UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 2002 .
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from .
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Commission file number 0-15752 .
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CENTURY BANCORP, INC.
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(Exact name of registrant as specified in its charter)
COMMONWEALTH OF MASSACHUSETTS 04-2498617
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 MYSTIC AVENUE, MEDFORD, MA 02155
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(Address of principal executive offices) (Zip Code)
(781) 391-4000 .
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15 (d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
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Indicate the number of shares outstanding of each of the registrant's classes of
common stock as of March 31, 2002:
CLASS A COMMON STOCK, $1.00 PAR VALUE 3,391,170 SHARES
CLASS B COMMON STOCK, $1.00 PAR VALUE 2,124,730 SHARES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATE: MAY 13, 2002 CENTURY BANCORP, INC
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/s/ PAUL V. CUSICK JR. /s/ KENNETH A. SAMUELIAN
- ---------------------------------- ----------------------------------
PAUL V. CUSICK, JR. KENNETH A. SAMUELIAN
VICE PRESIDENT AND TREASURER VICE PRESIDENT
(PRINCIPAL FINANCIAL OFFICER) CENTURY BANK AND TRUST COMPANY
(CHIEF ACCOUNTING OFFICER)
1 of 12
Century Bancorp, Inc.
Page
Index Number
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PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets:
March 31, 2002 and December 31, 2001 3
Consolidated Statements of Income:
Three (3) Months Ended March 31, 2002 and
2001. 4
Consolidated Statements of Changes in Stockholders'
Equity: Three (3) months ended March 31, 2002 and
2001. 5
Consolidated Statements of Cash Flows:
Three (3) months ended March 31, 2002 and 2001. 6
Notes to Consolidated Financial Statements 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 8-11
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK 12
PART II. OTHER INFORMATION
Item 1 through Item 6 12
2 of 12
PART I - Item 1
Century Bancorp, Inc. - Consolidated Balance Sheets
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(000's) (unaudited)
March 31, Dec. 31,
ASSETS 2002 2001
- ---------- ------------ ----------
Cash and due from banks $ 46,188 $ 71,820
Federal funds sold and interest-bearing deposits in
other banks 17 106,013
---------- ----------
Total cash and cash equivalents 46,205 177,833
---------- ----------
Securities available-for-sale, amortized cost $552,288
and $455,575, respectively 551,002 460,833
Securities held-to-maturity, market value $129,430 and
$145,237, respectively 127,986 142,608
Loans, net of unearned discount:
Commercial & industrial 49,465 59,162
Construction & land development 37,315 39,256
Commercial real estate 250,184 241,419
Residential real estate 92,593 88,450
Consumer & other 8,164 8,469
Home equity 29,963 26,016
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Total loans, net of unearned discount 467,684 462,772
Less: allowance for loan losses 7,444 7,112
---------- ----------
Net loans 460,240 455,660
Bank premises and equipment, net 11,751 11,882
Accrued interest receivable 8,978 7,561
Goodwill, net of amortization 2,717 2,717
Core Deposit Intangible 117 167
Other assets 13,783 11,761
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Total assets $1,222,779 $1,271,022
========== ==========
LIABILITIES
- -----------
Deposits:
Demand deposits $ 212,186 $ 227,319
Savings and NOW deposits 199,893 187,676
Money market accounts 272,865 242,665
Time deposits 183,902 230,748
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Total deposits 868,846 888,408
Securities sold under agreements to repurchase 66,440 72,840
Federal Home Loan Bank (FHLB) borrowings and other
borrowed funds 157,674 143,481
Other liabilities 18,157 52,944
Long term debt 28,750 28,750
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Total liabilities 1,139,867 1,186,423
STOCKHOLDERS' EQUITY
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Class A common stock, $1.00 par value per share;
authorized 10,000,000 shares; issued 3,774,770 and
3,761,020, respectively 3,775 3,761
Class B common stock, $1.00 par value per share;
authorized 5,000,000 shares; issued 2,172,280 and
2,185,480, respectively 2,173 2,186
Additional paid-in capital 11,101 11,093
Retained earnings 72,680 70,123
Treasury stock, Class A, 383,600 and 383,600 shares,
at cost, respectively (5,941) (5,941)
Treasury stock, Class B, 47,550 shares, each period,
at cost, respectively (41) (41)
---------- ----------
83,747 81,181
Accumulated other comprehensive gain (loss), net of taxes (835) 3,418
