exceeds the amount of credit risk:
Commitments to sell 1-4 family mortgages 663 1,848
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
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40
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 originates 1-4 family
mortgages for sale in the secondary markets. These loans are sold with and
without recourse and no loan is 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 $1,092,000 at December 31, 1996 and $1,110,000 at December 31,
1995.
17. OTHER OPERATING EXPENSES
- --------------------------------------------------------------------------------
Year Ended December 31, 1996 1995 1994
- ----------------------- ------ ------ ------
(in thousands)
Marketing $ 835 $ 650 $ 497
Supplies 471 522 365
Telephone 218 198 228
Postage and delivery 512 514 461
Legal and audit 316 486 571
Credit card processing -- 12 394
Insurance 184 192 248
FDIC assessment 2 473 999
Core deposit intangible amortization 200 25 --
Other 958 1,047 1,089
------ ------ ------
$3,696 $4,119 $4,852
====== ====== ======
18. FAIR VALUES OF FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable
to estimate that value. Statement 107 excludes certain financial instruments
and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
The following methods and assumptions were used by the Company in
estimating fair values of its financial instruments:
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 deposits with no stated maturity, such as
noninterest bearing demand deposits, savings, N.O.W. and money market
accounts, is equal to the amount payable on demand as of the balance sheet
date. 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 carrying amounts
reported in the balance sheet for repurchase agreements and other borrowed
funds approximate the fair values of those liabilities because of the
short-term nature of these financial instruments.
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, 1996 and 1995, there was no fair value
adjustment.
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41
The carrying amounts and estimated fair values of the Company's financial
instruments at December 31 are as follows:
1996 1995
---- ----
Carrying Estimated Carrying Estimated
Amounts Fair Value Amounts Fair Value
--------- --------- --------- ---------
(in thousands) (in thousands)
Financial assets:
Cash and cash equivalents $ 67,681 $ 67,681 $ 51,114 $ 51,114
Securities available-for-sale 81,015 81,015 100,754 100,754
Investment securities held-to-maturity 107,715 107,331 77,987 78,410
Loans (net of unearned discount) 288,280 285,438
Allowance for loan losses (4,179) (4,193)
--------- --------- --------- ---------
Loans, net 284,101 286,494 281,245 285,208
Accrued interest receivable 4,283 4,283 4,292 4,292
Financial liabilities:
Deposits 476,135 476,787 458,615 459,557
Repurchase agreements
and other borrowed funds 30,143 30,143 23,477 23,477
Accrued interest payable 2,000 2,000 2,365 2,365
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 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 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.
19. QUARTERLY RESULT OF OPERATIONS
- --------------------------------------------------------------------------------
1996 Quarters Fourth Third Second First
---------- ---------- ---------- ----------
(in thousands, except per share data)
Interest income $ 9,789 $ 9,887 $ 9,706 $ 9,395
Interest expense 3,809 4,052 4,041 3,903
---------- ---------- ---------- ----------
Net interest income 5,980 5,835 5,665 5,492
Provision for loan losses 255 255 255 255
---------- ---------- ---------- ----------
Net-interest income after provisions
for loan losses 5,725 5,580 5,410 5,237
Other operating income 1,143 1,060 1,270 1,288
Operating expenses 4,417 4,337 4,502 4,618
---------- ---------- ---------- ----------
Income before income taxes 2,451 2,303 2,178 1,907
Provision for income taxes 903 899 880 723
---------- ---------- ---------- ----------
Net income $ 1,548 $ 1,404 $ 1,298 $ 1,184
========== ========== ========== ==========
Share Data
Weighted average number
of shares outstanding 5,743,657 5,738,706 5,736,220 5,726,227
Net income per share $ 0.27 $ 0.24 $ 0.23 $ 0.21
========== ========== ========== ==========
1995 Quarters Fourth Third Second First
---------- ---------- ---------- ----------
(in thousands, except per share data)
Interest income $ 9,342 $ 9,135 $ 9,037 $ 8,474
Interest expense 3,881 3,811 3,736 3,258
---------- ---------- ---------- ----------
Net interest income 5,461 5,324 5,301 5,216
Provision for loan losses 375 375 405 405
---------- ---------- ---------- ----------
Net-interest income after provisions
for loan losses 5,086 4,949 4,896 4,811
Other operating income 1,254 1,215 1,174 1,079
Operating expenses 4,795 4,297 4,621 4,512
---------- ---------- ---------- ----------
Income before income taxes 1,545 1,867 1,449 1,378
Provision for income taxes 388 575 368 335