---------- ----------
Total stockholders' equity 82,912 84,599
---------- ----------
Total liabilities and stockholders' equity $1,222,779 $1,271,022
========== ==========
See accompanying Notes to Consolidated Financial Statements. 3 of 12
Century Bancorp, Inc. - Consolidated Statements of Income (unaudited)
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(000's except share data) Three months ended March 31,
2002 2001
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Interest income
Loans $ 8,587 $ 9,712
Securities held-to-maturity 1,959 2,576
Securities available-for-sale 6,095 4,428
Federal funds sold and interest-bearing deposits
in other banks 141 559
--------- -----------
Total interest income 16,782 17,275
Interest expense
Savings and NOW deposits 585 901
Money market accounts 1,025 797
Time deposits 1,909 3,650
Securities sold under agreements to repurchase 189 657
FHLB borrowings, other borrowed funds and long
term debt 2,098 1,772
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Total interest expense 5,806 7,777
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Net interest income 10,976 9,498
Provision for loan losses 300 375
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Net interest income after provision
for loan losses 10,676 9,123
Other operating income
Service charges on deposit accounts 1,077 709
Lockbox fees 887 830
Brokerage commissions 267 340
Other income 217 202
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Total other operating income 2,448 2,081
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Operating expenses
Salaries and employee benefits 5,223 4,482
Occupancy 571 559
Equipment 539 441
Other 2,035 1,700
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Total operating expenses 8,368 7,182
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Income before income taxes 4,756 4,022
Provision for income taxes 1,752 1,476
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Net income $3,004 $2,546
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Share data:
Weighted average number of shares outstanding, basic 5,515,350 5,547,350
Weighted average number of shares outstanding, diluted 5,526,697 5,547,350
Net income per share, basic $0.54 $0.46
Net income per share, diluted $0.54 $0.46
Cash dividends declared:
Class A common stock $0.1000 $0.0900
Class B common stock $0.5000 $0.0450
See accompanying Notes to Consolidated Financial Statements.
4 of 12
Century Bancorp, Inc. - Consolidated Statement of Changes in Stockholders' Equity (unaudited)
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Accumulated
Class A Class B Additional Treasury Treasury Other Total
Common Common Paid-In Retained Stock Stock Comprehensive Stockholders'
Stock Stock Capital Earnings Class A Class B Income (Loss) Equity
------- ------- ------- -------- -------- -------- ------------- -------------
(000's)
2001
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Balance at December 31, 2000 $3,755 $2,192 $11,093 $60,916 ($5,242) ($41) ($1,167) $71,506
Net income -- -- -- 2,546 -- -- -- 2,546
Other comprehensive income, net of tax:
Change in unrealized (loss) gain on
securities available-for-sale -- -- -- -- -- -- 2,625 2,625
-------
Comprehensive income 5,171
Conversion of Class B common stock to
Class A common stock, 6,300 shares 6 (6)
Treasury stock repurchases, 10,000 shares -- -- -- -- (178) -- -- (178)
Cash dividends, Class A common stock,
$.09 per share -- -- -- (307) -- -- -- (307)
Cash dividends, Class B common stock,
$.045 per share -- -- -- (96) -- -- -- (96)
------ ------ ------- ------- ------- ---- ------ -------
Balance at March 31, 2001 $3,761 $2,185 $11,093 $63,059 ($5,420) ($41) $1,458 $76,096
====== ====== ======= ======= ======= ==== ====== =======
2002
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Balance at December 31, 2001 $3,761 $2,186 $11,093 $70,123 ($5,941) ($41) $3,418 $84,599
Net income -- -- -- 3,004 -- -- -- 3,004
Other comprehensive income, net of tax:
Change in unrealized (loss) gain on
securities available-for-sale -- -- -- -- -- -- (4,253) (4,253)
-------
Comprehensive income (1,249)
Conversion of Class B common stock to
Class A common stock, 13,200 shares 13 (13) -- -- -- -- -- --
Stock Options Exercised, 550 shares 1 -- 8 -- -- -- -- 9
Cash dividends, Class A common stock,
$.10 per share -- -- -- (340) -- -- -- (340)
Cash dividends, Class B common stock,
$.05 per share -- -- -- (107) -- -- -- (107)
------ ------ ------- ------- ------- ---- ----- -------
Balance at March 31, 2002 $3,775 $2,173 $11,101 $72,680 ($5,941) ($41) ($835) $82,912
====== ====== ======= ======= ======= ==== ===== =======
See accompanying Notes to Consolidated Financial Statements.