---------- ---------- ---------- ----------
Net income $ 1,157 $ 1,292 $ 1,081 $ 1,043
========== ========== ========== ==========
Share Data
Weighted average number
of shares outstanding 5,723,150 5,722,530 5,722,450 5,722,450
Net income per share $ 0.20 $ 0.23 $ 0.19 $ 0.18
========== ========== ========== ==========
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42
20. PARENT COMPANY FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The balance sheets of Century Bancorp, Inc. ("Parent Company") as of
December 31, 1996 and 1995 and the statements of income and cash flows for
each of the years in the three-year period ended December 31, 1996 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, 1996 1995
------- -------
(in thousands)
Assets:
Cash $ 6,409 $ 5,086
Investment in subsidiary, at equity 41,363 37,998
Other assets 87 92
------- -------
Total assets $47,859 $43,176
======= =======
Liabilities and Stockholders' Equity:
Liabilities $ 370 241
Stockholders' equity 47,489 42,935
------- -------
Total liabilities and stockholders' equity $47,859 $43,176
======= =======
STATEMENTS OF INCOME
Year Ended December 31, 1996 1995 1994
------ ------ ------
(in thousands)
Income:
Dividends from subsidiary $1,544 $ 939 $ 300
Interest income from deposits in bank 253 216 131
Other income 12 12 46
------ ------ ------
Total income 1,809 1,167 477
Operating expenses 69 79 83
------ ------ ------
Income before income taxes and equity in
undistributed income of subsidiary 1,740 1,088 394
Income tax expense 89 66 38
------ ------ ------
Income before equity in undistributed
income of subsidiary 1,651 1,022 356
Equity in undistributed income of subsidiary 3,783 3,552 2,948
------ ------ ------
Net income $5,434 $4,574 $3,304
====== ====== ======
STATEMENTS OF CASH FLOWS
Year Ended December 31, 1996 1995 1994
------- ------- -------
(in thousands)
Cash flows from operating activities:
Net income $ 5,434 $ 4,574 $ 3,304
Adjustments to reconcile net income to
net cash provided by operating activities:
Undistributed income of subsidiary (3,783) (3,552) (2,948)
Depreciation and amortization 6 6 16
Increase in other assets (1) (3) --
Increase (decrease) in liabilities 129 (298) 52
------- ------- -------
Net cash provided by operating activities 1,785 727 424
------- ------- -------
Cash flows from investing activities:
------- ------- -------
Proceeds from transfer of premises -- -- 371
Cash flows from financing activities:
Stock options excercised 133 6 --
Cash dividends paid (595) (438) (361)
------- ------- -------
Net cash used by financing activities (462) (432) (361)
------- ------- -------
Net increase in cash 1,323 295 434
Cash at beginning of year 5,086 4,791 4,357
------- ------- -------
Cash at end of year $ 6,409 $ 5,086 $ 4,791
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income taxes $ 93 $ 70 $ 44
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INDEPENDENT AUDITORS' REPORT
KPMG Peat Marwick 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, 1996 and
1995, 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, 1996. 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 generally accepted
auditing standards. 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, 1996 and
1995, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1996 in
conformity with generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
January 10, 1997
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44
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors of the Company and their ages as of December 31, 1996 are as
follows:
NAME AGE POSITION
George R. Baldwin 53 Director, Century Bancorp, Inc., and Century Bank and Trust Co.,
Roger S. Berkowitz 44 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Karl E. Case, Ph. D. 50 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Henry L. Foster, D.V.M. 71 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Marshall I. Goldman, Ph. D. 66 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Russell B. Higley, Esquire 57 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Fraser Lemley 56 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Joseph P. Mercurio 48 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Gary L. Saunders, CHA 42 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Joseph J. Senna, Esquire 57 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Jonathan G. Sloane 38 Director and Senior Vice President, Century Bancorp, Inc.; Director
and Senior Executive Vice President, Century Bank and Trust Company
Marshall M. Sloane 70 Chairman, President and CEO, Century Bancorp, Inc., Chairman and
CEO, Century Bank and Trust Company
George F. Swansburg 54 Director and Executive Vice President, Century Bancorp, Inc.;
Director, President, and COO, Century Bank and Trust Company
George Traicoff 64 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
Jon Westling 54 Director, Century Bancorp, Inc., and Century Bank and Trust Co.