5 of 12
Century Bancorp, Inc. - Consolidated Statements of Cash Flows (unaudited) 2002 2001
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For the three months ended
March 31,
(000's)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,004 $ 2,546
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 300 375
Deferred income taxes (234) (232)
Net depreciation and amortization 481 459
(Increase) decrease in accrued interest receivable (1,417) 515
Increase in other assets (2,168) (347)
Proceeds from sales of loans 6 26
Gain on sale of securities -- (27)
Increase in other liabilities 1,713 210
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Net cash provided by operating activities 1,685 3,525
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CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available-for-sale 54,014 31,518
Purchase of securities available-for-sale (150,693) (65,920)
Proceeds from maturities of securities held-to-maturity 22,582 21,445
Purchase of securities held-to-maturity (7,970) (10,453)
(Decrease) increase in payable for investments purchased (33,976) 2,000
Net increase in loans (4,768) (3,671)
Capital expenditures (295) (645)
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Net cash used in investing activities (121,106) (25,726)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in time deposits (46,846) (43,500)
Net increase (decrease) in demand, savings, money market and NOW deposits 27,284 (9,692)
Net proceeds from the issuance of common stock 9 --
Treasury stock repurchases -- (178)
Cash dividends (447) (403)
Net decrease in securities sold under agreements to repurchase (6,400) (3,749)
Net increase (decrease) in FHLB borrowings and other borrowed funds 14,193 (6,132)
-------- -------
Net cash used in financing activities (12,207) (63,654)
-------- -------
Net decrease in cash and cash equivalents (131,628) (85,855)
Cash and cash equivalents at beginning of year 177,833 175,802
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Cash and cash equivalents at end of period $ 46,205 $89,947
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $5,375 $8,587
Income taxes 175 (992)
Change in unrealized losses on securities available-for-sale, net
of taxes ($4,253) $2,625
See accompanying Notes to Consolidated Financial Statements.
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Century Bancorp, Inc.
Notes to Consolidated Financial Statements
BASIS OF PRESENTATION In the opinion of management, the accompanying
unaudited interim consolidated financial statements
reflect all adjustments, consisting of normal
recurring adjustments, which are necessary to present
a fair statement of the results for the interim
period presented of Century Bancorp, Inc. (the
"Company") and its wholly owned subsidiary, Century
Bank and Trust Company (the "Bank"). The results of
operations for the interim period ended March 31,
2002, are not necessarily indicative of results for
the entire year. It is suggested that these
statements be read in conjunction with the
consolidated financial statements and the notes
thereto included in the Company's Annual Report on
Form 10K for the year ended December 31, 2001.
The financial statements have been prepared in
conformity with accounting principles generally
accepted in the United States of America and to
general practices within the banking industry. In
preparing the financial statements, management is
required to make estimates and assumptions that
affect the reported amounts of assets and liabilities
as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ
from those estimates.
Material estimates that are susceptible to change in
the near-term relate to the allowance for losses on
loans. Management believes that the allowance for
losses on loans is adequate based on independent
appraisals and review of other factors associated
with the assets. While management uses available
information to recognize losses on loans, future
additions to the allowance for loans may be necessary
based on changes in economic conditions. In addition,
regulatory agencies periodically review the Company's
allowance for losses on loans. Such 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.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the
accounts of the Company and its wholly owned
subsidiary, the Bank. The Company provides a full
range of banking services to consumer, business and
municipal customers in Massachusetts. As a bank
holding company, the Company is subject to the
regulation and supervision of the Federal Reserve
Board. The Bank, a state chartered financial
institution, is subject to supervision and regulation
by applicable state and federal banking agencies,
including the Federal Reserve Board, the Federal
Deposit Insurance Corporation (the "FDIC"), and the
Massachusetts Division of Banks.
The Bank is also subject to various requirements and
restrictions under federal and state law, including
requirements to maintain reserves against deposits,
restrictions on the types and amounts of loans that
may be granted and the interest that may be charged
thereon, and limitations on the types of investments
that may be made and the types of services that may
be offered. Various consumer laws and regulations
also affect the operations of the Bank. In addition
to the impact of regulation, commercial banks are
affected significantly by the actions of the Federal
Reserve Board as it attempts to control the money
supply and credit availability in order to influence
the economy. All aspects of the Company's business
are highly competitive. The Company faces aggressive
competition from other lending institutions and from
numerous other providers of financial services.
Page 7 of 12
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
OVERVIEW For the quarter ended and year-to-date ended March
31, 2002.
Earnings for the first quarter ended March 31, 2002
were $3.0 million, an increase of 18.0% when compared
with the first quarter 2001 earnings of $2.5 million.
Diluted earnings per share for the first quarter 2002
were $0.54 versus $0.46 for the first quarter of
2001. The increase was mainly attributable to average
balance sheet growth.
Total assets were $1.22 billion at March 31, 2002
compared to $1.27 billion at December 31, 2001. The
reduction was mainly attributable to seasonal
municipal deposit levels.
During the third quarter of 2001, the Company
announced plans to continue its stock repurchase
plan. Under the program, the Company is authorized to
repurchase up to 300,000 shares, or less than 9% of
Century Bancorp Class A Common Stock. Through the end
of the first quarter of 2002 the Company has
repurchased 25,000 shares under the current plan. The
program expires on July 15, 2002.
FINANCIAL CONDITION
LOANS On March 31, 2002 total loans outstanding, net of
unearned discount, were $467.7 million, an increase
of 1.1% from the total on December 31, 2001. At March
31, 2002 commercial real estate loans accounted for
53.5% and residential real estate loans, including
home equity credit lines, accounted for 26.2% of
total loans. Construction loans decreased to $37.3
million at March 31, 2002 from $39.3 million on
December 31, 2001.
The increase in loans was partly attributable to
residential real estate loans, including home equity
credit lines. Also, originations of corporate loans
reflect the Company's interest for this type of loan.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses was 1.59% of total
loans on March 31, 2002 compared with 1.54% on
December 31, 2001. Net recoveries for the three-month
period ended March 31, 2002 were $32 thousand
compared with net recoveries of $87 thousand for the
same period in 2001.
Page 8 of 12
Management's Discussion and Analysis of Financial Condition and Results of
Operation (con't.)
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.
NONPERFORMING LOANS
March 31, 2002 December 31, 2001
-------------- -----------------
(Dollars in Thousands)
Nonaccruing loans $701 $423
Loans past due 90 days
or more $ 8 $ 9
Nonaccuring loans as a
Percentage of total loans .15% .09%
INVESTMENTS Management continually evaluates its investment
alternatives in order to properly manage the overall
balance sheet mix. The timing of purchases, sales and
reinvestments, if any, will be based on various
factors including expectation of movements in market
interest rates, deposit flows and loan demand.
Notwithstanding these events, it is the intent of
management to grow the earning asset base through
loan originations, loan purchases or investment
acquisitions while funding this growth through a mix
of retail deposits, FHLB advances, and retail
repurchase agreements.
March 31, 2002 December 31, 2001
-------------- -----------------
(Dollars in Thousands)
Securities Available-for-Sale
-----------------------------
U.S. Government and
Agencies $502,915 $411,004
Other Bonds and Equity Securities 19,034 19,668
Mortgage-backed Securities 29,053 30,161
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Total Securities Available-for-Sale $551,002 $460,833
======== ========
Securities Held-to-Maturity
---------------------------
U.S. Government and
Agencies $ 79,360 $ 85,386
Other Bonds and Equity Securities 25 25
Mortgage-backed Securities 48,601 57,197
-------- --------
Total Securities Held-to-Maturity $127,986 $142,608
======== ========
Page 9 of 12
Management's Discussion and Analysis of Financial
Condition and Results of Operation
(con't.)