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45
Mr. Baldwin became a director of the Company in 1996. He has been a Director of
Century Bank and Trust Company since January 1995. Mr. Baldwin is President and
CEO of Arthur J. Gallagher & Co. of Massachusetts. Inc.
Mr. Berkowitz became a director of the Company in 1996. He was elected a
director of Century Bank/Suffolk in 1986 and has been a director of Century Bank
and trust Company since the banks merged in 1992. Mr. Berkowitz is President 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 March 1995. He is a Marion Butler McLean
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. For over 40
years he has been Chairman of the Board of Charles River Laboratories, Inc. He
is also Senior Vice President of Bausch & Lomb.
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
has been a Professor of Economics at Wellesley College since 1968 and Associate
Director of the Russian Research Center at Harvard University since 1975.
Mr. Higley became a director of the Company in 1996. He has been a director of
Century Bank and Trust Company since April 1986. Mr. Higley is an attorney.
Mr. Lemley became a director of the Company in 1996. He has been a director of
Century Bank and Trust Company since March 1988. Mr. Lemley is President of
Sentry Ford, Inc., and President of Sentry Lincoln-Mercury, Inc.
Mr. Mercurio became a director of the Company in 1991. He was formerly a
director of Century Bank and Trust Company from 1989 to 1991. He is an Executive
Vice President at Boston University.
Mr. Saunders 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. Saunders is Chairman and CEO
of the Saunders Hotel Group.
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.
Mr. Jonathan G. Sloane became a director of the Company in 1986 and was elected
Senior Vice President in 1995. He was President and a director of Century
Bank/Suffolk and became Treasurer in January 1987. He was an Assistant Vice
President at Century Bank and Trust Company from 1980 to 1983. He is currently
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 CEO since its organization in 1972. He founded Century Bank and
Trust Company in 1969 and is currently its Chairman and CEO.
Mr. Swansburg became a director of the Company in 1986 and was elected Executive
Vice President in 1995. He was President and a director of Century North Shore
Bank and Trust Company. He was Executive Vice President of BayBank Merrimack
Valley N.A. from 1981 to 1985. He is currently Director, President and COO of
Century Bank and Trust Company.
Mr. Traicoff became a director of the Company in 1996. He was elected a director
of Century North Shore Bank and Trust Company in April 1990 and has been a
director of Century Bank and Trust Company since the banks merged in 1992. Mr.
Traicoff is President of North Shore Community College.
Mr. Westling became a director of the Company in 1996. He has been a director of
Century Bank and Trust Company since April 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 Jonathan G.
Sloane is the son of Marshall M. Sloane. There were no arrangements or
understandings pursuant to which any director or executive officer was so
selected.
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46
The Company has a Compensation and Audit Committee. The Compensation Committee
is a committee of the Board of Directors composed of Joseph P. Mercurio as
Chairman, Henry L. Foster and Roger S. Berkowitz. It reviews the salaries of the
Company's officers and administers the Company's Supplemental Executive
Insurance/Retirement Income Plan, Incentive Compensation Plan and Stock Option
Plan.
The Audit Committee is composed of Joseph Senna, Chairman and George Traicoff,
Russell B. Higley and Jon Westling. It meets with KPMG Peat Marwick LLP,
independent certified public accountants, in connection with the annual audit of
the Company's financial statements and 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.
Directors not employed by the Company receive $100 per Board meeting attended
and $200 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. Unless otherwise noted, each of these officers has served as an
executive officer of the Company or its principal subsidiary for at least five
years.
Marshall M. Sloane Chairman, President and CEO; Chairman and CEO,
Century Bank and Trust Company.
George F. Swansburg Director and Executive Vice President; President
and COO, Century Bank and Trust Company.
Jonathan G. Sloane Director and Senior Vice President; Director and
Senior Executive Vice President, Century Bank and
Trust Company with responsibility for retail
banking and sales administration.
Paul V. Cusick, Jr. Vice President and Treasurer;
Executive Vice President, Chief Financial Officer
and Treasurer, Century Bank and Trust Company.
Mr. Cusick is 52 years of age.
Donald H. Lang Executive Vice President, Century Bank and Trust
Company with responsibility for lending. Mr. Lang
is 56 years of age.
William J. Sloboda Executive Vice President, Century Bank and Trust
Company with responsibility for operations.
Mr. Sloboda is 54 years of age.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
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.
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47
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 4% to 8% 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 at least 85% 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 1996, 1995 and 1994 are shown in the Summary Compensation Table.
STOCK INCENTIVE PLANS
One of the Compensation Committee's priorities is for executives to be
significant shareholders so that the interest of the executives are aligned with
the shareholders and decisions are made as owners of the Company. On March 10,
1987, the stockholders approved a Stock Option Plan (the "Option Plan") that the
Board of Directors adopted on February 24, 1987, that provides for grants of
options to purchase no more than 150,000 shares of Class A Common Stock. Options
may be granted, in the discretion of the Board of Directors, to officers and
other key employees of the Company. Options granted under the Option Plan may be
either incentive stock options as defined in the Internal Revenue Code or
non-qualified stock options. The Option Plan is administrated by the
Compensation Committee (whose members are ineligible to participate in the
Option Plan) which makes recommendations, based upon management's
recommendations, to the Board of Directors as to persons to whom options are to
be granted, the number of shares to be optioned 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 periods during which options are exercisable (no
more than ten years from the date of grants). In the event of a reorganization,
as defined in the Option Plan, the Board of Directors may terminate the exercise
period by giving 30 days notice to all participants, during which time all
outstanding options may be exercised. Options for 146,500 shares were granted in
1994.
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
1996 cash compensation for Mr. Sloane was $520,650 of which $413,400 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.
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48
Comparison of Five-Year
Cumulative Total Return.*
[LINE CHART]
Value of $100 Invested on December 31, 1991 at:
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
-------- -------- -------- -------- --------
Century 161.47 185.79 431.95 553.79 727.37
Nasdaq Banks 145.55 165.99 165.39 246.32 325.60
Nasdaq U.S. 116.38 133.60 130.59 184.67 227.16
* Assumes that the value of the investment in the Company's Common Stock and
each index was $100 on December 31, 1991 and that all dividends were
reinvested.
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49
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for fiscal years ending December 31, 1994, 1995 and
1996, the cash compensation paid by the Company and its subsidiaries, as well as
certain other compensation paid, accrued or granted for those years to the five
most highly compensated executive officers of the Company.