SECURITIES AVAILABLE-FOR-SALE
The securities available-for-sale portfolio totaled
$551.0 million at March 31, 2002, an increase of
19.6% from December 31, 2001. The portfolio is
concentrated in United States Treasury and Agency
securities and has an estimated weighted average
maturity of 3.5 years.
SECURITIES HELD-TO-MATURITY
The securities held-to-maturity portfolio totaled
$128.0 million on March 31, 2002, a decrease of 10.3%
from the total on December 31, 2001. The portfolio is
concentrated in United States Treasury and Agency
securities, including Mortgage Backed Securities and
has an estimated weighted average maturity of 3.0
years.
DEPOSITS AND BORROWED FUNDS
On March 31, 2002 deposits totaled $868.8 million,
representing a 2.2% decrease in total deposits from
December 31, 2001. Total deposits decreased primarily
as a result of seasonal municipal deposit levels.
Borrowed funds totaled $224.1 million compared to
$216.3 million at December 31, 2001.
RESULTS OF OPERATIONS
NET INTEREST INCOME
For the three-month period ended March 31, 2002 net
interest income totaled $11.0 million, an increase of
15.6% from the comparable period in 2001. The
increase in net interest income, for the three period
was primarily attributed to an increase in the
average balances of earning assets combined with a
similar increase in deposits and borrowed funds. A
more favorable mix of deposits also contributed to
the increase in net interest income. The net yield on
average earning assets on a fully taxable equivalent
basis decreased to 3.96% in the first three months of
2002 from 4.08% during the same period in 2001.
SELECTED COMPONENTS OF CHANGES IN VOLUME AND RATE
(Year-to-date averages in thousands) Change in Change in
Volume Rate
--------- ---------
Earning Assets:
Securities $ 163,946 (.96)%
Total Loans 17,637 (1.34)%
Deposits, Borrowed Funds
and Long-Term Debt:
Demand Deposits $18,948 --
Total Interest Bearing Deposits 109,117 (1.85)%
Borrowed Funds and
Long-Term Debt 46,543 (1.34)%
Page 10 of 12
Management's Discussion and Analysis of Financial
Condition and Results of Operation
(con't.)
PROVISION FOR LOAN LOSSES
For the three-month period ended March 31, 2002 the
loan loss provision totaled $300 thousand compared to
$375 thousand for the same period last year. Loan
loss provision decreased because of the relative
adequacy in the loan loss reserve. The Company's loan
loss allowance as a percentage of total loans
outstanding has increased from 1.54% at December 31,
2001 to 1.59% at March 31, 2002.
NON-INTEREST INCOME AND EXPENSE
Other operating income for the three-month period
ended March 31, 2002 was $2.4 million compared to
$2.1 million for the first quarter of 2001. The
increase was mainly attributable to an increase of
$368 thousand in service charges on deposit accounts.
This increase was partially offset by a decrease of
$73 thousand from brokerage commissions. During the
three-month period ended March 31, 2002, operating
expenses increased by $1,186 thousand to $8.4 million
or 16.5% from the same period last year. Most of the
increase was in compensation expense associated with
increased staff levels as well as merit increases in
salaries and employee benefits with the remainder in
equipment and all other expenses.
INCOME TAXES
For three-month period ended March 31, 2002, the
Company's income taxes totaled $1.8 million on pretax
income of $4.8 million for an effective tax rate of
36.8%. For last year's corresponding three-month
period ended, the Company's income taxes totaled $1.5
million on pretax income of $4.0 million for an
effective rate of 36.7%.
Page 11 of 12
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK
The response is incorporated herein by reference from
the discussion under the sub caption "Market Risk and
Asset Liability Management" of the caption
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" on page 12 of
the Annual Report which is incorporated herein by
reference.
PART II - OTHER INFORMATION
Item 1 Legal proceedings - The Company is not engaged in any
legal proceedings of a material nature at the present
time. From time to time, the Company is party to
routine legal proceedings within the normal course of
business. Such routine legal proceedings, in the
aggregate, are believed by management to be
immaterial to the Company's financial condition and
results of operation.
Item 2 Change in securities - Not applicable
Item 3 Defaults upon senior securities - Not applicable
Item 4 Submission of matters to a vote - Not applicable
Item 5 Other information - Not applicable
Item 6 Exhibits and reports on form 8-K - Not applicable
12 of 12