SUMMARY COMPENSATION TABLE
Long-Term Compensation
----------------------------------
Annual Compensation Awards Payouts
============================ ======== ================================== ===================== ========
Restricted Securities
Name Stock Underlying LTIP All Other
and Salary Bonus(1) Other Awards Options/ Payouts Compensation
Principal Position Year ($) ($) ($) ($) SARs (#) ($) ($)
- ---------------------------- -------- -------- -------- -------- -------- -------- -------- ------------
Marshall M. Sloane 1996 413,400 125,260 0 0 0 0 0
Chairman 1995 390,000 107,250 0 0 0 0 0
1994 386,756 65,625 0 0 0 0 0
George F. Swansburg 1996 183,800 45,582 0 0 0 0 0
President 1995 173,400 39,015 0 0 0 0 0
1994 158,112 15,750 0 0 0 0 0
Jonathan G. Sloane 1996 148,000 36,852 0 0 0 0 0
Senior Executive Vice 1995 140,000 31,500 0 0 0 0 0
President 1994 126,226 12,750 0 0 0 0 0
Donald H. Lang 1996 123,300 27,742 0 0 0 0 0
Executive Vice 1995 118,600 23,720 0 0 0 0 0
President 1994 114,292 11,400 0 0 0 0 0
William J. Sloboda 1996 145,000 29,000 0 0 0 0 0
Executive Vice 1995 141,900 28,380 0 0 0 0 0
President 1994 136,482 13,650 0 0 0 0 0
============================ ======== ======== ======== ======== ======== ======== ======== ========
(1) Bonus amounts are based on performance for the years shown.
STOCK OPTION PLAN
The Company has granted incentive stock options to purchase 126,500 shares of
Class A Common Stock, at 100% of the January 19, 1994 closing price of $3.75 per
share, to 18 officers and employees. The Company also granted incentive stock
options to purchase 20,000 shares of Class A Common Stock at $4.125 to Marshall
M. Sloane. Options granted to the aforementioned officers are as follows.
NAME OF INDIVIDUAL NUMBER OF SHARES
- ------------------ ----------------
Marshall M. Sloane 20,000
George F. Swansburg 20,000
Donald H. Lang 15,000
Jonathan G. Sloane 16,000
William J. Sloboda 16,000
Options for the eighteen participants have six year terms and become exercisable
in increments of 33.3% of the shares covered thereby per year, commencing in
January of 1995. Mr. Sloane's options have five year terms.
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50
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 $2,067,000, $919,000, $616,500, $740,000,
$725,000 for Messrs. Marshall M. Sloane, Swansburg, Lang, Jonathan G. Sloane and
Sloboda.
Premiums paid by the Company in 1996 amounted to $87,800, $31,700, $27,600,
$8,300, $28,400, for policies on the lives of Messrs. Marshall M. Sloane,
Swansburg, Lang, Jonathan G. Sloane and Sloboda. 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 the policies and each participant has the right to name a
beneficiary. 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 60 months salary for certain executives, or 66% of such salary if the
participants are Senior Vice Presidents and equivalents (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
Average Compensation Annual Benefit
- -------------------- --------------
$ 50,000 $ 37,500
100,000 75,000
150,000 112,500
200,000 150,000
250,000 187,500
300,000 225,000
As of January 1, 1996, Messrs. Marshall M. Sloane, Swansburg, Lang, Jonathan G.
Sloane, and Sloboda were 100%, 70.0%, 77.5%, 100%, and 100% vested,
respectively, under the Supplemental Plan.
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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, 1996 (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.
NUMBER OF BENEFICIAL
OWNER & ADDRESS OR NUMBER CLASS A % A CLASS B % B
OF PERSONS IN GROUP OWNED OWNED OWNED OWNED
- ------------------- ----- ----- ----- -----
Marshall M. Sloane,(i),(ii) 15,816(1) 0.47% 1,714,330(2) 74.53%
400 Mystic Ave
Medford, MA 02155
George R. Baldwin,(ii) 5,502 0.16%
Roger S. Berkowitz,(ii) 1,820 0.05%
Karl E. Case,(ii) 262 0.01%
Paul V. Cusick, Jr., (ii) 4,200 0.12%
Henry L. Foster, D.V.M.,(i),(ii) 352,543(3) 10.26% 1,000 0.04%
Marshall I. Goldman,(ii) 144(4) 0.00% 30,000(5) 1.30%
Russell B. Higley, Esquire,(ii) 4,315 0.12%
Donald H. Lang,(ii) 3,600 0.10%
Fraser Lemley,(ii) 822 0.02%
Joseph P. Mercurio,(ii) 1,038 0.03%
Gary L. Saunders, CHA,(ii) 363 0.01%
Joseph J. Senna,(ii) 2,693 0.08% 42,000(6) 1.83%
Jonathan G. Sloane,(ii) 500 0.01% 60,000 2.61%
William J. Sloboda,(ii) 5,000 0.14% 500 0.02%
George F. Swansburg,(ii) 17,100 0.49%
George Traicoff,(ii) 655 0.02%
Jon Westling,(ii) 294 0.01%
All directors and officers as a group
(19 in number),(iii) 419,267 12.12% 1,847,930 80.34%
(1) Includes 2,500 shares owned by Mrs. Sloane and also includes 13,316
shares held in trust for Mr. Sloane's grandchildren.
(2) Includes 1,500 shares owned by Mrs. Sloane, and does not include
120,000 shares owned by Mr. Sloane's children. Mr. Sloane disclaims
beneficial ownership of such 121,500 shares.
(3) Includes 333,129 shares held in trust for Mr. Foster's children.
(4) Does not include 9,000 shares held of record by Mr. Goldman's children;
Mr. Goldman disclaims beneficial ownership of such shares.
(5) Does not include 9,000 shares held of record by Mr. Goldman's children;
Mr. Goldman disclaims beneficial ownership of such shares.
(6) Includes 34,800 shares owned by Mrs. Senna.
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 corporation believes
that, during 1996, all Section 16(a) filing requirements applicable to its
Executive Officers and Directors were complied with, except that reports
relating to sales of stock owned indirectly by a director were filed late and
one report was filed late by an Executive Officer relating to the exercise of
stock options.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
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, 1996 and 1995
Consolidated Statements of Income -- Years Ended December 31,
1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity
-Years ended December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows-Years Ended December 31,
1996, 1995 and 1994
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
Those exhibits required by Item 601 of Regulation S-K and by
paragraph (c) below previously filed.
(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.
Required exhibits previously filed
(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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53
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 11th day of March
1997.
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
- ----------------------------------- ----------------------------------------
George R. Baldwin, Director George Traicoff, Director
/s/Roger S. Berkowitz /s/Jon Westling
- ----------------------------------- ----------------------------------------
Roger S. Berkowitz, Director Jon Westling, Director
/s/Karl E. Case /s/Jonathan G. Sloane
- ----------------------------------- ----------------------------------------
Karl E. Case, Ph.D., Director Jonathan G. Sloane, Director and
Senior Vice President
/s/Marshall M. Sloane
- ----------------------------------- ----------------------------------------
Henry L. Foster, D.V.M., Director Marshall M. Sloane, Chairman,
President and Chief Executive Officer
/s/Marshall I. Goldman /s/George F. Swansburg
- ----------------------------------- ----------------------------------------
Marshall I. Goldman, Ph.D., Director George F. Swansburg, Director and
Executive Vice President
/s/Russell B. Higley /s/Paul V. Cusick
- ----------------------------------- ----------------------------------------
Russell B. Higley, Esquire, Director Paul V. Cusick, Jr., Vice President and
Treasurer, Principal Financial Officer
/s/Fraser Lemley /s/Kenneth A. Samuelian
- ----------------------------------- ----------------------------------------
Fraser Lemley, Director Kenneth A. Samuelian, Vice President,
Controller and Compliance Officer,
Century Bank and Trust Company Principal
Accounting Officer
/s/Joseph P. Mercurio
- -----------------------------------
Joseph P. Mercurio, Director
- -----------------------------------
Gary L. Saunders, CHA, Director
/s/Joseph J. Senna
- -----------------------------------
Joseph J. Senna, Esquire, Director
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